Fair Value

Fair value is defined as 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 the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Company considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.


(a)	Fair Value Hierarchy

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.


(b)	Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of January 28, 2017 and July 30, 2016 were as follows (in millions):



	JANUARY 28, 2017 FAIR VALUE MEASUREMENTS								JULY 30, 2016 FAIR VALUE MEASUREMENTS
	Level 1		Level 2		Level 3		Total Balance		Level 1		Level 2		Level 3		Total Balance
Assets:
Cash equivalents:
U.S. government securities	$	—	$	50	$	—	$	50	$	—	$	—	$	—	$	—
Corporate debt securities	—		—		—		—		—		43		—		43
Money market funds	8,635		—		—		8,635		6,049		—		—		6,049
Commercial paper	—		276		—		276		—		—		—		—
Certificates of deposit	—		30		—		30		—		—		—		—
Available-for-sale investments:
U.S. government securities	—		22,832		—		22,832		—		26,544		—		26,544
U.S. government agency securities	—		2,397		—		2,397		—		2,817		—		2,817
Non-U.S. government and agency securities	—		1,205		—		1,205		—		1,100		—		1,100
Corporate debt securities	—		30,698		—		30,698		—		24,292		—		24,292
U.S. agency mortgage-backed securities	—		2,006		—		2,006		—		1,868		—		1,868
Publicly traded equity securities	1,614		—		—		1,614		1,504		—		—		1,504
Commercial paper	—		195		—		195		—		—		—		—
Derivative assets	—		118		—		118		—		384		1		385
Total	$	10,249	$	59,807	$	—	$	70,056	$	7,553	$	57,048	$	1	$	64,602
Liabilities:
Derivative liabilities	$	—	$	59	$	—	$	59	$	—	$	54	$	—	$	54
Total	$	—	$	59	$	—	$	59	$	—	$	54	$	—	$	54

Level 1 publicly traded equity securities are determined by using quoted prices in active markets for identical assets. Level 2 fixed income securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. The Company is ultimately responsible for the financial statements and underlying estimates. The Company’s derivative instruments are primarily classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

Level 3 assets include certain derivative instruments, the values of which are determined based on discounted cash flow models using inputs that the Company could not corroborate with market data.


(c)	Assets Measured at Fair Value on a Nonrecurring Basis

The following table presents the Company’s assets that were measured at fair value on a nonrecurring basis during the indicated periods and the related recognized gains and losses for the periods indicated (in millions):



	TOTAL GAINS (LOSSES) FOR THE THREE MONTHS ENDED						TOTAL GAINS (LOSSES) FOR THE SIX MONTHS ENDED
	January 28, 2017			January 23, 2016			January 28, 2017			January 23, 2016
Investments in privately held companies (impaired)	$	(64	)	$	(39	)	$	(111	)	$	(56	)
Purchased intangible assets (impaired)	—			(37		)	(42		)	(37		)
Property held for sale—land and buildings	(24		)	—			(24		)	—
Total gains (losses) for nonrecurring measurements	$	(88	)	$	(76	)	$	(177	)	$	(93	)

These assets were measured at fair value due to events or circumstances the Company identified as having significant impact on their fair value during the respective periods. To arrive at the valuation of these assets, the Company considers any significant changes in the financial metrics and economic variables and also uses third-party valuation reports to assist in the valuation as necessary.

The fair value measurement of the impaired investments was classified as Level 3 because significant unobservable inputs were used in the valuation due to the absence of quoted market prices and inherent lack of liquidity. Significant unobservable inputs, which included financial metrics of comparable private and public companies, financial condition and near-term prospects of the investees, recent financing activities of the investees, and the investees’ capital structure as well as other economic variables, reflected the assumptions market participants would use in pricing these assets. The impairment charges, representing the difference between the net book value and the fair value as a result of the evaluation, were recorded to other income (loss), net. The remaining carrying value of the investments that were impaired was $44 million and $11 million as of January 28, 2017 and January 23, 2016, respectively.

The fair value for purchased intangible assets measured at fair value on a nonrecurring basis was categorized as Level 3 due to the use of significant unobservable inputs in the valuation. Significant unobservable inputs that were used included expected revenues and net income related to the assets and the expected life of the assets. The difference between the estimated fair value and the carrying value of the assets was recorded as an impairment charge, which was included in product cost of sales and operating expenses as applicable. See Note 4. The remaining carrying value of the specific purchased intangible assets that were impaired was $9 million and zero as of January 28, 2017 and January 23, 2016.

The fair value of property held for sale was measured with the assistance of third-party valuation models, which used discounted cash flow techniques as part of their analysis. The fair value measurement was categorized as Level 3, as significant unobservable inputs were used in the valuation report. The impairment charge as a result of the valuations, which represented the difference between the fair value less cost to sell and the carrying amount of the assets held for sale, was included in restructuring and other charges. The remaining carrying value of the property held for sale that was impaired was $11 million as of January 28, 2017.

(d) Other Fair Value Disclosures

The carrying value of the Company’s investments in privately held companies that were accounted for under the cost method was $831 million and $829 million as of January 28, 2017 and July 30, 2016, respectively. It was not practicable to estimate the fair value of this portfolio.

The fair value of the Company’s short-term loan receivables and financed service contracts approximates their carrying value due to their short duration. The aggregate carrying value of the Company’s long-term loan receivables and financed service contracts and other as of January 28, 2017 and July 30, 2016 was $3.3 billion and $2.6 billion, respectively. The estimated fair value of the Company’s long-term loan receivables and financed service contracts and other approximates their carrying value. The Company uses significant unobservable inputs in determining discounted cash flows to estimate the fair value of its long-term loan receivables and financed service contracts, and therefore they are categorized as Level 3.

As of January 28, 2017, the estimated fair value of the short-term debt approximates its carrying value due to the short maturities. As of January 28, 2017, the fair value of the Company’s senior notes and other long-term debt was $35.9 billion with a carrying amount of $34.6 billion. This compares to a fair value of $30.9 billion and a carrying amount of $28.6 billion as of July 30, 2016. The fair value of the senior notes and other long-term debt was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy.