Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.8
Fair Value Measurements
 12 Months Ended
Dec. 29, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Fair value measurements are made under a three-tier fair value hierarchy, which prioritizes the inputs used in the measuring of fair value:
Level 1:
Observable inputs that reflect unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3:
Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying amounts of the Company's cash and cash equivalents, accounts receivables and accounts payables approximate fair value due to the short term nature or maturity of the instruments.
The derivative liability associated with the interest rate swap is considered to be a Level 2 instrument. The interest rate swap is a standard cash flow hedge whose fair value is estimated using industry-standard valuation models. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves. See Note 8, Derivative and Other Comprehensive Income, for the discussion of the derivative liability.
The Company has assets and liabilities related to a deferred compensation plan. See Note 16, Employee Benefit Programs. At the end of fiscal 2013, the assets of the deferred compensation plan are held in a rabbi trust and invested in certain mutual funds that cover an investment spectrum range from equities to money market instruments. These investments are valued using Level 1 inputs and the fair values are based on quoted market prices for identical assets. The value of the deferred compensation plan liability is dependent upon the fair values of the assets held in the rabbi trust and therefore is not measured at fair value. At the end of fiscal 2012, the Company held Company-owned whole-life insurance contracts on certain team members to offset the deferred compensation plan obligation. The carrying value of both the liability for the deferred compensation plan and associated life insurance policy were equal to their fair value. These agreements were valued using Level 2 inputs. The deferred compensation plan assets are included in Other assets, net and the deferred compensation plan liability is included in Other non-current liability in the accompanying consolidated balance sheets.
As of December 29, 2013, the Company had no financial assets or liabilities that were measured using Level 3 inputs. The Company also had no non-financial assets or liabilities that were required to be measured on a recurring basis.
The following tables present the Company's assets and liabilities measured at fair value on a recurring basis for the fiscal years ended December 29, 2013 and December 30, 2012 (in thousands):
 
 
2013
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Investments held in rabbi trust
 
$
3,769

 
$
3,769

 
$
—

 
$
—

Total assets measured at fair value
 
$
3,769

 
$
3,769

 
$
—

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Derivative—interest rate swap
 
$
787

 
$
—

 
$
787

 
$
—

Total liabilities measured at fair value
 
$
787

 
$
—

 
$
787

 
$
—

 
 
2012
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Life insurance policy
 
$
2,920

 
$
—

 
$
2,920

 
$
—

Total assets measured at fair value
 
$
2,920

 
$
—

 
$
2,920

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Derivative—interest rate swap
 
$
1,216

 
$
—

 
$
1,216

 
$
—

Deferred compensation plan
 
2,974

 
—

 
2,974

 
—

Total liabilities measured at fair value
 
$
4,190

 
$
—

 
$
4,190

 
$
—


Disclosures of Fair Value of Other Assets and Liabilities
The Company's liabilities under its credit facility and capital leases are carried at historical cost in the accompanying consolidated balance sheets. For disclosure purposes, the Company estimated the fair value of the credit facility and capital lease obligations using discounted cash flow analysis based on market rates obtained from independent third parties for similar types of debt. Both the credit facility and the Company's capital lease obligations are considered to be Level 2 instruments. The carrying value of the Company's credit facility as of December 29, 2013 and December 30, 2012 was $78.5 million and $125.0 million. The fair value of the Company's credit facility at the end of fiscal years 2013 and 2012 was approximately $78.4 million and $124.4 million. There were $9.3 million of outstanding borrowings recorded for the Company's capital leases as of December 29, 2013, which have an estimated fair value of $10.9 million. At December 30, 2012, the carrying amount of the Company's capital lease obligations was $10.0 million, and the fair value was $11.8 million.
Asset Impairment
The Company recorded impairment charges for four and three of its restaurants in 2013 and 2011. These are considered to be assets that are measured at fair value on a nonrecurring basis. The inputs used for the fair value measurement of the restaurants are considered Level 3. For further information refer to Note 3, Restaurant Impairment and Restaurant Closures.