Fair Value Measurements

9 Months Ended

Sep. 30, 2021

We use the fair value method to account for (i) certain of our investments, (ii) our derivative instruments and (iii) certain instruments that we classify as debt. The reported fair values of these investments and instruments as of September 30, 2021 are unlikely to represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities.

GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. We record transfers of assets or liabilities into or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred.

We use a Monte Carlo based approach to incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our credit risk valuation adjustments with respect to our cross-currency and interest rate swaps are quantified and further explained in note 6.

Fair value measurements are also used in connection with nonrecurring valuations performed in connection with acquisition accounting, impairment assessments and the accounting for our initial investment in the VMED O2 JV. These nonrecurring valuations include the valuation of reporting units, customer relationship and other intangible assets, property and equipment, the implied value of goodwill and the valuation of our initial investment in the VMED O2 JV. The valuation of reporting units and our initial investment in the VMED O2 JV are based at least in part on discounted cash flow analyses. With the exception of certain inputs for our weighted average cost of capital and discount rate calculations that are derived from pricing services, the inputs used in our discounted cash flow analyses, such as forecasts of future cash flows, are based on our assumptions. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer relationship, contributory asset charges and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. The implied value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination, with the residual amount allocated to goodwill. Most of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. During the nine months ended September 30, 2021, we performed a nonrecurring valuation for the purpose of determining the fair value of our initial investment in the VMED O2 JV, and the weighted average cost of capital used to value our initial investment was 6.9%. During the nine months ended September 30, 2020, we did not perform any significant nonrecurring fair value measurements. For information regarding our investment in the VMED O2 JV, see note 5.

For additional information concerning our fair value measurements, see note 9 to the consolidated financial statements included in our 10-K.

A summary of our assets and liabilities that are measured at fair value on a recurring basis is as follows:


			Fair value measurements at September 30, 2021 using:
Description	September 30, 2021		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	in millions

Assets:
Derivative instruments:
Cross-currency and interest rate derivative contracts	$	388.5	$	—	$	388.5	$	—
Equity-related derivative instruments	114.4		—		—		114.4
Foreign currency forward and option contracts	6.1		—		6.1		—
Other	1.3		—		1.3		—
Total derivative instruments	510.3		—		395.9		114.4
Investments:
SMAs	2,942.6		618.8		2,318.8		5.0
Other investments	1,855.7		740.4		71.5		1,043.8
Total investments	4,798.3		1,359.2		2,390.3		1,048.8
Total assets	$	5,308.6	$	1,359.2	$	2,786.2	$	1,163.2

Liabilities:
Derivative instruments:
Cross-currency and interest rate derivative contracts	$	663.0	$	—	$	663.0	$	—

Foreign currency forward and option contracts	31.1		—		31.1		—



Total liabilities	$	694.1	$	—	$	694.1	$	—


			Fair value measurements at December 31, 2020 using:
Description	December 31, 2020		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	in millions

Assets:
Derivative instruments:
Cross-currency and interest rate derivative contracts	$	567.2	$	—	$	567.2	$	—
Equity-related derivative instruments	280.9		—		—		280.9
Foreign currency forward and option contracts	36.6		—		36.6		—

Total derivative instruments	884.7		—		603.8		280.9
Investments:
SMAs	1,965.9		405.7		1,560.2		—
Other investments	1,500.1		888.2		92.3		519.6
Total investments	3,466.0		1,293.9		1,652.5		519.6
Total assets	$	4,350.7	$	1,293.9	$	2,256.3	$	800.5

Liabilities:
Derivative instruments:
Cross-currency and interest rate derivative contracts	$	1,535.3	$	—	$	1,535.3	$	—

Foreign currency forward and option contracts	81.5		—		81.5		—



Total liabilities	$	1,616.8	$	—	$	1,616.8	$	—

A reconciliation of the beginning and ending balances of our assets and liabilities measured at fair value on a recurring basis using significant unobservable, or Level 3, inputs is as follows:


	Investments		Cross-currency, interest rate and foreign currency derivative contracts		Equity-related derivative instruments		Total
	in millions

Balance of net assets at January 1, 2021	$	519.6	$	—	$	280.9	$	800.5
Gains included in earnings from continuing operations (a):
Realized and unrealized gains on derivative instruments, net	—		—		74.3		74.3
Realized and unrealized gains due to changes in fair values of certain investments and debt, net	467.0		179.3		—		646.3
Settlement of ITV Collar	—		—		(240.8)		(240.8)

Additions	83.9		—		—		83.9
Derivative instruments contributed to the VMED O2 JV in connection with the U.K. JV Transaction	—		(179.3)		—		(179.3)

Foreign currency translation adjustments and other, net	(21.7)		—		—		(21.7)
Balance of net assets at September 30, 2021	$	1,048.8	$	—	$	114.4	$	1,163.2

_______________

(a)Most of these net gains relate to assets and liabilities that we continue to carry on our condensed consolidated balance sheet as of September 30, 2021.

- 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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