Fair Value Measurement

6 Months Ended

Jul. 01, 2022

Fair Value of Financial Instruments — The fair values and related carrying values of financial instruments that are not required to be remeasured at fair value on the condensed consolidated statements of operations were as follows:


	As of July 1, 2022				As of December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Notes receivable, net	$	1,503	$	1,503	$	6,484	$	6,764
Liabilities
New Term Loan	$	463,837	$	426,731	$	465,000	$	462,675

The fair value of notes receivable are estimated using a discounted cash flow analysis using interest rates currently offered for loans with similar credit quality which represent Level 2 inputs, and are included in other assets and other current assets on the balance sheet. The fair value of long-term debt was established using current market rates for similar instruments traded in secondary markets representing Level 2 inputs. The fair value of the Revolving Credit Facility approximates carrying value as the related interest rates approximate the Company’s incremental borrowing rate for similar obligations. Additionally, cash and cash equivalents, accounts receivable, net, prepaid expenses, accounts payable, and accrued liabilities are classified as Level 1 and the carrying value of these assets and liabilities approximates the fair value due to the short-term nature of these financial instruments.

Notes Receivable — During the second quarter of 2022, the Company increased its provision for credit losses to $5,872, representing a portion of the principal and accrued interest due to the Company under its unsecured loan to Clare Controls, LLC (“Clare”). The Company evaluated the expected credit losses for the Clare notes receivable as of July 1, 2022, in consideration of internal and external sources which may affect Clare’s ability to repay the loans upon maturity, including the Company’s acquisition of Clare subsequent to fiscal second quarter end. In connection with the transaction, certain credit obligations owed by Clare to third-parties were forgiven or settled at reduced rates. During the three months and the six months ended July 1, 2022, the Company has recorded a provision for credit loss of $5,872 on assets measured at fair value on a nonrecurring basis. The provision for credit losses was derived using Level 3 inputs and was primarily driven by a revised yield and credit rating analysis. The provision for credit losses is included in selling, general and administrative expenses on the condensed consolidated statement of operations for the three and six months ended July 1, 2022.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis — The Company utilizes a Monte Carlo simulation in an option pricing framework, where a range of possible scenarios are simulated, in order to determine the fair value of the contingent value rights (“CVRs”). Any future increase in the fair value of the CVR obligations, based on an increased likelihood that the underlying milestones will be achieved, and the associated payment or payments will, therefore, become due and payable, will result in a charge to selling, general and administrative expenses in the period in which the increase is determined. Similarly, any future decrease in the fair value of the CVR obligations will result in a reduction in selling, general and administrative expenses. CVR liabilities are categorized as other liabilities in the accompanying condensed consolidated balance sheets and are classified as Level 3.

Fair value at

July 1, 2022

Valuation Technique

Unobservable

Input

Volatility

Contingent Value Rights

$2,825

Monte Carlo

Volatility

50 and 60%

Changes in the CVRs for the six months ended July 1, 2022, and June 25, 2021 were as follows:


	July 1, 2022		June 25, 2021
CVR fair value – beginning of period	$	8,900	$	4,000
Fair value adjustments	(6,075)		2,840
CVR fair value – end of period	$	2,825	$	6,840

The fair value of the contingent consideration liability related to the Access Networks acquisition was based on unobservable inputs, including management estimates and assumptions about future revenues, and is, therefore, classified

as Level 3. The fair value of the contingent consideration was $2,000 as of July 1, 2022 and recorded in other current liabilities in the accompanying condensed consolidated balance sheet.

The fair value of the interest rate cap is determined using widely accepted valuation techniques based on its maturity and observable market-based inputs, including interest rate curves. This measurement is considered a Level 2 measurement. The interest rate cap expired on December 31, 2021 and had no value as of December 31, 2021.

There were no transfers into or out of Level 3 during the three months and six months ended July 1, 2022, or June 25, 2021.

- 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.

+ References + Details