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FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2022

FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

•Level 1 — Quoted prices in active markets for identical assets or liabilities;

•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value on a recurring basis:


	March 31, 2022								December 31, 2021
(in millions)	Carrying Value		Level 1		Level 2		Level 3		Carrying Value		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	766	$	749	$	17	$	—	$	76	$	58	$	18	$	—
Restricted cash and other settlement deposits	$	1,211	$	1,211	$	—	$	—	$	1,537	$	1,537	$	—	$	—
Foreign currency exchange contracts	$	1	$	—	$	1	$	—	$	1	$	—	$	1	$	—
Liabilities:
Acquisition-related contingent consideration	$	236	$	—	$	—	$	236	$	241	$	—	$	—	$	241
Foreign currency exchange contracts	$	8	$	—	$	8	$	—	$	—	$	—	$	—	$	—

Cash equivalents consist of highly liquid investments, primarily money market funds, with maturities of three months or less when purchased, and are reflected in the Consolidated Balance Sheets at carrying value, which approximates fair value due to their short-term nature.

As of March 31, 2022, Restricted cash and other settlement deposits includes $1,210 million of payments into an escrow fund under the terms of a settlement agreement regarding certain U.S. securities litigation (which settlement agreement is subject to one objector’s appeal of the final court approval of the agreement), and is reflected in the Consolidated Balance Sheets at carrying value, which approximates fair value due to its short-term nature. These payments will remain in escrow until resolution of the appeal of the final court approval of the settlement agreement, as discussed in Note 18, “LEGAL PROCEEDINGS”.

There were no transfers into or out of Level 3 during the three months ended March 31, 2022.

Cross-currency Swaps

During 2019, the Company entered into cross-currency swaps, with aggregate notional amounts of $1,250 million, to mitigate fluctuation in the value of a portion of its euro-denominated net investment in its consolidated financial statements from fluctuation in exchange rates. The euro-denominated net investment being hedged was the Company’s investment in certain euro-denominated subsidiaries. The Company unwound these cross-currency swaps during November 2021.

Due to the unwinding of the cross-currency swaps during November 2021, there were no assets or liabilities associated with the cross-currency swaps included in the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.

The following table presents the effect of hedging instruments on the Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
(in millions)	2022		2021
Gain recognized in Other comprehensive loss	$	—	$	41
Gain excluded from assessment of hedge effectiveness	$	—	$	6
Location of gain of excluded component	Interest Expense

No portion of the cross-currency swaps was ineffective for the three months ended March 31, 2021. During the three months ended March 31, 2022 and 2021, the Company received $0 and $11 million, respectively, in interest settlements which are reported as investing activities in the Consolidated Statements of Cash Flows.

Foreign Currency Exchange Contracts

Since 2020, the Company has been entering into foreign currency exchange contracts. As of March 31, 2022, these contracts had an aggregate outstanding notional amount of $158 million.

The Company’s foreign currency exchange contracts are remeasured at each reporting date to reflect changes in their fair values determined using forward rates, which are observable market inputs, multiplied by the notional amount. The Company’s foreign currency exchange contracts are economically hedging the foreign exchange exposure on certain of the Company’s intercompany balances. These contracts have not been designated as an accounting hedge, and therefore the net change in their fair value is reported as a gain or loss in the Consolidated Statements of Operations as part of Foreign exchange and other. Settlements of the Company’s foreign currency exchange contracts are reported as a gain or loss in the Consolidated Statements of Operations as part of Foreign exchange and other and reported as operating activities in the Consolidated Statements of Cash Flows.

The assets and liabilities associated with the Company’s foreign exchange contracts as included in the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 are as follows:


(in millions)	March 31, 2022		December 31, 2021
Accrued and other current liabilities	$	8	$	—
Prepaid expenses and other current assets	$	1	$	1
Net fair value	$	7	$	1

The following table presents the effect of the Company’s foreign exchange contracts on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
(in millions)	2022		2021
Loss related to changes in fair value	$	(7)	$	(2)
Gain (loss) related to settlements	$	7	$	(9)

Acquisition-related Contingent Consideration Obligations

The fair value measurement of contingent consideration obligations arising from business combinations is determined via a probability-weighted discounted cash flow analysis, using unobservable (Level 3) inputs. These inputs may include: (i) the estimated amount and timing of projected cash flows, (ii) the probability of the achievement of the factor(s) on which the contingency is based and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly higher or lower fair value measurement. At March 31, 2022, the fair value measurements of acquisition-related contingent consideration were determined using risk-adjusted discount rates ranging from 6% to 18%, and a weighted average risk-adjusted discount rate of 7%. The weighted average risk-adjusted discount rate was calculated by weighting each contract’s relative fair value at March 31, 2022.

The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2022 and 2021:


(in millions)	March 31, 2022				March 31, 2021
Balance, beginning of period			$	241			$	328
Adjustments to Acquisition-related contingent consideration:
Accretion for the time value of money	$	4			$	5
Fair value adjustments due to changes in estimates of other future payments	(1)				(14)
Acquisition-related contingent consideration			3				(9)
Payments/Settlements			(8)				(6)

Balance, end of period			236				313
Current portion included in Accrued and other current liabilities			43				111
Non-current portion			$	193			$	202

Fair Value of Long-term Debt

The fair value of long-term debt as of March 31, 2022 and December 31, 2021 was $21,963 million and $22,689 million, respectively, and was estimated using the quoted market prices for the same or similar debt issuances (Level 2).

- 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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