Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities Measured at Fair Value

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Assets and Liabilities Measured at Fair Value
6 Months Ended
Jun. 30, 2024
Assets and Liabilities Measured at Fair Value  
Assets and Liabilities Measured at Fair Value

(4) Assets and Liabilities Measured at Fair Value

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company does not have any material recurring assets or liabilities measured at fair value that would be considered Level 3.

The Company’s assets and liabilities measured at fair value are as follows:

June 30, 2024

December 31, 2023

 

Quoted prices

Significant

Quoted prices

Significant

 

in active

other

in active

other

 

markets for

observable

markets for

observable

 

identical assets

inputs

identical assets

inputs

 

Description

Total

(Level 1)

(Level 2)

Total

(Level 1)

(Level 2)

 

amounts in millions

 

Cash equivalents

    

$

332

    

332

    

    

404

404

Variable Prepaid Forward

$

13

13

6

6

TripCo Exchangeable Senior Debentures due 2051

$

307

 

 

307

 

287

287

Preferred Stock Derivative

$

4

4

21

21

Tripadvisor generally classifies cash equivalents and marketable securities, if any, within Level 1 and Level 2 as it values these financial instruments using quoted market prices (Level 1) or alternative pricing sources (Level 2). Fair values for Level 2 investments are considered Level 2 valuations because they are obtained from independent pricing sources for identical or comparable instruments, rather than direct observations of quoted prices in active markets.

The fair value of the Debentures is based on quoted market prices but the Debentures are not considered to be traded on “active markets.” Accordingly, they are reported in the foregoing table as Level 2 fair value.  

On August 10, 2022, TripSPV, a wholly owned subsidiary of the Company, amended its variable prepaid forward (“VPF”) with a financial institution with respect to 2.4 million shares of TRIP common stock held by the Company. Pursuant to the amendment, the VPF has a forward floor price of $23.64 per share and a forward cap price of $29.24 per share. The VPF is included in other assets in the condensed consolidated balance sheets.

As a result of the Repurchase Agreement, as described in note 6, TripCo determined the Series A Preferred Stock required liability treatment and needed to be bifurcated between a debt host and derivative (the “Preferred Stock Derivative”). The Preferred Stock Derivative was recorded at fair value upon the reclassification from temporary equity.  Changes in the fair values of the VPF and Preferred Stock Derivative are recognized in realized and unrealized gains (losses) on financial instruments in the condensed consolidated statements of operations. The Preferred Stock Derivative is included in accrued liabilities and other current liabilities in the condensed consolidated balance sheet as of June 30, 2024 and in financial instrument liabilities in the condensed consolidated balance sheet as of December 31, 2023.

The fair value of the VPF and Preferred Stock Derivative were derived from a Black-Scholes-Merton model using observable market data as the significant inputs.

Other Financial Instruments

Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued and other current liabilities, and long-term debt (excluding the Debentures). With the exception of debt, the carrying amount approximates fair value due to the short maturity of these instruments as reported on our condensed consolidated balance sheets. See note 5 for a description of the fair value of the Company’s fixed rate debt. See note 6 for a description of the fair value of the debt host component of the Company’s Preferred Stock Derivative.

Realized and Unrealized Gains (Losses) on Financial Instruments

Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:

Three months ended

Six months ended

June 30,

June 30,

    

2024

    

2023

    

2024

    

2023

amounts in millions

Variable Prepaid Forward

$

18

6

6

3

TripCo Exchangeable Senior Debentures due 2051

(3)

 

(5)

 

(14)

 

(15)

Preferred Stock Derivative

38

14

17

19

$

53

 

15

 

9

 

7

The Company has elected to account for the Debentures using the fair value option. Changes in the fair value of the Debentures and financial instrument assets and liabilities recognized in the condensed consolidated statement of operations are primarily due to market factors primarily driven by changes in the fair value of the underlying shares of the financial instruments. The Company isolates the portion of the unrealized gain (loss) attributable to the change in the instrument specific credit risk and recognizes such amount in other comprehensive earnings (loss).  The change in the fair value of the Debentures attributable to changes in the instrument specific credit risk was a gain of $7 million and a gain of $4 million for the three months ended June 30, 2024 and 2023, respectively, and a loss of $6 million and a loss of $7 million for the six months ended June 30, 2024 and 2023, respectively.  The cumulative change was a gain of $23 million as of June 30, 2024.