FAIR VALUE MEASUREMENTS

The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:



			Basis of Fair Value Measurements
	Total		Level 1		Level 2		Level 3
December 31, 2015
Assets:
Trading securities	$	49	$	49	$	—	$	—
Cash surrender value of life insurance policies	29		—		29		—
Interest rate swaps	23		—		23		—
Available-for-sale equity securities	6		6		—		—
Total	$	107	$	55	$	52	$	—

Liabilities:
Deferred compensation liabilities	$	85	$	—	$	85	$	—
Interest rate swaps	6		—		6		—
Contingent consideration	3		—		—		3
Total	$	94	$	—	$	91	$	3

December 31, 2014
Assets:
Trading securities	$	49	$	49	$	—	$	—
Cash surrender value of life insurance policies	30		—		30		—
Interest rate swaps	17		—		17		—
Available-for-sale equity securities	9		9		—		—
Put option	1		—		—		1
Total	$	106	$	58	$	47	$	1

Liabilities:
Deferred compensation liabilities	$	85	$	—	$	85	$	—
Contingent consideration	17		—		—		17
Forward starting interest rate swaps	15		—		15		—
Interest rate swaps	13		—		13		—
Call option	5		—		—		5
Total	$	135	$	—	$	113	$	22

The Company offers certain employees the opportunity to participate in non-qualified supplemental deferred compensation plans. A participant's deferrals, together with Company matching credits, are invested in a variety of participant-directed stock and bond mutual funds that are classified as trading securities. Changes in the fair value of these securities are measured using quoted prices in active markets based on the market price per unit multiplied by the number of units held exclusive of any transaction costs. A corresponding adjustment for changes in fair value of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation. The deferred compensation liabilities are classified within Level 2 because their inputs are derived principally from observable market data by correlation to the trading securities.

The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value and the deferred compensation obligations are classified within Level 2 because their inputs are derived principally from observable market data by correlation to the hypothetical investments.

The fair value measurements of the Company's interest rate swaps and forward starting swaps are model-derived valuations as of a given date in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present and future market conditions.

Investment in available-for-sale equity securities represents an investment in registered shares of a publicly-held company listed on the Euronext Paris exchange. The Company's investment in available-for-sale equity securities is classified within Level 1 of the fair value hierarchy because the fair value is obtained from quoted prices in an active market.

In connection with the acquisition of certain business assets of UMass (see Note 5), the Company granted to UMass a call option and UMass granted to the Company a put option for UMass to acquire an 18.90% equity interest in a newly formed entity. The put and call options were derivative instruments whose fair values were measured using a combination of discounted cash flows and the Black-Scholes-Merton option pricing model. On July 1, 2015, UMass exercised its call option, acquiring an 18.90% noncontrolling interest in a subsidiary of the Company that performs diagnostic information services in a defined territory within the state of Massachusetts. In connection with the transaction, the Company paid the $50 million deferred consideration associated with the January 2, 2013 acquisition of the Massachusetts-based clinical outreach and anatomic pathology businesses from UMass and received $50 million associated with the call option exercise price. The put option expired unexercised.

In April 2014, the Company completed the acquisitions of Summit Health and Steward (see Note 5). In connection with these acquisitions the Company initially recorded an aggregate contingent consideration liability of $26 million. The contingent consideration liability was classified within Level 3 measured at fair value using a probability weighted and discounted cash flow method. These measurements are based on externally obtained inputs and management's probability assessments of the occurrence of triggering events, appropriately discounted considering the uncertainties associated with the obligations, as well as the likelihood of achieving financial targets. The initial probability estimate of the occurrence of such triggering events associated with the amounts the Company could be obligated to pay in future periods for both Summit Health and Steward was between 5% and 95%. The probability-weighted cash flows were then discounted using a discount rate of 1.5% to 2.8%. The estimated fair value of the contingent consideration associated with Summit Health was reduced to $13 million in the fourth quarter of 2014 and $0 in the second quarter of 2015. These reductions were a result of updated revenue forecasts and actual results for 2015 compared to the earn-out target included in the contingent consideration arrangement. As a result, other operating expense (income), net for the years ended December 31, 2015 and 2014 include gains of $13 million and $9 million, respectively. The remaining contingent consideration associated with Steward is projected to be paid out in three equal annual installments, with a maximum payout of $4 million.

The following table provides a reconciliation of the beginning and ending balances of assets using significant unobservable inputs (Level 3):



	Put Option Derivative Asset

Balance, December 31, 2013	$	4
Total gains (losses) - realized/ unrealized:
Included in earnings	(3		)
Balance, December 31, 2014	1
Total gains (losses) - realized/ unrealized:
Included in earnings	(1		)
Balance, December 31, 2015	$	—

The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3):



	Contingent Consideration			Call Option Derivative Liability			Total

Balance, December 31, 2013	$	—		$	8		$	8
Purchases, additions and issuances	26			—			26
Total (gains) losses - realized/ unrealized:
Included in earnings	(9		)	(3		)	(12		)
Balance, December 31, 2014	17			5			22
Settlements	(1		)	(4		)	(5		)
Total (gains) losses - realized/ unrealized:
Included in earnings	(13		)	(1		)	(14		)
Balance, December 31, 2015	$	3		$	—		$	3

The unrealized gains and losses associated with the change in fair value of the put option derivative asset and call option derivative liability included in earnings for the years ended December 31, 2015 and 2014 are reported in other (expense) income, net.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments. At December 31, 2015 and 2014, the fair value of the Company's debt was estimated at $3.7 billion and $4.2 billion, respectively. Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.