13. Financial Instruments and Fair Value Measurements
Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, debt, investments in corporate debt securities and investments in equity securities. The carrying value of these financial instruments, excluding debt instruments and the Company’s investments in corporate debt and equity securities, approximates fair value because of the short-term nature of these instruments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:
•Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 — Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The Company’s only financial instruments which are measured at fair value on a recurring basis are equity securities. The fair value of the equity securities is based on quoted market prices on the measurement date. Financial instruments measured at fair value on a recurring basis at December 31 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2025 | | December 31, 2024 |
| Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Equity securities | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | |
| Total | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | |
The Company recognized unrealized losses on the remeasurement of equity securities of nil and $9 million in 2025 and 2024, respectively, which was recorded in other operating expense (income), net.
The fair value of the Company’s corporate debt securities was $28 million and $27 million at December 31, 2025, and 2024. The fair value of the corporate debt securities held at amortized cost was calculated based on quoted market prices which would be classified as Level 1 in the fair value hierarchy above.
The fair value of long-term debt was $333 million as of December 31, 2025 and was valued using Level 2 inputs which are based upon the quoted market prices for the same or similar debt instruments. The fair value of short-term debt approximates the carrying value due to the short maturities of the debt instruments.
Financial assets and liabilities are offset, and the net amount reported in the Consolidated Balance Sheets when there is a legally enforceable right to offset and net settlement is intended.