Fair Value Measurements

We consider the carrying amounts of current assets and current liabilities (not including derivatives and the current portion of long-term debt) to approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to a three-tier fair value hierarchy as follows:

Level 1 — Observable Inputs. Level 1 financial instruments are actively traded and therefore the fair value for these securities is based on quoted market prices for identical securities in active markets.

Level 2 — Directly or Indirectly Observable Inputs. Fair value for these investments is determined using a market approach based on quoted prices for similar securities in active markets or quoted prices for identical securities in inactive markets.

Level 3 — Unobservable Inputs. Level 3 financial instruments are valued using unobservable inputs that represent management’s best estimate of what market participants would use in pricing the financial instrument at the measurement date. Our Level 3 financial instruments consist primarily of derivative financial instruments.

The derivatives include the 1.125% Call Option derivative asset and the 1.125% Conversion Option derivative liability. These derivatives are not actively traded and are valued based on an option pricing model that uses observable and unobservable market data for inputs. Significant market data inputs used to determine fair value as of December 31, 2018, included the price of our common stock, the time to maturity of the derivative instruments, the risk-free interest rate, and the implied volatility of our common stock. As described further in Note 12, “Derivatives,” the 1.125% Call Option asset and the 1.125% Conversion Option liability were designed such that changes in their fair values offset, with minimal impact to the consolidated statements of operations. Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such instruments is mitigated.

The net changes in fair value of Level 3 financial instruments were insignificant to our results of operations for the years ended December 31, 2018, and 2017.

Our financial instruments measured at fair value on a recurring basis at December 31, 2018, were as follows:



	Total		Level 1		Level 2		Level 3
	(In millions)
Corporate debt securities	$	1,123	$	—	$	1,123	$	—
U.S. Treasury notes	181		—		181		—
Government-sponsored enterprise securities (GSEs)	163		—		163		—
Municipal securities	114		—		114		—
Asset-backed securities	82		—		82		—
Certificates of deposit	14		—		14		—
Other	4		—		4		—
Subtotal - current investments	1,681		—		1,681		—
1.125% Call Option derivative asset	476		—		—		476
Total assets	$	2,157	$	—	$	1,681	$	476

1.125% Conversion Option derivative liability	$	476	$	—	$	—	$	476
Total liabilities	$	476	$	—	$	—	$	476

Our financial instruments measured at fair value on a recurring basis at December 31, 2017, were as follows:



	Total		Level 1		Level 2		Level 3
	(In millions)
Corporate debt securities	$	1,588	$	—	$	1,588	$	—
U.S. Treasury notes	388		—		388		—
GSEs	253		—		253		—
Municipal securities	141		—		141		—
Asset-backed securities	117		—		117		—
Certificates of deposit	37		—		37		—
Subtotal - current investments	2,524		—		2,524		—
Corporate debt securities	101		—		101		—
U.S. Treasury notes	68		—		68		—
Subtotal - current restricted investments	169		—		169		—
1.125% Call Option derivative asset	522		—		—		522
Total assets	$	3,215	$	—	$	2,693	$	522

1.125% Conversion Option derivative liability	$	522	$	—	$	—	$	522
Total liabilities	$	522	$	—	$	—	$	522

Fair Value Measurements – Disclosure Only

The carrying amounts and estimated fair values of our senior notes are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets.



	December 31, 2018				December 31, 2017
	Carrying		Fair Value		Carrying		Fair Value
	Amount		Fair Value		Amount		Fair Value
	(In millions)
5.375% Notes	$	694	$	674	$	692	$	730
4.875% Notes	326		301		325		329
1.125% Convertible Notes ^(1),(2)	240		732		496		1,052
Credit Facility ⁽²⁾	—		—		300		300
1.625% Convertible Notes ⁽²⁾	—		—		157		220
	$	1,260	$	1,707	$	1,970	$	2,631

_______________________________


(1)	The fair value of the 1.125% Conversion Option derivative liability (the embedded cash conversion option), which is included in the fair value amounts presented above, amounted to $476 million and $522 million as of December 31, 2018 and 2017, respectively. See further discussion at Note 11, “Debt,” and Note 12, “Derivatives.”


(2)	For more information on debt repayments in the year ended December 31, 2018, refer to Note 11, “Debt.”