Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Financial Instruments and Fair Value Measurements

13) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company uses derivative financial instruments primarily to modify its exposure to market risks from fluctuations in interest rates and foreign currency exchange rates. The Company does not use derivative instruments unless there is an underlying exposure and, therefore, the Company does not hold or enter into derivative financial instruments for speculative trading purposes.

All of the Company's long-term debt has been issued under fixed interest rate agreements. During the third quarter of 2014, the Company entered into $600 million notional amount of fixed-to-floating rate swap agreements to hedge the Company's 2.30% senior notes that were issued in the third quarter of 2014. These interest rate swaps are designated as fair value hedges. The fair value of interest rate swaps is recorded in other liabilities on the Consolidated Balance Sheet with an offsetting change in the carrying value of the debt attributable to the risk being hedged. Gains or losses on interest rate swaps are recognized within interest expense. The fair value of the Company’s derivative instruments and the related activity was not material to the Consolidated Balance Sheets and Consolidated Statements of Operations for any of the periods presented.

The following tables set forth the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013. These assets and liabilities have been categorized according to the three‑level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar assets or liabilities. Level 3 is based on unobservable inputs reflecting the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.



At September 30, 2014	Level 1		Level 2		Level 3		Total
Assets:
Investments	$	78	$	—	$	—	$	78
Foreign currency hedges	—		3		—		3
Total Assets	$	78	$	3	$	—	$	81
Liabilities:
Deferred compensation	$	—	$	278	$	—	$	278
Guarantees	—		—		40		40
Interest rate swaps	—		6		—		6
Foreign currency hedges	—		1		—		1
Total Liabilities	$	—	$	285	$	40	$	325



At December 31, 2013	Level 1		Level 2		Level 3		Total
Assets:
Investments	$	83	$	—	$	—	$	83
Foreign currency hedges	—		3		—		3
Total Assets	$	83	$	3	$	—	$	86
Liabilities:
Deferred compensation	$	—	$	268	$	—	$	268
Guarantees	—		—		40		40
Foreign currency hedges	—		4		—		4
Total Liabilities	$	—	$	272	$	40	$	312

The fair value of investments is determined based on publicly quoted market prices in active markets. The fair value of interest rate swaps and foreign currency hedges is determined based on the present value of future cash flows using observable inputs including interest rates, yield curves and foreign currency exchange rates. The fair value of deferred compensation is determined based on the fair value of the investments elected by employees. The fair value of the guarantee liabilities reflects the premium that would be required to issue such guarantee in a standalone arm’s length transaction and is calculated based on an assessment of the probability of the primary obligor’s default under the obligation, discounted to its present value. During the nine months ended September 30, 2014, changes to the fair value of the guarantee liability were minimal.

During the third quarter of 2014, in connection with a radio station swap, the Company recorded a pre-tax noncash impairment charge of $52 million to reduce the carrying value of the allocated goodwill to its fair value using other nonobservable inputs (Level 3). The fair value was determined based on a valuation of comparable assets in the same geographic markets.

The Company’s carrying value of financial instruments approximates fair value, except for differences with respect to its long-term debt. At September 30, 2014 and December 31, 2013, the carrying value of the Company’s senior debt was $6.43 billion and $5.85 billion, respectively, and the fair value, which is estimated based on quoted market prices for similar liabilities (Level 2) and includes accrued interest, was $7.05 billion and $6.68 billion, respectively.

- 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+ Details