Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

13. 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 consisted 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. During the third and fourth quarters of 2020, we recorded additional impairment losses of $66.2 million and $24.0 million, respectively, related to the Nutrition business, each of which is reflected in loss from discontinued operations.      

During the fourth quarter of 2021, 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.  Also during the fourth quarter of 2021, we estimated the fair value of our indefinite-lived intangible asset, the SilverSneakers tradename, using the relief-from-royalty method, which required significant assumptions such as the long-term growth rate of future revenues, the royalty rate for such revenue, and a discount rate. Changes in these estimates and assumptions could materially affect the estimate of fair value for the tradename.  We determined that the carrying value of the tradename was not impaired based upon the impairment review.

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, 2021 and 2020.   

	December 31, 2021						December 31, 2020
	Fair Value Measurements Using Input Types						Fair Value Measurements Using Input Types
(In thousands)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Investment in equity securities (1)	$	49,746	$	—	$	49,746	$	—	$	—	$	—
Total assets	$	49,746	$	—	$	49,746	$	—	$	—	$	—
Liabilities:
Derivatives designated as effective hedging instruments
Interest rate swap agreements	$	—	$	8,705	$	8,705	$	—	$	20,377	$	20,377
Non-designated derivatives
Interest rate swap agreements	$	—	$	6,938	$	6,938	$	—	$	16,260	$	16,260
Total liabilities	$	—	$	15,643	$	15,643	$	—	$	36,637	$	36,637

(1) Reflects ownership of Sharecare Common Stock, as described in Note 12. At December 31, 2021, we held 11,079,331 shares of Sharecare Common Stock.  

The fair value of the Sharecare Equity Security is determined based on the closing price of Sharecare’s common stock on the last trading day of the reporting period.  

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, 2021 was as follows:

Cash and cash equivalents – The carrying amount of $60.1 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 term loan facility and a revolving credit facility (see Note 10), are determined based on the fair value hierarchy as discussed above.

The Term Loan B is actively traded and therefore is classified as a Level 1 valuation. The estimated fair value is based on an average of quotes as of December 31, 2021 from dealers who stand ready and willing to transact at those prices. We use a mid-market pricing convention (i.e., the mid-point of average bid and ask 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 fair value of outstanding borrowings under the Term Loan B at December 31, 2021 was estimated to equal the carrying value (excluding original issue discount and deferred loan costs) of $394.0 million. There were no outstanding borrowings under the Revolving Credit Facility at December 31, 2021.