Fair Value Measurements

3 Months Ended

Mar. 31, 2020

We consider the carrying amounts of current assets and current liabilities (not including 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 the three-tier fair value hierarchy. For a description of the methods and assumptions that we use to a) estimate the fair value; and b) determine the

classification according to the fair value hierarchy for each financial instrument, refer to our 2019 Annual Report on Form 10-K, Note 4, “Fair Value Measurements.”

Our financial instruments measured at fair value on a recurring basis at March 31, 2020, were as follows:



	Total		Observable Inputs (Level 1)		Directly or Indirectly Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Corporate debt securities	$	1,260	$	—	$	1,260	$	—
Mortgage-backed securities	451		—		451		—
Asset-backed securities	143		—		143		—
Municipal securities	138		—		138		—
Certificates of deposit	7		—		7		—
Government-sponsored enterprise securities (“GSEs”)	6		—		6		—
U.S. Treasury notes	5		—		5		—
Total assets	$	2,010	$	—	$	2,010	$	—

Our financial instruments measured at fair value on a recurring basis at December 31, 2019, were as follows:



	Total		Observable Inputs (Level 1)		Directly or Indirectly Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Corporate debt securities	$	1,178	$	—	$	1,178	$	—
Mortgage-backed securities	420		—		420		—
Asset-backed securities	127		—		127		—
Municipal securities	78		—		78		—
Certificates of deposit	1		—		1		—
GSEs	49		—		49		—
U.S. Treasury notes	86		—		86		—
Foreign securities	7		—		7		—
Subtotal	1,946		—		1,946		—
Call option derivative asset	29		—		—		29
Total assets	$	1,975	$	—	$	1,946	$	29

Conversion option derivative liability	$	29	$	—	$	—	$	29
Total liabilities	$	29	$	—	$	—	$	29

The net changes in fair value of Level 3 financial instruments were insignificant to our results of operations for the three months ended March 31, 2020.

Derivatives

The following table summarizes the fair values and the presentation of our derivative financial instruments in the accompanying consolidated balance sheets:



	Balance Sheet Location	March 31, 2020		December 31, 2019
		(In millions)
Derivative asset:
Call option	Current assets: Prepaid expenses and other current assets	$	—	$	29
Derivative liability:
Conversion option	Current liabilities: Accounts payable, accrued liabilities and other	$	—	$	29

For additional description of our derivative financial instruments, see Note 11, “Debt,” and Note 12, “Derivatives,” in our 2019 Annual Report on Form 10-K. Our derivative financial instruments did not qualify for hedge treatment; therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of income, and reported in “Other income, net.” Gains and losses for our derivative financial instruments are presented individually in the accompanying consolidated statements of cash flows, “Supplemental cash flow information.”

In the first quarter of 2020, we received $27 million for the settlement of the call option derivative asset, and we paid $39 million to settle the outstanding $12 million principal amount of the 1.125% Convertible Notes, and settle the related conversion option. For more information, refer to Notes 7, “Debt,” and 8, “Stockholders' Equity.”

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 March 31, 2020, 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.



	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
5.375% Notes	$	696	$	701	$	696	$	745
4.875% Notes	326		310		327		340
Term Loan Facility	600		600		220		220
1.125% Convertible Notes ⁽¹⁾	—		—		12		42
Totals	$	1,622	$	1,611	$	1,255	$	1,347

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(1)

For more information on debt repayments, refer to Note 7, “Debt.”

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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