Fair Value Measurement

12 Months Ended

Dec. 31, 2019

Fair value is defined as the price that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the measurement date. Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, which are described below:


•	Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets


•	Level 2 – Observable inputs other than quoted prices that are either directly or indirectly observable for the asset or liability


•	Level 3 – Unobservable inputs that are supported by little or no market activity

These levels are not necessarily an indication of the risk of liquidity associated with the financial assets or liabilities disclosed. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement, as required under ASC 820-10, "Fair Value Measurement."

Derivative Instruments

Laureate uses derivative instruments as economic hedges for bank debt, foreign exchange fluctuations and interest rate risk. Their values are derived using valuation models commonly used for derivatives. These valuation models require a variety of inputs, including contractual terms, market prices, forward-price yield curves, notional quantities, measures of volatility and correlations of such inputs. Our valuation models also reflect measurements for credit risk. Laureate concluded that the fair values of our derivatives are based on unobservable inputs, or Level 3 assumptions. The significant unobservable input used in the fair value measurement of the Company's derivative instruments is our own credit risk. Holding other inputs constant, a significant increase (decrease) in our own credit risk would result in a significantly lower (higher) fair value measurement for the Company's derivative instruments.

Equity securities - preferred stock investment

In 2013, Laureate purchased approximately 1,020 shares (the Shares) of preferred stock of a private education company for $5,000. This equity security did not have a readily determinable fair value. In June 2019, based on interest expressed by an investor to purchase the Shares, Laureate recorded this investment at its estimated fair value and recorded a non-operating gain of approximately $6,100. In September 2019, Laureate sold the Shares and received cash proceeds of $11,473, resulting in a total non-operating gain of $6,473 for the year ended December 31, 2019. The proceeds are included in Proceeds from sale of investment in the consolidated statement of cash flows.

As of December 31, 2019, Laureate did not hold any financial assets or liabilities that are measured at fair value on a recurring basis.

Laureate’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2018 were as follows:



	Total		Level 1		Level 2		Level 3
Assets
Derivative instruments	$	3,259	$	—	$	—	$	3,259
Liabilities
Derivative instruments	$	10,677	$	—	$	—	$	10,677

The changes in our Level 3 Derivative instruments measured at fair value on a recurring basis for the year ended December 31, 2019 were as follows:



Balance December 31, 2018	$	(7,418	)
Gain included in earnings:
Unrealized gains, net	4,021
Realized gains, net	3,256
Loss included in other comprehensive income	(7,950		)
Settlements	(4,096		)
Reclassification upon conversion of Series A Preferred Stock	—
Reclassification, currency translation adjustment and other	12,187
Balance December 31, 2019	$	—

Laureate had no fair value measurements classified as Level 3 as of December 31, 2019.

The changes in our Level 3 Derivative instruments measured at fair value on a recurring basis for the year ended December 31, 2018 were as follows:



Balance December 31, 2017	$	34,338
(Loss) gain included in earnings:
Unrealized losses, net	(41,217		)
Realized gains, net	129,509
Gain included in other comprehensive income	13,709
Settlements	(3,306		)
Reclassification upon conversion of Series A Preferred Stock	(140,320		)
Currency translation adjustment and other	(131		)
Balance December 31, 2018	$	(7,418	)

- 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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