Fair Value Measurements and Financial Instruments

6 Months Ended

Jul. 03, 2020

Fair Value Measurements and Financial Instruments

The following table presents the Company's hierarchy for its assets, liabilities and redeemable non-controlling interest measured at fair value on a recurring basis as of the following periods:


	July 3, 2020														January 3, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Credit Facility	$	—	$	406,393	$	—	$	406,393	$	—	$	68,000	$	—	$	68,000
Non-controlling interest subject to put provisions	—		—		24,975		24,975		—		—		15,719		15,719
Total liabilities measured at fair value	$	—	$	406,393	$	24,975	$	431,368	$	—	$	68,000	$	15,719	$	83,719

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three and six month period ended July 3, 2020.

The Company used Level 2 inputs to determine the fair value of its First Amended and Restated Credit Facility. As of July 3, 2020, the carrying amount of the principal under the Company’s First Amended and Restated Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

As of July 3, 2020, the Company had potential obligations to purchase the non-controlling interests held by third parties in the Tuscany subsidiary. These obligations were in the form of put provisions and were exercisable at the third-party owners' discretion within the specified periods outlined in the put provision within the Tuscany stockholders' agreement. If these put provisions were exercised, the Company would be required to purchase the third-party owners' non-controlling interests at the appraised fair value. The initial non-controlling interest value was implicit in the purchase price and is revalued each quarter, with the adjustment being recorded directly as a component of retained earnings. The methodology the Company uses to estimate the fair value of the non-controlling interests subject to these put provisions is based on an average multiple of earnings before income taxes, depreciation and amortization ("EBITDA"), taking into consideration historical earnings and other factors. The estimated fair value is then compared to the carrying value based on the initial valuation and the cumulative net earnings attributable to the non-controlling interest. At July 3, 2020, the estimated fair value was adjusted based on the agreement between the Company and the non-controlling interest holders executed on July 22, 2020. Refer to Note 9 - Commitments and Contingencies for additional details of this agreement.

The following table provides a reconciliation of the beginning and ending balances for the Company's redeemable non-controlling interest measured at fair value using Level 3 inputs:


	Redeemable Non-Controlling Interest (level 3 measurement)
Balance at January 3, 2020	$	15,719
Net income attributable to non-controlling interest	1,072
Change in fair value	8,184
Balance at July 3, 2020	$	24,975

- 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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