Fair Value Measurements
|12 Months Ended|
Dec. 30, 2012
|Fair Value Measurements|
|Fair Value Measurements||
9. 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:
Assets and Liabilities Measured at Fair Value
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's deferred compensation plan is a nonqualified deferred compensation plan which allows highly compensated employees to defer a portion of their base salary, variable compensation, and commissions each plan year. The carrying value of both the liability for the deferred compensation plan and associated life insurance policy are equal to their fair value. These agreements are required to be measured at fair value on a recurring basis and are valued using Level 2 inputs. See Note 16, Employee Benefit Programs. At December 30, 2012, and December 25, 2011, a liability for participant contributions and investment income thereon of $3.0 million and $2.6 million, respectively, is included in other non-current liabilities. To offset its obligation, the Company's plan administrator purchases Company-owned whole-life insurance contracts on certain team members. The cash surrender value of these policies at the end of fiscal 2012 and 2011 was $2.9 and $2.5 million, respectively, and is included in other assets, net.
As of December 30, 2012, the Company had no financial assets or liabilities that were measured using Level 1 or 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 table presents the Company's assets and liabilities measured at fair value, of which the derivative, deferred compensation plan, and life insurance policy are valued on a recurring basis for the fiscal years ended December 30, 2012, and December 25, 2011 (in thousands):
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 sheet. 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 30, 2012, and December 25, 2011, was $125.0 million and $146.3 million, respectively. The fair value of the Company's credit facility at the end of fiscal years 2012 and 2011, was approximately $124.4 million and $147.6 million, respectively. There are $10.0 million of outstanding borrowings recorded for the Company's capital leases as of December 30, 2012, which have an estimated fair value of $11.8 million. At December 25, 2011, the carrying amount of the Company's capital lease obligations was $10.7 million, and the fair value was $11.7 million.
The Company recorded impairment charges for three and four of its restaurants in 2011 and 2010, respectively. 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.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef