Fair Value Measurements

12 Months Ended

Dec. 29, 2020

Fair Value Measurements

3. Fair Value Measurements

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

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Level 1: Quoted prices in active markets for identical assets or liabilities

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Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities

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Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the Company to develop its own assumptions

The following tables present the components and classification of our assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	December 29, 2020
	Level 1		Level 2		Level 3
Assets/(Liabilities)
Non-qualified deferred compensation assets	$	83,485	$	—	$	—
Non-qualified deferred compensation liabilities		(83,702)		—		—
Acquisition-related deferred consideration		—		(38,119)		—
Acquisition-related contingent consideration and compensation liabilities		—		—		(7,465)
Interest rate swap		—		(4,591)		—


	December 31, 2019
	Level 1		Level 2		Level 3
Assets/(Liabilities)
Non-qualified deferred compensation assets	$	77,228	$	—	$	—
Non-qualified deferred compensation liabilities		(76,255)		—		—
Acquisition-related deferred consideration		—		(53,933)		—
Acquisition-related contingent consideration and compensation liabilities		—		—		(13,218)

Changes in the fair value of non-qualified deferred compensation assets and liabilities are recognized in interest and other expense, net in our consolidated statements of income. Changes in the fair value of the acquisition-related deferred and contingent consideration and compensation liabilities are recognized in acquisition-related contingent consideration, compensation and amortization (benefit)/expenses in our consolidated statements of income. See Note 12 for information regarding the financial statement classification of fair value changes in our interest rate swap.

The fair value of the acquisition-related contingent consideration and compensation liabilities was determined utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables and estimates and has no minimum or maximum payment. The undiscounted range of outcomes per the Monte Carlo model was $0 to $32.0 million at December 29, 2020 and $0 to $69.2 million at December 31, 2019. Results could change materially if different estimates and assumptions were used. The following table presents a reconciliation of the beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation liabilities, categorized as Level 3 (in thousands):


Balance, January 1, 2019	$	—
Acquisition-date fair value		12,786
Change in fair value		432
Balance, December 31, 2019		13,218
Change in fair value		(5,753)
Balance, December 29, 2020	$	7,465

The change in the fair value of the contingent consideration during fiscal 2020 primarily stemmed from the delay of future new restaurant openings caused by the impact of the COVID-19 pandemic on the estimated cash flows used in the valuation.

The fair values of our cash and cash equivalents, accounts receivable, income taxes receivable, other receivables, prepaid expenses, accounts payable, income taxes payable and other accrued expenses approximate their carrying amounts due to their short duration.

- 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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