| Fair Value Measurements |
Fair Value Measurements
The accounting guidance for fair value establishes a framework for measuring fair value and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
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Level 1: Observable quoted prices in active markets for identical assets and liabilities.
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Level 2: Observable quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
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Level 3: Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.
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Fair value is defined 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 assets and liabilities that are fair valued on a recurring basis are described below and contained in the following tables. In addition, on a non-recurring basis, the Company may be required to record other assets and liabilities at fair value. These non-recurring fair value adjustments involve the lower of carrying value or fair value accounting and write-downs resulting from impairment of assets.
Due to the short-term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.
The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2019, and December 31, 2018, respectively (dollar values in thousands, other than per-share values):
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June 30, 2019 |
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Quotes Prices in Active Markets
(Level 1)
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Significant Other Observable Inputs
(Level 2)
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Significant Other Unobservable Inputs
(Level 3)
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Liabilities: |
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Earn-out liability (1)
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$ |
114 |
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$ |
— |
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$ |
— |
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$ |
114 |
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Contingently issuable shares (2)
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396 |
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— |
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— |
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396 |
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Phantom stock options (3)
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634 |
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— |
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— |
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630 |
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Total |
$ |
1,144 |
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$ |
— |
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$ |
— |
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$ |
1,144 |
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December 31, 2018 |
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Quotes Prices in Active Markets
(Level 1)
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Significant Other Observable Inputs
(Level 2)
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Significant Other Unobservable Inputs
(Level 3)
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Liabilities: |
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Earn-out liability (1)
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$ |
114 |
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$ |
— |
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$ |
— |
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$ |
114 |
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Contingently issuable shares (2)
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1,371 |
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— |
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— |
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1,371 |
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Phantom stock options (3)
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1,564 |
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— |
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— |
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1,564 |
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Total |
$ |
3,049 |
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$ |
— |
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$ |
— |
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$ |
3,049 |
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(1) |
Represents aggregate earn-out liabilities assumed in business combinations for the year ended December 31, 2015. |
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(2) |
In connection with the Sound-Recording Settlements (as described in Note 10. Commitments and Contingencies above), the Company is obligated to issue to UMG (as defined in that Note) 500,000 shares of its common stock when and if the closing price of the Company's common stock exceeds $10.00 per share and an additional 400,000 shares of common stock when and if the closing price of the Company’s common stock exceeds $12.00 per share. Such contingently issuable shares are classified as liabilities and are re-measured to fair value each reporting period.
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(3) |
Our cash-settled phantom stock options are accounted for as liability awards and are re-measured at fair value each reporting period with changes flowing through statement of operations. As of June 30, 2019, the aggregate estimated fair value of our cash-settled phantom stock options was $1.5 million, of which the amortized portion recognized as a liability in our condensed consolidated balance sheet was $634,000.
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The following table shows the carrying amounts and the fair values of our long-term debt in the condensed consolidated financial statements at June 30, 2019 and December 31, 2018, respectively (in thousands):
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June 30, 2019 |
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December 31, 2018 |
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Carrying Amount(7)
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Fair Value |
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Carrying Amount (7)
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Fair Value |
Senior secured term loan facility, due January 2023 (+)(1)
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$ |
468,750 |
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$ |
448,828 |
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$ |
478,125 |
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$ |
473,344 |
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Senior secured revolving credit facility, due January 2022 (+)(2)
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42,415 |
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42,415 |
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54,015 |
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54,015 |
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2.75% convertible senior notes due 2035 (1)(3)
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82,500 |
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37,125 |
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82,500 |
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49,064 |
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Second Lien Notes, due June 2023(4)(5)
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167,957 |
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106,803 |
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158,450 |
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112,230 |
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Other debt (6)
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29,847 |
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29,847 |
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1,707 |
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1,707 |
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$ |
791,469 |
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$ |
665,018 |
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$ |
774,797 |
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$ |
690,360 |
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(+) |
This facility is a component of the 2017 Credit Agreement. |
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(1) |
The estimated fair value is classified as Level 2 financial instrument and was determined based on quoted prices of the instrument in a similar over-the-counter market. |
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(2) |
The estimated fair value is considered to approximate carrying value and is classified as Level 3 financial instruments. We expect to draw on the 2017 Revolving Loans from time to time to fund our working capital needs and for other general corporate purposes. |
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(3) |
The fair value of the 2.75% Convertible Notes is exclusive of the conversion feature therein, which was originally allocated for reporting purposes at $13.0 million, and is included in the condensed consolidated balance sheets within “Additional paid-in capital”. The principal amount outstanding of the Convertible Notes was $82.5 million as of June 30, 2019, and the carrying amount in the foregoing table reflect this outstanding principal amount net of debt issuance costs and discount associated with the equity component.
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(4) |
The principal amount outstanding of the Second Lien Notes, due June 2023 as set forth in the foregoing table was $168.0 million as of June 30, 2019, and is not the carrying amount of the indebtedness (i.e. outstanding principal amount net of debt issuance costs and discount associated with the equity component and includes approximately $9.5 million of payment-in-kind (“PIK”) interest converted to principal during the six months ended June 30, 2019). The value allocated to the attached penny warrants and market warrants for financial reporting purposes was $14.9 million and $9.3 million, respectively. These qualify for classification in stockholders’ equity and are included in the condensed consolidated balance sheets within “Additional paid-in capital” (see Note 8. Financing Arrangements).
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(5) |
The fair value of the Second Lien Notes was determined based on a Black-Derman-Toy interest rate Lattice model. The key inputs of the valuation model contain certain Level 3 inputs. |
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(6) |
The estimated fair value is considered to approximate carrying value given the short-term maturity and is classified as Level 3 financial instruments. For June 30, 2019, Other debts primarily consisted of (i) $8.5 million financing for transponder purchases; and (ii) $3.1 million remaining advance against future dividends from related party (refer to Note 9. Related Party Transactions for further details), and (iii) $19.1 million of finance lease liability relating to an assessed right-of-use over a satellite bandwidth capacity (refer to Note 3. Leases for further details).
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(7) |
The carrying amounts presented above at June 30, 2019 and December 31, 2018 exclude $61.2 million and $65.2 million of unamortized bond discounts and issuance costs, respectively.
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