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Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

23. FAIR VALUE MEASUREMENTS

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1			–			Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2			–			Include observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3			–			Unobservable inputs which are supported by little or no market activity.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

Assets and Liabilities Measured or Disclosed at Fair Value on a recurring basis

In accordance with ASC 820, the Company measures equity investments with readily determinable fair value, investments accounted for at fair value, available-for-sale debt investments and derivatives instruments at fair value on a recurring basis. The fair value of time deposits are determined based on the prevailing interest rates in the market. The fair values of the Company’s held-to-maturity debt investments as disclosed are determined based on the discounted cash flow model using the discount curve of market interest rates. The fair value of the Company’s short-term available-for-sale debt investments are measured using the income approach, based on quoted market interest rates of a similar instrument and other significant inputs derived from or corroborated by observable market data. The fair values of the Company’s equity investments in the equity securities of publicly listed companies are measured using quoted market prices. The fair value of derivative instruments of interest rate swaps are based on broker quotes. The fair value of financial liability is based on quoted market price of a similar asset to the underlying assets. Investments accounted for at fair value are equity investments in unlisted companies held by consolidated investment companies, these investments and our long-term available-for-sale debt investments do not have readily determinable market value, which were categorized as Level 3 in the fair value hierarchy. The Company uses a combination of valuation methodologies, including market and income approaches based on the Company’s best estimate, which is determined by using information including but not limited to the pricing of recent rounds of financing, future cash flow forecasts, liquidity factors and multiples of a selection of comparable companies.

The fair value of the Company’s notes payable are extracted directly from their quoted market prices. The fair value of the convertible senior notes are based on broker quotes. The Company carries the convertible senior notes at face value less unamortized debt discount and issuance costs on its consolidated balance sheets, and presents the fair value for disclosure purposes only. For further information on the convertible senior notes see Note 12.

Assets and liabilities measured on a recurring basis or disclosed at fair value are summarized below:

						Fair value measurement or disclosure at December 31, 2018 using
		Total fair value at December 31, 2018				Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
		RMB				RMB				RMB				RMB
		(In millions)
Fair value disclosure
Cash equivalents
Time deposits			4,264								4,264
Money market fund			3,723				3,723
Short-term investments
Held-to-maturity debt investments			27,507								27,507
Long-term notes payable			68,763								68,763
Convertible senior notes			4,923								4,923
Fair value measurements on a recurring basis
Short-term investments
Available-for-sale debt investments			79,558								79,558
Long-term investments
Equity investments at fair value with readily determinable fair value			4,428				4,428
Investments accounted for at fair value			1,457												1,457
Available-for-sale debt investments			1,167												1,167
Other non-current assets
Derivative instruments			193								187				6
Total assets measured at fair value			86,803				4,428				79,745				2,630
Accounts payable and accrued liabilities
Derivative instruments			123												123
Amounts due to related parties, non-current
Financial liability			341								341
Total liabilities measured at fair value			464				—				341				123

										Fair value measurement or disclosure at December 31, 2019 using
		Total fair value at December 31, 2019								Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
		RMB				US$				RMB				RMB				RMB
		(In millions)
Fair value disclosure
Cash equivalents
Time deposits			10,848				1,558								10,848
Money market fund			1,719				247				1,719
Short-term investments
Held-to-maturity debt investments			107,654				15,464								107,654
Long-term investments:
Held-to-maturity debt investment			491				70								491
Long-term notes payable			45,282				6,504								45,282
Convertible senior notes			14,142				2,031								14,142
Fair value measurements on a recurring basis
Short-term investments
Available-for-sale debt investments			5,637				810								5,637
Long-term investments
Equity investments at fair value with readily determinable fair value			11,334				1,628				11,334
Investments accounted for at fair value			1,819				261												1,819
Available-for-sale debt investments			3,970				570												3,970
Other non-current assets
Derivative instruments			24				4								24
Total assets measured at fair value			22,784				3,273				11,334				5,661				5,789
Accounts payable and accrued liabilities
Derivative instruments			125				18												125
Amounts due to related parties, current
Financial liability			401				58								401
Total liabilities measured at fair value			526				76				—				401				125

Reconciliations of assets categorized within Level 3 under the fair value hierarchy are as follow:

Investments accounted for at fair value:

		Amounts
		RMB
		(In millions)
Balance at December 31, 2017			321
Additions			822
Disposals			(5	)
Net unrealized fair value increase recognized in earning			293
Foreign currency translation adjustments			26
Balance at December 31, 2018			1,457
Additions			282
Disposals			(128	)
Net unrealized fair value increase recognized in earning			197
Foreign currency translation adjustments			11
Balance at December 31, 2019			1,819
Balance at December 31, 2019, in US$			261

Available-for-sale debt investments:

		Amounts
		RMB
		(In millions)
Balance at December 31, 2017			—
Additions			1,167
Balance at December 31, 2018			1,167
Additions			2,785
Disposals			(20	)
Net unrealized fair value increase recognized in other comprehensive income			91
Accrued interest			48
Impairment			(81	)
Foreign currency translation adjustments			(20	)
Balance at December 31, 2019			3,970
Balance at December 31, 2019, in US$			570

Assets measured at fair value on a non-recurring basis

The Company measures non-financial assets such as certain equity investments on a nonrecurring basis when impairment charges are recognized due to declining financial performances and changes in business circumstances of these investees. The Company’s non-financial long-lived assets, such as intangible assets, goodwill and fixed assets, would be measured at fair value only if they were determined to be impaired on an other-than-temporary basis.

The Company uses a combination of valuation methodologies, including market and income approaches based on the Company’s best estimate to determine the fair value of these non-financial assets. Inputs used in these methodologies primarily included future cash flows, discount rate, expected volatility and the selection of comparable companies operating in similar businesses. The fair values of the Company’s equity method investments in publicly listed companies are measured using quoted market prices.

For equity securities accounted for under the measurement alternative, when there are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are re-measured to fair value (Note 4). The non-recurring fair value measurements to the carrying amount of an investment usually requires management to estimate a price adjustment for the different rights and obligations between a similar instrument of the same issuer with an observable price change in an orderly transaction and the investment held by the Company. These non-recurring fair value measurements were measured as of the observable transaction dates. The valuation methodologies involved require management to use the observable transaction price at the transaction date and other unobservable inputs (level 3) such as volatility of comparable companies and probability of exit events as it relates to liquidation and redemption preferences.

The following table summarizes our assets held as of December 31, 2018 and 2019 for which a non-recurring fair value measurement was recorded during the year ended December 31, 2018 and 2019:

		Total fair value								Quoted Prices in Active Markets for Identical Assets (Level 1)				Signific ant Other Observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Fair value adjustment								Impairment
		RMB				US$				RMB				RMB				RMB				RMB				US$				RMB				US$
		(In millions)
Fair value measurements on a non-recurring basis
As of December 31, 2018
Long-term investments			19,739				2,835				—				4,983				14,756				3,512				504				(622	)			(89	)
Intangible assets			—				—				—				—				—												(5	)			(1	)
As of December 31, 2019
Long-term investments			22,778				3,272				14,105				358				8,315				(230	)			(33	)			(9,989	)			(1,435	)
Intangible assets			76				11				—				—				76												(406	)			(58	)

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- 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.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258

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