How does Aunt Millies Bakeries define Level 3 inputs in the fair value hierarchy?

According to Aunt Millies Bakeries' 2025 Franchise Disclosure Document, Level 3 inputs in the fair value hierarchy are defined as significant unobservable inputs. These inputs reflect the company's own assumptions about what market participants would use when pricing an asset or liability.

In simpler terms, Level 3 inputs are used when there isn't readily available market data to determine the fair value of an asset. Instead, Aunt Millies Bakeries relies on its own internal estimates and models, considering what other participants in the market might assume in similar situations. This approach is used when objective, verifiable data is scarce or nonexistent.

This definition is important for prospective franchisees as it relates to how Aunt Millies Bakeries values its marketable securities. While the document specifies that the company classifies its marketable securities as available for sale and carries them at fair value using Level 1 inputs (quoted prices in active markets), understanding the hierarchy provides context. If Level 1 or Level 2 inputs were unavailable, the company would resort to Level 3 inputs, which involve more subjective assessments. Franchisees should be aware of these valuation methods, even if they are not directly involved in the process, as they can impact the company's financial statements.