Note 3—Fair Value Measurements and Investments

Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis



	Fair Value Measurements Using Inputs Considered as
	Level 1				Level 2
	June 30, 2018		September 30, 2017		June 30, 2018		September 30, 2017
	(in millions)
Assets
Cash equivalents and restricted cash:
Money market funds	$	7,341	$	5,935
U.S. government-sponsored debt securities					$	282	$	2,870
Investment securities, trading:
Equity securities	94		82
Investment securities, available-for-sale:
U.S. government-sponsored debt securities					3,895		3,663
U.S. Treasury securities	2,061		1,621
Equity securities	181		124
Prepaid and other current assets:
Foreign exchange derivative instruments					76		18
Total	$	9,677	$	7,762	$	4,253	$	6,551
Liabilities
Accrued liabilities:
Foreign exchange derivative instruments					$	38	$	98
Total	$	—	$	—	$	38	$	98

There were no transfers between Level 1 and Level 2 assets during the nine months ended June 30, 2018.

Level 1 assets measured at fair value on a recurring basis. Money market funds, publicly-traded equity securities and U.S. Treasury securities are classified as Level 1 within the fair value hierarchy, as fair value is based on quoted prices in active markets.

Level 2 assets and liabilities measured at fair value on a recurring basis. The fair value of U.S. government-sponsored debt securities, as provided by third-party pricing vendors, is based on quoted prices in active markets for similar, not identical, assets. The pricing data obtained from outside sources is reviewed internally for reasonableness, compared against benchmark quotes from independent pricing sources, then confirmed or revised accordingly. Foreign exchange derivative instruments are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. There were no substantive changes to the valuation techniques and related inputs used to measure fair value during the nine months ended June 30, 2018.

Assets Measured at Fair Value on a Non-recurring Basis

Non-marketable equity investments and investments accounted for under the equity method. These investments are classified as Level 3 due to the absence of quoted market prices, the inherent lack of liquidity and the fact that inputs used to measure fair value are unobservable and require management’s judgment. When certain events or circumstances indicate that impairment may exist, the Company revalues the investments using various assumptions, including the financial metrics and ratios of comparable public companies. There were no significant impairments during the nine months ended June 30, 2018 or 2017. These investments totaled $125 million and $94 million at June 30, 2018 and September 30, 2017, respectively, and are classified in other assets on the consolidated balance sheets.

Non-financial assets and liabilities. Long-lived assets such as goodwill, indefinite-lived intangible assets, finite-lived intangible assets, and property, equipment and technology are considered non-financial assets. The Company does not have any non-financial liabilities measured at fair value on a non-recurring basis. Finite-lived intangible assets primarily consist of customer relationships, trade names and reseller relationships, all of which were obtained through acquisitions.

If the Company were required to perform a quantitative assessment for impairment testing of goodwill and indefinite-lived intangible assets, the fair values would generally be estimated using an income approach. As the assumptions employed to measure these assets on a non-recurring basis are based on management’s judgment using internal and external data, these fair value determinations are classified as Level 3 in the fair value hierarchy. The Company completed its annual impairment review of its indefinite-lived intangible assets and goodwill as of February 1, 2018, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at June 30, 2018.

Other Fair Value Disclosures

Long-term debt. Debt instruments are measured at amortized cost on the Company’s unaudited consolidated balance sheet at June 30, 2018. The fair value of the debt instruments, as provided by third-party pricing vendors, is based on quoted prices in active markets for similar, not identical, assets. The pricing data obtained from outside sources is reviewed internally for reasonableness, compared against benchmark quotes from independent pricing sources, then confirmed or revised accordingly. If measured at fair value in the financial statements, these instruments would be classified as Level 2 in the fair value hierarchy.

The following table presents the carrying amount and estimated fair value of the Company’s debt in order of maturity:



	June 30, 2018				September 30, 2017
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in millions)
1.20% Senior Notes due December 2017	$	—	$	—	$	1,749	$	1,751
2.20% Senior Notes due December 2020	2,993		2,951		2,990		3,031
2.15% Senior Notes due September 2022	994		959		993		997
2.80% Senior Notes due December 2022	2,241		2,209		2,240		2,301
3.15% Senior Notes due December 2025	3,969		3,869		3,967		4,098
2.75% Senior Notes due September 2027	741		697		740		737
4.15% Senior Notes due December 2035	1,486		1,554		1,485		1,637
4.30% Senior Notes due December 2045	3,463		3,637		3,463		3,873
3.65% Senior Notes due September 2047	740		701		740		746
Total	$	16,627	$	16,577	$	18,367	$	19,171

Other financial instruments not measured at fair value. The following financial instruments are not measured at fair value on the Company’s unaudited consolidated balance sheet at June 30, 2018, but disclosure of their fair values is required: time deposits recorded in prepaid expenses and other current assets, settlement receivable and payable, and customer collateral. The estimated fair value of such instruments at June 30, 2018 approximates their carrying value due to their generally short maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 in the fair value hierarchy.

Investments

Available-for-sale investment securities. The Company had $175 million in gross unrealized gains and $16 million in gross unrealized losses at June 30, 2018. There were $120 million in gross unrealized gains and $4 million in gross unrealized losses at September 30, 2017. For the three and nine months ended June 30, 2018, the Company recorded gross realized gains on the sale of investment securities of $32 million and $64 million, respectively. There were no gross realized gains on the sale of investment securities recognized during the same periods in 2017. A majority of the Company’s long-term available-for-sale investment securities have stated maturities between one to five years.