Fair Value Measurements and Financial Instruments

12 Months Ended

Dec. 31, 2011

FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

Fair value is defined as the exchange value of an asset or a liability in an orderly transaction between market participants. The fair value guidance outlines a valuation framework and establishes a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and disclosures. The hierarchy consists of three levels as follows:

Level 1 - Quoted market prices in active markets for identical assets or liabilities as of the reported date;

Level 2 - Other than quoted market prices in active markets for identical assets or liabilities, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other than quoted prices for assets or liabilities and prices that are derived principally from or corroborated by market data by correlation or other means; and

Level 3 - Measurements using management's best estimate of fair value, where the determination of fair value requires significant management judgment or estimation.

The Company's interest rate swaps and related instruments are measured under the fair value guidance. The following table summarizes the hierarchy level the Company used to determine fair value of its interest rate swaps and related instruments as of December 31, 2011 and December 25, 2010:



	2011		2010		Fair Value Hierarchy Level
Assets:
Interest rate swaptions	$	197	$	—	Level 2

Liabilities:
Interest rate swaps	$	958	$	873	Level 2

The fair value of the interest rate swaps and swaptions was obtained from external sources. The interest rate swaps were valued using observable inputs (e.g., LIBOR yield curves, credit spreads). Valuations of interest rate swaps may fluctuate considerably from period-to-period due to volatility in underlying interest rates, which are driven by market conditions and the duration of the instrument. Credit adjustments could have a significant impact on the valuations due to changes in credit ratings of the Company or its counterparties.

Available-for-sale securities, if any, are reflected on the Company's Consolidated Balance Sheets in other current assets and related gains and losses are deferred in accumulated other comprehensive income (loss) ("AOCIL"). During 2009, the Company sold its remaining available-for-sale securities and realized gains from the sale of such securities of $292, or $181 net of tax. The basis on which the gain was reclassified out of AOCIL into earnings was determined by specific identification.

The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:



	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	298	$	298	$	244	$	244
Notes receivable, including current portion	483		483		419		419
Interest rate swaptions	197		197		—		—
Financial Liabilities:
Long-term debt and capital leases, including current portion	68,086		68,900		65,215		67,609
Interest rate swaps	958		958		873		873

The fair values of the Company's long-term debt and capital leases were estimated using market rates the Company believes would be available for similar types of financial instruments. The fair values of cash and cash equivalents and notes receivable approximate their carrying amounts due to the short-term nature of the financial instruments.

The Company's earnings, cash flows and financial position are exposed to market risks relating to interest rates. It is the Company's policy to minimize its exposure to adverse changes in interest rates and manage interest rate risks inherent in funding the Company with debt. The Company addresses this risk by maintaining a mix of fixed and floating rate debt and entering into interest rate swaps for a portion of its variable rate debt to minimize interest rate volatility. The Company does not hold speculative financial instruments, nor does it hold or issue financial instruments for trading purposes.

Derivatives designated as cash flow hedges relate to specific liabilities on the Company's Consolidated Balance Sheets. The Company assesses, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. When it is determined that a derivative is not highly effective or the derivative expires, is sold, terminated or exercised, the Company discontinues hedge accounting for that specific instrument. Changes in the fair value of effective cash flow hedges are deferred in AOCIL and reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that are not effective hedges or that are not designated as hedges are recognized in income.

The following is a summary of the Company's interest rate swaps and swaptions as of December 31, 2011:



Type	Notional Amount			Effective Date	Fixed Rate	Variable Rate
Interest rate swap	$	5,430	*	April 1, 2003 through April 1, 2013	4.54%	1 Month LIBOR
Interest rate swap	$	25,000		July 11, 2010 through May 11, 2013	1.42%	1 Month LIBOR
Interest rate swap	$	10,000		October 3, 2011 through September 1, 2016	1.33%	1 Month LIBOR
Interest rate swap	$	10,000		March 1, 2013 through September 1, 2016	1.62%	1 Month LIBOR
Interest rate swap	$	5,000		June 1, 2013 through September 1, 2016	1.70%	1 Month LIBOR
Swaption	$	10,000		March 1, 2013 through September 1, 2016, exercisable on September 2, 2014	0.38%	N/A
Swaption	$	5,000		June 1, 2013 through September 1, 2016, exercisable on September 1, 2015	0.18%	N/A

* Interest rate swap has an amortizing notional amount.

On September 14, 2011, the Company refinanced its senior revolving credit facility and entered into a new mortgage note payable. The Company had two interest rate swaps that were designated as cash flow hedges of the interest rate risk created by the variable interest rate paid on the revolving credit facility and the mortgage note payable. At the time of refinancing, the Company simultaneously dedesignated and redesignated these swaps as cash flow hedges. At the time of the refinancing, the interest rate swaps had a negative fair value and were presented as accrued expenses and other liabilities on the Company's Consolidated Balance Sheets. The related accumulated other comprehensive loss of the swaps was frozen at the time of the refinancing and is being amortized into interest expense through the maturity dates of the cash flow hedges. The accumulated loss had an unamortized balance of $779 as of September 14, 2011. During 2011, the Company amortized $150 of losses into earnings related to these two interest rate swaps.

On September 14, the Company entered into two swaption agreements that permit the Company to cancel two of the existing interest rate swaps at specified dates. The Company did not designate these swaptions as cash flow hedges; therefore, any change in fair value related to these instruments will be recognized into earnings.

On April 7, 2010, the Company entered into an interest rate swap agreement with a notional amount of $25,000 effective May 11, 2010 through May 11, 2013. The Company did not designate this derivative instrument as a cash flow hedge and as a result recognized the fair value of this instrument in earnings. Under this interest rate swap agreement, the Company paid a fixed rate of interest of 2.38% times the notional amount and received in return a specified variable rate of interest times the same notional amount. Due to a significant drop in rates, the Company terminated the agreement in July 2010 and paid a termination fee of $300 which represented the fair value of the instrument.

The following table summarizes the fair values of derivative instruments included in the Company's Consolidated Balance Sheets:



	Location on Consolidated Balance Sheets	Fair Value
	Location on Consolidated Balance Sheets	2011		2010
Asset Derivatives:
Derivatives not designated as hedging instruments:
Interest rate swaptions	Other Assets	$	197	$	—
Total Asset Derivatives		197		—

Liability Derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps, current portion	Accrued Expenses	$	559	$	495
Interest rate swaps, long term portion	Other Liabilities	399		378
Total Liability Derivatives		958		873

The following tables summarize the pre-tax impact of derivative instruments on the Company's financial statements:



	Amount of Gain or (Loss) Recognized in AOCIL on the Effective Portion of the Derivative
	2011			2010			2009
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps	$	(665	)	$	(781	)	$	(345	)



	Amount of Gain or (Loss) Reclassified from AOCIL on the Effective Portion into Income (1) (2)
	2011			2010			2009
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps	$	(433	)	$	(904	)	$	(1,586	)



	Amount of Gain or (Loss) Recognized on the Ineffective Portion in Income on Derivative (3)
	2011		2010			2009
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps	$	—	$	(4	)	$	—



	Amount of Gain or (Loss) Recognized in Income on Derivative (4)
	2011		2010			2009
Derivatives not designated as hedging instruments:
Interest rate swap	$	—	$	(300	)	$	—
Interest rate swaptions	43		—			—
Total	$	43	$	(300	)	$	—


(1)	The amount of gain (loss) reclassified from AOCIL is included in interest expense on the Company's Consolidated Statements of Operations.


(2)	The amount of loss expected to be reclassified from AOCIL into earnings during the next 12 months subsequent to December 31, 2011 is $559.


(3)	The amount of gain (loss) recognized in income on the ineffective portion of interest rate swaps is included in other income or other expense on the Company's Consolidated Statements of Operations.


(4)	The amount of gain (loss) recognized in income for derivatives not designated as hedging instruments is included in other income or other expense on the Company's Consolidated Statements of Operations.

- Definition

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.

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