Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Our financial instruments consist primarily of cash and cash equivalents, short-term and long-term restricted cash and cash equivalents, short-term and long-term investments, customer accounts receivable, margin deposits and guaranty funds, cost and equity method investments, short-term and long-term debt and certain other short-term assets and liabilities. The fair value of our financial instruments are measured based on a three-level hierarchy:


•	Level 1 inputs — quoted prices for identical assets or liabilities in active markets.


•	Level 2 inputs — observable inputs other than Level 1 inputs such as quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are directly observable.


•	Level 3 inputs — unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We use Level 1 inputs to determine fair value. The Level 1 assets consist of U.S. Treasury and other foreign government securities, equity and other securities listed in active markets, and investments in publicly traded mutual funds held for the purpose of providing future payments of the SERP and SESP plans.

Financial assets and liabilities recorded in the accompanying consolidated balance sheets as of December 31, 2017 and 2016 are classified in their entirety based on the lowest level of input that is significant to the asset or liability’s fair value measurement. Financial instruments measured at fair value on a recurring basis as of December 31, 2017 are as follows (in millions):



	Level 1		Level 2		Level 3		Total
Assets at fair value:
U.S. Treasury and Other Foreign Government Securities	$	734	$	—	$	—	$	734
Mutual Funds	16		—		—		16
Total assets at fair value	$	750	$	—	$	—	$	750

Financial instruments measured at fair value on a recurring basis as of December 31, 2016 are as follows (in millions):



	Level 1		Level 2		Level 3		Total
Assets at fair value:
Long-term Investment in Equity Securities	$	432	$	—	$	—	$	432
U.S. Treasury and Other Foreign Government Securities	500		—		—		500
Mutual Funds	23		—		—		23
Total assets at fair value	$	955	$	—	$	—	$	955

As of December 31, 2017, we held $734 million in U.S. Treasury and other foreign government securities which are considered cash equivalents. Of these securities, $534 million were recorded as short-term restricted cash and cash equivalents and $200 million were recorded as long-term restricted cash and cash equivalents in the accompanying consolidated balance sheet as of December 31, 2017. As of December 31, 2016, we held $500 million in U.S. Treasury and other foreign government securities. Of these securities, $350 million were recorded as short-term restricted cash and cash equivalents and $150 million were recorded as long-term restricted cash and cash equivalents in the accompanying consolidated balance sheet as of December 31, 2016. We account for the U.S. Treasury securities held using the available-for-sale method.

The long-term investment in equity securities as of December 31, 2016 represents our investment in Cetip, recorded at its fair value using its quoted market price. Cetip was sold in March 2017 (Note 6). Mutual funds represent equity and fixed income mutual funds held for the purpose of providing future payments for the SERP and SESP and are classified as available-for-sale securities (Note 15).

We did not use Level 3 inputs to determine the fair value of assets or liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016. We measure certain assets, such as intangible assets and cost and equity method investments, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. As of December 31, 2017 and 2016, none of these assets were required to be recorded at fair value since no impairments were recorded. See Note 13 for the fair value considerations related to our margin deposits, guaranty funds and delivery contracts receivable.

As of December 31, 2017, the fair value of our $495 million 2027 Senior Notes was $500 million, the fair value of our $1.24 billion 2025 Senior Notes was $1.32 billion, the fair value of our $791 million 2023 Senior notes was $842 million, the fair value of our $495 million 2022 Senior Notes was $495 million, the fair value of our $1.24 billion 2020 Senior Notes was $1.26 billion, and the fair value of our $600 million 2018 Senior Notes was $601 million. The fair values of these fixed rate notes were estimated using quoted market prices for these instruments. The fair value of our commercial paper approximates the carrying value since the rates of interest on this short-term debt approximate market rates as of December 31, 2017. Excluding our cost and equity method investments, all other financial instruments are determined to approximate carrying value due to the short period of time to their maturities.

- 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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