Fair Value Measurements

12 Months Ended

Dec. 31, 2019

NOTE 4 — Fair Value Measurements

Financial assets measured at fair value on a recurring basis as of December 31, 2019 are classified using the fair value hierarchy in the table below:



	Total		Level 1		Level 2
	(In millions)
Assets
Cash equivalents:
Money market funds	$	36	$	36	$	—
Term deposits	865		—		865
U.S. treasury securities	10		10		—
Investments:
Term deposits	526		—		526
Marketable equity securities	129		129		—
Total assets	$	1,566	$	175	$	1,391

Liabilities
Derivatives:
Foreign currency forward contracts	$	8	$	—	$	8

Financial assets measured at fair value on a recurring basis as of December 31, 2018 are classified using the fair value hierarchy in the table below:



	Total		Level 1		Level 2
	(In millions)
Assets
Cash equivalents:
Money market funds	$	35	$	35	$	—
Term deposits	624		—		624
Derivatives:
Foreign currency forward contracts	22		—		22
Investments:
Term deposits	28		—		28
Marketable equity securities	119		119		—
Total assets	$	828	$	154	$	674

We classify our cash equivalents and investments within Level 1 and Level 2 as we value our cash equivalents and investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets, a Level 2 input.

We hold term deposit investments with financial institutions. Term deposits with original maturities of less than three months are classified as cash equivalents and those with remaining maturities of less than one year are classified within short-term investments.

As of December 31, 2019 and 2018, our cash and cash equivalents consisted primarily of term deposits with maturities of three months or less and bank account balances.

Our marketable equity securities consist of our investment in Despegar, a publicly traded company, which is included in long-term investments and other assets in our consolidated balance sheets. During the years ended December 31, 2019 and 2018, we recognized a gain of approximately $10 million and a loss of approximately $145 million, respectively, within other, net in our consolidated statements of operations related to the fair value changes of this equity investment. As of December 31,

2017, prior to our adoption of the new guidance for recognition and measurement of financial instruments, the cost basis was $273 million and related gross unrealized loss was $9 million.

We use foreign currency forward contracts to economically hedge certain merchant revenue exposures, foreign denominated liabilities related to certain of our loyalty programs and our other foreign currency-denominated operating liabilities. As of December 31, 2019, we were party to outstanding forward contracts hedging our liability exposures with a total net notional value of $3.2 billion. As of December 31, 2019 and 2018, we had a net forward liability of $8 million recorded in accrued expenses and other current liabilities and a net forward asset of $22 million recorded in prepaid expenses and other current assets. We recorded $(8) million, $47 million and $17 million in net gains (losses) from foreign currency forward contracts in 2019, 2018 and 2017.

Assets Measured at Fair Value on a Non-recurring Basis

Our non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity method investments, are adjusted to fair value only when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. As of January 1, 2018, we measure our minority equity investments that do not have readily determinable fair values at cost less impairment, adjusted by observable price changes with changes recorded within other, net on our consolidated statements of operations.

Goodwill. During 2018, we recognized goodwill impairment charges of $86 million related to our Core OTA segment, of which $61 million was recorded during the second quarter of 2018 and $25 million was recorded during the fourth quarter of 2018 as a result of our annual evaluation of impairment of goodwill and intangible assets on October 1, 2018. These impairment charges resulted from sustained under-performance and a less optimistic outlook related to one of our reporting units during the second quarter of 2018 and further deterioration of performance in the fourth quarter of 2018. As a result the under-performance early in the year, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill for that reporting unit as of June 30, 2018 in which we compared the fair value of the reporting unit to its carrying value. The fair value estimates for both the interim and annual impairment tests were based on a blended analysis of the present value of future discounted cash flows and market value approach, Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our assumptions were based on the actual historical performance of the reporting unit and took into account a recent and continued weakening of operating results and implied risk premiums based on market prices of our equity and debt as of the assessment dates. Our significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as the goodwill impairment charge in the respective periods. As of December 31, 2018, the applicable reporting unit had no remaining goodwill.

Intangible Assets. During 2018, we recognized an intangible impairment charge of $42 million in conjunction with the annual impairment testing of goodwill and intangible assets on October 1, 2018. The impairment charge was related to an indefinite-lived trade name within our Core OTA segment and resulted from changes in estimated future revenues of the related brand. The asset, classified as Level 3 measurement, was written down to $27 million based on valuation using the relief-from-royalty method, which includes unobservable inputs, including royalty rates and projected revenues. In conjunction with the impairment, we reclassified the remainder to a definite-lived asset to be amortized over eight years.

Minority Investments without Readily Determinable Fair Values. As of December 31, 2019 and 2018, the carrying values of our minority investments without readily determinable fair values totaled $467 million and $476 million. During 2019, we recorded $2 million of losses related to these minority investments. During 2018, we recorded $33 million of gains related to these minority investments, which had recent observable and orderly transactions for similar investments, using an option pricing model that utilizes judgmental inputs such as discounts for lack of marketability and estimated exit event timing. As of December 31, 2019, total cumulative adjustments made to the initial cost basis of these investments included $33 million in unrealized upward adjustments and $2 million in unrealized downward adjustments (including impairment). During 2017, we recorded $14 million in net losses related to certain minority equity investments, which included $6 million in other-than-temporary impairments as well as a loss recognized on the liquidation of an investment of $9 million. As a result of these 2017 impairments and subsequent liquidation, we have no remaining fair value related to these minority equity investments.