Fair Value of Financial Instruments

9 Months Ended

Mar. 27, 2022

Debt

The fair value and carrying value of our debt as of March 27, 2022 and June 27, 2021 are as follows:


	March 27, 2022		June 27, 2021
Carrying value	$	880,810	$	885,387
Fair value	874,034		887,102

The fair value of our debt is estimated based on information provided by JP Morgan Chase Bank, N.A. and is based on trading levels of lenders buying and selling their participation levels of funding (Level 2).

Items Measured at Fair Value on a Recurring Basis

As of March 27, 2022 and June 27, 2021, the Company held certain liabilities that were required to be measured at fair value on a recurring basis. The following tables are summaries of fair value measurements and hierarchy level as of:


	March 27, 2022
	Level 1		Level 2		Level 3		Total
Public warrants	$	24,123	$	—	$	—	$	24,123
Private placement warrants	—		—		9,975		9,975
Unvested warrants	—		—		3,854		3,854
Earnout shares	—		—		204,416		204,416
Contingent consideration	—		—		1,470		1,470
Derivatives	—		2,141		—		2,141
Total liabilities	$	24,123	$	2,141	$	219,715	$	245,979

The fair value of the warrant liability is classified as Level 1 and Level 3, depending on the class of warrant. The fair values of private warrants, unvested warrants, and earn-out shares were established using a Monte Carlo simulation Model (level 3 inputs). The key inputs into the Monte Carlo simulation as of March 27, 2022 were as follows:


Input	Warrant Liability			Earnout
Expected term in years	4.72			4.72
Expected volatility	28		%	55		%
Risk-free interest rate	2.54		%	2.54		%
Stock price	$	10.86		$	10.86
Dividend yield	—			—

The following table sets forth a summary of changes in the estimated fair value of the Company’s Level 3 Earnout liability and Warrant Liability for the nine months ended March 27, 2022:


	June 27, 2021		Issuances		Settlements		Changes in fair value		March 27, 2022
Earnouts	$	—	$	181,180	$	—	$	23,236	$	204,416
Warrant liability	—		22,426		5,222		20,748		37,952
Totals:	$	—	$	203,606	$	5,222	$	43,984	$	242,368

There were no transfers in or out of any of the levels of the valuation hierarchy during the fiscal year ended June 27, 2021 or through the period ended March 27, 2022.

Derivatives - The Company’s interest rate swap and cap agreements are valued using observable inputs; therefore, the resulting obligation is classified within Level 2 of the fair value hierarchy at March 27, 2022 and June 27, 2021.

Redeemable Common Stock – Old Bowlero

The redeemable common stock of Old Bowlero was not listed on an established public trading market, therefore, market prices were not available. The Company utilized an independent valuation specialist to determine the fair market value of our redeemable common stock based upon our estimated enterprise value using the income approach, which includes the use Level 3 inputs. As a result, the redeemable common stock is classified within Level 3 of the fair value hierarchy. Key assumptions used in estimating the fair value of our redeemable common stock included projected revenue growth and costs and expenses, which were based on internal projections, historical performance, and the business environment, as well as the selection of an appropriate discount rate based on weighted-average cost of capital and company-specific risk premium. See Note 17 - Common Stock. Preferred Stock and Stockholders’ Equity, for further information.

Items Measured at Fair Value on a Non-Recurring Basis

The Company’s significant assets measured at fair value on a non-recurring basis subsequent to their initial recognition include assets held for sale. We utilize third party broker estimate of value amounts to record the assets held for sale at their fair value less costs to sell. These inputs are classified as level 2 fair value measurements.

Other Financial Instruments

Other financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses. The financial statement carrying amounts of these items approximate the fair value due to their short duration.

- 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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