Fair Value Measurements

12 Months Ended

Dec. 31, 2021

NOTE 3 — Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 are classified using the fair value hierarchy in the table below:


	Total		Level 1		Level 2		Level 3
	(In millions)
Assets
Cash equivalents:
Money market funds	$	47	$	47	$	—	$	—
Mutual funds	23		23		—		—
Term deposits	153		—		153		—
Derivatives:
Foreign currency forward contracts	3		—		3		—
Investments:
Term deposits	200		—		200		—
Equity investments	909		94		—		815
Total assets	$	1,335	$	164	$	356	$	815

Financial assets measured at fair value on a recurring basis as of December 31, 2020 are classified using the fair value hierarchy in the table below:


	Total		Level 1		Level 2
	(In millions)
Assets
Cash equivalents:
Money market funds	$	147	$	147	$	—
Term deposits	49		—		49
U.S. treasury securities	150		150		—


Investments:
Term deposits	24		—		24
Equity investments	123		123		—
Total assets	$	493	$	420	$	73

Liabilities
Derivatives:
Foreign currency forward contracts	$	14	$	—	$	14

We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input.

We hold term deposit investments with financial institutions. Term deposits with original maturities of less than three months are classified as cash equivalents and those with remaining maturities of less than one year are classified within short-term investments.

As of December 31, 2021 and 2020, our cash and cash equivalents consisted primarily of term deposits, money market funds and U.S. treasury securities with maturities of three months or less and bank account balances.

Our equity investments include our marketable equity investment in Despegar, a publicly traded company, which is included in long-term investments and other assets in our consolidated balance sheets. During the years ended December 31, 2021, 2020, and 2019, we recognized a loss of approximately $29 million, a loss of approximately $6 million, and a gain of approximately $10 million, respectively, within other, net in our consolidated statements of operations related to the fair value changes of this equity investment.

We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our loyalty programs and our other foreign currency-denominated operating liabilities. As of December 31, 2021, we were party to outstanding forward contracts hedging our liability exposures with a total

net notional value of $1.7 billion. As of December 31, 2021 and 2020, we had net forward assets of $3 million ($12 million gross forward asset) recorded in prepaid expenses and other current assets and $14 million ($23 million gross forward liability) recorded in accrued expenses and other current liabilities. We recorded $1 million, $74 million and $(8) million in net gains (losses) from foreign currency forward contracts in 2021, 2020 and 2019.

The following table reconciles, in millions, the beginning and ending balances of Level 3 equity investment in GBT for which we have elected the fair value option. There was no internal movements to or from Level 3 from Level 1 or 2 for the year ended December 31, 2021.


Balance at December 31, 2020	$	—
Additions	815
Balance at December 31, 2021	$	815

In connection with our disposition of Egencia as discussed in NOTE 16 – Acquisitions and Divestiture, we received an indirect equity interest in GBT. The initial fair value estimate as of November 1 , 2021 was based on a blended analysis of the present value of future discounted cash flows and market value approach, Level 3 inputs. The unobservable inputs used in the discounted cash flows model included projected EBITDA margin growth rates of approximately 24%, a long term growth rate of 2.5%, and a weighted average cost of capital of 9%. Our significant estimates in the market approach model included identifying similar companies with comparable business factors that could be reasonably considered investment alternatives and assessing comparable valuation multiples while applying a control premium in estimating the fair value of the investment. The unobservable inputs to the market approach included a revenue multiple of 3.5x and a control premium of 20%. Significant increases or decreases in the inputs to the discounted cash flow or market value approach would result in a significant higher or lower fair value measurements. As of December 31, 2021, we concluded that there was no change in valuation.

Assets Measured at Fair Value on a Non-recurring Basis

Our non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity method investments, are adjusted to fair value when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. We measure our minority investments that do not have readily determinable fair values at cost less impairment, adjusted by observable price changes with changes recorded within other, net on our consolidated statements of operations.

Goodwill. During 2021, we recognized a goodwill impairment charge of $14 million in our B2B segment resulting from valuing a component of our Egencia reporting unit that remained after the sale on November 1, 2021.

During 2020, due to the severe and persistent negative effect COVID-19 had on global economies, the travel industry and our business, as well as the uncertainty and high variability in anticipated versus actual rates of recovery, in addition to our annual assessment on October 1, 2020, we deemed it necessary to perform various interim assessments of goodwill. As a result of assessments during 2020, we recognized goodwill impairment charges of $799 million, of which $559 million related to our Retail segment, primarily our Vrbo reporting unit, and $240 million related to our trivago segment.

Our assessments compared the fair value of the reporting units to their carrying value. The fair value estimates for all reporting units, except trivago, were based on a blended analysis of the present value of future discounted cash flows and market value approach, Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our assumptions were based on the actual historical performance of the reporting unit and took into account operating result trends, the anticipated duration of COVID-19 impacts and rates of recovery, and implied risk premiums based on market prices of our equity and debt as of the assessment dates. Our significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The fair value estimate for the trivago reporting unit was based on trivago’s stock price, a Level 1 input, adjusted for an estimated control premium. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as goodwill impairment charges during 2020. As of December 31, 2020, the applicable reporting units within our Retail segment had $2.3 billion goodwill remaining after the impairments incurred in 2020 and our trivago segment had $337 million goodwill remaining.

Intangible and Long-term Assets. During 2021, we recognized long-term asset impairment charges of $6 million in our B2B segment resulting from the write-off of capitalized software of a component of our Egencia reporting unit that remained after the sale on November 1, 2021.

During 2020, we recognized intangible asset impairment charges of $175 million within our Retail segment, of which $119 million related to indefinite-lived trade names that resulted from changes in estimated future revenues of the related brands as well as $35 million related to definite-lived intangible assets and $21 million related to other long-lived assets.

The indefinite-lived intangible assets, classified as Level 3 measurements, were valued using the relief-from-royalty method, which includes unobservable inputs, including projected revenues and royalty rates, which ranged from 2% to 8% with a weighted average royalty rate of 7%. For definite-lived intangible assets, classified as Level 3 measurements, we compared the estimated future, net undiscounted cash flows, which included key inputs such as rates of growth and profitability of our business as well as incremental net working capital, to the long-lived asset’s carrying amount. During 2020, we met the criteria to recognize certain smaller businesses within our Retail segment as held-for-sale. As such, we remeasured the disposal groups at fair value, less costs to sell, which is considered a Level 3 measurement and was based on each transaction’s estimated consideration as of the date of close.

The full duration and total impact of COVID-19 remains uncertain and it is difficult to predict how the recovery will continue to unfold (in general and versus our expectations) for global economies, the travel industry or our business. Additionally, as the stock of our trivago segment is publicly traded, it is difficult to predict market dynamics and the extent or duration of any stock price declines. As a result, we may continue to record impairment charges in the future due to the potential long-term economic impact and near-term financial impacts of the COVID-19 pandemic.

Minority Investments without Readily Determinable Fair Values. As of both December 31, 2021 and 2020, the carrying values of our minority investments without readily determinable fair values totaled $330 million. During 2021, we had no material gains or losses recognized related to these minority investments. During 2020, we recorded $134 million of losses related to a minority investment, which had recent observable and orderly transactions for similar investments, using an option pricing model that utilizes judgmental inputs such as discounts for lack of marketability and estimated exit event timing. During 2019, we recorded $2 million of losses related to the minority investments. As of December 31, 2021, total cumulative adjustments made to the initial cost basis of these investments included $2 million in unrealized upward adjustments and $105 million in unrealized downward adjustments (including impairments).