v2.3.0.11
Fair Value Measurements
 9 Months Ended
Jun. 25, 2011
Fair Value Measurements  
Fair Value Measurements

(2) Fair Value Measurements

The Company applies the provisions of Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities that are re-measured and reported at fair value each reporting period and its nonfinancial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis. Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. Financial assets and liabilities are categorized within the valuation hierarchy based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:

 

  •  

Level 1—Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.

 

  •  

Level 2—Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.

 

  •  

Level 3—Inputs to the valuation methodology are unobservable inputs based on management's best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

As of June 25, 2011 and September 25, 2010, the Company's financial assets that are re-measured at fair value on a recurring basis included $0.3 million in money market mutual funds in both periods that are classified as cash and cash equivalents in the Consolidated Balance Sheets. As there are no withdrawal restrictions, they are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets. The Company has a payment obligation under its Supplemental Executive Retirement Program ("SERP") to the participants of the SERP. This liability is recorded at fair value based on the underlying value of certain hypothetical investments as designated by each participant for their benefit. Since the value of the SERP obligation is based on market prices, the liability is classified within Level 1. In addition, the Company has contingent consideration liabilities related to its acquisitions that it records at fair value. The fair values of these liabilities are based on Level 3 inputs and are discussed in Note 3.

 

Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at June 25, 2011:

 

                                 
            Fair Value at Reporting Date Using  
     Balance as of
June 25,
2011		      Quoted Prices in
Active Market for
Identical Assets
(Level 1)		      Significant
Other
Observable
Inputs (Level 2)		      Significant
Unobservable
Inputs (Level 3)		  

Assets:

                                    

Money market funds

    $ 314       $ 314       $ —         $ —     
                                     

Total

    $ 314       $ 314       $ —         $ —     
                                     

Liabilities:

                                    

SERP liability

    $ 19,281       $ 19,281       $ —         $ —     

Contingent consideration

      108,259         —           —           108,259   
                                     

Total

    $ 127,540       $ 19,281       $ —         $ 108,259   
                                     

The following table presents a reconciliation of the only asset or liability, which are contingent consideration liabilities, the Company measures and records at fair value on a recurring basis using significant unobservable inputs (Level 3):

                 
     For the Three
Months Ended
June 25		     For the Nine
Months Ended
June 25		  

Beginning balance

    $ 111,925      $ 29,500   

Total net unrealized (gains)/losses included in earnings

      629        (3,546 ) 

Total net unrealized (gains)/losses included in other comprehensive income

      —          —     

Transfers into level 3 (gross)

      —          —     

Transfers out of level 3 (gross)

      —          —     

Net purchases, issuances, sales and settlements

      (4,295 )      82,305   
                  

Ending balance

    $ 108,259      $ 108,259   
                  

There were no such recurring measurements using significant unobservable inputs for the three and nine months ended June 26, 2010.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company remeasures the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets comprise cost-method equity investments and long-lived assets, including property and equipment, intangible assets and goodwill.

 

The Company holds certain cost-method equity investments in non-publicly traded securities aggregating $4.6 million and $7.0 million at June 25, 2011 and September 25, 2010, respectively, which are included in other long-term assets on the Company's Consolidated Balance Sheets. These investments are generally carried at cost. As the inputs utilized for the Company's periodic impairment assessment are not based on observable market data, these cost method investments are classified within Level 3 of the fair value hierarchy. To determine the fair value of these investments, the Company uses all available financial information related to the entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, a cost method investment's fair value is not estimated as there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and to do so would be impractical. During the three and nine month periods ended June 25, 2011, the Company recorded other-than-temporary impairment charges of $0.3 million and $2.4 million, respectively related to these investments.

 

Refer to Note 5 for disclosure of the nonrecurring fair value measurement related to the loss on extinguishment of debt recorded in the first quarter of fiscal 2011.

Disclosure of Fair Value of Financial Instruments

The Company's financial instruments mainly consist of cash and cash equivalents, accounts receivable, cost-method equity investments, insurance contracts and related SERP liability, accounts payable and debt obligations. The carrying amounts of the Company's cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The carrying amount of the insurance contracts are recorded at the cash surrender value, as required by U.S. generally accepted accounting principles, which approximates fair value, and the related SERP liability is recorded at fair value. The Company believes the carrying amounts of its cost-method investments approximate fair value and has not performed an in-depth analysis of the fair values as it is not practical to do so.

The Company had $1.47 billion and $1.45 billion of Convertible Notes recorded (See Note 5) as of June 25, 2011 and September 25, 2010, respectively. The aggregate principal amount of the Convertible Notes at both periods was $1.725 billion. On November 18, 2010, the Company entered into separate, privately-negotiated exchange agreements under which it retired $450.0 million in aggregate principal of its Original Notes for $450.0 million in aggregate principal of new 2.00% Convertible Exchange Senior Notes due 2037 ("Exchange Notes"). Following these transactions, $1.275 billion in principal amount of the Original Notes remained outstanding. The fair value of the remaining Original Notes and the Exchange Notes as of June 25, 2011 was approximately $1.23 billion and $514.7 million, respectively. The aggregate fair value of the Company's Convertible Notes was approximately $1.62 billion as of September 25, 2010. Fair value is based on the trading prices of the respective notes at the dates noted.