There is no difference between the fair value and cost of the Company’s cash equivalents. 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:

The following table presents financial assets that were accounted for at fair value on a recurring basis as of December 31, 2013 and January 1, 2013 by level within the fair value hierarchy (in thousands):

 

		Level 1				Level 2				Level 3
December 31, 2013
Liabilities:
Contingent consideration(1)		$	—			$	—			$	553
January 1, 2013
Liabilities:
Contingent consideration		$	—			$	—			$	1,304

 

For assets that are measured using quoted prices in active markets, fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. The Company had no cash invested in money market funds as of December 31, 2013 and January 1, 2013.

Contingent consideration was initially recorded at $1.4 million in January 2012. As of December 31, 2013, the fair value was $0.6 million, resulting in a gain of $0.7 million. As of January 1, 2013, the fair value was $1.3 million, resulting in a gain of $0.1 million. The gain is recorded in other operating, net on the consolidated statement of operations.

The Company’s non-financial assets and liabilities primarily consist of long-lived assets, trademarks and other intangibles, and are reported at carrying value. They are not required to be measured at fair value on a recurring basis. The Company evaluates long-lived assets for impairment when facts and circumstances indicate that their carrying values may not be recoverable. Trademarks and other intangibles are evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

The following table presents the Company’s assets that were accounted for at fair value on a non-recurring basis as of December 31, 2013 and January 1, 2013. Total losses include losses recognized from all non-recurring fair value measurements for fiscal 2013 and fiscal 2012 (in thousands):

 

		Level 1				Level 2				Level 3
December 31, 2013
Assets:
Long-lived assets(1)			—				—			$	465
Total losses recognized for all non-recurring fair value measures for the fiscal year ended December 31, 2013.			—				—			$	728
January 1, 2013
Assets:
Long-lived assets(1)			—				—			$	400
Total losses recognized for all non-recurring fair value measures for the fiscal year ended January 1, 2013			—				—			$	711

 

The Company classified the fair value of long-lived assets as level 3 because the value is based on unobservable inputs. The significant inputs to the fair value measurement of the long-lived assets are projected future operating results at the store level and the discount rates applied to calculate the present value of these assets. The fair value of the contingent consideration is classified as level 3 because it is based on unobservable inputs. Significant inputs and assumptions are management’s estimate of operating profits from the related business and the discount rate used to calculate the present value of the liability. Significant changes in any level 3 input or assumption would result in increases or decreases to fair value measurements for future impairment of the long-lived assets and for contingent consideration.