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Fair Value Measurements and Investments

12 Months Ended

Sep. 30, 2020

Note 6—Fair Value Measurements and Investments

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
	2020		2019		2020		2019
	(in millions)
Assets
Cash equivalents and restricted cash equivalents:
Money market funds	$	12,522	$	6,494	$	—	$	—
U.S. government-sponsored debt securities	—		—		1,469		150
U.S. Treasury securities	650		—		—		—
Investment securities:
Marketable equity securities	148		126		—		—
U.S. government-sponsored debt securities	—		—		2,582		5,592
U.S. Treasury securities	1,253		675		—		—



Other current and non-current assets:
Derivative instruments	—		—		512		437


Total	$	14,573	$	7,295	$	4,563	$	6,179
Liabilities
Accrued compensation and benefits:
Deferred compensation liability	$	135	$	113	$	—	$	—
Accrued and other liabilities:
Derivative instruments	—		—		181		52


Total	$	135	$	113	$	181	$	52

Level 1 assets and liabilities. Money market funds, marketable equity securities and U.S. Treasury securities are classified as Level 1 within the fair value hierarchy, as fair value is based on unadjusted quoted prices in active markets for identical assets and liabilities. The Company’s deferred compensation liability is measured at fair value based on marketable equity securities held under the deferred compensation plan.

Level 2 assets and liabilities. 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. Derivative instruments are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

U.S. government-sponsored debt securities and U.S. Treasury securities. The amortized cost, unrealized gains and losses and fair value of debt securities were as follows:


	September 30,
	2020								2019
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses						Gains		Losses
	(in millions)
U.S. government-sponsored debt securities	$	2,581	$	1	$	—	$	2,582	$	5,590	$	4	$	(2)	$	5,592
U.S. Treasury securities	1,251		2		—		1,253		672		3		—		675
Total	$	3,832	$	3	$	—	$	3,835	$	6,262	$	7	$	(2)	$	6,267
Less: current portion							$	(3,604)							$	(4,110)
Long-term debt securities							$	231							$	2,157

Debt securities are presented below in accordance with their stated maturities. A portion of these investments 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.


	September 30, 2020
	(in millions)
Due within one year	$	3,604
Due after 1 year through 5 years	231
Total	$	3,835

Assets Measured at Fair Value on a Non-recurring Basis

Non-marketable equity securities. The Company’s non-marketable equity securities are investments in privately held companies without readily determinable market values. 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.

During fiscal 2020 and 2019, $102 million and $110 million of upward adjustments, and $6 million and $4 million of downward adjustments including impairment, respectively, were included in the carrying value of non-marketable equity securities accounted for under the fair value measurement alternative. The following table summarizes the total carrying value of the Company’s non-marketable equity securities held as of September 30, 2020 including cumulative unrealized gains and losses:


	September 30, 2020
	(in millions)
Initial cost basis	$	841
Adjustments:
Upward adjustments	212
Downward adjustments (including impairment)	(11)
Carrying amount, end of period	$	1,042

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 8—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, 2020, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at September 30, 2020. See Note 1—Summary of Significant Accounting Policies.

Investment Income

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


	For the Years Ended September 30,
	2020		2019		2018
	(in millions)
Interest and dividend income on cash and investments	$	80	$	247	$	173
Realized gains (losses), net on debt securities	4		1		—
Equity securities:
Unrealized gains (losses), net	115		117		2
Realized gains (losses), net from donation	—		—		193
Realized gains (losses), net	1		18		102

Investment income	$	200	$	383	$	470

Other Fair Value Disclosures

Debt. Debt instruments are measured at amortized cost on the Company’s consolidated balance sheets. 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. If measured at fair value in the financial statements, these instruments would be classified as Level 2 in the fair value hierarchy. As of September 30, 2020, the carrying value and estimated fair value of debt was $24.1 billion and $26.6 billion, respectively. As of September 30, 2019, the carrying value and estimated fair value of debt was $16.7 billion and $18.4 billion, respectively.

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, 2020, but require disclosure of their fair values: settlement receivable and payable and customer collateral. The estimated fair value of such instruments at September 30, 2020 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.

- 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.

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