(5) Fair Value Measurements
Fair value is defined under FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (Topic 820), as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Topic 820 also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels of inputs are:
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Level 1—quoted prices (unadjusted) for an identical asset or liability in an active market.
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Level 2—quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
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Level 3—unobservable and significant to the fair value measurement of the asset or liability.
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The following were used to estimate the fair value of each class of financial instruments:
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The carrying amount of cash and cash equivalents, receivables, prepaid expenses, accounts payable and accrued expenses and other current liabilities are a reasonable estimate of their fair values due to their short duration.
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Borrowings under the senior credit facility as of December 28, 2014 and December 29, 2013 have variable interest rates that reflect currently available terms and conditions for similar debt. The carrying amount of this debt is a reasonable estimate of its fair value (Level 2).
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The Company’s non-financial assets measured at fair value on a non-recurring basis as of the end of fiscal years 2014 and 2013 were as follows (in thousands):
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Fair Value as of December 28, 2014
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Significant Other Observable Inputs (Level 2)
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Significant Unobservable Inputs (Level 3)
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Total Losses on Impairment
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Valuation Method
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Long-lived assets held for sale
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$
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11,320
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$
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-
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$
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11,320
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$
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9,809
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Market approach
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Fair Value as of December 29, 2013
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Significant Other Observable Inputs (Level 2)
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Significant Unobservable Inputs (Level 3)
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Total Losses on Impairment
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Valuation Method
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Long-lived assets held and used
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$
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-
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$
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-
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$
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-
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$
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2,112
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Income approach
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Fair Value as of December 28, 2014
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Significant Unobservable Inputs (Level 3)
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Total Losses on Impairment
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Valuation Method
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Trademarks held for sale
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$
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2,847
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$
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2,847
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$
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7,311
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Income approach
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Fair Value as of December 29, 2013
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Significant Unobservable Inputs (Level 3)
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Total Losses on Impairment
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Valuation Method
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Trademarks
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$
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-
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$
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-
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$
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400
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Income approach
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Losses on these assets are recorded as loss on impairment in the accompanying consolidated statements of income. When the operating results of closed or sold restaurants are reclassified to discontinued operations, the impairment losses related to the assets of those closed or sold restaurants are also reclassified to discontinued operations. See Notes 6 and 7 for a description of the valuation techniques used to measure fair value of intangibles and long-lived assets, as well as information used to develop the inputs to the fair value measurements. Total losses on impairment include losses recognized from all non-recurring fair value measurements during each of the fiscal years.
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