CUMULUS MEDIA INC - 10-K filing on 2016-03-10

Fair Value Measurements

12 Months Ended

Dec. 31, 2015

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, 2015 and 2014 were as follows (dollars in thousands):



	Fair Value Measurements at December 31, 2015 Using
	Total Fair Value			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial liabilities:
Other current liabilities
Contingent consideration (1)	$	(181	)	$	—	$	—	$	(181	)
Total liabilities	$	(181	)	$	—	$	—	$	(181	)

	Fair Value Measurements at December 31, 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:
Equity interest in Pulser Media (2)	$	17,339		$	—	$	—	$	17,339
Total assets	$	17,339		$	—	$	—	$	17,339
Financial liabilities:
Other current liabilities
Contingent consideration (1)	$	(181	)	$	—	$	—	$	(181	)
Total liabilities	$	(181	)	$	—	$	—	$	(181	)


(1)	Contingent consideration represents the fair value of the additional cash consideration potentially payable as part of the Wise Brothers Acquisition and the Company's 2013 asset exchange with Family Stations, Inc. (the "WFME Asset Exchange"). The fair value of the contingent consideration was determined using inputs that are supported by little or no market activity (a Level 3 measurement).

(2)

The fair value of the equity interest in Pulser Media, Inc. (the parent company of Rdio) ("Pulser") was determined using inputs that are supported by little or no market activity (a Level 3 measurement). Due to the volatility in market conditions that have an impact on Pulser's operations, during the year ended December 31, 2015, the Company recognized an impairment charge of $19.4 million related to the decline in the fair value of the equity interest in Pulser. There were no similar charges in 2014.

The reconciliation below contains the components of the change in fair value associated with the equity interest in Pulser for the year ended December 31, 2015 (dollars in thousands):



Description	Equity Interest in Pulser
Fair value balance at January 1, 2015	$	17,339
Add: Additions to equity interest in Pulser	2,025
Less: Impairment charge	(19,364		)
Fair value balance at December 31, 2015	$	—

The reconciliation below contains the components of the change in fair value associated with the contingent consideration for the year ended December 31, 2015 (dollars in thousands):



Description	Contingent Consideration
Fair value balance at January 1, 2015	$	(181	)
Add: Additions to contingent consideration	—
Fair value balance at December 31, 2015	$	(181	)

Quantitative information regarding the significant unobservable inputs related to the WFME Asset Exchange contingent consideration as of December 31, 2015 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.

Quantitative information regarding the significant unobservable inputs related to the Wise Brothers Acquisition contingent consideration as of December 31, 2015 was as follows (dollars in thousands):



Fair Value		Valuation Technique	Unobservable Inputs
$	150	Income Approach	Total term	2 years
			Conditions	4

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 and 7.75% Senior Notes (dollars in thousands):



	December 31, 2015		December 31, 2014
Term Loan:
Carrying value	$	1,838,940	$	1,903,875
Fair value — Level 2	1,360,816		1,856,278
7.75% Senior Notes:
Carrying value	$	610,000	$	610,000
Fair value — Level 2	204,350		617,625

As of December 31, 2015, the Company used the closing trading prices as of the balance sheet date of 74.0% to calculate the fair value of the Term Loan, and 33.5% to calculate the fair value of the 7.75% Senior Notes.

As of December 31, 2014, the Company used the closing trading prices as of the balance sheet date of 97.50% to calculate the fair value of the Term Loan, and 101.25% to calculate the fair value of the 7.75% Senior Notes.