5. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To estimate the fair values of its financial and nonfinancial assets and liabilities, the Company uses valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:

Level 1—Quoted prices for identical instruments in active markets

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

The Company’s assets and liabilities measured at fair value on a recurring basis are summarized in the following table by the type of inputs applicable to the fair value measurements (in thousands):


	Fair Value Measurement at October 7, 2018
			Quoted Prices		Significant
			in Active		Other		Significant
	Total as of		Markets for		Observable		Unobservable
	October 7,		Identical Assets		Inputs		Inputs
Description	2018		(Level 1)		(Level 2)		(Level 3)
Financial assets
Other assets—cash and cash equivalents that fund supplemental executive retirement plan and deferred compensation plan	$	546	$	546	$	—	$	—
Other assets—assets that fund supplemental executive retirement plan		3,505		3,505		—		—
Other assets—deferred compensation plan investment in Sprouts and other		6,027		6,027		—		—
Financial liabilities
Other long-term liabilities—deferred compensation plan		(19,951)		(2,553)		(17,398)		—
Total	$	(9,873)	$	7,525	$	(17,398)	$	—

Level 1 Investments include money market funds of $0.5 million, market index funds of $3.5 million and an investment in Sprouts and other of $6.0 million with the corresponding deferred compensation liabilities of $2.6 million. The fair values of these investments are based on quoted market prices in an active market.

Level 2 Liabilities include $17.4 million of deferred compensation liabilities, the fair value of which is based on quoted prices of similar assets traded in active markets.


	Fair Value Measurement at December 31, 2017
			Quoted Prices		Significant
			in Active		Other		Significant
	Total as of		Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
Description	2017		(Level 1)		(Level 2)		(Level 3)
Financial assets
Other assets—cash and cash equivalents that fund supplemental executive retirement plan and deferred compensation plan	$	540	$	540	$	—	$	—
Other assets—assets that fund supplemental executive retirement plan		3,497		3,497		—		—
Other assets—deferred compensation plan investment in Sprouts		2,387		2,387		—		—
Derivatives		190		—		190		—
Financial liabilities
Other long-term liabilities—deferred compensation plan		(18,938)		(2,268)		(16,670)		—
Total	$	(12,324)	$	4,156	$	(16,480)	$	—

Level 1 Investments include money market funds of $0.5 million, market index funds of $3.5 million and an investment in Sprouts of $2.4 million with the corresponding deferred compensation liabilities of $2.3 million. The fair values of these investments are based on quoted market prices in an active market.

Level 2 Liabilities include $16.7 million of deferred compensation liabilities, the fair value of which is based on quoted prices of similar assets traded in active markets, and $0.2 million of derivatives, which are interest rate hedges. The fair values of the derivatives are determined based primarily on a third-party pricing model that applies observable credit spreads to each exposure to calculate a credit risk adjustment and the inputs are changed only when corroborated by observable market data.

Certain assets are measured at fair value on a nonrecurring basis, which means the assets are not measured at fair value on an ongoing basis but, rather, are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). See Note 2, Summary of Significant Accounting Policies — Property, Plant and Equipment, Capitalized Software and Goodwill and Intangible Assets. The fair value measurements were determined using available market capitalization rates, estimated discounted cash flows and public company comparable market multiples data at the measurement dates. The Company classifies the measurements as Level 3.