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Note 11 - Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 11. FAIR VALUE MEASUREMENTS

We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions.

These inputs create 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 all significant inputs and significant value drivers are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

Balances Measured at Fair Value

The following tables show the fair values of certain of our financial instruments:

		*December 31, 2021*
*(In thousands)*		*Balance*				*Level 1*				*Level 2*				*Level 3*
Assets
Cash and cash equivalents		$	344,557			$	344,557			$	—			$	—
Restricted cash			12,571				12,571				—				—
Investment available for sale			15,822				—				—				15,822

Liability
Contingent payments		$	62			$	—			$	—			$	62

		*December 31, 2020*
*(In thousands)*		*Balance*				*Level 1*				*Level 2*				*Level 3*
Assets
Cash and cash equivalents		$	519,182			$	519,182			$	—			$	—
Restricted cash			15,817				15,817				—				—
Investment available for sale			16,692				—				—				16,692

Liability
Contingent payments		$	924			$	—			$	—			$	924

Cash and Cash Equivalents and Restricted Cash

The fair value of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, is based on statements received from our banks at December 31, 2021 and 2020.

Investment Available for Sale

We have an investment in a single municipal bond issuance of $18.4 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 that is classified as available for sale with a maturity date of June 1, 2037. We are the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and a discounted cash flows analysis as of December 31, 2021 and 2020. The fair value of the investment is estimated using a discounted cash flows approach and the significant unobservable input used in the valuation as of December 31, 2021 and 2020 is a discount rate of 10.1% and 9.6%, respectively. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the stockholders' equity section of the consolidated balance sheets. At both December 31, 2021 and 2020, $0.6 million of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other current assets, and at December 31, 2021 and 2020, $15.2 million and $16.1 million, respectively, is included in other long-term assets, net on the consolidated balance sheets. The discount associated with this investment of $2.3 million and $2.5 million as of December 31, 2021 and 2020, respectively, is netted with the investment balance and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in interest income on the consolidated statements of operations.

Contingent Payments

In connection with securing the Kansas Management Contract, Kansas Star agreed to pay a former casino project promoter 1% of Kansas Star’s EBITDA each month for a period of 10 years, which ended December 20, 2021. The liability is recorded at the estimated fair value of the contingent payments using a discounted cash flows approach and the significant unobservable input used in the valuation at December 31, 2020 is a discount rate of 6.1%. At December 31, 2021 and 2020, there was a current liability of $0.1 and $0.9 million, respectively, related to this agreement, which was recorded in accrued liabilities on the respective consolidated balance sheets. There is no long-term obligation as of December 31, 2021 and 2020.

The following tables summarize the changes in fair value of the Company’s Level 3 assets and liabilities:

		*December 31, 2021*
		*Asset*				*Liability*
*(In thousands)*		*Investment Available for Sale*				*Contingent Payments*
Balance at beginning of reporting period		$	16,692			$	(924	)
Total gains (losses) (realized or unrealized):
Included in interest income (expense)			161				(29	)
Included in other comprehensive income (loss)			(441	)			—
Included in other items, net			—				52
Purchases, sales, issuances and settlements:
Settlements			(590	)			839
Balance at end of reporting period		$	15,822			$	(62	)

December 31, 2020

Asset

Liability

(In thousands)

Investment Available for Sale

Contingent Payments

Balance at beginning of reporting period
$ 16,151 $ (1,712 )

Total gains (losses) (realized or unrealized):

Included in interest income (expense)
156 (82 )

Included in other comprehensive income (loss)
935 —

Included in other items, net
— 192

Purchases, sales, issuances and settlements:

Settlements
(550 ) 678

Balance at end of reporting period
$ 16,692 $ (924 )

We are exposed to valuation risk on our Level 3 financial instruments. We estimate our risk exposure using a sensitivity analysis of potential changes in the significant unobservable inputs of our fair value measurements. Our Level 3 financial instruments are most susceptible to valuation risk caused by changes in the discount rate. If the discount in our fair value measurements increased or decreased by 100 basis points, the change would not cause the value of our fair value measurements to change significantly.

The fair value of intangible assets, classified in the fair value hierarchy as Level 3, is utilized in performing its impairment analyses (see Note 3, Intangible Assets).

Balances Disclosed at Fair Value

The following tables provide the fair value measurement information about our obligation under minimum assessment agreements and other financial instruments:

		*December 31, 2021*
*(In thousands)*		*Outstanding Face Amount*				*Carrying Value*				*Estimated Fair Value*			*Fair Value Hierarchy*
Liabilities
Obligation under assessment arrangements		$	24,306			$	20,734			$	26,908		Level 3

		*December 31, 2020*
*(In thousands)*		*Outstanding Face Amount*				*Carrying Value*				*Estimated Fair Value*			*Fair Value Hierarchy*
Liabilities
Obligation under assessment arrangements		$	26,246			$	22,062			$	26,542		Level 3

The following tables provide the fair value measurement information about our long-term debt:

		*December 31, 2021*
*(In thousands)*		*Outstanding Face Amount*				*Carrying Value*				*Estimated Fair Value*			*Fair Value Hierarchy*
Bank credit facility		$	867,897			$	859,106			$	866,812		Level 2
4.750% senior notes due 2027			1,000,000				988,312				1,023,750		Level 1
8.625% senior notes due 2025			300,000				295,934				320,250		Level 1
4.750% senior notes due 2031			900,000				886,746				915,750		Level 1
Other			1,496				1,496				1,496		Level 3
Total debt		$	3,069,393			$	3,031,594			$	3,128,058

December 31, 2020

(In thousands)

Outstanding Face Amount

Carrying Value

Estimated Fair Value

Fair Value Hierarchy

Bank credit facility
$ 896,185 $ 882,789 $ 888,511
Level 2

6.375% senior notes due 2026
750,000 743,053 778,125
Level 1

6.000% senior notes due 2026
700,000 692,151 728,000
Level 1

4.750% senior notes due 2027
1,000,000 986,364 1,038,750
Level 1

8.625% senior notes due 2025
600,000 589,488 667,500
Level 1

Other
3,638 3,638 3,638
Level 3

Total debt
$ 3,949,823 $ 3,897,483 $ 4,104,524

The estimated fair value of the Credit Facility is based on a relative value analysis performed on or about December 31, 2021 and 2020. The estimated fair values of our Senior Notes are based on quoted market prices as of December 31, 2021 and 2020. The other debt is fixed-rate debt consisting of: (i) finance leases with various maturity dates from 2021 to 2024 and (ii) a purchase obligation with quarterly payments maturing in July 2022. These debt obligations are not traded and do not have observable market inputs; therefore, we have estimated fair value to be equal to the carrying value for these obligations.

There were no transfers between Level 1, Level 2 and Level 3 measurements during the years ended December 31, 2021 and 2020.

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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