NOTE 5: FINANCIAL INSTRUMENTS

Cash, Cash Equivalents and Marketable Securities

The following tables show our cash and available-for-sale securities’ amortized cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short and long-term marketable securities for the periods presented (in millions):

	June 30, 2016
									Cash and		Short-Term		Long-Term
	Amortized		Unrealized		Unrealized		Fair		Cash		Marketable		Marketable
	Cost		Gains		Losses		Value		Equivalents		Securities		Securities
Cash	$	740	$	-	$	-	$	740	$	740	$	-	$	-
Level 1:
Money market funds		18		-		-		18		18		-		-
Level 2:
U.S. agency securities		29		-		-		29		3		26		-
U.S. treasury securities		12		-		-		12		4		8		-
Certificates of deposit		7		-		-		7		-		7		-
Commercial paper		5		-		-		5		1		4		-
Corporate debt securities		80		-		-		80		-		42		38
Subtotal		133		-		-		133		8		87		38
Total	$	891	$	-	$	-	$	891	$	766	$	87	$	38

	December 31, 2015
									Cash and		Short-Term		Long-Term
	Amortized		Unrealized		Unrealized		Fair		Cash		Marketable		Marketable
	Cost		Gains		Losses		Value		Equivalents		Securities		Securities
Cash	$	598	$	-	$	-	$	598	$	598	$	-	$	-
Level 1:
Money market funds		11		-		-		11		11		-		-
Level 2:
U.S. agency securities		13		-		-		13		-		9		4
U.S. treasury securities		16		-		-		16		4		12		-
Certificates of deposit		5		-		-		5		-		4		1
Commercial paper		1		-		-		1		-		1		-
Corporate debt securities		54		-		-		54		1		21		32
Subtotal		89		-		-		89		5		47		37
Total	$	698	$	-	$	-	$	698	$	614	$	47	$	37

Our cash and cash equivalents consist of cash on hand in global financial institutions, money market funds and marketable securities with maturities of 90 days or less at the date purchased. The remaining maturities of our long-term marketable securities range from one to three years and our short-term marketable securities include maturities that were greater than 90 days at the date purchased and have 12 months or less remaining at June 30, 2016 and December 31, 2015, respectively.

We classify our cash equivalents and marketable securities within Level 1 and Level 2 as we value our cash equivalents and marketable securities using quoted market prices (Level 1) or alternative pricing sources (Level 2). The valuation technique we used to measure the fair value of money market funds were derived from quoted prices in active markets for identical assets or liabilities. 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. Our procedures include controls to ensure that appropriate fair values are recorded, including comparing the fair values obtained from our independent pricing services against fair values obtained from another independent source.

There were no material realized gains or losses related to sales of our marketable securities for the three and six months ended June 30, 2016 and 2015, respectively. Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis. We consider any individual investments in an unrealized loss position to be temporary in nature and do not consider any of our investments other-than-temporarily impaired as of June 30, 2016.

Derivative Financial Instruments

In certain circumstances, we enter into foreign currency forward exchange contracts (“forward contracts”) to reduce the effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign currencies. We do not use derivatives for trading or speculative purposes.

Our current forward contracts are not designated as hedges and have current maturities of less than 90 days. We account for our derivative instruments as either assets or liabilities and carry them at fair value. Consequently, any gain or loss resulting from the change in fair value was recognized in our unaudited condensed consolidated statements of operations. We recorded a net gain of $2 million and $1 million for the three and six months ended June 30, 2016, respectively, related to our settled and outstanding forward contracts in our unaudited condensed consolidated statements of operations in “Interest income and other, net.” We recorded a net loss of $1 million and a net gain of $2 million for the three and six months ended June 30, 2015, respectively, related to our settled and outstanding forward contracts in our unaudited condensed consolidated statements of operations in “Interest income and other, net.”

The following table shows the fair value and notional principal amounts of our outstanding derivative instruments that are not designated as hedging instruments for the periods presented:

	Balance Sheet Caption	June 30, 2016
		Fair Value of Derivative (2)				U.S. Dollar Notional
		Asset		Liability
		(in millions)
Foreign exchange-forward contracts (1)	Prepaid expenses and other current assets	$	1	$	-	$	34

	Balance Sheet Caption	December 31, 2015
		Fair Value of Derivative (2)				U.S. Dollar Notional
		Asset		Liability
		(in millions)
Foreign exchange-forward contracts (1)	Prepaid expenses and other current assets	$	-	$	-	$	25

(1)

Derivative contracts address foreign exchange fluctuations for the Euro versus the U.S. Dollar.

(2)

We measure the fair value of our outstanding or unsettled derivatives using Level 2 fair value inputs, as we use a pricing model that takes into account the contract terms as well as current foreign currency exchange rates in active markets.

Counterparties to currency exchange derivatives consist of major international financial institutions. We monitor our positions and the credit ratings of the counterparties involved and, by policy limits, the amount of credit exposure to any one party. While we may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated and any credit risk amounts associated with our outstanding or unsettled derivative instruments are deemed to be not material for any period presented.

Other Financial Instruments

Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, deferred merchant payables, short-term debt, accrued and other current liabilities and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value because of the short maturity of these instruments as reported on our unaudited condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively. The carrying value of the long-term debt from our 2015 Credit Facility bears interest at a variable rate and therefore is also considered to approximate fair value.

We did not have any Level 3 assets or liabilities at June 30, 2016 and December 31, 2015.