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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:


	As of September 30, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Money market investments (1)	$	—	$	178,054	$	—	$	178,054
Marketable equity securities (2)	491,172		—		—		491,172
Other current investments (3)	12,008		3,066		—		15,074
Total Financial Assets	$	503,180	$	181,120	$	—	$	684,300
Liabilities
Deferred compensation plan liabilities (4)	$	—	$	28,484	$	—	$	28,484
Contingent consideration liabilities (5)	—		—		45,687		45,687
Interest rate swap (6)	—		2,624		—		2,624
Mandatorily redeemable noncontrolling interest (7)	—		—		768		768
Total Financial Liabilities	$	—	$	31,108	$	46,455	$	77,563


	As of December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Money market investments (1)	$	—	$	45,150	$	—	$	45,150

Marketable equity securities (2)	585,080		—		—		585,080
Other current investments (3)	8,843		6,044		—		14,887
Interest rate swap (8)	—		131		—		131
Total Financial Assets	$	593,923	$	51,325	$	—	$	645,248
Liabilities
Deferred compensation plan liabilities (4)	$	—	$	34,674	$	—	$	34,674
Interest rate swap (6)	—		1,119		—		1,119
Foreign exchange swap (9)	—		273		—		273
Mandatorily redeemable noncontrolling interest (7)	—		—		829		829
Total Financial Liabilities	$	—	$	36,066	$	829	$	36,895

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(1) The Company’s money market investments are included in cash and cash equivalents and the value considers the liquidity of the counterparty.

(2) The Company’s investments in marketable equity securities are held in common shares of U.S. and Canadian corporations that are actively traded on U.S. and Canadian stock exchanges. Price quotes for these shares are readily available.

(3) Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits. These investments are valued using a market approach based on the quoted market prices of the security or inputs that include quoted market prices for similar instruments and are classified as either Level 1 or Level 2 in the fair value hierarchy.

(4) Includes Graham Holdings Company’s Deferred Compensation Plan and supplemental savings plan benefits under the Graham Holdings Company’s Supplemental Executive Retirement Plan, which are included in accrued compensation and related benefits. These plans measure the market value of a participant’s balance in a notional investment account that is comprised primarily of mutual funds, which are based on observable market prices. However, since the deferred compensation obligations are not exchanged in an active market, they are classified as Level 2 in the fair value hierarchy. Realized and unrealized gains (losses) on deferred compensation are included in operating income.

(5) Included in Accounts payable and accrued liabilities and Other Liabilities. The Company determined the fair value of the contingent consideration using a Monte Carlo simulation as of the acquisition date, which included using estimated financial projections for the acquired business. The Company has subsequently recorded a $0.8 million non-cash accretion of the contingent consideration and settled $5.7 million of the liability in the three and nine months ended September 30, 2020.

(6) Included in Other Liabilities. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.

(7) The fair value of the mandatorily redeemable noncontrolling interest is based on the fair value of the underlying subsidiaries owned by GHC One (see Note 2), after taking into account any debt and other noncontrolling interests of its subsidiary investments. The fair value of the owned subsidiaries is determined by reference to either a discounted cash flow or EBITDA multiple, which approximates fair value.

(8) Included in Other current assets. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.

(9) Included in Accounts payable and accrued liabilities, and valued based on a valuation model that calculates the differential between the contract price and the market-based forward rate.

During the three and nine months ended September 30, 2020, the Company recorded other long-lived asset impairment charges of $1.9 million and $13.4 million, respectively (see Note 16). During the three and nine months ended September 30, 2019, the Company recorded other long-lived asset impairment charges of $0.4 million and $1.1 million, respectively. The remeasurement of other long-lived assets is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. The Company used a discounted cash flow model to determine the estimated fair value of the other long-lived assets and made estimates and assumptions regarding future cash flows and discount rates.

During the first quarter of 2020, the Company recorded goodwill and indefinite-lived intangible asset impairment charges of $16.4 million. The remeasurement of the goodwill and indefinite-lived intangible assets is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. The Company used a discounted cash flow model to determine the estimated fair value of the reporting unit and indefinite-lived intangible assets and made estimates and assumptions regarding future cash flows, royalty rates, discount rates, and long-term growth rates.

During the nine months ended September 30, 2020, the Company recorded impairment losses of $2.6 million to equity securities that are accounted for as cost method investments. During the three and nine months ended September 30, 2020, the Company recorded gains of $1.6 million and $4.2 million, respectively, to an equity security that is accounted for as a cost method investment based on observable transactions for identical or similar investments of the same issuer. During the three and nine months ended September 30, 2019, the Company recorded gains of $3.7 million and $5.1 million, respectively, to equity securities that are accounted for as cost method investments based on observable transactions for identical or similar investments of the same issuer.

In the first quarter of 2020, the Company recorded impairment charges of $3.6 million on two of its investments in affiliates.

- 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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