v3.21.2

Fair Value Measurement | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurement | 15. Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into three levels based on reliability, as follows:
| • | Level 1 – observable inputs such as quoted prices in active markets for identical assets and liabilities;
| • | Level 2 – inputs other than quoted prices for identical assets in active markets that are observable either directly or indirectly; and
| • | Level 3 – unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions.
The Company’s financial assets and liabilities measured at fair value on a recurring basis are as follows (in millions):
|  | Successor |
|  | September 30, 2021 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ |  | — |  |  | $ |  | 5 |  |  | $ |  | — |  |  | $ |  | 5 |
Total assets recorded at fair value |  | $ |  | — |  |  | $ |  | 5 |  |  | $ |  | — |  |  | $ |  | 5 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ |  | — |  |  | $ |  | 13 |  |  | $ |  | — |  |  | $ |  | 13 |
Contingent consideration liability |  |  |  | — |  |  |  |  | — |  |  |  |  | 29 |  |  |  |  | 29 |
Seller Earnouts liability |  |  |  | — |  |  |  |  | — |  |  |  |  | 144 |  |  |  |  | 144 |
Warrant liability |  |  |  | 182 |  |  |  |  | — |  |  |  |  | — |  |  |  |  | 182 |
Tax receivable agreement liability |  |  |  | — |  |  |  |  | — |  |  |  |  | 605 |  |  |  |  | 605 |
Total liabilities recorded at fair value |  | $ |  | 182 |  |  | $ |  | 13 |  |  | $ |  | 778 |  |  | $ |  | 973 |
|  | Predecessor |
|  | December 31, 2020 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ |  | — |  |  | $ |  | 47 |  |  | $ |  | — |  |  | $ |  | 47 |
Foreign currency hedges |  |  |  | — |  |  |  |  | — |  |  |  |  | — |  |  |  |  | — |
Contingent consideration liability |  |  |  | — |  |  |  |  | — |  |  |  |  | 26 |  |  |  |  | 26 |
Total liabilities recorded at fair value |  | $ |  | — |  |  | $ |  | 47 |  |  | $ |  | 26 |  |  | $ |  | 73 |
Derivatives The valuations of the derivatives intended to mitigate our interest rate risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential non-performance risk. Warrants The Company accounts for the Warrants for the Company’s Class A Common Stock as liabilities at fair value because the warrants do not meet the criteria for classification within equity. The provisions of all warrant agreements provide similar value to its holders; therefore, all Warrants are valued based on the closing market price of the applicable date of the Condensed Consolidated Balance Sheets, within Financial instruments. The change in the fair value of the Warrant liability is recorded in Loss from change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss). Contingent Consideration The contingent consideration liabilities relate to acquisitions completed during the years ended December 31, 2020 and 2018, and are included in Other current liabilities and Other liabilities on the Condensed Consolidated Balance Sheets. The fair value of these liabilities is determined using a discounted cash flow analysis. Changes in the fair value of the liabilities are included in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income (Loss). Significant unobservable inputs are used in the assessment of fair value, including assumptions regarding discount rates and probability assessments based on the likelihood of reaching the various targets set out in the acquisition agreements. The following table summarizes the changes in deferred contingent consideration liabilities (in millions):
|  | Successor |  |  |  | Predecessor |
|  | Three Months Ended |  |  |  | Six Months Ended |  |  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  |  | June 30, |  |  | September 30, |  |  | September 30, |
|  | 2021 |  |  |  | 2021 |  |  | 2020 |  |  | 2020 |
Beginning balance |  | $ |  | 29 |  |  |  | $ |  | 26 |  |  | $ |  | 22 |  |  | $ |  | 22 |
Acquisitions |  |  |  | — |  |  |  |  |  | 2 |  |  |  |  | 3 |  |  |  |  | 3 |
Accretion of contingent consideration |  |  |  | — |  |  |  |  |  | 1 |  |  |  |  | — |  |  |  |  | — |
Ending Balance |  | $ |  | 29 |  |  |  | $ |  | 29 |  |  | $ |  | 25 |  |  | $ |  | 25 |
Seller Earnouts The Company accounts for the Seller Earnouts as contingent consideration liabilities at fair value in Financial Instruments in the Condensed Consolidated Balance Sheets. The fair value of the Seller Earnouts is determined using Monte Carlo simulation and Option Pricing Methods. Changes in the fair value of the liability is included in Loss from change in fair value of financial instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss). Significant unobservable inputs are used in the assessment of fair value, including the following assumptions: volatility, risk-free interest rate, expected holding period and probability assessments based on the likelihood of reaching the performance targets defined in the Business Combination. Tax Receivable Agreement In connection with the Business Combination, Alight entered into the Tax Receivable Agreement (the “TRA”) with certain owners of Alight Holdings prior to the Business Combination. Pursuant to the TRA, we will pay certain sellers, as applicable, 85% of the tax benefits, of any savings that we realize, calculated using certain assumptions, as a result of (i) tax basis adjustments from sales and exchanges of Alight Holdings equity interests in connection with or following the Business Combination and certain distributions with respect to Alight Holdings equity interests, (ii) our utilization of certain tax attributes, and (iii) certain other tax benefits related to entering into the TRA. Actual tax benefits realized by Alight may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, we expect that the payments that Alight may make under the TRA may be substantial. The Company’s TRA liability and Seller Earnouts liability are measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The fair value of the TRA and Seller Earnouts are preliminary and the final fair value could have a material impact on the preliminary purchase price allocation disclosed. The fair values will be finalized as soon as practicable, but no later than one year from the acquisition date. The following table provides a reconciliation of the TRA liability and Seller Earnout liability for the Successor three months ended September 30, 2021:
|  | Successor |
|  | TRA |  |  | Seller Earnouts |
|  | Liability |  |  | Liability |
Balance at July 1, 2021 |  | $ |  | 578 |  |  | $ |  | 109 |
Loss from change in fair value of TRA |  |  |  | 27 |  |  |  |  | — |
Loss from change in fair value of Seller Earnouts |  |  |  | — |  |  |  |  | 35 |
Balance at September 30, 2021 |  | $ |  | 605 |  |  | $ |  | 144 |
Non-Recurring Fair Value Measurements The Company’s financial liabilities not measured at fair value on a recurring basis are as follows (in millions):
|  | Successor |  |  |  | Predecessor |
|  | September 30, 2021 |  |  |  | December 31, 2020 |
|  | Carrying Value |  |  | Fair Value |  |  |  | Carrying Value |  |  | Fair Value |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Current portion of long term debt, net |  | $ |  | 43 |  |  | $ |  | 43 |  |  |  | $ |  | 37 |  |  | $ |  | 37 |
Long term debt, net |  |  |  | 2,839 |  |  |  |  | 2,848 |  |  |  |  |  | 4,041 |  |  |  |  | 4,090 |
Total |  | $ |  | 2,882 |  |  | $ |  | 2,891 |  |  |  | $ |  | 4,078 |  |  | $ |  | 4,127 |
The carrying value of the Term Loan, Secured Senior Notes and Unsecured Senior Notes include the outstanding principal balances, less any unamortized discount or premium. The carrying value of the Term Loan approximates fair value as it bears interest at variable rates and we believe our credit risk is consistent with when the debt originated. The outstanding balances under the Senior Notes have fixed interest rates and the fair value is classified as Level 2 within the fair value hierarchy and corroborated by observable market data (see Note 8 “Debt”). The carrying amounts of Cash and cash equivalents, Receivables, net and Accounts payable and accrued liabilities approximate their fair values due to the short-term maturities of these instruments. During the Successor three months ended September 30, 2021 and the Predecessor six months ended June 30, 2021, and three and nine months ended September 30, 2020 there were no transfers in or out of the Level 1, Level 2 or Level 3 classifications.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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