Fair Value Measurements

9 Months Ended

Jan. 25, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 17.  Fair Value Measurements

Fair value is defined as the exit price, or the price that we would receive upon selling our assets in an orderly transaction with another market participant at the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value. The hierarchy is broken down into three levels defined as follows:

—	Level 1	– Inputs are quoted prices in active markets for identical assets.
—	Level 2	– Inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset, either directly or indirectly.
—	Level 3	– Inputs are unobservable inputs for the asset.

Observable inputs are inputs market participants would use in valuing the asset based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing our asset and are developed based on the best information available in the circumstances. The categorization of assets within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. Level 3 financial assets include investment securities for which there is limited market activity such that the determination of fair value requires significant judgment or estimation. We have had no transfers of our investments between levels during the thirty-nine weeks ended January 25, 2013 and January 27, 2012.

The following are the classes of assets and liabilities measured at fair value at January 25, 2013, on a recurring basis, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):  

		Fair Value Measurements Using Inputs Considered, as of January 25, 2013
		Level 1		Level 2		Level 3		Total
Assets:
Convertible debt security	$	-	$	-	$	1,450,000	$	1,450,000

Investment in Convertible Debt Security.

In August 2010, we purchased a convertible debt security issued by NeuroVista. This security is considered ‘available-for-sale’, which we measure at fair value.  At April 27, 2012, we estimated that the carrying cost, which consisted of the initial investment of $5.0 million plus accumulated unpaid interest, was equal to fair value. During the quarter ended July 27, 2012, we determined that the fair value of this investment was less than the carrying value and that the resulting impairment loss was other-than-temporary. We stopped accruing interest income for this investment on April 28, 2012 and have forgone interest accruals during the thirty-nine weeks ended January 25, 2013 of $0.2 million. During quarter ended October 26, 2012, NeuroVista advised us that an event of default had occurred under the terms of the convertible debt security, and we negotiated an agreement with NeuroVista pursuant to which NeuroVista granted us a security interest in all of its assets and we agreed to forbear in exercising our rights and remedies under the terms of the security agreement until December 17, 2012. On February 11, 2013, we delivered a notice to NeuroVista advising that we will conduct a foreclosure sale of the assets subject to our security interest.  The inputs to our fair value assessment fell into Level 3 of the fair value hierarchy, as this investment was issued by a privately-held entity without quoted market prices. We used all financial information available to us related to the investee, including financial statements, credit reports, results of financing rounds, results of clinical trials and significant changes in the regulatory or technological environment of the investee. We estimated the fair value of the debt instrument at $1,450,000, which represents the fair value of the underlying assets, including intellectual property, clinical data, capital equipment and proprietary software. See “Note 7. Long-Term Investments” for further information regarding our investments in this convertible debt security.

The following table provides a reconciliation of the beginning and ending balance of the NeuroVista convertible debt instrument measured at fair value on a recurring basis for which we used significant unobservable inputs (Level 3):

	For the Thirty-Nine Weeks Ended
	January 25,		January 27,
	2013		2012
Beginning Balance	$	5,508,768	$	5,209,590
Net purchases and settlements		-		-
Interest accrual		-		224,384
Transfers in/(out) of Level 3		-		-
Other-than-temporary impairment included in net income		(4,058,768)		-
Unrealized gains/(losses) included in other comprehensive income		-		-
Ending Balance	$	1,450,000	$	5,433,974

Warrants’ liability. We reclassed the first 40 tranches of our 60 tranche warrant from common stock warrants to warrants’ liability at fair value of $3.6 million during the quarter ended October 26, 2012, refer to “Note 8. Warrants” for further information. Fair value was determined using a Black Scholes valuation model with the following Level 2 inputs; the warrant settlement periods, a risk-free interest rate of 0.13% and a volatility factor of 25.0% derived from our stock price movements. At October 26, 2012, we revalued the warrants’ liability to $2.3 million based on cash settlement results under the warrant settlement provisions, which resulted in a gain in our consolidated statement of income of $1.3 million.

Investment in Equity Securities. Our investments in equity securities consist of the preferred stock of two privately held development stage companies: ImThera and Cerbomed. See “Note 6. Long-Term Investments in Debt and Equity Securities” for more details. Both investments are carried at cost and not marked-to-market. Each reporting period we review all information available to us related to these investees to identify any significant adverse effect on the fair value of our investment. If we identify events or changes in circumstances that indicate a decrease in investment value that is other than temporary, we recognize the loss. The inputs to our fair value measurement are considered Level 3 in the fair value hierarchy. As of October 26, 2012, we have not identified an impairment in these investments.