Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.19.3
Fair Value Measurements
 9 Months Ended
Sep. 28, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
The Company uses the accounting guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. The guidance defines 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 guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1:
 
Quoted market prices in active markets for identical assets or liabilities.
Level 2:
 
Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3:
 
Unobservable inputs reflecting the reporting entity’s own assumptions.
The following tables set forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period, by level, within the fair value hierarchy:
 

 
As of September 28, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Trading securities
$
1,716

 
$
—

 
$
—

 
$
1,716

Interest rate swaps
—

 
(4,201
)
 
—

 
(4,201
)
Foreign exchange forward contracts
—

 
5

 
—

 
5

Contingent consideration payable
—

 
—

 
(18,100
)
 
(18,100
)
 
 
 
 
 
 
 
 
 
As of December 29, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Trading securities
$
1,905

 
$
—

 
$
—

 
$
1,905

Interest rate swaps
—

 
(984
)
 
—

 
(984
)
Foreign exchange forward contracts
—

 
(152
)
 
—

 
(152
)


Trading securities are valued using quoted prices on an active exchange. Trading securities represent assets held in a Rabbi Trust to fund deferred compensation liabilities and are included as other assets on the accompanying condensed consolidated balance sheets.

The Company utilizes interest rate swap contracts to manage our targeted mix of fixed and floating rate debt, and these contracts are valued using observable benchmark rates at commonly quoted intervals for the full term of the swap contracts. As of September 28, 2019, the 2018 Swap 1 and 2018 Swap 2 were recorded as other non-current liabilities on the accompanying condensed consolidated balance sheets. As of December 29, 2018, 2018 Swap 1 was recorded as a non-current asset and 2018 Swap 2 was recorded as an other non-current liability on the accompanying condensed consolidated balance sheets.

The Company utilizes foreign exchange forward contracts to manage our exposure to currency fluctuations in the Canadian dollar versus the U.S. dollar. The forward contracts were valued using observable benchmark rates at commonly quoted intervals during the term of the forward contract. As of September 28, 2019 the foreign exchange forward contracts were included in other current assets on the accompanying condensed consolidated balance sheets. As of December 29, 2018, the foreign exchange forward contracts were included in other current liabilities on the accompanying condensed consolidated balance sheets.

The contingent consideration represents future potential earn-out payments related to the Resharp acquisition in 2019, see Note 4 - Acquisitions of the Notes to the condensed consolidated financial statements for additional details. The estimated fair value of the contingent earn-out was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting earn-out payments. The resulting value captures the risk associated with the form of the payout structure. The risk neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability. As of September 28, 2019, the contingent consideration was recorded as
$2,275 of other current liabilities and $15,825 in other non-current liabilities on the accompanying condensed consolidated balance sheets.
The fair value of the Company's fixed rate senior notes and junior subordinated debentures as of September 28, 2019 and December 29, 2018 were determined by utilizing current trading prices obtained from indicative market data. As a result, the fair value measurements of the Company's senior term notes and debentures are considered to be Level 2.
 
 
 
September 28, 2019
 
December 29, 2018
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
6.375% Senior Notes
 
$
326,944

 
$
308,550

 
$
326,110

 
$
267,300

Junior Subordinated Debentures
 
125,170

 
149,827

 
126,202

 
130,636



Cash, accounts receivable, accounts payable, and accrued liabilities are reflected in the condensed consolidated financial statements at book value, which approximates fair value, due to the short-term nature of these instruments. The carrying amount of the long-term debt under the revolving credit facility approximates the fair value at September 28, 2019 and December 29, 2018 as the interest rate is variable and approximates current market rates. The Company also believes the carrying amount of the long-term debt under the senior term loan approximates the fair value at September 28, 2019 and December 29, 2018 because, while subject to a minimum LIBOR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.