Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Financial Instruments and Fair Value Measurements

8) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The carrying value of our financial instruments approximates fair value, except for notes and debentures, which are not recorded at fair value. The carrying value of our notes and debentures was $19.93 billion and $17.98 billion at June 30, 2020 and December 31, 2019, respectively, and the fair value, which is determined based on quoted prices in active markets (Level 1 in the fair value hierarchy) was $23.2 billion and $20.6 billion at June 30, 2020 and December 31, 2019, respectively.

The carrying value of our investments without a readily determinable fair value for which we have no significant influence was $104 million and $113 million at June 30, 2020 and December 31, 2019, respectively. These investments are included in “Other assets” on the Consolidated Balance Sheets. During the three and six months ended June 30, 2020, in connection with the merger of an investee company with a publicly traded company, we recorded an unrealized gain of $32 million based on the market price of the company’s publicly traded equity instruments, which are deemed similar to our investment. The gain is reflected in “Other items, net” in the Consolidated Statement of Operations.

We use derivative financial instruments primarily to modify our exposure to market risks from fluctuations in foreign currency exchange rates. We do not use derivative instruments unless there is an underlying exposure and, therefore, we do not hold or enter into derivative financial instruments for speculative trading purposes.

Foreign Exchange Contracts

Foreign exchange forward contracts have principally been used to hedge projected cash flows, in currencies such as the British Pound, the Euro, the Canadian Dollar and the Australian Dollar, generally for periods up to 24 months. We designate foreign exchange forward contracts used to hedge committed and forecasted foreign currency transactions as cash flow hedges. Gains or losses on the effective portion of designated cash flow hedges are initially recorded in other comprehensive income (loss) and reclassified to the statement of operations when the hedged item is recognized. Additionally, we enter into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows.

At June 30, 2020 and December 31, 2019, the notional amount of all foreign exchange contracts was $881 million and $1.44 billion, respectively. At June 30, 2020, $421 million related to future production costs and $460 million related to our foreign currency balances and other expected foreign currency cash flows. At December 31, 2019, $833 million related to future production costs and $606 million related to our foreign currency balances and other expected foreign currency cash flows.

Gains (losses) recognized on derivative financial instruments were as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020			2019		2020		2019		Financial Statement Account
Non-designated foreign exchange contracts	$	(11	)	$	3	$	18	$	—	Other items, net

The fair value of our derivative instruments was not material to the Consolidated Balance Sheets for any of the periods presented.

The following tables set forth our assets and liabilities measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar assets or liabilities. Level 3 is based on unobservable inputs reflecting our own assumptions about the assumptions that market participants would use in pricing the asset or liability.

At June 30, 2020	Level 1		Level 2		Level 3		Total
Assets:
Equity securities	$	—	$	32	$	—	$	32
Foreign currency hedges	—		13		—		13
Total Assets	$	—	$	45	$	—	$	45
Liabilities:
Deferred compensation	$	—	$	452	$	—	$	452
Foreign currency hedges	—		18		—		18
Total Liabilities	$	—	$	470	$	—	$	470

At December 31, 2019	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities	$	146	$	—	$	—	$	146
Foreign currency hedges	—		13		—		13
Total Assets	$	146	$	13	$	—	$	159
Liabilities:
Deferred compensation	$	—	$	490	$	—	$	490
Foreign currency hedges	—		14		—		14
Total Liabilities	$	—	$	504	$	—	$	504

The fair value of foreign currency hedges is determined based on the present value of future cash flows using observable inputs including foreign currency exchange rates. The fair value of deferred compensation liabilities is determined based on the fair value of the investments elected by employees. The fair value of marketable securities at December 31, 2019 was determined based on quoted market prices in active markets. During the six months ended June 30, 2020, we sold marketable securities for proceeds of $146 million. During the three and six months ended June 30, 2019, we recorded an unrealized gain of $28 million and $66 million, respectively, resulting from changes in the fair value of our marketable securities.

During the three and six months ended June 30, 2020, we recorded an impairment charge of $25 million to write down the carrying values of FCC licenses in two markets to their fair values, which were determined based on the Greenfield Discounted Cash Flow Method (Level 3). See Note 4.