Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2015

Note 10 — Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability (exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques are based on observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable.

Level 3 — Valuations derived from valuation techniques in which significant value drivers are unobservable.

Applicable guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

At December 31, 2015, financial instruments include cash and cash equivalents of $8.6 million, restricted assets of $4.4 million, collateral investments of $1.8 million, and Senior Secured Credit Facility term loans, net of discount and deferred financing costs, of $101.7 million. At December 31, 2014, financial instruments include cash and cash equivalents of $34.4 million, restricted assets of $5.5 million, collateral investments of $3.6 million, and senior secured notes, net of discount and deferred financing costs, of $137.4 million. The fair market values of cash equivalents, restricted assets, and collateral investments are equal to their carrying value, as these investments are recorded based on quoted market prices and/or other market data for the same or comparable instruments and transactions as of the end of the applicable reporting period.

At December 31, 2015, the carrying value of the Company’s senior secured credit facility term loans approximates the fair value, as the Company completed the debt issuance in December 2015. At December 31, 2014, the senior secured notes, with aggregate outstanding principal amount of $140.0 million, had a fair value of $137.4 million based on quoted market prices in active markets for these debt instruments when traded as assets.

Assets and liabilities measured at fair value on a recurring basis at December 31, 2015 and 2014 were as follows:

(in thousands)			Fair Value at Reporting Date Using
Description	December 31, 2015		Quoted Prices in Active Markets for Identical Asset (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Restricted Assets:
Money Market	$	4,364	$	4,364	$	—	$	—
Collateral Investments:
Money Market		905		905		—		—
Certificate of Deposit		878		878		—		—

(in thousands)			Fair Value at Reporting Date Using
Description	December 31, 2014		Quoted Prices in Active Markets for Identical Asset (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Restricted Assets:
Money Market	$	5,497	$	5,497	$	—	$	—
Collateral Investments:
Money Market		904		904		—		—
Certificate of Deposit		2,720		2,720		—		—

(in thousands)	Total Gains (Losses) Years Ended December 31,
Description	2015		2014
Restricted Assets:
Money Market	$	—	$	—
Collateral Investments:
Money Market		—		—
Certificate of Deposit		—		—

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to tangible fixed assets, goodwill, and other intangible assets, which are remeasured when the derived fair value is below carrying value in the Consolidated Balance Sheets. For these assets, the Company does not periodically adjust carrying value to fair value except in the event of impairment. If it is determined that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within income before interest, other income (expense) and income taxes in the Consolidated Statements of Operations and Comprehensive Loss.

Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2015 and 2014 were as follows:

(in thousands)			Fair Value at Reporting Date Using
Description	December 31, 2015		Quoted Prices in Active Markets for Identical Asset (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Goodwill	$	47,842	$	—	$	—	$	47,842
Property, equipment and software, net		22,540		—		—		22,540
Pre-publication costs, net		16,441		—		—		16,441
Acquired curriculum and technology intangibles, net		2,731		—		—		2,731
Acquired publishing rights, net		1,459		—		—		1,459
Other intangible assets, net		3,231		—		—		3,231

(in thousands)			Fair Value at Reporting Date Using
Description	December 31, 2014		Quoted Prices in Active Markets for Identical Asset (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Goodwill	$	47,842	$	—	$	—	$	47,842
Property, equipment and software, net		20,856		—		—		20,856
Pre-publication costs, net		15,070		—		—		15,070
Acquired curriculum and technology intangibles, net		5,209		—		—		5,209
Acquired publishing rights, net		2,762		—		—		2,762
Other intangible assets, net		4,499		—		—		4,499

(in thousands)	Total Gains (Losses) Years Ended December 31,
Description	2015		2014
Goodwill	$	—	$	—
Property, equipment and software, net		—		—
Pre-publication costs, net		—		—
Acquired curriculum and technology intangibles, net		—		—
Acquired publishing rights, net		—		—
Other intangible assets, net		—		—

- 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.

+ References + Details