9. Fair Value of Financial Instruments

ASC Topic 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the company’s assumptions (unobservable inputs). Determining where an asset or liability falls within that hierarchy depends on the lowest level input that is significant to the fair value measurement as a whole. An adjustment to the pricing method used within either level 1 or level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The hierarchy consists of three broad levels as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than level 1 inputs that are either directly or indirectly observable, and

Level 3 – Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.

Recurring Basis

The following table presents information about assets measured at fair value on a recurring basis:

Fair value measurements at January 28, 2018 using:

Quoted prices
in active
markets for
identical assets

Significant other
observable inputs

Significant
unobservable
inputs

(amounts in thousands)

Level 1

Level 2

Level 3

Total

Assets:

Premier Money Market Fund

6,287

N/A

6,287

Low Duration Bond Fund

1,085

N/A

1,085

Intermediate Term Bond Fund

759

N/A

759

Strategic Income Fund

628

N/A

628

Large Blend Fund

431

N/A

431

Growth Allocation Fund

171

N/A

171

Moderate Allocation Fund

114

N/A

114

Other

173

N/A

173

Fair value measurements at January 29, 2017 using:

Quoted prices
in active
markets for
identical assets

Significant other
observable inputs

Significant
unobservable
inputs

(amounts in thousands)

Level 1

Level 2

Level 3

Total

Assets:

Premier Money Market Fund

4,888

N/A

4,888

Low Duration Bond Fund

1,073

N/A

1,073

Intermediate Term Bond Fund

739

N/A

739

Strategic Income Fund

598

N/A

598

Large Blend Fund

343

N/A

343

Growth Allocation Fund

113

N/A

113

Moderate Allocation Fund

N/A

Other

N/A

Fair value measurements at April 30, 2017 using:

Quoted prices
in active
markets for
identical assets

Significant other
observable inputs

Significant
unobservable
inputs

(amounts in thousands)

Level 1

Level 2

Level 3

Total

Assets:

Premier Money Market Fund

4,811

N/A

4,811

Low Duration Bond Fund

1,081

N/A

1,081

Intermediate Term Bond Fund

751

N/A

751

Strategic Income Fund

611

N/A

611

Large Blend Fund

365

N/A

365

Growth Allocation Fund

126

N/A

126

Moderate Allocation Fund

N/A

Other

N/A

The determination of where an asset or liability falls in the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter based on various factors and it is possible that an asset or liability may be classified differently from quarter to quarter. However, we expect that changes in classifications between different levels will be rare.

Short-Term Investments – Available for Sale

At January 28, 2018, January 29, 2017, and April 30, 2017, our short-term investments classified as available for sale totaled $2.5 million, $2.4 million, and $2.4 million, respectively, and consisted of short-term bond funds. Since these short-term bond funds are classified as available for sale, these investments are recorded at their fair market value and their unrealized gains or losses are included in other comprehensive income (loss). Our short-term bond investments had an accumulated unrealized loss totaling $57,000, $68,000, and $47,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. At January 28, 2018, January 29, 2017, and April 30, 2017, the fair value of our short-term bond funds approximated its cost basis.

Short-Term and Long-Term Investments—Held-To-Maturity

During the second quarter of fiscal 2017, management decided to invest approximately $31.0 million in investment grade U.S. Corporate bonds with maturities that ranged from 2 to 2.5 years. The purpose of this investment was to earn a higher rate of return on our excess cash located in the Cayman Islands. These investments are classified as held-to-maturity as we have the positive intent and ability to hold these investments until maturity. Our held-to-maturity investments will be recorded as either current or noncurrent on our Consolidated Balance Sheets, based on contractual maturity date as of a respective reporting period and recorded at amortized cost.

At January 28, 2018, January 29, 2017 and April 30, 2017, our held-to-maturity investments recorded at amortized cost totaled $30.8 million, $30.8 million, and $30.9 million, respectively, and consisted of U.S. Corporate bonds. The fair value of our held-to-maturity investments at January 28, 2018, January 29, 2017, and April 30, 2017 totaled $30.7 million, $30.7 million, and $30.8 million, respectively.

Our U.S. corporate bonds were classified as level 2 as they are traded over the counter within a broker network and not on an active market. The fair value of our U.S. corporate bonds is determined based on a published source that provides an average bid price. The average bid price is based on various broker prices that are determined based on market conditions, interest rates, and the rating of the respective U.S. corporate bond.

Long-Term Investments—Rabbi Trust

We have a Rabbi Trust to set aside funds for participants of our deferred compensation plan (the “Plan”) which allows the participants to credit their contributions to various investment options of the Plan. The investments associated with the Rabbi Trust consist of a money market fund and various mutual funds that are classified as available for sale.

These long-term investments are recorded at their fair values of $7.2 million, $5.5 million, and $5.5 million at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. Our long-term investments had an accumulated unrealized gain of $113,000, $11,000 and $43,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. The fair value of our long-term investments associated with our Rabbi Trust approximates its cost basis.

Other

The carrying amount of our cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses, and line of credit approximates fair value because of the short maturity of these financial instruments.