Fair Value Measurements
The three levels of the fair value hierarchy to be applied to financial instruments when determining fair value are described below:
Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access;
Level 2 — Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and
Level 3 — Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s financial assets and liabilities are measured at fair value on a recurring basis and non-financial assets and liabilities are measured at fair value on a non-recurring basis. Fair values as of December 31, 2013 were as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2013 Using |
| Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Financial asset: |
|
| | | |
|
| | |
Interest Rate Cap (1) | $ | 22 |
| | $ | — |
| | $ | 22 |
| | $ | — |
|
Total assets | $ | 22 |
| | $ | — |
| | $ | 22 |
| | $ | — |
|
Financial liabilities: | | | | | | | |
Other current liabilities | | | | | | | |
Contingent consideration (5) | $ | (31 | ) | | $ | — |
| | $ | — |
| | $ | (31 | ) |
Total liabilities | $ | (31 | ) | | $ | — |
| | $ | — |
| | $ | (31 | ) |
| | | | | | | |
| Fair Value Measurements at December 31, 2012 Using |
| Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | | | |
Interest rate cap (1) | $ | 44 |
|
| $ | — |
|
| $ | 44 |
|
| $ | — |
|
Non-financial assets: | | | | | | | |
Goodwill (2) | 131,997 |
| | — |
| | — |
| | 131,997 |
|
Broadcast licenses (3) | 384,350 |
| | — |
| | — |
| | 384,350 |
|
Total assets | $ | 516,391 |
| | $ | — |
| | $ | 44 |
| | $ | 516,347 |
|
Financial liabilities: | | | | | | | |
Other current liabilities | | | | | | | |
Green Bay Option (4) | $ | (11,386 | ) | | $ | — |
| | $ | — |
| | $ | (11,386 | ) |
Total liabilities | $ | (11,386 | ) | | $ | — |
| | $ | — |
| | $ | (11,386 | ) |
| |
(1) | The Company’s only derivative financial instrument is the Interest Rate Cap pursuant to which the Company pays a fixed interest rate on a $71.3 million notional amount of its term loans. The fair value of the Interest Rate Cap is determined based on discounted cash flow analysis on the expected future cash flows using observable inputs, including interest rates and yield curves. Derivative valuations incorporate adjustments that are necessary to reflect the credit risk. |
| |
(2) | As disclosed in Note 6, in accordance with the provisions of ASC 350, goodwill with a carrying amount of $232.0 million was written down to its implied fair value of $132.0 million, resulting in an impairment charge of $98.9 million, which was included in earnings for the period. |
| |
(3) | As disclosed in Note 6, in accordance with the provisions of ASC 350, FCC licenses with a carrying amount of $399.1 million were written down to their fair value of $384.4 million, resulting in an impairment charge of $14.7 million, which has been included in earnings for the period. |
| |
(4) | The fair value of the Green Bay Option was determined using inputs that are supported by little or no market activity (a Level 3 measurement). The fair value represents an estimate of the net amount that the Company would pay if the option was transferred to another party as of the date of the valuation. The option valuation incorporates a credit risk adjustment to reflect the probability of default by the Company. |
| |
(5) | The fair value of the contingent consideration was determined using inputs that are supported by little or no market activity (a Level 3 measurement). Contingent consideration represents the fair value of the additional cash consideration potentially payable as part of the WFME Asset Exchange if certain future conditions are met as detailed in the purchase agreement. See Note 2 “Acquisitions and Dispositions”. |
The assets associated with the Company’s Interest Rate Cap are measured within Level 2 of the fair value hierarchy. To estimate the fair value of the Interest Rate Cap, the Company used an industry standard cash valuation model, which utilizes a discounted cash flow approach, with all significant inputs derived from or corroborated by observable market data. See Note 8, “Derivative Financial Instruments.”
The reconciliation below contains the components of the change in fair value associated with the Green Bay Option for the year ended December 31, 2013 (dollars in thousands):
|
| | | |
Description | Green Bay Option |
Fair value balance at January 1, 2013 | $ | (11,386 | ) |
Add: Mark to market fair value adjustment | 1,852 |
|
Add: Option exercise | 9,534 |
|
Fair value balance at December 31, 2013 | $ | — |
|
The reconciliation below contains the components of the change in fair value associated with the contingent consideration for the year ended December 31, 2012 (dollars in thousands):
|
| | | |
Description | Contingent Consideration |
Fair value balance at January 1, 2013 | $ | — |
|
Add: Acquisition of WFME | (31 | ) |
Fair value balance at December 31, 2013 | $ | (31 | ) |
Quantitative information regarding the significant unobservable inputs related to the contingent consideration as of December 31, 2013 was as follows (dollars in thousands):
Significant increases (decreases) in any of the inputs in isolation would result in a lower (higher) fair value measurement.
|
| | | | | | | | |
Fair Value | | Valuation Technique | | Unobservable Inputs | |
$ | 31 |
| | Income Approach | | Total term | 5 years |
|
| | | | Conditions | 3 |
|
| | | | Bond equivalent yield discount rate | 0.1 | % |
The reconciliation below contains the components of the change in fair value associated with the Green Bay Option for the years ended December 31, 2012 (dollars in thousands):
|
| | | |
Description | Green Bay Option |
Fair value balance at January 1, 2012 | $ | (11,398 | ) |
Add: Mark to market fair value adjustment | 12 |
|
Fair value balance at December 31, 2012 | $ | (11,386 | ) |
The following table shows the gross amount and fair value of the Company’s term loans, Securitization Facility and 7.75% Senior Notes (dollars in thousands):
|
| | | | | | | |
| December 31, 2013 | | December 31, 2012 |
First Lien Term Loan: | | | |
Carrying value | $ | 2,025,000 |
| | $ | 1,321,687 |
|
Fair value — Level 2 | 2,025,000 |
| | 1,331,600 |
|
Second Lien Term Loan: | | | |
Carrying value | $ | — |
| | $ | 790,000 |
|
Fair value — Level 2 | — |
| | 811,725 |
|
Secured Loan: | | | |
Carrying value | $ | 25,000 |
| | $ | — |
|
Fair value — Level 2 | 25,000 |
| | — |
|
7.75% Senior Notes: | | | |
Carrying value | $ | 610,000 |
| | $ | 610,000 |
|
Fair value — Level 2 | 641,598 |
| | 599,325 |
|
As of December 31, 2013, the Company used the trading prices of 100.0% to calculate the fair value of the First Lien Term Loan and the Securitization Facility, and 105.18% to calculate the fair value of the 7.75% Senior Notes.
As of December 31, 2012, the Company used the trading prices of 100.75% and 102.75% to calculate the fair value of the First Lien Term Loan and Second Lien Term Loan, respectively, and 98.3% to calculate the fair value of the 7.75% Senior Notes.