10. Fair Value Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Specifically, it establishes a hierarchy prioritizing the use of inputs in valuation techniques. The defined levels within the hierarchy are as follows:


• Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities;


• Level 2	Inputs other than quoted prices included within Level 1 that are either directly or indirectly

observable; and


• Level 3	Assets or liabilities for which fair value is based on valuation models with significant unobservable

pricing inputs and which result in the use of management estimates.

The following table sets forth the carrying value and the estimated fair value of the Company’s financial instruments not measured at fair value on a recurring basis:



	June 30, 2018				June 30, 2017
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Broadcast rights payable	$	29.7	$	27.4	$	31.7	$	30.5
Long-term debt	3,135.6		3,179.8		698.2		700.7

The fair value of broadcast rights payable was determined using the present value of expected future cash flows discounted at the Company’s current borrowing rate with inputs included in Level 3. The fair value of total long-term debt is based on pricing from observable market information in a non-active market, therefore is included in

Level 2.

As of June 30, 2018, the Company had assets related to its qualified pension plans measured at fair value. The required disclosures regarding such assets are presented within Note 11. In addition, the Company has liabilities related to contingent consideration payables that are valued at estimated fair value as discussed in Note 2.

The following table sets forth the assets and liabilities measured at fair value on a recurring basis:



(In millions)	June 30, 2018		June 30, 2017
Machinery and equipment
Corporate airplanes, held-for-sale	$	—	$	1.9
Other assets
Interest rate swaps	—		0.2
Accrued expenses and other liabilities
Contingent consideration	24.6		4.0
Interest rate swaps	—		0.6
Deferred compensation plans	8.4		0.3
Other noncurrent liabilities
Contingent consideration	0.8		30.2
Deferred compensation plans	21.0		2.1

The fair value of interest rate swaps was determined based on discounted cash flows derived using market observable inputs including swap curves that were included in Level 2. The fair value of deferred compensation plans is derived from quotes from observable market information, and thus represent Level 2 measurements. The fair values of the contingent consideration and corporate airplanes are based on significant inputs not observable in the market and thus represent Level 3 measurements.

At June 30, 2018, certain national media trademarks were partially impaired during fiscal 2018 and thus deemed to be measured at fair value on a non-recurring basis which totaled $33.0 million. Those trademarks were not considered to be measured at fair value as of June 30, 2017. The fair values of the trademarks are determined based on significant inputs not observable in the market and thus represents a Level 3 measurement. The key assumptions used to determine the fair value include discount rates, estimated cash flows, royalty rates, and revenue growth rates. The discount rate used is based on several factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure, and includes adjustments for market risk and Company specific risk. Estimated cash flows are based upon internally developed estimates and the revenue growth rates are based on industry knowledge and historical performance. For further discussion, refer to Note 5.

The following table represents the changes in the fair value of Level 3 contingent consideration, corporate airplanes, trademarks, investment in Next Issue Media, and lease guarantees for the years ended June 30, 2018 and 2017.



Years ended June 30,	2018			2017
(in millions)
Contingent consideration
Balance at beginning of year	$	34.2		$	56.6
Accrual on Time’s opening balance sheet ¹	1.1			—
Additions due to acquisitions	—			7.7
Payments ¹	(5.1		)	(10.6		)
Fair value adjustment of contingent consideration	(4.8		)	(19.5		)
Balance at end of year	$	25.4		$	34.2

Corporate airplanes held-for-sale
Balance at beginning of year	$	1.9		$	2.8
Fair value adjustment of corporate airplanes	—			(0.9		)
Sale	(1.9		)	—
Balance at end of year	$	—		$	1.9

Trademarks
Balance at beginning of year ²	$	55.7		$	5.3
Impairment	(22.7		)	(5.3		)
Balance at end of year	$	33.0		$	—

Investment in Next Issue Media
Balance at beginning of year ³	$	11.0		$	—
Additions due to investment and acquisition	3.3			—
Equity method investment losses	(3.6		)	—
Impairment	(9.3		)	—
Sale	(1.4		)	—
Balance at end of year	$	—		$	—

Lease guarantee
Balance at beginning of year	$	—		$	—
Accrual on Time’s opening balance sheet	3.6			—
Issuance of new guarantees	9.2			—
Fair market value adjustment of lease guarantees	(0.4		)	—
Foreign currency exchange impact	(0.5		)	—
Balance at end of year	$	11.9		$	—

¹ Of this amount, $0.5 million was classified in liabilities associated with assets held-for-sale on the opening balance sheet, and was subsequently paid in fiscal 2018.
² Book value of trademarks impaired during the year.
³ Book value of investment impaired during the year.

The fair value adjustment of contingent consideration is the change in the estimated earn out payments based on projections of performance and the amortization of the present value discount. The fair value adjustment of contingent consideration is included in selling, general, and administrative line on the Consolidated Statements of Earnings.

In fiscal 2016, the Company committed to a plan to sell the Company’s two corporate airplanes. In conjunction with that plan, the Company classified the airplanes as held-for-sale and wrote the assets down to fair value. The airplanes were recorded at fair value until their sale in fiscal 2018.

The fair value adjustment of corporate airplanes and impairment of trademarks are included in the impairment of goodwill and other long-lived assets in the Consolidated Statement of Earnings. Next Issue Media was reported as a cost method investment as of June 30, 2017, and the impairment of this investment is recorded in non-operating expense, net in the Consolidated Statement of Earnings.

In the Acquisition, the Company assumed lease guarantees related to space leased by various former Time subsidiaries. The fair value of the lease guarantees was derived using a probability weighted present value of expected future payments using the with-and-without approach, for which the Company used unobservable inputs that are classified as Level 3 under the fair value hierarchy. The lease guarantee liabilities are being amortized into earnings on a straight-line basis over the lives of the respective leases, the longest of which extends through November 2030. The lease guarantees are not considered to be measured at fair value at June 30, 2018.