Fair Value Of Assets And Liabilities

3 Months Ended

Mar. 31, 2015

NOTE 7 — FAIR VALUE OF ASSETS AND LIABILITIES

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following tables present the Company’s assets and liabilities measured at fair value as of March 31, 2015 and December 31, 2014 (in thousands):



	March 31, 2015
	Level 1		Level 2		Level 3
Cash equivalents and restricted cash	$	21,100	$	—	$	—
Big Fish Games deferred payments	—		—		80,400
Big Fish Games earnout liability	—		—		332,600
Senior unsecured notes	—		305,250		—
Bluff contingent consideration liability	—		—		2,331
Total	$	21,100	$	305,250	$	415,331



	December 31, 2014
	Level 1		Level 2		Level 3
Cash equivalents and restricted cash	$	27,464	$	—	$	—
Big Fish Games deferred payments	—		—		78,800
Big Fish Games earnout liability	—		—		327,800
Senior unsecured notes	—		299,250		—
Bluff contingent consideration liability	—		—		2,331
Total	$	27,464	$	299,250	$	408,931

The following table presents the change in fair value of the Company's level 3 liabilities during the three months ended March 31, 2015 (in thousands):



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Big Fish Games Deferred Payments		Big Fish Games Earnout Liability		Bluff Contingent Consideration		Total
Balance as of December 31, 2014	$	78,800	$	327,800	$	2,331	$	408,931
Change in fair value	1,600		4,800		—		6,400
Balance as of March 31, 2015	$	80,400	$	332,600	$	2,331	$	415,331

The Company's cash equivalents and restricted cash, which are held in interest-bearing accounts, qualify for Level 1 in the fair value hierarchy which includes unadjusted quoted market prices in active markets for identical assets.

The Company's accrued liability for a contingent consideration recorded in conjunction with the Bluff Media ("Bluff") acquisition was based on significant inputs not observed in the market and represents a Level 3 fair value measurement. The estimate of the contingent consideration liability uses an income approach and is based on the probability of achieving enabling legislation for Bluff which permits Internet poker gaming and the probability-weighted discounted cash flows. Any change in the fair value of the Bluff contingent consideration subsequent to the acquisition date will be recognized in the Company's Consolidated Statements of Comprehensive Loss.

The Company estimated the fair value of the Big Fish Games deferred payment and earnout liability as of March 31, 2015 using a discounted cash flows analysis over the period in which the obligation is expected to be settled, and applied a discount rate based on the Company’s cost of debt. The cost of debt was based on the observed market yields of the Company's Senior Unsecured Notes issued in December of 2013 and represents a Level 3 fair value measurement and was adjusted for the difference in seniority and term of the deferred payment and earnout liability. The change in fair values of the Big Fish Games deferred payment and earnout liability of $6.4 million during the three months ended March 31, 2015 was recorded as acquisition related charges in the Consolidated Statements of Comprehensive Loss. Changes to the Company's cost of debt could lead to a different fair value estimate for the deferred payment and earnout liability.

The Company's $300 million par value Senior Unsecured Notes represent a Level 2 fair value measurement. The fair value of the Senior Unsecured Notes is disclosed based on unadjusted quoted prices for similar liabilities in markets that are not active.

The Company currently has no other assets or liabilities subject to fair value measurement on a recurring basis. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash Equivalents—The carrying amount reported in the balance sheet for cash equivalents approximates its fair value due to the short-term maturity of these instruments.

During the three months ended March 31, 2015, the Company did not measure any assets at fair value on a non-recurring basis.

- 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