NOTE 9. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

Fair value is defined as a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:


Level 1	—	observable inputs such as quoted prices in active markets for identical assets and liabilities;
Level 2	—	observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other inputs that are observable, or can be corroborated by observable market data; and
Level 3	—	unobservable inputs for which there are little or no market data, which require the reporting entity to develop its own assumptions.

The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 by level within the fair value hierarchy:

	Fair Value Measurements Using

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	142,800	$	—	$	—
Other long-term assets	$	—	$	6,124	$	—

The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2012 by level within the fair value hierarchy:

	Fair Value Measurements Using

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	85,006	$	—	$	—
Other long-term assets	$	—	$	4,397	$	—

Other long-term assets classified as Level 2 consist of assets related to the Company's non-qualified deferred compensation plan. The assets related to this plan are adjusted based on changes in the fair value of the underlying investments. Since the fair value of the investments is based on quoted prices of similar items in active markets, the assets are classified within Level 2 on the fair value hierarchy.

At December 31, 2013 and 2012, the Company's financial instruments consisted of cash and cash equivalents, receivables, franchise notes receivable, accounts payable, and long-term debt. The carrying amount of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximates their respective fair values because of the short maturities of these instruments. Based on the interest rates currently available and their underlying risk, the carrying value of the franchise notes receivable approximates their fair values. These fair values are reflected net of reserves for uncollectable accounts.

As considerable judgment is required to determine these estimates, changes in the assumptions or methodologies may have an effect on these estimates. The Company determined the estimated fair values of its debt by using currently available market information. The fair value of debt would be classified as a Level 2 category on the fair value hierarchy, as defined above. The actual and estimated fair values of the Company's financial instruments are as follows:

	December 31, 2013				December 31, 2012

	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)
Cash and cash equivalents	$	226,217	$	226,217	$	158,541	$	158,541
Receivables, net		144,833		144,833		129,641		129,641
Franchise notes receivable, net		10,163		10,163		7,589		7,589
Accounts payable		135,164		135,164		125,165		125,165
Long-term debt (including current portion)		1,347,099		1,343,732		1,098,562		1,101,309