Fair Value Measurements

9 Months Ended

Sep. 30, 2020

We measure our cash equivalents, certain investments, contingent consideration liabilities and foreign exchange forward and option contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.

The fair value hierarchy consists of the following three levels:

•Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.

•Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

•Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of September 30, 2020:


	Level 1		Level 2		Level 3		Total
	(in millions)
Cash equivalents:
Money market funds	$	2,513	$	—	$	—	$	2,513
Time deposits	—		578		—		578

Short-term investments:
Time deposits	—		4		—		4
Equity investment security	27		—		—		27







Other current assets:
Foreign exchange forward and option contracts	—		32		—		32
Long-term investments:
Time deposits(1)	—		402		—		402
Other noncurrent assets
Foreign exchange forward and option contracts	—		16		—		16

Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(28)		—		(28)
Contingent consideration liabilities	—		—		(11)		(11)
Other noncurrent liabilities:

Contingent consideration liabilities	—		—		(42)		(42)

(1)Balance represents restricted time deposits. See Note 8.

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2019:


	Level 1		Level 2		Level 3		Total
	(in millions)
Cash equivalents:
Money market funds	$	1,646	$	—	$	—	$	1,646


Short-term investments:
Time deposits(1)	—		466		—		466
Equity investment security	26		—		—		26






Other current assets:
Foreign exchange forward contracts	—		35		—		35
Other noncurrent assets:
Foreign exchange forward contracts	—		8		—		8
Accrued expenses and other current liabilities:
Foreign exchange forward contracts	—		(8)		—		(8)
Contingent consideration liabilities	—		—		(8)		(8)
Other noncurrent liabilities:
Foreign exchange forward contracts	—		(2)		—		(2)
Contingent consideration liabilities	—		—		(30)		(30)

(1)Includes $414 million in restricted time deposits. See Note 8.

We measure the fair value of money market funds based on quoted prices in active markets for identical assets and measure the fair value of our equity security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The carrying value of our time deposits approximated fair value as of September 30, 2020 and December 31, 2019.

We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. We estimate the fair value of each foreign exchange option contract by using a variant of the Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on observable market rates.

We estimate the fair value of contingent consideration liabilities associated with our acquisitions using a variation of the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate.