Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS

U.S. GAAP defines fair value as the price that would be received to sell an asset or 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 liability. The authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:

Level 1:	Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2:	Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3:	Unobservable inputs that reflect the reporting entity’s own assumptions.

Recurring fair value measurements

The Company’s financial assets and liabilities (adjusted to fair value at least quarterly) are derivative instruments, which are primarily included in other noncurrent liabilities, and contingent consideration, which is primarily included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets.

The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of June 30, 2022 and December 31, 2021:

	Fair Value Measurements at June 30, 2022
	Level 1		Level 2			Level 3			Total
Financial assets:
Derivatives designated as hedge instruments
Cash flow hedges - interest rate swaps	$	—	$	23		$	—		$	23
Cash flow hedges - cross currency contracts		—		18			—			18
Net investment hedges		—		33			—			33
Fair value hedges		—		38			—			38
Derivatives not designated as hedge instruments
Foreign currency contracts		—		—			—			—
Total	$	—	$	112		$	—		$	112
Financial liabilities:
Derivatives designated as hedge instruments
Cash flow hedges - interest rate swaps	$	—	$	(10	)	$	—		$	(10	)
Fair value hedges		—		(1	)		—			(1	)
Derivatives not designated as hedge instruments
Foreign currency contracts		—		—			—			—
Contingent consideration obligations		—		—			(4	)		(4	)
Total	$	—	$	(11	)	$	(4	)	$	(15	)

	Fair Value Measurements at December 31, 2021
	Level 1		Level 2			Level 3			Total
Financial assets:
Derivatives designated as hedge instruments
Cash flow hedges - cross currency swaps	$	—	$	6		$	—		$	6
Net investment hedges		—		12			—			12
Total	$	—	$	18		$	—		$	18
Financial liabilities:
Derivatives designated as hedge instruments
Cash flow hedges - interest rate swaps	$	—	$	(11	)	$	—		$	(11	)
Derivatives not designated as hedge instruments
Foreign currency contracts		—		—			—			—
Contingent consideration obligations		—		—			(4	)		(4	)
Total	$	—	$	(11	)	$	(4	)	$	(15	)

The Company determines the fair value of its derivative instruments designated as hedge instruments using standard pricing models and market-based assumptions for all inputs such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.

Contingent consideration obligations

The value of the contingent consideration obligations is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate. Depending on the contractual terms of the purchase agreement, the probability of achieving future cash flows or earnings generally represent the only significant unobservable inputs. The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.

The table below presents a reconciliation of the fair value of the Company’s contingent consideration obligations that use unobservable inputs (Level 3), as well as other information about the contingent consideration obligations:

	Six Months Ended June 30, 2022
Balance as of December 31, 2021	$	4
Issuances		—
Settlements		—
Adjustments to fair value		—
Balance as of June 30, 2022	$	4
Number of open contingent consideration arrangements at the end of period		3
Maximum potential payout at end of period	$	5

At June 30, 2022, the remaining open contingent consideration arrangements are set to expire at various dates through 2023. Level 3 unobservable inputs were used to calculate the fair value adjustments shown in the table above. The fair value adjustments and the related unobservable inputs were not considered significant for the three and six months ended June 30, 2022.

Fair value estimates

The following table presents the carrying amount and fair value of the Company’s non-variable interest rate debt (“4.125% Senior Notes,” and "4.750% Senior Notes," as defined in Note 12 – “Debt”), including current portion and excluding unamortized debt issuance costs, which is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy. The carrying values of variable interest rate long-term debt, including current portions and excluding accrued interest, approximate their fair values because of the variable interest rates of these instruments, which generally are reset monthly.

	June 30, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
4.125% Senior Notes	$	350	$	280	$	350	$	348
4.750% Senior Notes		300		241		300		305