Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2019

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable.

The market approach is applied for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value balances are classified based on the observability of those inputs.

A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize observable inputs in active markets for similar assets and liabilities, or, quoted prices in markets that are not active.

In estimating the fair value of the financial instruments presented, we used the following methods and assumptions:

Cash and Cash Equivalents

For cash and cash equivalents, the carrying value is a reasonable estimate of fair value due to the short-term nature of the instruments.

Restricted Cash

Restricted cash is comprised of certificates of deposit that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures and short-term investments within our deferred compensation plan trust. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.

Other Investments

Other investments is currently comprised of a minority equity investment in a foreign enterprise which we measure at cost and adjust to fair value on a quarterly basis when there are observable price changes in orderly transactions for the identical, or similar, investment. Changes in fair value are recorded within gain on investment and other, net in our condensed consolidated statement of operations.

Contingent Consideration

The fair value of the contingent consideration was estimated using the Monte-Carlo simulation model, which relies on significant assumption and estimates including discount rates and future market conditions, among others.

Long-Term Debt

The fair value of debt was estimated based on the current rates available to us for similar debt of the same remaining maturities and consideration of our default and credit risk.

Interest Rate Swaps

The fair values of the Swaps were estimated based on market-value quotes received from the counterparties to the agreements.

The fair values of our financial instruments as of March 31, 2019 are presented in the following table:



(in thousands)	Fair Value Measurements Using
As of March 31, 2019	Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash and cash equivalents	$	86,828	$	—	$	—	$	86,828
Restricted cash	2,513		10,606		—		13,119
Other investments	—		—		5,708		5,708
Total	$	89,341	$	10,606	$	5,708	$	105,655

Financial Liabilities:
Contingent consideration	$	—	$	—	$	5,500	$	5,500
Total debt	—		1,775,970		—		1,775,970
Total	$	—	$	1,775,970	$	5,500	$	1,781,470

Derivatives:
Asset for Swaps	$	—	$	8,747	$	—	$	8,747
Liability for Swaps	$	—	$	26,853	$	—	$	26,853

As of December 31, 2018
Financial Assets:
Cash and cash equivalents	$	85,271	$	—	$	—	$	85,271
Restricted cash	1,366		11,613		—		12,979
Other investments	—		—		7,930		7,930
Total	$	86,637	$	11,613	$	7,930	$	106,180

Financial Liabilities:
Contingent consideration	$	—	$	—	$	5,700	$	5,700
Total debt	—		1,797,597		—		1,797,597
Total	$	—	$	1,797,597	$	5,700	$	1,803,297

Derivatives:
Asset for Swaps	$	—	$	13,344	$	—	$	13,344
Liability for Swaps	$	—	$	15,188	$	—	$	15,188

In connection with the 2017 acquisition of Myriad as well as an insignificant business, we entered into contingent consideration agreements for up to $20.5 million in cash by 2022 upon the achievement of certain revenue targets ending fiscal year 2021. These contingent payments were originally recorded at a fair value of $6.2 million using the Monte-Carlo simulation model. See Note 13 - Acquisitions for further discussion. The contingent payments are fair-valued quarterly and changes are recorded within gain on investments and other, net in our condensed consolidated statement of operations. During both the three months ended March 31, 2019 and 2018, we increased the fair value of our contingent considerations by $0.4 million and recorded the losses in our condensed consolidated statement of operations.

During the three months ended March 31, 2019, due to an observable price change, we recorded an unfavorable fair value adjustment of $2.3 million to our minority owned equity investment, which was recorded within gain on investments and other, net in our condensed consolidated statement of operations.

- 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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