Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Financial Accounting Standards Board (“FASB”) literature regarding fair value measurements for financial and non-financial assets and liabilities establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows:


•	Level 1 - Quoted prices in active markets for identical assets or liabilities;


•	Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data; and


•	Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Fair Value Measurements on a Recurring Basis

The table below segregates all financial assets that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date (amounts in millions):



				Fair Value Measurements at June 30, 2016 Using
	As of June 30, 2016			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance Sheet Classification
Financial Assets:
Recurring fair value measurements:
Money market funds	$	2,071		$	2,071	$	—		$	—	Cash and cash equivalents
Foreign government treasury bills	34			34		—			—		Cash and cash equivalents
Foreign currency forward contracts not designated as hedges	6			—		6			—		Other current assets
Foreign currency forward contracts designated as hedges	5			—		5			—		Other current assets
Auction rate securities (“ARS”)	9			—		—			9		Other assets
Total recurring fair value measurements	$	2,125		$	2,105	$	11		$	9

Financial liabilities:
Foreign currency forward contracts designated as hedges	(4		)	$	—	$	(4	)	$	—	Accrued expenses and other liabilities



				Fair Value Measurements at December 31, 2015 Using
	As of December 31, 2015			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance Sheet Classification
Financial Assets:
Recurring fair value measurements:
Money market funds	$	1,613		$	1,613	$	—		$	—	Cash and cash equivalents
Foreign government treasury bills	34			34		—			—		Cash and cash equivalents
Foreign currency forward contracts not designated as hedges	11			—		11			—		Other current assets
ARS	9			—		—			9		Other assets
Total recurring fair value measurements	$	1,667		$	1,647	$	11		$	9

Financial liabilities:
Foreign currency forward contracts designated as hedges	$	(4	)	$	—	$	(4	)	$	—	Accrued expenses and other liabilities

ARS represented the only level 3 investment held by the Company. There were no changes in the fair value of these investments for the six months ended June 30, 2016.

Foreign Currency Forward Contracts

Foreign Currency Forward Contracts Not Designated as Hedges

For foreign currency forward contracts entered into to mitigate risk from foreign currency‑denominated monetary assets, liabilities, and earnings that are not designated as hedging instruments in accordance with FASB Accounting Standard Codification ("ASC") Topic 815, changes in the estimated fair value of these derivatives are recorded within “General and administrative expenses” and “Interest and other expense (income), net” in our Condensed Consolidated Statements of Operations, consistent with the nature of the underlying transactions.

At June 30, 2016, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges was approximately $260 million. The fair value of these foreign currency forward contracts was $6 million as of June 30, 2016, and recorded in “Other current assets” in our Condensed Consolidated Balance Sheet.

At December 31, 2015, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges was approximately $489 million. The fair value of these foreign currency forward contracts was $11 million as of December 31, 2015, and recorded in “Other current assets” in our Condensed Consolidated Balance Sheet.

For the three and six months ended June 30, 2016 and 2015, pre‑tax net gains associated with these forward contracts were not material.

Foreign Currency Forward Contracts Designated as Hedges

For foreign currency forward contracts entered into to hedge forecasted intercompany cash flows that are subject to foreign currency risk and which we designated as cash flow hedges in accordance with ASC Topic 815, we assess the effectiveness of these cash flow hedges at inception and on an ongoing basis to determine if the hedges are effective at providing offsetting changes in cash flows of the hedged items. We record the effective portion of changes in the estimated fair value of these derivatives in “Accumulated other comprehensive income (loss)” and subsequently reclassify the related amount of accumulated other comprehensive income (loss) to earnings within “General and administrative expense” when the hedged item impacts earnings. Cash flows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged item in the condensed consolidated statements of cash flows. We measure hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, we will discontinue hedge accounting for the derivative.

The gross notional amount of all outstanding foreign currency forward contracts designated as cash flow hedges was approximately $443 million at June 30, 2016, and $381 million at December 31, 2015. These foreign currency forward contracts have remaining maturities of 12 months or less. During the three and six months ended June 30, 2016, and 2015, there was no ineffectiveness relating to these hedges. At June 30, 2016, $1 million of net unrealized gains or losses related to these contracts are expected to be reclassified into earnings within the next twelve months.

During the three and six months ended June 30, 2016 and 2015, the amount pre-tax net realized gains reclassified out of "Accumulated other comprehensive income (loss)" due to maturity of these contracts was not material.

Fair Value Measurements on a Non-Recurring Basis

We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

For the three and six months ended June 30, 2016, and 2015, there were no impairment charges related to assets that are measured on a non-recurring basis.

- 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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