8. Fair Value Measurement

The Company measures its cash equivalents, marketable securities, foreign currency forward contracts and interest rate derivative contracts at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activities.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The cash equivalents and marketable securities are classified within Level 1 or Level 2. This is because the Company values its cash equivalents and marketable securities using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The foreign currency forward contracts and interest rate derivative contracts are classified as Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments. The principal market where the Company executes its foreign currency contracts is the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants and the Company’s counterparties are large money center banks and regional banks. The Company’s foreign currency contracts valuation inputs are based on quoted prices and quoted pricing intervals from public data sources (specifically, spot exchange rates, LIBOR rates and credit default rates) and do not involve management judgment. In determining the fair value of the Company’s interest rate swap, the Company uses the present value of expected cash flows based on market observable interest rate yield curves and interest rate volatility commensurate with the term of each instrument.

The fair value measurements of the Company’s financial assets and liabilities consisted of those categorized in the table below based upon the fair value hierarchy:

 

		July 1, 2012																December 25, 2011
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
														(in thousands)
Money market funds		$	7,385			$	—			$	—			$	7,385	*		$	1,172			$	—			$	—			$	1,172	*
Commercial paper			—				24,964				—				24,964	*			—				24,963				—				24,963	*
Foreign currency forward contracts			—				264				—				264				—				20				—				20
Total financial assets		$	7,385			$	25,228			$	—			$	32,613			$	1,172			$	24,983			$	—				26,155
Interest rate swaps		$	—			$	1,030			$	—			$	1,030			$	—			$	1,443			$	—			$	1,443
Total financial liabilities		$	—			$	1,030			$	—			$	1,030			$	—			$	1,443			$	—			$	1,443

 

*	Total short-term investments and cash equivalents excludes cash of $260.0 million and $236.5 million as of July 1, 2012 and December 25, 2011 held in operating accounts, respectively.

 

Fair Value of Other Financial Instruments not carried at Fair Value

Substantially all of the Company’s long-term debt is traded in the market and the fair value in the table below is based on the quoted market price as of July 1, 2012 and December 25, 2011. The carrying amounts and estimated fair values of the Company’s debt instruments are as follows:

 

		July 1, 2012								December 25, 2011
		Carrying Amount				Estimated Fair Value				Carrying Amount				Estimated Fair Value
						(in thousands)
Debt traded in the market:
Term Loan		$	232,663			$	232,663			$	249,181			$	246,066
Senior Unsecured Notes			200,000				194,000				200,000				179,000
Debt not traded in the market			—				—				2,317				2,317
Total Debt Obligations		$	432,663			$	426,663			$	451,498			$	427,383

The fair value of the Company’s long-term debt that is not traded in the market was estimated by considering the interest rates and the terms of the debt. The fair value of the Company’s cash equivalents, accounts receivable, accounts payable and other current liabilities approximates their carrying value.