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Fair Value Measurements; Fair Value of Financial Instruments
 6 Months Ended
Jun. 24, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements; Fair Value of Financial Instruments
Note 3 Fair Value Measurements; Fair Value of Financial Instruments

 

We account for certain assets and liabilities at fair value. We categorize each of our fair value measurements in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:

 

Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets.

 

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities include the following:

 

  a) quoted prices for similar assets in active markets;
     
  b) quoted prices for identical or similar assets in inactive markets;
     
  c) inputs other than quoted prices that are observable for the asset; and
     
  d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

If the asset has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset.

 

Level 3 - Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure. 

 

Assets and Liabilities Measured at Fair Value

 

As of June 24, 2016, the Company’s only asset or liability measured at fair value was the contingent earn-out liability for the Del Monte acquisition. This liability was estimated using Level 3 inputs and had a fair value of $13,661 at June 24, 2016. This liability is reflected as accrued liabilities and other liabilities and deferred credits on the balance sheet. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Subsequent to June 24, 2016, the Company and the former owners of Allen Brothers, reached a settlement that fixed the value of the remaining earn-out payments related to the Allen Brothers acquisition. As such, the remaining Allen Brothers earn-out liability is no longer measured using Level 3 inputs. See Note 12 for further information regarding the settlement of the Allen Brothers earn-out liability.

 

The following table presents the changes in Level 3 contingent consideration liability:

 

   Del Monte  Allen
Brothers		  Total
Balance December 25, 2015  $13,792   $4,344   $18,136 
Gain on settlement   —    (1,684)   (1,684)
Reclassification from Level 3   —    (2,660)   (2,660)
Changes in fair value   (131)   —    (131)
Balance June 24, 2016  $13,661   $—   $13,661 

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the Company’s consolidated balance sheets for accounts receivable and accounts payable approximate fair value, due to the immediate to short-term maturity of these financial instruments. The fair values of the current and former revolving credit facilities and term loans approximated their book values as of June 24, 2016 and December 25, 2015, as these instruments had variable interest rates that reflected current market rates available to the Company. The carrying amount of the Company’s senior secured notes at December 25, 2015 approximates fair value, as the interest rate obtained by the Company approximates the prevailing interest rates available to the Company for similar instruments. The fair value of these debt instruments were estimated using Level 3 inputs.

 

The following table presents the carrying value and fair value of the Company’s convertible subordinated notes. In estimating the fair value of these convertible secured notes, the Company utilized Level 3 inputs including, prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk free interest rate in calculating the fair value estimate.

 

   June 24, 2016  December 25, 2015
   Carrying
Value		  Fair
Value		  Carrying
Value		  Fair
Value
Convertible Secured Notes  $36,750   $33,024   $36,750   $34,300