Regarding Hardees' financial statements, what are Level 2 observable inputs, other than Level 1 prices, used for valuation?

According to Hardees' 2025 Franchise Disclosure Document, Level 2 observable inputs, other than Level 1 prices, include quoted prices for similar assets or liabilities. These inputs also encompass quoted prices in markets that are not active. Additionally, Level 2 inputs consist of other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

In simpler terms, when Hardees assesses the fair value of its assets and liabilities, it prioritizes using observable market data. Level 1 inputs are the most straightforward, representing direct prices from active markets for identical items. However, when those aren't available, Hardees turns to Level 2 inputs. These might include prices of comparable items, prices from less active markets, or other data points that can be verified through market information.

This approach ensures that Hardees' financial reporting relies on verifiable data whenever possible, reducing the subjectivity in its valuations. For a prospective franchisee, this indicates that Hardees strives for transparency and accuracy in its financial assessments, which can be reassuring when evaluating the financial health and stability of the franchise system.

It's important to note that the FDD also mentions Level 3 inputs, which are unobservable and based on the company's own assumptions. While Level 2 inputs are preferred for their objectivity, Level 3 inputs may be used when market data is limited. Franchisees may want to inquire about the specific instances where Level 3 inputs are used and how those assumptions are determined.