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Fair Value Measurements
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
We consider the carrying amounts of current assets and current liabilities (not including derivatives and the current portion of long-term debt) to approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to a three-tier fair value hierarchy as follows:
Level 1 — Observable Inputs. Level 1 financial instruments are actively traded and therefore the fair value for these securities is based on quoted market prices for identical securities in active markets.
Level 2 — Directly or Indirectly Observable Inputs. Fair value for these investments is determined using a market approach based on quoted prices for similar securities in active markets or quoted prices for identical securities in inactive markets.
Level 3 — Unobservable Inputs. Level 3 financial instruments are valued using unobservable inputs that represent management’s best estimate of what market participants would use in pricing the financial instrument at the measurement date. Our Level 3 financial instruments consist primarily of derivative financial instruments.
The derivatives include the 1.125% Call Option derivative asset and the 1.125% Conversion Option derivative liability (for detailed descriptions of these instruments, see Note 12. “Derivatives”). These derivatives are not actively traded and are valued based on an option pricing model that uses observable and unobservable market data for inputs. Significant market data inputs used to determine fair value as of December 31, 2019, included the price of our common stock, the time to maturity of the derivative instruments, the risk-free interest rate, and the implied volatility of our common stock. The 1.125% Call Option asset and the 1.125% Conversion Option liability were designed such that changes in their fair values offset, with minimal impact to the consolidated statements of operations. Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such instruments is mitigated.
The net changes in fair value of Level 3 financial instruments were insignificant to our results of operations for the years ended December 31, 2019, and 2018.
Our financial instruments measured at fair value on a recurring basis at December 31, 2019, were as follows:
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In millions)
Corporate debt securities
$
1,178

 
$

 
$
1,178

 
$

Mortgage-backed securities
420

 

 
420

 

Asset-backed securities
127

 

 
127

 

U.S. Treasury notes
86

 

 
86

 

Municipal securities
78

 

 
78

 

Government-sponsored enterprise securities (“GSEs”)
49

 

 
49

 

Foreign securities
7

 

 
7

 

Certificates of deposit
1

 

 
1

 

Subtotal
1,946

 

 
1,946

 

1.125% Call Option derivative asset
29

 

 

 
29

Total assets
$
1,975

 
$

 
$
1,946

 
$
29

 
 
 
 
 
 
 
 
1.125% Conversion Option derivative liability
$
29

 
$

 
$

 
$
29

Total liabilities
$
29

 
$

 
$

 
$
29

Our financial instruments measured at fair value on a recurring basis at December 31, 2018, were as follows:
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In millions)
Corporate debt securities
$
1,123

 
$

 
$
1,123

 
$

Asset-backed securities
82

 

 
82

 

U.S. Treasury notes
181

 

 
181

 

Municipal securities
114

 

 
114

 

GSEs
163

 

 
163

 

Foreign securities
4

 

 
4

 

Certificates of deposit
14

 

 
14

 

Subtotal
1,681

 

 
1,681

 

1.125% Call Option derivative asset
476

 

 

 
476

Total assets
$
2,157

 
$

 
$
1,681

 
$
476

 
 
 
 
 
 
 
 
1.125% Conversion Option derivative liability
$
476

 
$

 
$

 
$
476

Total liabilities
$
476

 
$

 
$

 
$
476


Fair Value Measurements – Disclosure Only
The carrying amounts and estimated fair values of our notes payable are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets. The carrying amount and estimated fair value of the Term Loan Facility is classified as a Level 3 financial instrument, because certain inputs used to determine its fair value are not observable. As of December 31, 2019, the carrying amount of the Term Loan Facility approximated fair value because its interest rate is a variable rate that approximates rates currently available to us.
 
December 31, 2019
 
December 31, 2018
 
Carrying
 
Fair Value
 
Carrying
 
Fair Value
 
Amount
 
 
Amount
 
 
(In millions)
5.375% Notes
$
696

 
$
745

 
$
694

 
$
674

4.875% Notes
327

 
340

 
326

 
301

Term Loan Facility
220

 
220

 

 

1.125% Convertible Notes (1)
12

 
42

 
240

 
732

Total
$
1,255

 
$
1,347

 
$
1,260

 
$
1,707

_______________________________ 
(1)
The fair value of the 1.125% Conversion Option (the embedded cash conversion option), which is reflected in the fair value amounts presented above, amounted to $29 million and $476 million as of December 31, 2019 and 2018, respectively. For more information, including information on debt repayments in 2019 and 2020, see Note 11, “Debt,” and Note 12, “Derivatives.”