Anuvu Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2019

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:


•	Level 1: Observable quoted prices in active markets for identical assets and liabilities.


•	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.


•	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.

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 September 30, 2019, and December 31, 2018, respectively (dollar values in thousands, other than per-share values):



	Balance Sheet Location	September 30, 2019		Quotes Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Liabilities:
Earn-out liability ⁽¹⁾	Other non-current liabilities	$	114	$	—	$	—	$	114
Contingently issuable shares ⁽²⁾	Accounts payable and accrued liabilities	440		—		—		440
Phantom stock options ⁽³⁾	Other non-current liabilities	714		—		—		714
Total		$	1,268	$	—	$	—	$	1,268



	Balance Sheet Location	December 31, 2018		Quotes Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Liabilities:
Earn-out liability ⁽¹⁾	Other non-current liabilities	$	114	$	—	$	—	$	114
Contingently issuable shares ⁽²⁾	Accounts payable and accrued liabilities	1,371		—		—		1,371
Phantom stock options ⁽³⁾	Other non-current liabilities	1,564		—		—		1,564
Total		$	3,049	$	—	$	—	$	3,049


(1)	Represents aggregate earn-out liabilities assumed in business combinations for the year ended December 31, 2015.

(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.

(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 September 30, 2019, the aggregate estimated fair value of our cash-settled phantom stock options was $1.4 million, of which the amortized portion recognized as a liability in our condensed consolidated balance sheet was $0.7 million.

The following table shows the carrying amounts and the fair values of our long-term debt in the condensed consolidated financial statements at September 30, 2019 and December 31, 2018, respectively (in thousands):



	September 30, 2019				December 31, 2018
	Carrying Amount⁽⁷⁾		Fair Value		Carrying Amount ⁽⁷⁾		Fair Value
Senior secured term loan facility, due January 2023⁽⁺⁾⁽¹⁾	$	484,947	$	461,728	$	455,292	$	473,344
Senior secured revolving credit facility, due January 2022⁽⁺⁾⁽²⁾	21,015		21,015		54,015		54,015
Convertible senior notes due 2035⁽¹⁾⁽³⁾	70,948		37,125		70,419		49,064
Second Lien Notes, due June 2023⁽⁴⁾⁽⁵⁾	149,148		98,411		128,178		112,230
Other debt⁽⁶⁾	26,792		26,490		1,707		1,707
	$	752,850	$	644,769	$	709,611	$	690,360


(+)	This facility is a component of the 2017 Credit Agreement.


(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.


(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.

(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 September 30, 2019, and the carrying amount in the foregoing table reflects this outstanding principal amount net of debt issuance costs and discount associated with the equity component.

(4)

The principal amount outstanding of the Second Lien Notes, due June 2023 as set forth in the foregoing table was $178.0 million as of September 30, 2019, and includes $28.0 million of payment-in-kind (“PIK”) interest converted to principal since debt issuance. 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).


(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.

(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 September 30, 2019, Other debts primarily consisted of (i) $6.2 million financing for transponder purchases, and (ii) $18.9 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).


(7)	The carrying amounts presented above at September 30, 2019 and December 31, 2018 are net of $62.9 million and $65.2 million of unamortized bond discounts and issuance costs, respectively.

- 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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