Fair Value Measurements and Investments

12 Months Ended

Sep. 30, 2019

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
	2019		2018		2019		2018
	(in millions)
Assets
Cash equivalents and restricted cash equivalents:
Money market funds	$	6,494	$	6,252
U.S. government-sponsored debt securities					$	150	$	1,048
Investment securities:
Marketable equity securities	126		113
U.S. government-sponsored debt securities					5,592		5,008
U.S. Treasury securities	675		2,508
Other current and non-current assets:
Derivative instruments					437		78
Total	$	7,295	$	8,873	$	6,179	$	6,134
Liabilities
Accrued compensation and benefits:
Deferred compensation liability	$	113	$	96
Accrued and other liabilities:
Derivative instruments					$	52	$	22
Total	$	113	$	96	$	52	$	22

There were no transfers between Level 1 and Level 2 assets during fiscal 2019.

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 quoted prices in active markets. 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. 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. 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 2019.

U.S. government-sponsored debt securities and U.S. Treasury securities. The Company classifies U.S. government-sponsored debt securities and U.S. Treasury securities as available-for-sale. The amortized cost, unrealized gains and losses and fair value of debt securities are as follows:



	September 30, 2019										September 30, 2018
	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	$	5,590	$	4	$	(2	)	$	5,592		$	5,016	$	—	$	(8	)	$	5,008
U.S. Treasury securities	672		3		—			675			2,516		—		(8		)	2,508
Total	$	6,262	$	7	$	(2	)	$	6,267		$	7,532	$	—	$	(16	)	$	7,516
Less: current portion								$	(4,110	)								$	(3,434	)
Long-term debt securities								$	2,157									$	4,082

Debt securities are presented below in accordance with their stated maturities. A portion of these investments, $2.2 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.



	Fair Value
	(in millions)
September 30, 2019:
Due within one year	$	4,110
Due after 1 year through 5 years	2,157
Total	$	6,267

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.

The following table summarizes the total carrying value of our non-marketable equity securities held as of September 30, 2019 including unrealized gains and losses since the adoption of ASU 2016-01:



	For the Year Ended
	September 30, 2019
	(in millions)
Carrying amount, beginning of period	$	137
Adjustments related to non-marketable equity securities:
Net additions (reductions)⁽¹⁾	475
Upward adjustments	110
Downward adjustments⁽²⁾	(4		)
Carrying amount, end of period	$	718


⁽¹⁾	Net reductions include transfers to marketable equity securities upon investments becoming a public company.


⁽²⁾	There were no significant impairment charges of non-marketable equity securities during fiscal 2019, 2018 and 2017.

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, 2019, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at September 30, 2019. See Note 1—Summary of Significant Accounting Policies.

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,
	2019		2018		2017
	(in millions)
Interest and dividend income on cash and investments	$	247	$	173	$	92
Realized gains (losses), net on debt securities	1		—		(1		)
Equity securities:
Unrealized gains (losses), net	117		2		6
Realized gains (losses), net from donation	—		193		—
Realized gains (losses), net	18		102		8
Investment income	$	383	$	470	$	105

Other Fair Value Disclosures

Long-term 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. 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 was $16.7 billion and $18.4 billion as of September 30, 2019. The carrying value and estimated fair value of long-term debt were both $16.6 billion as of September 30, 2018.

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, 2019, but require disclosure of their fair values: settlement receivable and payable, accounts receivable and customer collateral. The estimated fair value of such instruments at September 30, 2019 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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