Fair Value of Financial Instruments

9 Months Ended

Sep. 24, 2022

Fair Value of Financial Instruments:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•Level 1 - defined as observable inputs such as quoted prices in active markets;

•Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

•Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s financial instruments consist of cash and cash equivalents, short-term receivables, trade payables, debt instruments, and interest rate swaps. Due to their short-term nature, the carrying values of cash and cash equivalents, short-term receivables, and trade payables approximate current fair value at each balance sheet date.

As described in further detail in Note 5 to the Condensed Consolidated Financial Statements, the Company had $1.09 billion in borrowings under its debt facilities as of September 24, 2022 and $1.00 billion in borrowings at each of December 25, 2021 and September 25, 2021. The fair value of the Company's $150 million 3.70% Senior Notes (the "3.70% Senior Notes"), the $200 million term loan (the "November 2020 Term Loan"), and the $90 million in borrowings under the Company's revolving credit facility (the "Revolver") were determined based on market interest rates (Level 2 inputs). The carrying value of borrowings in the 3.70% Senior Notes, the November 2020 Term Loan, and the Revolver all approximate fair value for each period reported.

The fair value of the Company's $650 million 1.75% Senior Notes (the "1.75% Senior Notes") is determined based on quoted prices in active markets, which are considered Level 1 inputs. The carrying value and the fair value of the 1.75% Senior Notes, net of discount were as follows (in thousands):


	September 24, 2022				December 25, 2021				September 25, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value



1.75% Senior Notes	$	638,876	$	492,902	$	637,844	$	614,881	$	637,500	$	628,654

The Company's interest rate swap is carried at fair value, which is determined based on the present value of expected future cash flows using forward rate curves, which is considered a Level 2 input. In accordance with hedge accounting, the gains and losses on interest rate swaps that are designated and qualify as cash flow hedges are recorded as a component of Other Comprehensive Income, net of related income taxes, and reclassified into earnings in the same income statement line and period in which the hedged transactions affect earnings. The fair value of the interest rate swap, excluding accrued interest, was as follows (in thousands):


	Fair Value Measurements at
	September 24, 2022		December 25, 2021		September 25, 2021
Interest rate swap assets (Level 2)	$	16,537	$	1,809	$	—

Interest rate swap liabilities (Level 2)	$	—	$	—	$	795

- 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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