Fair Value Measurements and Long-term Investments

3 Months Ended

Mar. 31, 2019

Fair Value Measurements and Long-term Investments

5. Fair Value Measurements and Long-term Investments

Fair value measurements are based upon observable and unobservable inputs.

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of the respective balance sheet dates:

	Balance Sheet	March 31, 2019								December 31, 2018
(In thousands)	Classifications	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Foreign exchange derivative assets	Prepaid expenses and other current assets	$	0	$	394	$	0	$	394	$	0	$	262	$	0	$	262
1.25% Call Option	Other assets		0		0		3,030		3,030		0		0		9,104		9,104
Total assets		$	0	$	394	$	3,030	$	3,424	$	0	$	262	$	9,104	$	9,366

Contingent consideration - current	Accrued expenses		0		0		8,785		8,785		0		0		10,528		10,528
Contingent consideration - long-term	Other liabilities		0		0		22,074		22,074		0		0		15,317		15,317
1.25% Embedded cash conversion option	Other liabilities		0		0		3,525		3,525		0		0		9,974		9,974
Total liabilities		$	0	$	0	$	34,384	$	34,384	$	0	$	0	$	35,819	$	35,819

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at March 31, 2019 are summarized as follows:

(In thousands)	Contingent Consideration		1.25% Notes Call Spread Overlay
Balance at December 31, 2018		25,845		(870	)
Additions		5,008		0
Fair value adjustments		6		375
Balance at March 31, 2019	$	30,859	$	(495	)

Long-term Investments

The following table summarizes our long-term equity investments which are included in Other assets in the accompanying consolidated balance sheets:

	Number of
	Investees		Original		Carrying Value at
(In thousands, except for number of investees)	at March 31, 2019		Cost		March 31, 2019		December 31, 2018
Equity method investments ⁽¹⁾		5	$	7,407	$	10,604	$	10,667
Cost method investments		8		37,874		26,935		25,923
Total long-term equity investments		13	$	45,281	$	37,539	$	36,590

⁽¹⁾	Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.

As of March 31, 2019, it is not practicable to estimate the fair value of our non-marketable cost and equity method investments primarily because of their illiquidity and restricted marketability. The factors we considered in trying to determine fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations, the issuer’s subsequent or planned raises of capital, and observable price changes in orderly transactions.

Recovery and Impairment of Long-term Investments

During the three months ended March 31, 2019, we recovered $1.0 million from a third-party cost-method investment that we had previously impaired. Each quarter, management performs an assessment of each of our investments on an individual basis to determine if there have been any declines in fair value. As a result of this review, we recognized a non-cash impairment charge during the three months ended March 31, 2018 of $5.5 million related to one of our cost-method equity investments and a related note receivable, which had cost bases of $4.9 million and $2.6 million, respectively, prior to the impairment.

Long-term Financial Liabilities

Our long-term financial liabilities include amounts outstanding under our senior secured credit facility (as defined in Note 9, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. In addition, the carrying amount of our 1.25% Cash Convertible Senior Notes (the “1.25% Notes”) approximates fair value as of March 31, 2019, since the effective interest rate on the 1.25% Notes approximates current market rates. Refer to Note 9, “Debt,” for further information regarding our long-term financial liabilities.

- 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.

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