Fair Value Measurements

3 Months Ended

Oct. 03, 2020

Note 8. Fair Value Measurements

3Z Telecom, Inc. Acquisition

On May 31, 2019 (“3Z Close Date”), the Company acquired all of the equity of 3Z Telecom, Inc. (“3Z”) for approximately $23.2 million in cash and contingent consideration (“earn-out”) liability of up to $7.0 million in cash based on the achievement of certain net revenue targets over approximately a two year period, subsequent to the 3Z Close Date. The acquisition of 3Z expands the Company’s Field Instrument offerings.

RPC Photonics, Inc. Acquisition

On October 30, 2018 (“RPC Close Date”), the Company acquired all of the equity interest of RPC Photonics, Inc. (“RPC”) for approximately $33.4 million in cash and an additional earn-out of up to $53.0 million in cash based on the achievement of certain gross profit targets over approximately a four years period, subsequent to the RPC Close Date. The achievement or distributions of earn-out payments are not limited in any one period. The acquisition of RPC expands the Company’s 3D Sensing offerings.

Fair Value Measurements

The Company’s assets and liabilities measured at fair value for the periods presented are as follows (in millions):



	October 3, 2020								June 27, 2020
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Debt available-for-sale securities:
Asset-backed securities	$	0.5	$	—	$	0.5	$	—	$	0.5	$	—	$	0.5	$	—
Total debt available-for-sale securities	0.5		—		0.5		—		0.5		—		0.5		—
Money market funds	347.7		347.7		—		—		334.6		334.6		—		—
Trading securities	1.5		1.5		—		—		1.4		1.4		—		—
Foreign currency forward contracts ⁽¹⁾	8.0		—		8.0		—		2.2		—		2.2		—
Total assets ⁽²⁾	$	357.7	$	349.2	$	8.5	$	—	$	338.7	$	336.0	$	2.7	$	—

Liability:
Foreign currency forward contracts ⁽³⁾	$	1.5	$	—	$	1.5	$	—	$	1.5	$	—	$	1.5	$	—
Contingent consideration⁽⁴⁾	9.9		—		—		9.9		9.9		—		—		9.9
Total liabilities	$	11.4	$	—	$	1.5	$	9.9	$	11.4	$	—	$	1.5	$	9.9

(1)$8.0 million and $2.2 million in prepayments and other current assets on the Company’s Consolidated Balance Sheets as of October 3, 2020 and June 27, 2020, respectively.

(2)Includes as of October 3, 2020, $340.2 million in cash and cash equivalents, $1.5 million in short-term investments, $3.2 million in restricted cash, $8.0 million in prepayments and other current assets and $4.8 million in other non-current assets on the Company’s Consolidated Balance Sheets. Includes as of June 27, 2020, $327.2 million in cash and cash equivalents, $1.4 million in short-term investments, $3.4 million in restricted cash, $2.2 million in prepayments and other current assets, and $4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets.

(3)Includes $1.5 million and $1.5 million in other current liabilities on the Company’s Consolidated Balance Sheets as of October 3, 2020 and June 27, 2020, respectively.

(4)Includes $8.9 million and $9.4 million in other non-current liabilities and $1.0 million and $0.5 million in other current liabilities as of October 3, 2020 and June 27, 2020, respectively.

The Company’s Level 3 liabilities as of October 3, 2020, consist of contingent purchase consideration. The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2020 and 2019. As of October 3, 2020 and June 27, 2020 and, the aggregate fair value of contingent consideration was $9.9 million, respectively. The fair value of earn-out liabilities were determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the risk-adjusted discount rate, gross profit volatility, and projected financial forecast of acquired business over the earn-out period. The fair value of contingent consideration liabilities is remeasured at each reporting period at the estimated fair value based on the inputs on the date of remeasurement, with the change in fair value recognized in the Selling, General and Administrative expense of the Consolidated Statements of Operations.

The following table provides a reconciliation of changes in fair value of the Company’s Level 3 liabilities for the three months ended October 3, 2020 (in millions):



	Three Months Ended
	October 3, 2020
Balance as of June 27, 2020	$	9.9
Fair value adjustment of contingent consideration liabilities	—
Balance as of October 3, 2020	$	9.9

No payments were made in connection with the Company’s contingent earn-out liabilities during the three months ended October 3, 2020 and September 28, 2019.

- 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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