Financial Instruments and Fair Value Measurements

3 Months Ended

Jun. 29, 2018

Financial Instruments and Fair Value Measurements

For financial instruments measured at fair value, fair value is 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 we consider assumptions that market participants would use when pricing the asset or liability.

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


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

•

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, 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. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.

Assets measured and recorded at fair value on a recurring basis

The following table summarizes our financial instruments measured at fair value on a recurring basis:



	June 29, 2018						March 30, 2018
(In millions)	Fair Value		Level 1		Level 2		Fair Value		Level 1		Level 2
Assets:
Cash equivalents:
Money market funds	$	1,418	$	1,418	$	—	$	679	$	679	$	—
Certificates of deposit	111		—		111		79		—		79
Short-term investments:
Corporate bonds	318		—		318		374		—		374
Commercial paper	—		—		—		2		—		2
Certificates of deposit	6		—		6		12		—		12
Total	$	1,853	$	1,418	$	435	$	1,146	$	679	$	467

The following table presents the contractual maturities of our investments in debt securities as of June 29, 2018:



(In millions)	Fair Value
Due in one year or less	$	88
Due after one year through five years	236
Total	$	324

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

Financial instruments not recorded at fair value on a recurring basis include our non-marketable equity investments, equity method investment and our long-term debt.

Non-marketable equity investments

Our non-marketable equity investments are investments in privately-held companies without a readily determinable fair value. Prior to March 31, 2018, we accounted for substantially all of these investments at cost less impairment and recognized realized gains or losses from sale or impairment in Other expense, net in our Condensed Consolidated Statements of Operations.

Effective March 31, 2018, we adopted the new accounting guidance related to the recognition and measurement of financial instruments. As a result, starting the first quarter of fiscal 2019, we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. Gains and losses on these investments, whether realized or unrealized, are recognized in Other expense, net in our Condensed Consolidated Statements of Operations. As of June 29, 2018 and March 30, 2018, the carrying value of our non-marketable equity investments was $175 million.

Equity method investment

Our investment in equity securities that is accounted for using the equity method is included in Long-term other assets in our Condensed Consolidated Balance Sheets and consists of our equity investment in a privately-held company that had a carrying value of $108 million and $134 million at June 29, 2018 and March 30, 2018, respectively.

We recorded a loss from equity interests of $26 million during the three months ended June 29, 2018, in Other expense, net in our Condensed Consolidated Statements of Operations. This loss was reflected as a reduction in the carrying amount of our investment in equity interests in our Condensed Consolidated Balance Sheets.

The following table summarizes unaudited financial data from the privately-held company for the three months ended March 31, 2018, which was provided to us on a three-month lag:



(In millions)
Revenue	$	66
Gross profit	$	53
Net loss	$	(82	)

Current and long-term debt

As of June 29, 2018 and March 30, 2018, the total fair value of our current and long-term fixed rate debt was $3.9 billion. The fair value of our variable rate debt approximated its carrying value. The fair values of all our debt obligations were based on Level 2 inputs.

- 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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