Fair Value Measurements

9 Months Ended

Sep. 30, 2021

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, 2021
(in thousands)	Level 1		Level 2		Level 3		Total
Assets

Marketable equity securities (1)	$	764,831	$	—	$	—	$	764,831
Other current investments (2)	7,184		7,058		—		14,242
Total Financial Assets	$	772,015	$	7,058	$	—	$	779,073
Liabilities
Deferred compensation plan liabilities (3)	$	—	$	29,950	$	—	$	29,950
Contingent consideration liabilities (4)	—		—		12,895		12,895
Interest rate swap (5)	—		1,534		—		1,534
Mandatorily redeemable noncontrolling interest (6)	—		—		11,921		11,921
Total Financial Liabilities	$	—	$	31,484	$	24,816	$	56,300


	As of December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Money market investments (7)	$	—	$	268,841	$	—	$	268,841
Marketable equity securities (1)	573,102		—		—		573,102
Other current investments (2)	10,397		4,083		—		14,480

Total Financial Assets	$	583,499	$	272,924	$	—	$	856,423
Liabilities
Deferred compensation plan liabilities (3)	$	—	$	31,178	$	—	$	31,178
Contingent consideration liabilities (4)	—		—		37,174		37,174
Interest rate swap (5)	—		2,342		—		2,342
Foreign exchange swap (8)	—		259		—		259
Mandatorily redeemable noncontrolling interest (6)	—		—		9,240		9,240
Total Financial Liabilities	$	—	$	33,779	$	46,414	$	80,193

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(1)			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.
(2)			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.
(3)			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.
(4)			Included in Accounts payable and accrued liabilities and Other Liabilities. The Company determined the fair value of the contingent consideration liabilities using either a Monte Carlo simulation or probability-weighted analysis depending on the type of target included in the contingent consideration requirements (revenue, EBITDA, client retention). All analyses included estimated financial projections for the acquired businesses and acquisition-specific discount rates.
(5)			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.
(6)			The fair value of the mandatorily redeemable noncontrolling interest is based on the fair value of the underlying subsidiaries owned by GHC One, after taking into account any debt and other noncontrolling interests of its subsidiary investments. The fair value of the owned subsidiaries is determined using enterprise value analyses which include an equal weighing between guideline public company and discounted cash flow analyses.
(7)			The Company’s money market investments are included in cash and cash equivalents and the value considers the liquidity of the counterparty.
(8)			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.

The following table provides a reconciliation of changes in the Company’s financial liabilities measured at fair value on a recurring basis, using Level 3 inputs:


(in thousands)	Contingent consideration liabilities		Mandatorily redeemable noncontrolling interest
As of December 31, 2020	$	37,174	$	9,240

Changes in fair value (1)	(5,482)		2,703
Capital contributions	—		50
Accretion of value included in net income (1)	1,157		—
Settlements or distributions	(19,942)		(72)
Foreign currency exchange rate changes	(12)		—
As of September 30, 2021	$	12,895	$	11,921

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(1)			Changes in fair value and accretion of value of contingent consideration liabilities are included in Selling, general and administrative expenses and the changes in fair value of mandatorily redeemable noncontrolling interest is included in Interest expense in the Company’s Condensed Consolidated Statements of Operations.

During the three and nine months ended September 30, 2021, the Company recorded goodwill and other long-lived asset impairment charges of $26.8 million and $31.6 million, respectively. During the three and nine months ended September 30, 2020, the Company recorded goodwill and other long-lived asset impairment charges of $1.9 million and $29.8 million, respectively (see Note 16). The remeasurement of goodwill and 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 reporting unit, indefinite-lived intangible assets, and other long-lived assets. A market value approach was also utilized to supplement the discounted cash flow model. The Company made estimates and assumptions regarding future cash flows, royalty rates, discount rates, market values, and long-term growth rates.

During the nine months ended September 30, 2021, the Company recorded gains of $10.5 million to equity securities that are accounted for as cost method investments based on observable transactions for identical or similar investments of the same issuer. 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 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 third quarter of 2021, the Company recorded an impairment charge of $6.6 million on one of its investments in affiliates. During the first quarter of 2020, the Company recorded impairment charges of $3.6 million on two of its investments in affiliates (see Note 3).

- 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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