Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.23.2
Fair Value Measurements
 6 Months Ended
Jul. 01, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements
The Company uses the accounting guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1:   Quoted market prices in active markets for identical assets or liabilities.
Level 2:   Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3:   Unobservable inputs reflecting the reporting entity’s own assumptions.
The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability's level is based on the lowest level of input that is significant to the fair value measurement.
The following tables set forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period, by level, within the fair value hierarchy:
 
  As of July 1, 2023
  Level 1 Level 2 Level 3 Total
Trading securities $ 1,255  $ —  $ —  $ 1,255 
Interest rate swaps —  17,030  —  17,030 
Contingent consideration payable —  —  14,105  14,105 
  As of December 31, 2022
  Level 1 Level 2 Level 3 Total
Trading securities $ 1,155  $ —  $ —  $ 1,155 
Interest rate swaps —  21,749  —  21,749 
Contingent consideration payable —  —  11,063  11,063 
Trading securities are valued using quoted prices on an active exchange. Trading securities represent assets held in a Rabbi Trust to fund deferred compensation liabilities and are included as Other assets on the accompanying Condensed Consolidated Balance Sheets.
The Company utilizes interest rate swap contracts to manage our targeted mix of fixed and floating rate debt, and these contracts are valued using observable benchmark rates at commonly quoted intervals for the full term of the swap contracts. As of July 1, 2023 and December 31, 2022, the Company's interest rate swaps were recorded on the accompanying Condensed Consolidated Balance Sheets in accordance with ASC 815.
The contingent consideration represents future potential earn-out payments related to the Resharp acquisition in fiscal 2019 and the Instafob acquisition in the first quarter of 2020. The estimated fair value of the contingent earn-outs was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting earn-out payments. The resulting value captures the risk associated with the form of the payout structure. The risk neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability. As of July 1, 2023, the total contingent consideration was recorded as $435 in other accrued expenses and $13,670 in other non-current liabilities on the Condensed Consolidated Balance Sheets, in addition to $1,125 in payments made during the quarter. As of December 31, 2022, the total contingent consideration was recorded as $1,193 in other accrued expenses and $9,870 in other non-current liabilities on the Condensed Consolidated Balance Sheets. As of July 1, 2023, compared to December 31, 2022, the Company recorded a $4,017 and $150 increase in the Resharp and Instafob contingent consideration liability, respectively. The total $4,167 loss on the revaluation was determined by using a simulation model of the Monte Carlo analysis that included updated projections applicable to the liability as of July 1, 2023 compared to the prior valuation period and was recorded within other income in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Cash, accounts receivable, short-term borrowings and accounts payable are reflected in the Condensed Consolidated Balance Sheets at book value, which approximates fair value, due to the short-term nature of these instruments. The carrying amounts of the long-term debt under the revolving credit facility and term loan approximate the fair value at July 1, 2023 and December 31, 2022 as the interest rate is variable and approximates current market rates of debt based on observable market transactions with similar terms and comparable credit risk.
Additional information with respect to the derivative instruments is included in Note 14 - Derivatives and Hedging.