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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2012
Fair Value Measurements |
Fair Value Measurements |
10. Fair Value Measurements The Company determines the fair value of certain investment securities and other financial and nonfinancial assets and liabilities. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in the principal market for the asset or liability, or absent a principal market, the most advantageous market for the asset or liability, utilizing a hierarchy of three different valuation techniques: Level 1—Unadjusted quoted market 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 whose inputs, or significant value drivers, are observable; and Level 3—Prices reflect the Company's own assumptions concerning unobservable inputs to the valuation model. These inputs require significant management judgment and reflect the Company's assumptions that market participants would use in pricing the asset or liability. The following table summarizes the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis:
|  |  |  | Fair Value Measurements |
--- | --- | --- | --- | --- | ---
|  | December 31, 2011 |
|  | Level 1 |  | Level 2 |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 23.2 |  | $ | 23.2 |  | $ | — |  | $ | — |
Investments in marketable securities(1) |  |  |  |  |  |  |  |  |  |  |  |  |
Trading securities |  |  | 14.1 |  |  | 14.1 |  |  | — |  |  | — |
Available-for-sale securities |  |  | 86.3 |  |  | 86.3 |  |  | — |  |  | — |
Other investments(2) |  |  | 145.3 |  |  | 31.1 |  |  | 10.8 |  |  | 103.4 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent payment arrangements(3) |  | $ | 87.1 |  | $ | — |  | $ | — |  | $ | 87.1 |
Obligations to related parties(4) |  |  | 92.0 |  |  | — |  |  | — |  |  | 92.0 |
Interest rate derivatives(5) |  |  | 2.9 |  |  | — |  |  | 2.9 |  |  | — |
|  |  |  | Fair Value Measurements |
--- | --- | --- | --- | --- | ---
|  | September 30, 2012 |
|  | Level 1 |  | Level 2 |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 18.7 |  | $ | 18.7 |  | $ | — |  | $ | — |
Investments in marketable securities(1) |  |  |  |  |  |  |  |  |  |  |  |  |
Trading securities |  |  | 21.1 |  |  | 21.1 |  |  | — |  |  | — |
Available-for-sale securities |  |  | 88.8 |  |  | 88.8 |  |  | — |  |  | — |
Other investments(2) |  |  | 153.6 |  |  | 18.2 |  |  | 18.7 |  |  | 116.7 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent payment arrangements(3) |  | $ | 66.0 |  | $ | — |  | $ | — |  | $ | 66.0 |
Obligations to related parties(4) |  |  | 75.8 |  |  | — |  |  | — |  |  | 75.8 |
Interest rate derivatives(5) |  |  | 4.3 |  |  | — |  |  | 4.3 |  |  | — |
(1) Principally investments in equity securities. (2) Other investments are reported within Prepaid expenses and other current assets and Other assets. (3) Net present value of expected payments under contingent payment arrangements are reported in Accounts payable and accrued liabilities and Other long-term liabilities. (4) Obligations to related parties are presented within Payables to related party and Other long-term liabilities. (5) Interest rate derivatives are presented within Other long-term liabilities. The following is a description of the significant assets and liabilities measured at fair value and the fair value methodologies used. Cash equivalents consist primarily of highly liquid investments in money market funds. Cash investments in actively traded money market funds are classified as Level 1. Investments in marketable securities consist primarily of investments in publicly traded securities and in funds advised by Affiliates which are valued using net asset value ("NAV"). Publicly traded securities and investments in actively traded funds that calculate daily NAVs are classified as Level 1. Other investments are valued using NAV. Investments in actively traded funds that calculate daily NAVs are classified as Level 1. Investments in funds that permit redemptions monthly or quarterly are classified as Level 2. Investments in funds that are subject to longer redemption restrictions are classified as Level 3. The fair value of Level 3 assets is determined using NAV one quarter in arrears (adjusted for current period calls and distributions). Interest rate derivatives include interest rate swaps. The fair value of these assets is determined by model-derived valuations in which all significant inputs were observable in active markets. Contingent payment arrangements represent the present value of the expected future settlement of contingent payment arrangements related to the Company's investments in Affiliates. The significant unobservable inputs used in the fair value measurement of these obligations are growth and discount rates. Increases in the growth rate would result in a higher obligation while an increase in the discount rate would result in a lower obligation. Obligations to related parties include agreements to repurchase Affiliate equity and liabilities offsetting certain investments which are held by the Company but economically attributable to a related party. The significant unobservable inputs used in the fair value measurement of the agreements to repurchase Affiliate equity are growth and discount rates. Increases in the growth rate would result in a higher obligation while an increase in the discount rate would result in a lower obligation. The liability to a related party is measured based upon certain investments held by the Company, the fair value of which is determined using NAV. The following table presents certain quantitative information about the significant unobservable inputs used in valuing our Level 3 financial liabilities:
|  | Quantitative Information about Level 3 Fair Value Measurements
--- | --- | ---
|  | Fair Value at September 30, 2012 |  | Valuation Techniques |  | Unobservable Input |  | Range
Contingent payment arrangements |  | $ | 66.0 |  | Discounted cash flow |  | Growth rates |  | 2.0% - 10.0%
|  |  |  |  |  |  | Discount rates |  | 15.0% - 18.0%
Affiliate equity repurchase obligations |  |  | 9.8 |  | Discounted cash flow |  | Growth rates |  | (10.0%) - 17.0%
|  |  |  |  |  |  | Discount rates |  | 17.5% - 24.0%
The following table presents the changes in Level 3 financial assets and financial liabilities for the three and nine months ended September 30, 2011 and 2012:
|  | Level 3 Financial Assets and Financial Liabilities at Fair Value |
--- | --- | --- | ---
Three Months Ended September 30, 2011 |  | Balance, beginning of period |  | Net realized gains/losses |  | Net unrealized gains/losses relating to instruments still held at the reporting date |  | Purchases and issuances |  | Settlements and reductions |  | Net transfers in and/or out of Level 3 |  | Balance, end of period |
Other investments |  | $ | 102.0 |  | $ | (0.3 | )(1) | $ | 3.5 | (1) | $ | 4.2 |  | $ | (2.1 | ) | $ | — |  | $ | 107.3 |
Contingent payment arrangements |  |  | 85.3 |  |  | — |  |  | 2.0 | (2) |  | — |  |  | — |  |  | — |  |  | 87.3 |
Obligations to related parties |  |  | 71.2 |  |  | 0.8 | (3) |  | (0.4 | )(3) |  | 8.5 |  |  | (8.5 | ) |  | — |  |  | 71.6 |
|  | Level 3 Financial Assets and Financial Liabilities at Fair Value |
--- | --- | --- | ---
Three Months Ended September 30, 2012 |  | Balance, beginning of period |  | Net realized gains/losses |  | Net unrealized gains/losses relating to instruments still held at the reporting date |  | Purchases and issuances |  | Settlements and reductions |  | Net transfers in and/or out of Level 3 |  | Balance, end of period |
Other investments |  | $ | 113.0 |  | $ | (0.1 | )(1) | $ | 1.6 | (1) | $ | 3.5 |  | $ | (1.3 | ) | $ | — |  | $ | 116.7 |
Contingent payment arrangements |  |  | 62.5 |  |  | — |  |  | 3.5 | (2) |  | — |  |  | — |  |  | — |  |  | 66.0 |
Obligations to related parties |  |  | 79.5 |  |  | 0.5 | (3) |  | 0.2 | (3) |  | 1.7 |  |  | (6.1 | ) |  | — |  |  | 75.8 |
|  | Level 3 Financial Assets and Financial Liabilities at Fair Value |
--- | --- | --- | ---
Nine Months Ended September 30, 2011 |  | Balance, beginning of period |  | Net realized gains/losses |  | Net unrealized gains/losses relating to instruments still held at the reporting date |  | Purchases and issuances |  | Settlements and reductions |  | Net transfers in and/or out of Level 3 |  | Balance, end of period |
Other investments |  | $ | 85.8 |  | $ | 0.7 | (1) | $ | 14.0 | (1) | $ | 12.8 |  | $ | (6.0 | ) | $ | — |  | $ | 107.3 |
Contingent payment arrangements |  |  | 77.6 |  |  | — |  |  | 11.4 | (2) |  | — |  |  | (1.7 | ) |  | — |  |  | 87.3 |
Obligations to related parties |  |  | 79.6 |  |  | 1.4 | (3) |  | 3.2 | (3) |  | 21.5 |  |  | (34.1 | ) |  | — |  |  | 71.6 |
|  | Level 3 Financial Assets and Financial Liabilities at Fair Value |
--- | --- | --- | ---
Nine Months Ended September 30, 2012 |  | Balance, beginning of period |  | Net realized gains/losses |  | Net unrealized gains/losses relating to instruments still held at the reporting date |  | Purchases and issuances |  | Settlements and reductions |  | Net transfers in and/or out of Level 3 |  | Balance, end of period |
Other investments |  | $ | 103.4 |  | $ | (1.7 | )(1) | $ | 7.7 | (1) | $ | 13.4 |  | $ | (6.1 | ) | $ | — |  | $ | 116.7 |
Contingent payment arrangements |  |  | 87.1 |  |  | — |  |  | (45.9 | )(2) |  | 24.8 |  |  | — |  |  | — |  |  | 66.0 |
Obligations to related parties |  |  | 92.0 |  |  | 0.9 | (3) |  | 0.9 | (3) |  | 22.1 |  |  | (40.1 | ) |  | — |  |  | 75.8 |
(1) Gains and losses on Other investments are recorded in Investment and other income. (2) Accretion and changes to payment estimates under the Company's contingent payment arrangements are recorded in Imputed interest expense and contingent payment arrangements and foreign currency translation adjustments related to such arrangements are recorded as Other comprehensive income. (3) Gains and losses associated with agreements to repurchase Affiliate equity are recorded in Imputed interest expense and contingent payment arrangements. Gains and losses related to liabilities offsetting certain investments are recorded in Investment and other income. It is the Company's policy to value financial assets or liabilities transferred as of the beginning of the period in which the transfer occurs. During the three months ended September 30, 2012, no financial assets were transferred from Level 1 to Level 2. During the nine months ended September 30, 2012, financial assets valued at $2.0 million were transferred from Level 1 to Level 2. There were no significant transfers of financial assets or liabilities in the three and nine months ended September 30, 2011. The Company relies on the NAV of certain investments as their fair value. The NAVs have been derived from the fair values of the underlying investments as of the measurement dates. The following table summarizes, as of December 31, 2011 and September 30, 2012, the nature of these investments and any related liquidation restrictions or other factors which may impact the ultimate value realized:
|  | December 31, 2011 |  | September 30, 2012 |
--- | --- | --- | --- | --- | ---
Category of Investment |  | Fair Value |  | Unfunded Commitments |  | Fair Value |  | Unfunded Commitments |
Private equity fund-of-funds(1) |  | $ | 103.4 |  | $ | 80.5 |  | $ | 116.7 |  | $ | 75.1 |
Other funds(2) |  |  | 47.2 |  |  | — |  |  | 71.1 |  |  | — |
|  | $ | 150.6 |  | $ | 80.5 |  | $ | 187.8 |  | $ | 75.1 |
(1) These funds primarily invest in a broad range of private equity funds, as well as making direct investments. Distributions will be received as the underlying assets are liquidated over the life of the funds, generally 15 years. (2) These are multi-disciplinary funds that invest across various asset classes and strategies including long/short equity, credit and real estate. Investments are generally redeemable on a daily or quarterly basis. There are no current plans to sell any of these investments. The carrying value of senior bank debt approximates fair value because the debt is a credit facility with variable interest based on selected short-term rates. The fair market value of the 2042 Senior Notes at September 30, 2012 was $206.4 million. The fair market value of the 2008 senior convertible notes and the junior convertible trust preferred securities at December 31, 2011 were $500.0 million and $594.3 million, respectively. The fair market value of the 2008 senior convertible notes and the junior convertible trust preferred securities at September 30, 2012 were $516.6 million and $708.5 million, respectively. The senior bank debt, senior notes, senior convertible notes and junior convertible securities are classified as Level 2 because the fair value was determined utilizing observable inputs in non-active markets.

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- 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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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