Note 3—Fair Value Measurements and Investments

Fair Value Measurements

The Company measures certain assets and liabilities at fair value. See Note 1—Summary of Significant Accounting Policies.

Assets and Liabilities Measured at Fair Value on a Recurring Basis



	Fair Value Measurements at September 30 Using Inputs Considered as
	Level 1				Level 2
	2018		2017		2018		2017
	(in millions)
Assets
Cash equivalents and restricted cash:
Money market funds	$	6,252	$	5,935
U.S. government-sponsored debt securities					$	1,048	$	2,870
Investment securities, trading:
Equity securities	98		82
Investment securities, available-for-sale:
U.S. government-sponsored debt securities					5,008		3,663
U.S. Treasury securities	2,508		1,621
Equity securities	15		124
Prepaid and other current assets:
Foreign exchange derivative instruments					78		18
Other assets:
Total	$	8,873	$	7,762	$	6,134	$	6,551
Liabilities
Accrued liabilities:
Foreign exchange derivative instruments					$	22	$	98
Total	$	—	$	—	$	22	$	98

There were no transfers between Level 1 and Level 2 assets during fiscal 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 fiscal 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 impairment charges incurred during fiscal 2018, 2017 and 2016. At September 30, 2018 and 2017, these investments totaled $137 million and $94 million, respectively. These assets 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. See Note 5—Intangible Assets and Goodwill.

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 September 30, 2018. See Note 1—Summary of Significant Accounting Policies.

Other Fair Value Disclosures

Long-term debt. Debt instruments are measured at amortized cost on the Company’s consolidated balance sheets at September 30, 2018 and 2017. The fair value of these notes, 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 carrying value and estimated fair value of long-term debt were both $16.6 billion as of September 30, 2018. The carrying value and estimated fair value of long-term debt was $18.4 billion and $19.2 billion, respectively, as of September 30, 2017.

Other Financial Instruments not Measured at Fair Value

The following financial instruments are not measured at fair value on the Company’s consolidated balance sheet at September 30, 2018, but require disclosure of their fair values: 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 September 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

Trading Investment Securities

Trading investment securities include mutual fund equity security investments related to various employee compensation and benefit plans. Trading activity in these investments is at the direction of the Company’s employees. These investments are held in trust and are not available for the Company’s operational or liquidity needs. Interest and dividend income and changes in fair value are recorded in non-operating income, and offset in personnel expense on the consolidated statements of operations. As of September 30, 2018 and 2017, trading investment securities totaled $98 million and $82 million, respectively.

Available-for-sale Investment Securities

The amortized cost, unrealized gains and losses and fair value of available-for-sale investment securities are as follows:



	September 30, 2018										September 30, 2017
	Amortized Cost		Gross Unrealized					Fair Value			Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value			Amortized Cost		Gains		Losses			Fair Value
	(in millions)
U.S. government-sponsored debt securities	$	5,016	$	—	$	(8	)	$	5,008		$	3,664	$	1	$	(2	)	$	3,663
U.S. Treasury securities	2,516		—		(8		)	2,508			1,623		—		(2		)	1,621
Equity securities	4		11		—			15			5		119		—			124
Total	$	7,536	$	11	$	(16	)	$	7,531		$	5,292	$	120	$	(4	)	$	5,408
Less: current portion of available-for-sale investment securities								$	(3,449	)								$	(3,482	)
Long-term available-for-sale investment securities								$	4,082									$	1,926

Available-for-sale investment securities primarily include U.S. Treasury securities and U.S. government-sponsored debt securities. Available-for-sale debt securities are presented below in accordance with their stated maturities. A portion of these investments, $4.1 billion, are classified as non-current, as they have stated maturities of more than one year from the balance sheet date. However, these investments are generally available to meet short-term liquidity needs.



	Amortized Cost		Fair Value
	(in millions)
September 30, 2018:
Due within one year	$	3,443	$	3,434
Due after 1 year through 5 years	4,089		4,082
Due after 5 years through 10 years	—		—
Due after 10 years	—		—
Total	$	7,532	$	7,516

Investment Income

Investment income is recorded as non-operating income in the Company’s consolidated statements of operations and consisted of the following:



	For the Years Ended September 30,
	2018		2017			2016
	(in millions)
Interest and dividend income on cash and investments	$	173	$	92		$	75
Gain on other investments	—		6			5
Investment securities, trading:
Unrealized gains, net	2		6			3
Realized gains, net	4		2			—
Investment securities, available-for-sale:
Realized gains (losses), net from sales	98		(1		)	3
Realized gains from donation	193		—			—
Other-than-temporary impairment on investments	—		—			(4		)
Investment income	$	470	$	105		$	82