Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

 v2.3.0.11
FAIR VALUE MEASUREMENTS
 6 Months Ended
Jun. 30, 2011
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 5-FAIR VALUE MEASUREMENTS
 
The Company currently has various financial instruments carried at fair value, such as marketable securities, derivatives and contingent consideration, but does not currently have nonfinancial assets and nonfinancial liabilities that are required to be measured at fair value on a recurring basis. The Company's financial assets and liabilities are measured using inputs from all levels of the fair value hierarchy as defined in the FASB guidance for fair values. For this categorization, only inputs that are significant to the fair value are considered. The three levels are defined as follows:
 
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
 
Level 2-Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (i.e., market corroborated inputs).
 
Level 3-Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company's own data.
 
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured at fair value on a recurring basis, as of June 30, 2011 and December 31, 2010, which are classified as cash and cash equivalents, other current assets, other long-term assets, other current liabilities and other long-term liabilities:

   
Fair Value Measurements
at June 30, 2011
    
Fair Value Measurements
at December 31, 2010
  
   
Level 1
    
Level 2
    
Level 3
    
Total
    
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(in thousands)
    
(in thousands)
  
Assets:
                                                
Cash equivalents
   $ 30,000     $ -     $ -     $ 30,000     $ 5,000     $ -     $ -     $ 5,000  
Forward currency contracts
     -       7       -       7       -       6       -       6  
Interest rate cap
     -       30       -       30       -       167       -       167  
Investments in rabbi trusts
     -       -       -       -       3,576       -       -       3,576  
Stock options
     -       -       1,927       1,927       -       -       278       278  
Total
   $ 30,000     $ 37     $ 1,927     $ 31,964     $ 8,576     $ 173     $ 278     $ 9,027  
                                                                 
Liabilities:
                                                                
Interest rate swaps
   $ -     $ 2,500     $ -     $ 2,500     $ -     $ 2,119     $ -     $ 2,119  
Forward currency contracts
     -       2,129       -       2,129       -       2,769       -       2,769  
Contingent consideration
     -       -       7,558       7,558       -       -       17,894       17,894  
Other current liabilities
     -       -       -       -       3,576       -       -       3,576  
Total
   $ -     $ 4,629     $ 7,558     $ 12,187     $ 3,576     $ 4,888     $ 17,894     $ 26,358  
 
Cash equivalents consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market. Fair values for forward currency contracts are based on observable market transactions of spot and forward rates. Investments in rabbi trusts include exchange-traded equity securities and mutual funds. Fair values for these investments are based on quoted prices in active markets. Fair values for the interest rate swaps and the interest rate cap are based on inputs corroborated by observable market data with similar tenors. Other current liabilities represent deferred compensation obligations to employees under a certain benefit plan. The liabilities related to this plan are adjusted based on changes in the fair value of the underlying employee-directed investments and therefore are classified consistent with the investments. In December 2010, the Company terminated this plan and all related assets were distributed to employees in 2011.
 
The Company has certain contingent consideration obligations for those acquisitions that occurred after December 31, 2008, which are measured at fair value using Level 3 inputs. The amounts due to the sellers are based on the achievement of agreed-upon financial performance metrics by the acquired companies where the contingent obligation is either earned or not earned. The Company records the liability at the time of the acquisition based on management's best estimates of the future results of the acquired companies compared to the agreed-upon metrics. The most significant estimate involved in the measurement process is the projection of future results of the acquired companies. The Company uses an implied probability method, which is based on one set of projections as its best estimate of future results of the acquired companies and, as a result, the Company does not develop a range of outcomes. By comparing these estimates to the agreed-upon metrics, the Company estimates the amount, if any, anticipated to be paid to the seller at a future date. For obligations payable at a date greater than twelve months from the acquisition date, the Company applies a discount rate to present value the estimated obligations. The discount rate is intended to reflect the risks of ownership, time-value of money and the associated risks of realizing the stream of projected cash flows. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies and the passage of time. Accretion of and changes in the valuations of contingent consideration are reported in acquisition transaction expenses. During the three and six months ended June 30, 2011, the Company recognized declines of $4.3 million and $8.9 million, respectively, for its contingent consideration obligations which were primarily driven by a reduction in earnings from certain artist relationships and the timing of a key artist tour. See Note 6-Commitments and Contingent Liabilities for additional information related to the contingent payments.
 
The Company has stock options in a company that was not publicly-traded at June 30, 2011 which are measured at fair value using Level 3 inputs. The stock options were received as consideration in connection with a licensing agreement entered into by a subsidiary of the Company and became fully vested in the second quarter of 2011. The Company has recorded an asset for these options which was valued using a Black-Scholes option pricing model. The Company utilized information from the most recently available public filing of the company at the valuation date for assumptions with respect to share price, volatility and dividend yield inputs and utilized the remaining contractual period of the options as the expected term input and a risk-free rate consistent with that expected term. The Company has recorded revenue based on the valuation of the options as of the measurement date, which was the vesting date. The changes in the valuation after the measurement date are recorded in other expense (income), net.
 
The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities for the six months ended June 30, 2011:
 
   
Stock
Options
    
Contingent Consideration
  
   
(in thousands)
  
Balance as of December 31, 2010
   $ 278     $ (17,894 )
Total gains and losses (realized/unrealized) :
                
Included in earnings (or changes in net assets)
     1,649       8,908  
Purchases
     -       1,428  
Balance as of June 30, 2011
   $ 1,927     $ (7,558 )
                 
The amount of total gains and losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2011
   $ 1,649     $ 9,047  
 
Due to the short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at June 30, 2011 and December 31, 2010.
 
The Company's outstanding debt held by third-party financial institutions is carried at cost, adjusted for premiums or discounts. The Company's debt is not publicly-traded and, for the Company's debt that accrues interest at a variable rate, the carrying amounts typically approximate their fair value. The estimated fair values of the 8.125% senior notes, the 10.75% senior notes and the 2.875% convertible senior notes were $253.4 million, $312.8 million and $207.6 million at June 30, 2011, respectively. The estimated fair values of the 8.125% senior notes, the 10.75% senior notes and the 2.875% convertible senior notes were $252.0 million, $311.4 million and $195.8 million at December 31, 2010, respectively. The estimated fair value of the Company's third-party fixed-rate debt is based on third-party quotes, which are considered to be Level 2 inputs. The Company has fixed rate debt held by noncontrolling interest partners of $26.6 million and $29.5 million at June 30, 2011 and December 31, 2010, respectively. The Company is unable to determine the fair value of this debt.
 
There were no significant non-recurring fair value measurements recorded for the three and six months ended June 30, 2011 or 2010.