v3.10.0.1
Fair Value Measurements
 6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements

We use the fair value method to account for (i) certain of our investments, (ii) our derivative instruments, (iii) certain instruments that we classify as debt and (iv) the borrowed shares of Sumitomo pursuant to a securities lending arrangement (the Sumitomo Share Loan). The reported fair values of these investments and instruments as of June 30, 2018 likely will not represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities.

U.S. GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. We record transfers of assets or liabilities into or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred.

We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our credit risk valuation adjustments with respect to our cross-currency and interest rate swaps are quantified and further explained in note 6.

Fair value measurements are also used in connection with nonrecurring valuations performed in connection with acquisition accounting and impairment assessments. The nonrecurring valuations associated with acquisition accounting primarily include the valuation of reporting units, customer relationship and other intangible assets and property and equipment. Unless a reporting unit has a readily determinable fair value, the valuation of reporting units is based at least in part on discounted cash flow analyses. With the exception of certain inputs for our weighted average cost of capital and discount rate calculations that are derived from pricing services, the inputs used in our discounted cash flow analyses, such as forecasts of future cash flows, are based on our assumptions. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer relationship, contributory asset charges and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. Most of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. During the six months ended June 30, 2018 and 2017, we did not perform significant nonrecurring fair value measurements.

For additional information concerning our fair value measurements, see note 8 to the consolidated financial statements included in our 10-K.

A summary of our assets and liabilities that are measured at fair value on a recurring basis is as follows:
 
 
 
Fair value measurements at 
June 30, 2018 using:
Description
June 30,
2018
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
in millions
Assets:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
1,715.7

 
$
—

 
$
1,715.0

 
$
0.7

Equity-related derivative instruments
491.9

 
—

 
—

 
491.9

Foreign currency forward and option contracts
13.6

 
—

 
13.6

 
—

Other
0.1

 
—

 
0.1

 
—

Total derivative instruments
2,221.3

 
—

 
1,728.7

 
492.6

Investments
2,164.1

 
1,717.1

 
—

 
447.0

Total assets
$
4,385.4

 
$
1,717.1

 
$
1,728.7

 
$
939.6

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
1,640.6

 
$
—

 
$
1,632.6

 
$
8.0

Equity-related derivative instruments
1.7

 
—

 
—

 
1.7

Foreign currency forward and option contracts
4.5

 
—

 
4.5

 
—

Other
0.1

 
—

 
0.1

 
—

Total derivative instruments
1,646.9

 
—

 
1,637.2

 
9.7

Debt
881.7

 
600.6

 
281.1

 
—

Total liabilities
$
2,528.6

 
$
600.6

 
$
1,918.3

 
$
9.7

 
 
 
Fair value measurements at 
December 31, 2017 using:
Description
December 31, 2017
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
in millions
Assets:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
1,548.9

 
$
—

 
$
1,548.7

 
$
0.2

Equity-related derivative instruments
560.9

 
—

 
—

 
560.9

Foreign currency forward and option contracts
17.1

 
—

 
17.1

 
—

Other
0.8

 
—

 
0.8

 
—

Total derivative instruments
2,127.7

 
—

 
1,566.6

 
561.1

Investments
2,315.3

 
1,908.7

 
—

 
406.6

Total assets
$
4,443.0

 
$
1,908.7

 
$
1,566.6

 
$
967.7

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
1,767.9

 
$
—

 
$
1,764.5

 
$
3.4

Equity-related derivative instruments
5.4

 
—

 
—

 
5.4

Foreign currency forward and option contracts
7.9

 
—

 
7.9

 
—

Total derivative instruments
1,781.2

 
—

 
1,772.4

 
8.8

Debt
926.6

 
621.7

 
304.9

 
—

Total liabilities
$
2,707.8

 
$
621.7

 
$
2,077.3

 
$
8.8



A reconciliation of the beginning and ending balances of our assets and liabilities measured at fair value on a recurring basis using significant unobservable, or Level 3, inputs is as follows:
 
Investments
 
Cross-currency and interest rate derivative contracts
 
Equity-related
derivative
instruments
 
Total
 
in millions
 
 
 
 
 
 
 
 
Balance of net assets (liabilities) at January 1, 2018
$
406.6

 
$
(3.2
)
 
$
555.5

 
$
958.9

Gains (losses) included in earnings (loss) from continuing operations (a):
 
 
 
 
 
 


Realized and unrealized losses on derivative instruments, net
—

 
(4.5
)
 
(57.2
)
 
(61.7
)
Realized and unrealized gains due to changes in fair values of certain investments and debt, net
4.4

 
—

 
—

 
4.4

Impact of ASU 2016-01
31.9

 
—

 
—

 
31.9

Additions
25.1

 
0.2

 
—

 
25.3

Dispositions
(12.1
)
 
—

 
—

 
(12.1
)
Final settlement of Sumitomo Collar (b)
—

 
—

 
(7.4
)
 
(7.4
)
Transfers out of Level 3
(2.0
)
 
—

 
—

 
(2.0
)
Foreign currency translation adjustments, dividends and other, net
(6.9
)
 
0.2

 
(0.7
)
 
(7.4
)
Balance of net assets (liabilities) at June 30, 2018
$
447.0

 
$
(7.3
)
 
$
490.2

 
$
929.9

 
_______________

(a)
Most of these net gains and losses relate to assets and liabilities that we continue to carry on our condensed consolidated balance sheet as of June 30, 2018.

(b)
For information regarding the settlement of the final tranche of the Sumitomo Collar, see note 6.