10.Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments:

Instrument		Method and Assumptions
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable		The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate carrying values due to the short maturity of these items.
Public Debt Securities		The fair values of the Company’s public debt securities are based on estimated current market prices.
Non-Public Variable Rate Debt		The carrying amounts of the Company’s variable rate borrowings approximate their fair values due to variable interest rates with short reset periods.
Deferred Compensation Plan Assets/Liabilities		The fair values of deferred compensation plan assets and liabilities, which are held in mutual funds, are based upon the quoted market value of the securities held within the mutual funds.
Acquisition Related Contingent Consideration		The fair values of acquisition related contingent consideration are based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data.
Derivative Financial Instruments		The fair values for the Company’s commodity hedging agreements are based on current settlement values at each balance sheet date. The fair values of the commodity hedging agreements at each balance sheet date represent the estimated amounts the Company would have received or paid upon termination of these agreements. Credit risk related to the derivative financial instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair value of derivative financial instruments.

GAAP requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

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

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Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

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Level 3: Unobservable inputs that are not corroborated by market data.

The following table summarizes, by assets and liabilities, the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity hedging agreements, debt and acquisition related contingent consideration:

	October 2, 2016
	Carrying		Total		Fair Value		Fair Value		Fair Value
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Deferred compensation plan assets	$	23,891	$	23,891	$	23,891	$	-	$	-
Commodity hedging agreements		758		758		-		758		-
Liabilities:
Deferred compensation plan liabilities		23,891		23,891		23,891		-		-
Public debt securities		455,885		497,500		-		497,500		-
Non-public variable rate debt		364,178		365,000		-		365,000		-
Acquisition related contingent consideration		218,408		218,408		-		-		218,408

	January 3, 2016
	Carrying		Total		Fair Value		Fair Value		Fair Value
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Deferred compensation plan assets	$	20,755	$	20,755	$	20,755	$	-	$	-
Commodity hedging agreements		3		3		-		3		-
Liabilities:
Deferred compensation plan liabilities		20,755		20,755		20,755		-		-
Commodity hedging agreements		3,442		3,442		-		3,442		-
Public debt securities		619,628		645,400		-		645,400		-
Acquisition related contingent consideration		136,570		136,570		-		-		136,570

	September 27, 2015
	Carrying		Total		Fair Value		Fair Value		Fair Value
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Deferred compensation plan assets	$	19,660	$	19,660	$	19,660	$	-	$	-
Commodity hedging agreements		39		39		-		39		-
Liabilities:
Deferred compensation plan liabilities		19,660		19,660		19,660		-		-
Commodity hedging agreements		2,275		2,275		-		2,275		-
Public debt securities		272,524		294,200		-		294,200		-
Non-public variable rate debt		275,000		275,000		-		275,000		-
Acquisition related contingent consideration		93,064		93,064		-		-		93,064

The Company maintains a non-qualified deferred compensation plan for certain executives and other highly compensated employees. The investment assets are held in mutual funds. The fair value of the mutual funds is based on the quoted market value of the securities held within the funds (Level 1). The related deferred compensation liability represents the fair value of the investment assets.

The fair values of the Company’s commodity hedging agreements are based upon rates from public commodity exchanges that are observable and quoted periodically over the full term of the agreement and are considered Level 2 items.

The fair value estimates of the Company’s debt are classified as Level 2. Public and non-public debt is valued using quoted market prices of the debt or debt with similar characteristics.

Under the CBAs the Company entered into in 2016, 2015 and 2014, the Company makes a quarterly sub-bottling payment to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and sell specified covered beverages and beverage products in the acquired territories. This acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the territory expansion to fair value by discounting future expected sub-bottling payments required under the CBAs using the Company’s estimated WACC. These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each expansion territory, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBAs, and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.

The acquisition related contingent consideration is the Company’s only Level 3 asset or liability. A reconciliation of the activity is as follows:

	Third Quarter						First Three Quarters
(in thousands)	2016			2015			2016			2015
Opening balance - Level 3 liability	$	228,768		$	94,068		$	136,570		$	46,850
Increase due to acquisitions		-			-			68,039			50,312
Decrease due to measurement period adjustments		-			(3,371	)		-			(3,371	)
Payments/accruals		(2,995	)		(1,625	)		(12,261	)		(3,730	)
Fair value adjustment - (income) expense		(7,365	)		3,992			26,060			3,003
Ending balance - Level 3 liability	$	218,408		$	93,064		$	218,408		$	93,064

As of October 2, 2016 and September 27, 2015, the Company has recorded a liability of $218.4 million and $93.1 million, respectively, to reflect the estimated fair value of the contingent consideration related to the future sub-bottling payments. The contingent consideration was valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data. The contingent consideration is reassessed and adjusted to fair value each quarter through other income (expense) on the Company’s consolidated statements of operations. During the third quarter of 2016, the Company recorded a favorable fair value adjustment to the contingent consideration liability of $7.4 million. During the third quarter of 2015, the first three quarters of 2016 and the first three quarters of 2015, the Company recorded an unfavorable fair value adjustment to the contingent consideration liability of $4.0 million, $26.1 million and $3.0 million, respectively. All adjustments to fair value were primarily a result of updated projections and changes in the risk-free interest rate.

There were no transfers of assets or liabilities between Levels in any period presented.