What are Level 1 inputs, as defined by Aplus in the context of fair value measurements?

According to Aplus's 2024 Franchise Disclosure Document, Level 1 inputs are defined within the context of fair value measurements. Fair value measurements are used to measure purchased assets, investments, leases and derivative contracts, and to assess impairment of properties, equipment, intangible assets, and goodwill. The FDD states that fair value is based on observable market prices or parameters where available. When such prices or inputs are unavailable, unobservable prices or inputs are used, often relying on internal valuation models that involve management's judgment.

The document references ASC 820, "Fair Value Measurements and Disclosures," which prioritizes inputs used in measuring fair value into a hierarchy. Level 1 of this hierarchy is defined as quoted prices (unadjusted) in active markets for identical assets or liabilities.

For a prospective Aplus franchisee, understanding these definitions is crucial because it relates to how the company values its assets and liabilities, which can impact financial reporting and potentially affect the franchisee's investment. The use of different levels of inputs (Level 1, Level 2, and Level 3) indicates the degree of subjectivity involved in determining fair value, with Level 1 being the most objective due to its reliance on observable market prices.