Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2022

Note 5 – Fair Value of Financial Instruments

ASC 820 states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. Our assets and liabilities that were measured at fair value on a recurring basis were as follows (in millions):


	December 31, 2022								December 31, 2021
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		Level III
Money market funds	$	2,188	$	2,188	$	—	$	—	$	9,548	$	9,548	$	—	$	—
U.S. government securities		894		—		894		—		—		—		—		—
Corporate debt securities		885		—		885		—		131		—		131		—
Certificates of deposit and time deposits		4,253		—		4,253		—		—		—		—		—
Interest rate swap liabilities		—		—		—		—		31		—		31		—
Total	$	8,220	$	2,188	$	6,032	$	—	$	9,710	$	9,548	$	162	$	—

All of our money market funds were classified within Level I of the fair value hierarchy because they were valued using quoted prices in active markets. Our U.S. government securities, certificates of deposit, time deposits and corporate debt securities are classified within Level II of the fair value hierarchy and the market approach was used to determine fair value of these investments. Our interest rate swaps were classified within Level II of the fair value hierarchy because they were valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates.

Our cash, cash equivalents and investments classified by security type as of December 31, 2022 and 2021 consisted of the following (in millions):


	December 31, 2022
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	13,965	$	—	$	—		$	13,965	$	13,965	$	—
Money market funds		2,188		—		—			2,188		2,188		—
U.S. government securities		897		—		(3	)		894		—		894
Corporate debt securities		907		—		(22	)		885		—		885
Certificates of deposit and time deposits		4,252		1		—			4,253		100		4,153
Total cash, cash equivalents and short-term investments	$	22,209	$	1	$	(25	)	$	22,185	$	16,253	$	5,932


	December 31, 2021
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	8,028	$	—	$	—		$	8,028	$	8,028	$	—
Money market funds		9,548		—		—			9,548		9,548		—
Corporate debt securities		132		—		(1	)		131		—		131
Total cash, cash equivalents and short-term investments	$	17,708	$	—	$	(1	)	$	17,707	$	17,576	$	131

We record gross realized gains, losses and credit losses as a component of Other (expense) income, net in the consolidated statements of operations. For the years ended December 31, 2022 and 2021, we did not recognize any material gross realized gains, losses or credit losses. The ending allowance balances for credit losses were immaterial as of December 31, 2022 and December 31, 2021. We have determined that the gross unrealized losses on our investments as of December 31, 2022 and December 31, 2021 were temporary in nature.

The following table summarizes the fair value of our investments by stated contractual maturities as of December 31, 2022 (in millions):


Due in 1 year or less	$	5,135
Due in 1 year through 5 years		636
Due in 5 years through 10 years		161
Total	$	5,932

Disclosure of Fair Values

Our financial instruments that are not re-measured at fair value include accounts receivable, financing receivables, accounts payable, accrued liabilities, customer deposits and debt. The carrying values of these financial instruments approximate their fair values, other than our 2.375% Convertible Senior Notes due in 2022 (“2022 Notes”) and 2.00% Convertible Senior Notes due in 2024 (“2024 Notes”) (collectively referred to as “Convertible Senior Notes” below).

We estimate the fair value of the Convertible Senior Notes using commonly accepted valuation methodologies and market-based risk measurements that are indirectly observable, such as credit risk (Level II). The following table presents the estimated fair values and the carrying values (in millions):


	December 31, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
Convertible Senior Notes (1)	$	37	$	223	$	119	$	2,016

(1)

The 2022 Notes were fully settled in the first quarter of 2022.

- 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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