Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value Measurements

The fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, which are principally cash and cash equivalents, restricted cash, receivables, other current assets, accounts payable and accrued liabilities, approximates their recorded values. Our assets and liabilities measured at fair value on a recurring basis are described below.

Derivative Financial Instruments

As of September 30, 2023, we held the following derivative instruments that were accounted for pursuant to ASC 815:

Interest Rate Swap Contracts

We use interest rate swap contracts as described below to mitigate gains or losses associated with the change in expected cash flows due to fluctuations in interest rates on our variable rate debt.

In April 2022, we entered into interest rate swap contracts to hedge a portion of our interest expense associated with our new variable rate debt to effectively fix the interest rate that we pay. These interest rate swap contracts were designated as cash flow hedges under ASC 815. We pay interest at a weighted-average fixed rate of 2.8320% and receive interest at a variable rate equal to one-month Chicago Mercantile Exchange Term SOFR. The total notional amount of interest rate swaps was $700 million as of September 30, 2023. These hedges mature in April 2027. We also previously had interest rate swap contracts that matured in February 2022.

All gains and losses from these hedges were recorded in other comprehensive income (loss) until the future underlying payment transactions occur. Any realized gains or losses resulting from the hedges were recognized (together with the hedged transaction) as interest expense. We estimated the fair value of our interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of our interest rate swap contracts were categorized as Level 2 in the fair value hierarchy as established by ASC 820.

The following table shows the gain and interest expense recognized on our interest rate swap contracts:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gain recorded in accumulated other comprehensive loss, net of tax	$	5	$	24	$	8	$	29
Interest income (expense) recorded related to interest rate swap contracts	4		(2)		11		(8)

We do not expect to reclassify material amounts from accumulated other comprehensive loss to interest expense in the next twelve months.

The following table shows the effect of interest rate swap contracts designated as cash flow hedges on interest expense in the consolidated statements of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Total interest expense which reflects the effects of cash flow hedges	$	(78)	$	(68)	$	(231)	$	(254)
Hedged item	(5)		(5)		(15)		(12)
Derivative designated as hedging instrument	9		3		26		4

The following table shows the fair value of our hedges:

		As of
	Balance Sheet Line Item	September 30, 2023		December 31, 2022
Interest rate swaps	Other assets	$	40	$	30

Contingent Acquisition Consideration Liabilities

In connection with our acquisitions, we have recorded certain contingent consideration liabilities (including redeemable non-controlling interest), of which the values are primarily based on reaching certain earnings-based metrics. The related liabilities were recorded at fair value on their respective acquisition dates as a part of the consideration transferred and are remeasured each reporting period (other than for redeemable non-controlling interest, which is measured based on its redemption value). The inputs used to measure the fair value of our liabilities are categorized as Level 3 in the fair value hierarchy.

The table below reconciles the change in the contingent acquisition consideration liabilities (including deferred purchase price) for the period from December 31, 2022 to September 30, 2023.

	Total		Included in Accrued Liabilities		Included in Other Long-Term Liabilities
Balance as of December 31, 2022	$	79	$	34	$	45
Payments	(23)
Fair value adjustments(1)	10
Other adjustments(2)	(3)
Balance as of September 30, 2023	$	63	$	44	$	19
(1) Amount included in Restructuring and other (see Note 5).
(2) Primarily represents extinguishment of $3 million in redeemable non-controlling interest liability associated with SciPlay’s acquisition of Alictus Yazilim Anonim Şirketi in 2022, as specified financial targets for the first year were not met. The charge was recorded in other income, net in our consolidated statements of operations.