(3) FAIR VALUE MEASUREMENTS

There are various valuation techniques used to estimate fair value, the primary one being the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and nonrecurring basis.

Fair Value Hierarchy

The three levels of inputs that may be used to measure fair value are as follows:


•	Level 1. Quoted prices in active markets for identical assets or liabilities.

•

Level 2. Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.


•	Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2018 and March 31, 2018, our assets and liabilities that were measured and recorded at fair value on a recurring basis were as follows (in millions):



			Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs
	As of September 30, 2018		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Bank and time deposits	$	24	$	24	$	—	$	—	Cash equivalents
Money market funds	1,138		1,138		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	762				762		—		Short-term investments and cash equivalents
U.S. Treasury securities	281		281		—		—		Short-term investments and cash equivalents
U.S. agency securities	73		—		73		—		Short-term investments
Commercial paper	392		—		392		—		Short-term investments and cash equivalents
Foreign government securities	79		—		79		—		Short-term investments
Asset-backed securities	121		—		121		—		Short-term investments
Certificates of deposit	21		—		21		—		Short-term investments
Foreign currency derivatives	49		—		49		—		Other current assets and other assets
Deferred compensation plan assets ^(a)	12		12		—		—		Other assets
Total assets at fair value	$	2,952	$	1,455	$	1,497	$	—
Liabilities
Contingent consideration ^(b)	$	124	$	—	$	—	$	124	Accrued and other current liabilities and other liabilities
Foreign currency derivatives	10		—		10		—		Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities ^(a)	12		12		—		—		Other liabilities
Total liabilities at fair value	$	146	$	12	$	10	$	124



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Contingent Consideration
Balance as of March 31, 2018		$	122
Additions		—
Change in fair value ^(c)		2
Balance as of September 30, 2018		$	124



			Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs
	As of March 31, 2018		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Bank and time deposits	$	286	$	286	$	—	$	—	Cash equivalents
Money market funds	1,876		1,876		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	624		—		624		—		Short-term investments
U.S. Treasury securities	210		210		—		—		Short-term investments
U.S. agency securities	78		—		78		—		Short-term investments
Commercial paper	150		—		150		—		Short-term investments and cash equivalents
Foreign government securities	52		—		52		—		Short-term investments
Certificates of Deposit	2		—		2		—		Cash equivalents
Foreign currency derivatives	4		—		4		—		Other current assets and other assets
Deferred compensation plan assets ^(a)	10		10		—		—		Other assets
Total assets at fair value	$	3,292	$	2,382	$	910	$	—
Liabilities
Contingent consideration ^(b)	$	122	$	—	$	—	$	122	Other liabilities
Foreign currency derivatives	56		—		56		—		Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities ^(a)	11		11		—		—		Other liabilities
Total liabilities at fair value	$	189	$	11	$	56	$	122


(a)	The Deferred Compensation Plan assets consist of various mutual funds. See Note 14 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, for additional information regarding our Deferred Compensation Plan.

(b)

The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with our acquisition of Respawn Entertainment, LLC (“Respawn”) that is contingent upon the achievement of certain performance milestones. We estimated fair value using a probability-weighted income approach combined with a real options methodology, and applied a discount rate that appropriately captures the risk associated with the obligation. At September 30, 2018, the discount rates used ranged from 3.3 percent to 3.7 percent. At March 31, 2018, the discount rates used ranged from 3.3 percent to 3.6 percent. See Note 6 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, for additional information regarding the Respawn acquisition.


(c)	The change in fair value is reported as acquisition-related contingent consideration in our Condensed Consolidated Statements of Operations.