Fair Value Measurements

Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs used to measure fair value into three levels, giving the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.


•	Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.


•	Level 3—Inputs that are unobservable for the asset or liability.

The unobservable inputs in Level 3 can only be used to measure fair value to the extent that observable inputs in Level 1 and Level 2 are not available. The following table represents the Company's fair value hierarchy as of November 29, 2014, and August 30, 2014, for items required to be measured at fair value on a recurring basis:



	November 29, 2014
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	3,903	$	3,903	$	—	$	—
Investment securities:
Short-term bond mutual fund	4,003		4,003		—		—
Restricted cash and investments: ⁽¹⁾
Money market funds	59		59		—		—
Municipal debt securities	33,418		—		33,418		—
Corporate debt securities	571		571		—		—
Other assets:
Mutual funds ⁽²⁾	18,646		18,646		—		—



	August 30, 2014
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	2,502	$	2,502	$	—	$	—
Investment securities:
Auction rate securities	4,800		—		—		4,800
Short-term bond mutual fund	4,000		4,000		—		—
Restricted cash and investments: ⁽¹⁾
Money market funds	46		46		—		—
Municipal debt securities	34,398		—		34,398		—
Other assets:
Mutual funds ⁽²⁾	19,689		19,689		—		—

⁽¹⁾

As of November 29, 2014, restricted cash and investments of $30.9 million and $3.1 million were included in Restricted Cash and Investments and Other Assets, respectively, in the Consolidated Condensed Balance Sheet. As of August 30, 2014, restricted cash and investments of $31.4 million and $3.0 million were included in Restricted Cash and Investments and Other Assets, respectively, in the Consolidated Balance Sheet.


⁽²⁾	Represents assets held pursuant to a deferred compensation plan for certain key management employees. The Company has recorded a corresponding liability related to the deferred compensation plan in an amount equivalent to the assets above. The liability for the deferred compensation plan is recorded in Other Liabilities on the Consolidated Balance Sheets.

On a non-recurring basis, the Company adjusts certain Property and Equipment to fair value through impairment charges. Property and Equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. The fair value of the Property and Equipment is determined based on a discounted cash flow analysis using Level 3 inputs. The Company estimates future cash flows based on historical experience and its expectations of future performance. Impairment charges were not material during the first quarter of fiscal 2015 or during the first quarter of fiscal 2014.

Level 2 Inputs

All assets classified as Level 2 are valued using matrix pricing. The Company believes that while the assets valued using Level 2 inputs currently trade in active markets and prices could be obtained for identical assets, the classification of these investments as Level 2 is more appropriate when matrix pricing is used.

Auction Rate Securities

During the first quarter of fiscal 2015, the Company settled its remaining $4.8 million auction rate securities ("ARS") portfolio, which included tax-exempt bonds collateralized by federally guaranteed student loans, at par. During the first quarter of fiscal 2014, the Company liquidated $2.7 million par value of its ARS portfolio.

The ARS portfolio was valued using Level 3 inputs due to continued issues in the global credit and capital markets causing sustained failed auctions and uncertainty surrounding the timing of future liquidity. For the past several years, the Company was able to liquidate its ARS portfolio, at or close to par value, when any of the following events occurred: a buyer was found outside the auction process, the securities were called or refinanced by the issuer, or the underlying securities matured.

The Company had no temporary gross unrealized loss during the first quarter of fiscal 2015 and had a temporary gross unrealized loss of $2.4 million during the first quarter of fiscal 2014 related to its ARS portfolio. Changes in the unrealized loss were included in Accumulated Other Comprehensive Loss within Shareholders' Equity on the Consolidated Condensed Balance Sheets.

The fair value of each security was determined through the use of a discounted cash flow analysis using Level 3 inputs because there was no active market for the Company's ARS portfolio. The two most significant unobservable inputs used in the analysis were as follows:


•	The weighted-average expected term to liquidate the securities. The assumption used in the analysis was based on the Company's estimate of the timing of future liquidity, which assumed the securities would be called or refinanced by the issuer or repurchased by the broker dealers prior to maturity.


•	The illiquidity factor applied to the discount rate. The assumption used in the analysis was based on market rates for similar liquid tax-exempt securities with comparable ratings and maturities. Due to the uncertainty surrounding the timing of future liquidity, a factor was applied to the discount rates to reflect the illiquidity of the investments.

The inputs used in the Company's analysis were sensitive to market conditions, and the Company's valuation of its ARS portfolio changed based on the assumptions used. The Company also evaluated each of its ARS for other-than-temporary impairment based on an analysis of the credit rating and parity ratio of each security. The parity ratio is the ratio of trust assets available for distribution to creditors to the trust obligations to those creditors. Based on these factors, the Company concluded there was no other-than-temporary impairment during the first quarter of fiscal 2015 or the first quarter of fiscal 2014.

The following tables summarize the change in the fair value of the Company's ARS portfolio measured using Level 3 inputs during the first quarter of fiscal 2015 and the first quarter of fiscal 2014:



	13 Weeks Ended			13 Weeks Ended
(in thousands)	November 29, 2014			November 30, 2013
Beginning Balance - Level 3 inputs	$	4,800		$	22,977
Sales	(4,800		)	(2,579		)
Realized loss on sale of investments	—			(121		)
Net unrealized gain included in other comprehensive income	—			288
Ending Balance - Level 3 inputs	$	—		$	20,565

Additional Fair Value Disclosures

The estimated fair value of the Company's current and long-term debt was $505.9 million as of November 29, 2014, and $530.4 million as of August 30, 2014. The Company has both public notes and private placement notes. The fair value for the public notes is determined using Level 1 inputs as quoted prices in active markets for identical assets or liabilities are available. The fair value of the portion of the debt that are private placement notes is determined through the use of a discounted cash flow analysis using Level 3 inputs as there are no quoted prices in active markets for these notes. The discount rate used in the analysis was based on borrowing rates available to the Company for debt of the same remaining maturities, issued in the same private placement debt market. The fair value of the Company's current and long-term debt was greater than the carrying value of the debt by $21.6 million as of November 29, 2014, and $30.0 million as of August 30, 2014.