Fair value measurement

We measure and record certain assets and liabilities at fair value in the accompanying consolidated financial statements. ASC Topic 820, “Fair Value Measurement,” establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level 1 – Quoted market prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3 – Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.

The financial instruments measured at fair value in the accompanying Consolidated Balance Sheets consist of the following:



Company Owned Assets
In thousands of dollars
Fair value measurement as of Dec. 28, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Employee compensation related investments	$	41,017	$	—	$	—	$	41,017
Sundry investments	36,641		—		—		36,641
Total Assets	$	77,658	$	—	$	—	$	77,658
Liabilities:
Contingent consideration payable	$	—	$	—	$	9,912	$	9,912
Total Liabilities	$	—	$	—	$	9,912	$	9,912



In thousands of dollars
Fair value measurement as of Dec. 29, 2013
	Level 1		Level 2		Level 3		Total
Assets:
Employee compensation related investments	$	28,117	$	—	$	—	$	28,117
Sundry investments	34,227		—		—		34,227
Total Assets	$	62,344	$	—	$	—	$	62,344
Liabilities:
Contingent consideration payable	$	—	$	—	$	32,267	$	32,267
Total Liabilities	$	—	$	—	$	32,267	$	32,267

Under certain acquisition agreements, we have agreed to pay the sellers earn-outs based on the financial performance of the acquired businesses. Contingent consideration payable in the table above represents the estimated fair value of future earn-outs payable under such agreements. The fair value of the contingent payments was measured based on the present value of the consideration expected to be transferred. The discount rate is a significant unobservable input in such present value computations. Discount rates ranged between 15% and 27% depending on the risk associated with the cash flows. Changes to the fair value of earn-outs are reflected in “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Income. For the year ended Dec. 28, 2014, the contingent consideration decreased by $22.4 million as a result of payments and adjustments to fair value.

The following tables set forth by level within the fair value hierarchy the fair values of our pension plans assets:



Pension Plan Assets/Liabilities
In thousands of dollars
Fair value measurement as of Dec. 28, 2014^(a)
	Level 1			Level 2			Level 3			Total
Assets:
Fixed income:
U.S. government-related securities	$	—		$	4,005		$	—		$	4,005
Mortgage backed securities	—			3,995			95			4,090
Other government bonds	—			4,562			—			4,562
Corporate bonds	—			24,628			382			25,010
Corporate stock	924,294			—			—			924,294
Real estate	—			—			109,102			109,102
Interest in common/collective trusts:
Equities	—			890,201			—			890,201
Fixed income	6,592			310,128			—			316,720
Interest in reg. invest. companies	152,359			44,406			—			196,765
Interest in 103-12 investments	—			24,359			—			24,359
Partnership/joint venture interests	—			36,517			145,764			182,281
Hedge funds	—			20,166			325,673			345,839
Derivative contracts	8			3,003			124			3,135
Total	$	1,083,253		$	1,365,970		$	581,140		$	3,030,363
Liabilities:
Derivative liabilities	$	(13	)	$	(2,529	)	$	(2,008	)	$	(4,550	)
Total	$	(13	)	$	(2,529	)	$	(2,008	)	$	(4,550	)
Cash and other	14,039			2,662			—			16,701
Total net fair value of plan assets	$	1,097,279		$	1,366,103		$	579,132		$	3,042,514


(a)	We use a Dec. 31 measurement date for our retirement plans.



In thousands of dollars
Fair value measurement as of Dec. 29, 2013^(a)
	Level 1			Level 2			Level 3			Total
Assets:
Fixed income:
U.S. government-related securities	$	—		$	3,313		$	—		$	3,313
Mortgage backed securities	—			4,210			397			4,607
Other government bonds	—			4,947			—			4,947
Corporate bonds	—			29,599			856			30,455
Corporate stock	892,883			—			—			892,883
Real estate	—			—			98,909			98,909
Interest in common/collective trusts:
Equities	—			908,673			—			908,673
Fixed income	—			213,698			—			213,698
Interest in reg. invest. companies	281,029			42,610			—			323,639
Interest in 103-12 investments	—			28,691			—			28,691
Partnership/joint venture interests	—			36,402			148,550			184,952
Hedge funds	—			22,685			249,991			272,676
Derivative contracts	22			10,956			163			11,141
Total	$	1,173,934		$	1,305,784		$	498,866		$	2,978,584
Liabilities:
Derivative liabilities	$	(8	)	$	(9,486	)	$	(2,008	)	$	(11,502	)
Total	$	(8	)	$	(9,486	)	$	(2,008	)	$	(11,502	)
Cash and other	60,271			1,114			—			61,385
Total net fair value of plan assets	$	1,234,197		$	1,297,412		$	496,858		$	3,028,467


(a)	We use a Dec. 31 measurement date for our retirement plans.

Items included in “Cash and other” in the table above primarily consist of amounts categorized as cash and cash equivalents and pending purchases and sales of securities.

Valuation methodologies used for assets and liabilities measured at fair value are as follows:

U.S. government-related securities are treasury bonds, bills and notes that are primarily obligations to the U.S. Treasury. Values are obtained from industry vendors who use various pricing models or quotes for identical or similar securities. Mortgage-backed securities are typically not actively quoted. Values are obtained from industry vendors who use various pricing models or use quotes for identical or similar securities.

Other government and corporate bonds are mainly valued based on institutional bid evaluations using proprietary models, using discounted cash flow models or models that derive prices based on similar securities. Corporate bonds categorized in Level 3 are primarily from distressed issuers for whom the values represent an estimate of recovery in a potential or actual bankruptcy situation.

Corporate stock classified as Level 1 is valued primarily at the closing price reported on the active market on which the individual securities are traded. The investments in Level 2 are primarily commingled funds recorded at fair value as determined by the sponsor of the respective funds based upon closing market quotes of the underlying assets.

Investments in direct real estate have been valued by an independent qualified valuation professional in the U.K. using a valuation approach that capitalizes any current or future income streams at an appropriate multiplier. Investments in real estate funds are mainly valued utilizing the net asset valuations provided by the underlying private investment companies.

Interest in common/collective trusts and interest in 103-12 investments are valued using the net asset value as provided monthly by the fund family or fund company. Shares in the common/collective trusts are generally redeemable upon request.

Nine of the investments in collective trusts are fixed income funds, one of which uses individual subfunds to efficiently add a representative sample of securities in individual market sectors to the portfolio. The remaining twelve investments in collective trusts are equity funds that are recorded at fair value as determined by the sponsor of the respective fund based upon closing market quotes of the underlying assets.

Interest in registered investment companies is valued using the published net asset values as quoted through publicly available pricing sources. The investments in Level 2 are proprietary funds of the individual fund managers and are not publicly quoted.

Investments in partnerships and joint venture interests classified in Level 3 are valued based on an assessment of each underlying investment, considering items such as expected cash flows, changes in market outlook and subsequent rounds of financing. These investments are included in Level 3 of the fair value hierarchy because exit prices tend to be unobservable and reliance is placed on the above methods. Most of the partnerships are general leveraged buyout funds, others include a venture capital fund, a fund formed to invest in special credit opportunities, an infrastructure fund and a real estate fund. Interest in partnership investments could be sold on the secondary market but cannot be redeemed. Instead, distributions are received as the underlying assets of the funds are liquidated. It is estimated that the underlying assets of the funds will be liquidated within approximately the next 8 to 10 years. There are future funding commitments of $22.9 million as of Dec. 28, 2014, and $27.7 million as of Dec. 29, 2013. Investments in partnerships and joint venture interests classified as Level 2 represents a limited partnership commingled fund valued using the net asset value as reported by the fund manager.

Investments in hedge funds are valued at the net asset value as reported by the fund managers. Within this category is a fund of hedge funds whose objective is to produce a return that is uncorrelated with market movements. Other funds categorized as hedge funds were formed to invest in mortgage and credit trading opportunities. Shares in the hedge funds are generally redeemable twice a year or on the last business day of each quarter with at least 60 days written notice subject to potential 5% holdback. There are no unfunded commitments related to the hedge funds.

Derivatives primarily consist of forward and swap contracts. Forward contracts are valued at the spot rate, plus or minus forward points between the valuation date and maturity date. Swaps are valued at the mid-evaluation price using discounted cash flow models. Items in Level 3 are valued based on the market values of other securities for which they represent a synthetic combination.

We review appraised valued, audited financial statements and additional information to evaluate fair value estimates from our investment managers or fund administrator. The tables below set forth a summary of changes in the fair value of our pension plan assets and liabilities, categorized as Level 3, for the fiscal year ended Dec. 28, 2014, and Dec. 29, 2013:



Pension Plan Assets/Liabilities
In thousands of dollars
For the year ended Dec. 28, 2014
				Actual Return on Plan Assets
	Balance at beginning of year			Relating to assets still held at report date		Relating to assets sold during the period			Purchases, sales, and settlements			Transfers in and/or out of Level 3⁽¹⁾		Balance at end of year
Assets:
Fixed income:
Mortgage-backed securities	$	397		$	—	$	2		$	(304	)	$	—	$	95
Corporate bonds	856			116		(125		)	(465		)	—		382
Real estate	98,909			279		—			9,914			—		109,102
Partnership/joint venture interests	148,550			586		21,785			(25,157		)	—		145,764
Hedge funds	249,991			10,469		899			64,314			—		325,673
Derivative contracts	163			—		17			(56		)	—		124
Total	$	498,866		$	11,450	$	22,578		$	48,246		$	—	$	581,140
Liabilities:
Derivative liabilities	$	(2,008	)	$	—	$	—		$	—		$	—	$	(2,008	)


(1)	Our policy is to recognize transfers in and transfers out as of the beginning of the reporting period.



Pension Plan Assets/Liabilities (continued)
In thousands of dollars
For the year ended Dec. 29, 2013
				Actual Return on Plan Assets
	Balance at beginning of year			Relating to assets still held at report date			Relating to assets sold during the period			Purchases, sales, and settlements			Transfers in and/or out of Level 3⁽¹⁾			Balance at end of year
Assets:
Fixed income:
Mortgage backed securities	$	—		$	—		$	(3	)	$	400		$	—		$	397
Corporate bonds	797			199			(4		)	(136		)	—			856
Real estate	97,385			1,865			—			(341		)	—			98,909
Partnership/joint venture interests	130,995			11,972			13,327			(9,576		)	1,832			148,550
Hedge funds	158,924			17,613			803			74,483			(1,832		)	249,991
Derivative contracts	500			(376		)	—			39			—			163
Total	$	388,601		$	31,273		$	14,123		$	64,869		$	—		$	498,866
Liabilities:
Derivative liabilities	$	(2,008	)	$	—		$	—		$	—		$	—		$	(2,008	)


(1)	Our policy is to recognize transfers in and transfers out as of the beginning of the reporting period.

The fair value of our total long-term debt, determined based on the bid and ask quotes for the related debt (Level 2), totaled $4.65 billion at Dec. 28, 2014. The fair value of our total long-term debt, determined based on the bid and ask quotes for the related debt (Level 2), totaled $3.93 billion at Dec. 29, 2013. Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).

The following tables summarize the non-financial assets measured at fair value on nonrecurring basis in the accompanying consolidated balance sheet as of Dec. 28, 2014, and Dec. 29, 2013:



Non-Financial Assets
In thousands of dollars
Fair value measurement as of Dec. 28, 2014
	Level 1		Level 2		Level 3		Total
Asset held for sale - Quarter 4	$	—	$	—	$	69,998	$	69,998
Goodwill - Quarter 4	$	—	$	—	$	8,250	$	8,250



Non-Financial Assets
In thousands of dollars
Fair value measurement as of Dec. 29, 2013
	Level 1		Level 2		Level 3		Total
Asset held for sale - Quarter 4	$	—	$	—	$	395,851	$	395,851
Goodwill - Quarter 4	$	—	$	—	$	21,790	$	21,790

The quantitative test of goodwill during the fourth quarter of 2014 for a reporting unit in our Digital Segment was based on a valuation that considered discounted cash flows and market-based information. Significant unobservable inputs in the discounted cash flows method included the ending year growth rate of 2% and the discount rate applied to the cash flows of 17.5%. If the growth rate and discount rate were to change by 1%, the impact to the valuation would have been approximately $2.8 million.

The quantitative test of goodwill during 2013 for both impaired assets was based on a valuation that considered discounted cash flows and market-based information. Significant unobservable inputs in the discounted cash flows method included the ending year growth rate of 3% and the discount rate applied to the cash flows of 16.0% for the impaired asset in our Digital Segment. For the impaired asset in our Publishing Segment, the ending year growth rate of 3% and discount rate of 20.5% were significant unobservable inputs in the discount cash flow method. If the growth rate and discount rate were to change by 1%, the combined impact to the valuations would have been approximately $1.4 million and $2.7 million, respectively.