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Fair Value Measurements

12 Months Ended

Dec. 31, 2020

12.	Fair Value Measurements

We account for certain assets and liabilities at fair value. Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.

Fair Value Hierarchy

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1:

Quoted prices in active markets for identical assets or liabilities;

Level 2:

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuation techniques in which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3:

Unobservable inputs that are supported by little or no market activity and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We measure certain assets at fair value on a nonrecurring basis in the fourth quarter of each year, including the following:

•

reporting units measured at fair value as part of a goodwill impairment test; and

•

indefinite-lived intangible assets measured at fair value for impairment assessment.

Each of these assets above is classified as Level 3 within the fair value hierarchy.

The fair value of a reporting unit is the price that would be received upon a sale of the unit as a whole in an orderly transaction between market participants at the measurement date. Following the sale of Nutrisystem effective December 9, 2020, we have a single reporting unit.

The COVID-19 pandemic has had and is having an adverse impact on the overall economy, resulting in rapidly changing market and economic conditions that have impacted the Company. In March 2020, we experienced a significant decline in our market capitalization and in our actual and forecasted operating results, in addition to the unfavorable change in market conditions. As a result, management concluded that there were triggering events during the first quarter of 2020 necessitating an impairment evaluation of our goodwill and indefinite-lived intangible assets (which consist of the Nutrisystem tradename and the SilverSneakers tradename). Following these evaluations, we recorded a total impairment loss of $199.5 million related to the Nutrisystem goodwill and tradename during the first quarter of 2020, which amount is reflected in loss from discontinued operations. We determined there was no impairment related to the SilverSneakers tradename or the carrying value of goodwill related to continuing operations.

On October 18, 2020, we entered into the Purchase Agreement providing for the sale of the Nutrition business unit for $575.0 million (subject to the terms and conditions set forth in the Purchase Agreement), which indicated that the fair value for the Nutrition business unit was below its carrying value as of September 30, 2020. We performed an impairment assessment in accordance with the held and used model and determined that the fair values of all assets and liabilities allocated to the Nutrition segment approximated their carrying amounts as of September 30, 2020, except for goodwill. As a result, we recorded an impairment loss of $66.2 million for the third quarter of 2020 related to goodwill allocated to the former Nutrition segment, which amount is reflected in loss from discontinued operations. Effective December 9, 2020, we completed the sale of Nutrisystem to Kainos for an aggregate purchase price, after giving effect to customary indebtedness and cash adjustments, of approximately $558.9 million, which amount is subject to a customary working capital adjustment post-Closing. We estimate such working capital adjustment will result in additional proceeds to be received in 2021 of $2.8 million. At the time of disposition, the carrying value of the disposal group of $585.7 million exceeded the estimated gross proceeds (excluding our transaction costs) of $561.7 million. As a result, we recorded an additional impairment loss of $24.0 million in the fourth quarter of 2020 related to goodwill allocated to the former Nutrition segment, which amount is reflected in loss from discontinued operations.

During the fourth quarter of 2020, we reviewed goodwill for impairment related to our single reporting unit. We estimated the fair value of the reporting unit based on our market capitalization and compared such fair value to the carrying value of the reporting unit. Because the fair value of the reporting unit exceeded its carrying amount, we determined that the carrying value of goodwill was not impaired.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents our financial instruments measured at fair value on a recurring basis at December 31, 2020 and 2019.

(In thousands)
	Level 2
	December 31, 2020		December 31, 2019
Derivatives designated as effective hedging instruments
Liabilities:
Interest rate swap agreements	$	20,377	$	16,238

Non-designated derivatives
Liabilities:
Interest rate swap agreements	$	16,260	$	—

The fair values of interest rate swap agreements are primarily determined based on the present value of future cash flows using third-party pricing services with observable inputs, including interest rates, yield curves and applicable credit spreads.

Fair Value of Other Financial Instruments

The estimated fair value of each class of financial instruments at December 31, 2020 was as follows:

Cash and cash equivalents – The carrying amount of $100.4 million approximates fair value because of the short maturity of those instruments (less than three months).

Debt – The estimated fair value of outstanding borrowings under the Credit Agreement, which includes a revolving credit facility and a term loan facility (see Note 10), are determined based on the fair value hierarchy as discussed above.

The Term Loans are actively traded and therefore are classified as Level 1 valuations. The estimated fair value is based on quotes as of December 31, 2020 from dealers who stand ready and willing to transact at those prices. The Revolving Credit Facility is not actively traded and therefore is classified as a Level 2 valuation based on the market for similar instruments. The estimated net fair value and net carrying amount of outstanding borrowings under the Term Loans at December 31, 2020 were $463.2 million and $466.7 million, respectively. There were no outstanding borrowings under the Revolving Credit Facility at December 31, 2020.

- 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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