Fair Value Measurements

6 Months Ended

Jun. 30, 2014

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 June 30, 2014 and December 31, 2013 were as follows (dollars in thousands):



				Fair Value Measurements at June 30, 2014 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)	$	1		$	—	$	1	$	—
Equity interest in Pulser Media (2)	5,512			—		—		5,512
Total assets	$	5,513		$	—	$	1	$	5,512
Financial liabilities:
Other current liabilities
Contingent consideration (3)	$	(31	)	$	—	$	—	$	(31	)
Total liabilities	$	(31	)	$	—	$	—	$	(31	)



				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 assets:
Interest Rate Cap (1)	$	22		$	—	$	22	$	—
Equity interest in Pulser Media (2)	122			—		—		122
Total assets	$	144		$	—	$	22	$	122
Financial liabilities:
Other current liabilities
Contingent consideration (3)	$	(31	)	$	—	$	—	$	(31	)
Total liabilities	$	(31	)	$	—	$	—	$	(31	)

(1)

Pursuant to the Interest Rate Cap, the Company pays a fixed interest rate on a $71.3 million notional amount of its term loan. The fair value of the Interest Rate Cap is determined based on a discounted cash flow analysis of 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)

On September 13, 2013, the Company and Pulser Media (the parent company of Rdio) ("Pulser"), entered into a five year strategic promotional partnership and sales arrangement (the "Rdio Agreement"). In exchange for $75 million of promotional commitments over five years, Cumulus will receive 15% of the current fully-diluted equity of Pulser, with the opportunity to earn additional equity, see Note 13 "Commitments and Contingencies". The fair value of the equity interest in Pulser was determined using inputs that are supported by little or no market activity (a Level 3 measurement). At June 30, 2014 the fair value of the equity interest in Pulser approximated its cost basis and the Company determined that the investment was not impaired.


(3)	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. 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 6, “Derivative Financial Instruments.”

The reconciliation below contains the components of the change in fair value associated with the equity interest in Pulser from January 1, 2014 to June 30, 2014 (dollars in thousands):



Description	Equity interest in Pulser
Fair value balance at January 1, 2014	$	122
Add: Additions to equity interest in Pulser	5,390
Fair value balance at June 30, 2014	$	5,512

The reconciliation below contains the components of the change in continuing contingency associated with the contingent consideration from January 1, 2014 to June 30, 2014 (dollars in thousands):



Description	Contingent Consideration
Fair value balance at January 1, 2014	$	(31	)
Add: Mark to market fair value adjustment	—
Fair value balance at June 30, 2014	$	(31	)

Quantitative information regarding the significant unobservable inputs related to the contingent consideration as of June 30, 2014 was as follows (dollars in thousands):



Fair Value		Valuation Technique	Unobservable Inputs
$	31	Income Approach	Total term	5 years
			Conditions	3
			Bond equivalent yield discount rate	0.1	%

Significant increases (decreases) in any of the inputs in isolation would result in a lower (higher) fair value measurement.

The following table shows the gross amount and fair value of the Company’s Term Loan, Securitization Facility and 7.75% Senior Notes (dollars in thousands):



	June 30, 2014		December 31, 2013
Term Loan:
Carrying value	$	1,993,875	$	2,025,000
Fair value - Level 2	1,998,860		2,025,000
Securitization Facility:
Carrying value	$	—	$	25,000
Fair value - Level 2	—		25,000
7.75% Senior Notes:
Carrying value	$	610,000	$	610,000
Fair value - Level 2	643,550		641,598

As of June 30, 2014, the Company used trading prices of 100.25% to calculate the fair value of the Term Loan, and 105.50% to calculate the fair value of the 7.75% Senior Notes.

As of December 31, 2013, the Company used trading prices of 100.00% to calculate the fair value of the Term Loan and the Securitization Facility, and 105.18% to calculate the fair value of the 7.75% Senior Notes.

- 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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