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FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Financial assets and liabilities carried at fair value at September 30, 2021 and nonrecurring fair value measurements are classified in the categories described in the table below (in millions):
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Recurring fair value measurements |  |  |  |  |  |  |  |
ASSETS: |  |  |  |  |  |  |  |
Cash equivalents and restricted cash equivalents: |  |  |  |  |  |  |  |
Money market fund investments |  | $ | 11,074 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,074 |
Time deposits and certificates of deposit |  | 41 |  |  | — |  |  | — |  |  | 41 |
Short-term investments: |  |  |  |  |  |  |  |
Trip.com Group convertible debt securities |  | — |  |  | 522 |  |  | — |  |  | 522 |
Long-term investments: |  |  |  |  |  |  |  |
Investments in private companies: |  |  |  |  |  |  |  |
Debt securities |  | — |  |  | — |  |  | 330 |  | 330 |
Other long-term investments: |  |  |  |  |  |  |  |
Equity securities |  | 2,884 |  |  | — |  |  | — |  |  | 2,884 |
Derivatives: |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | — |  |  | 8 |  |  | — |  |  | 8 |
Total assets at fair value |  | $ | 13,999 |  |  | $ | 530 |  |  | $ | 330 |  |  | $ | 14,859 |
LIABILITIES: |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | $ | — |  |  | $ | 11 |  |  | $ | — |  |  | $ | 11 |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |
Investment in equity securities of a private company |  | $ | — |  |  | $ | 18 |  |  | $ | — |  |  | $ | 18 |
Financial assets and liabilities carried at fair value at December 31, 2020 and nonrecurring fair value measurements are classified in the categories described in the table below (in millions):
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Recurring fair value measurements |  |  |  |  |  |  |  |
ASSETS: |  |  |  |  |  |  |  |
Cash equivalents and restricted cash equivalents: |  |  |  |  |  |  |  |
Money market fund investments |  | $ | 10,208 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,208 |
Time deposits and certificates of deposit |  | 32 |  |  | — |  |  | — |  |  | 32 |
Short-term investments: |  |  |  |  |  |  |  |
Trip.com Group convertible debt securities |  | — |  |  | 501 |  |  | — |  |  | 501 |
Long-term investments: |  |  |  |  |  |  |  |
Investments in private companies: |  |  |  |  |  |  |  |
Debt securities |  | — |  |  | — |  |  | 200 |  |  | 200 |
Other long-term investments: |  |  |  |  |  |  |  |
Trip.com Group convertible debt securities |  | — |  |  | 24 |  |  | — |  |  | 24 |
Equity securities |  | 3,080 |  |  | — |  |  | — |  |  | 3,080 |
Derivatives: |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | — |  |  | 9 |  |  | — |  |  | 9 |
Total assets at fair value |  | $ | 13,320 |  |  | $ | 534 |  |  | $ | 200 |  |  | $ | 14,054 |
LIABILITIES: |  |  |  |  |  |  |  |
Foreign currency exchange derivatives |  | $ | — |  |  | $ | 7 |  |  | $ | — |  |  | $ | 7 |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |
Investments in equity securities of private companies (1) |  | $ | — |  |  | $ | — |  |  | $ | 404 |  |  | $ | 404 |
Goodwill of the OpenTable and KAYAK reporting unit (2) |  | — |  |  | — |  |  | 1,000 |  |  | 1,000 |
Total nonrecurring fair value measurements |  | $ | — |  |  | $ | — |  |  | $ | 1,404 |  |  | $ | 1,404 |
(1) At March 31, 2020, the investment in DiDi was written down to its estimated fair value of $400 million, resulting in an impairment charge of $100 million (see Note 5). (2) At March 31, 2020, the goodwill of the OpenTable and KAYAK reporting unit was written down to its estimated fair value of $1.5 billion, resulting in an impairment charge of $489 million. At September 30, 2020, the goodwill was further written down to its estimated fair value of $1.0 billion, resulting in an additional impairment charge of $573 million (see Note 8). There are three levels of inputs to measure fair value. The definition of each input is described below: Level 1: Quoted prices in active markets that are accessible by the Company at the measurement date for identical assets and liabilities. Level 2: Inputs that are observable, either directly or indirectly. Such prices may be based upon quoted prices for identical or comparable securities in active markets or inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. Rollforward of Level 3 Fair Value Measurements The following table summarizes the fair value adjustments for debt securities measured using significant unobservable inputs (level 3) (in millions):
| For the Nine Months Ended September 30,
| 2021 |  | 2020(1)
Balance, beginning of year | $ | 200 |  |  | $ | 250 |
Unrealized gains included in accumulated other comprehensive loss(2) | 130 |  |  | — |
Balance, end of period | $ | 330 |  |  | $ | 250 |
(1) The Company recognized an unrealized loss of $20 million during the three months ended March 31, 2020 and an unrealized gain of $20 million during the three months ended June 30, 2020 related to the investment in Grab. (2) The unrealized gains are recorded in "Accumulated other comprehensive loss" in the Consolidated Balance Sheet. Investments See Note 5 for additional information related to the Company's investments. The valuation of investments in Trip.com Group convertible debt securities are considered "Level 2" valuations because the Company has access to quoted prices for identical or comparable securities, but does not have visibility into the volume and frequency of trading for these investments. A market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace. Investments in private companies measured using Level 3 inputs The Company’s investments measured using Level 3 inputs primarily consist of preferred stock investments in privately-held companies that are classified as either debt securities or equity securities without readily determinable fair values. Fair values of privately held securities are estimated using a variety of valuation methodologies, including both market and income approaches. The Company has used valuation techniques appropriate for the type of investment and the information available about the investee as of the valuation date to determine fair value. Recent financing transactions in the investee, such as new investments in preferred stock, are generally considered the best indication of the enterprise value and therefore used as a basis to estimate fair value. As applicable, the Company also considers publicly disclosed information for certain merger transactions (not yet consummated), including those involving special purpose acquisition companies. However, based on a number of factors, such as the proximity in timing to the valuation date or the volume or other terms of these financing transactions, the Company may also use other valuation techniques to supplement this data, including the income approach. In addition, an option-pricing model ("OPM") is utilized to allocate value to the various classes of securities of the investee, including the class owned by the Company. In certain situations, the current value method ("CVM") is utilized to allocate value to the various classes of equity based on their as-converted values. The OPM and CVM include assumptions around the investees' expected time to liquidity and volatility. The Company's investment in Grab, which is classified as a debt security for accounting purposes, had an estimated fair value of $330 million and $200 million at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, the Company measured this investment using Level 3 inputs and management's estimates that incorporate current market participant expectations of future cash flows alongside the Grab Transaction value and other relevant information. To estimate the fair value of Grab, the Company used a relative weighting of 70% market approach using the Grab Transaction value and 30% income approach. The market approach uses the Grab Transaction value and an estimated discount for the lack of marketability. The key unobservable inputs used include the volatility (65%) and an estimated time to liquidity of three months. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on a company’s weighted-average cost of capital, and is adjusted to reflect the risks inherent in its cash flows. The key unobservable inputs and ranges used include the weighted-average cost of capital (12.0%-14.5%), terminal earnings before interest, taxes, depreciation and amortization ("EBITDA") multiple (12x-14x), volatility (60%-70%) and an estimated time to liquidity of five months. Significant changes in any of these inputs in isolation would result in significantly different fair value measurements. Generally, a change in the assumption used for terminal EBITDA multiples would result in a directionally similar change in the fair value and a change in the assumption used for weighted-average cost of capital or volatility would result in a directionally opposite change in the fair value. The determination of the fair value of Grab, inclusive of the consideration of the Grab Transaction value, reflects numerous assumptions that are subject to various risks and uncertainties, including the timing of when the transaction will be completed. The Grab Transaction is subject to certain closing conditions, including, the effectiveness of the relevant registration statement filed with the SEC and the approval of Altimeter and Grab shareholders. For the investment in the equity securities of DiDi, considering the impact of the COVID-19 pandemic (see Note 1), the Company performed an impairment analysis as of March 31, 2020 that resulted in an adjusted carrying value of $400 million at each of March 31, 2020, December 31, 2020 and March 31, 2021. As a result of DiDi's initial public offering, the Company reclassified its DiDi investment as equity securities with readily determinable fair values (see Note 5). Derivatives Derivatives not designated as hedges The Company's derivative instruments are valued using pricing models. Pricing models take into account the contract terms as well as multiple inputs where applicable, such as interest rate yield curves, option volatility and foreign currency exchange rates. The valuation of derivatives are considered "Level 2" fair value measurements. The Company's derivative instruments are typically short-term in nature. In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations. The Company mitigates these risks by following established risk management policies and procedures, including the use of derivatives. The Company enters into foreign currency forward contracts to hedge its exposure to the impact of movements in foreign currency exchange rates on its transactional balances denominated in currencies other than the functional currency. In periods prior to the second quarter of 2020, the Company also entered into foreign currency derivative contracts to hedge translation risks from short-term foreign currency exchange rate fluctuations for the Euro, British Pound Sterling and certain other currencies versus the U.S. Dollar. Since the first quarter of 2020, the Company has not entered into such derivative instruments as the impact of the COVID-19 pandemic on the Company’s operating results is uncertain. The Company does not use derivatives for trading or speculative purposes. As of September 30, 2021 and December 31, 2020, the Company did not designate any foreign currency exchange derivatives as hedges for accounting purposes. The Company reports the fair values of its derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets in "Other current assets" and "Accrued expenses and other current liabilities", respectively. Unless designated as hedges for accounting purposes, gains and losses resulting from changes in the fair values of derivative instruments are recognized in "Other income (expense), net" in the Unaudited Consolidated Statements of Operations in the period that the changes occur and cash flow impacts, if any, are classified within "Net cash provided by operating activities" in the Unaudited Consolidated Statements of Cash Flows. The table below provides estimated fair values and notional amounts of foreign currency exchange derivatives outstanding at September 30, 2021 and December 31, 2020 (in millions). The notional amount of a foreign currency forward contract is the contracted amount of foreign currency to be exchanged and is not recorded in the balance sheets.
| September 30, 2021 |  | December 31, 2020
Estimated fair value of derivative assets | $ | 8 |  |  | $ | 9 |
Estimated fair value of derivative liabilities | $ | 11 |  |  | $ | 7 |
Notional amount: |  |  |
Foreign currency purchases | $ | 867 |  |  | $ | 898 |
Foreign currency sales | $ | 1,559 |  |  | $ | 839 |
The effect of foreign currency exchange derivatives recorded in "Other income (expense), net" in the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 is as follows (in millions):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Losses on foreign currency exchange derivatives | $ | 10 |  |  | $ | — |  |  | $ | 18 |  |  | $ | 31 |
Derivatives designated as cash flow hedges In March 2021, the Company entered into reverse treasury lock agreements with certain financial institutions, with an aggregate notional amount of $1.8 billion and expiration date of March 31, 2021, to hedge the risk of changes in the cash flows related to the planned redemption, in April 2021, of the Senior Notes due April 2025 (the "April 2025 Notes") and the Senior Notes due April 2027 (the "April 2027 Notes") attributable to changes in the underlying U.S. treasury notes' interest rates. The Company designated the reverse treasury lock agreements as cash flow hedges. As of March 31, 2021, the Company recognized unrealized losses of $15 million in "Accumulated other comprehensive loss" in the Consolidated Balance Sheet. In April 2021, the Company settled the reverse treasury lock agreements for an aggregate amount of $15 million and also redeemed the April 2025 Notes and the April 2027 Notes. The cash flows related to the reverse treasury lock agreements are classified within "Net cash (used in) provided by financing activities" in the Unaudited Consolidated Statement of Cash Flows. During the three months ended June 30, 2021, the Company reclassified the losses on the cash flow hedges from "Accumulated other comprehensive loss" in the Consolidated Balance Sheet to "Other income (expense), net" in the Unaudited Consolidated Statement of Operations, concurrently with the recognition of the losses upon early extinguishment of the April 2025 Notes and the April 2027 Notes (see Note 9). Other Financial Assets and Liabilities At September 30, 2021 and December 31, 2020, the Company's cash consisted of bank deposits. Cash equivalents principally include money market fund investments, time deposits and certificates of deposit. Other financial assets and liabilities, including restricted cash, accounts payable, accrued expenses and deferred merchant bookings, are carried at cost which approximates their fair values because of the short-term nature of these items. Accounts receivable and other financial assets measured at amortized cost are carried at cost less an allowance for expected credit losses to present the net amount expected to be collected (see Note 7). See Note 9 for the estimated fair value of the Company's outstanding senior notes and Note 5 for information related to an embedded derivative associated with the $25 million Trip.com Group convertible notes issued in 2016. Goodwill See Note 8 for nonrecurring fair value measurements related to the goodwill impairment test.

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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=123874694&loc=d3e19207-110258 + Details
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