Fair Value Measurements and Investments

The Company’s total cash, cash equivalents and available-for-sale securities was as follows:



	June 29, 2018		June 30, 2017
	(in millions)
Cash and cash equivalents	$	5,005	$	6,354
Short-term available-for-sale securities (included within Other current assets)	23		24
Long-term available-for-sale securities (included within Other non-current assets)	93		94
Total cash, cash equivalents and available-for-sale securities	$	5,121	$	6,472

Financial Instruments Carried at Fair Value

Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three levels:


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


Level 2.	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


Level 3.	Inputs that are unobservable for the asset or liability and that are significant to the fair value of the assets or liabilities.

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 29, 2018 and June 30, 2017, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:



	June 29, 2018
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Cash equivalents:
Money market funds	$	2,554	$	—	$	—	$	2,554
Certificates of deposit	—		4		—		4
Total cash equivalents	2,554		4		—		2,558
Short-term available-for-sale securities:
U.S. Treasury securities	3		—		—		3
Corporate notes and bonds	—		12		—		12
Asset-backed securities	—		4		—		4
Municipal notes and bonds	—		2		—		2
Equity securities	2		—		—		2
Total short-term available-for-sale securities	5		18		—		23
Long-term available-for-sale securities:
U.S. Treasury securities	3		—		—		3
U.S. Government agency securities	—		5		—		5
International government securities	—		1		—		1
Corporate notes and bonds	—		65		—		65
Asset-backed securities	—		8		—		8
Municipal notes and bonds	—		11		—		11
Total long-term available-for-sale securities	3		90		—		93
Foreign exchange contracts	—		51		—		51
Interest rate swap contract	—		16		—		16
Total assets at fair value	$	2,562	$	179	$	—	$	2,741
Liabilities:
Foreign exchange contracts	$	—	$	28	$	—	$	28
Total liabilities at fair value	$	—	$	28	$	—	$	28



	June 30, 2017
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Cash equivalents:
Money market funds	$	2,836	$	—	$	—	$	2,836
Certificates of deposit	—		10		—		10
Total cash equivalents	2,836		10		—		2,846
Short-term available-for-sale securities:
Corporate notes and bonds	—		11		—		11
Asset-backed securities	—		7		—		7
Municipal notes and bonds	—		2		—		2
Equity securities	4		—		—		4
Total short-term available-for-sale securities	4		20		—		24
Long-term available-for-sale securities:
U.S. Treasury securities	5		—		—		5
U.S. Government agency securities	—		5		—		5
International government securities	—		1		—		1
Corporate notes and bonds	—		67		—		67
Asset-backed securities	—		7		—		7
Municipal notes and bonds	—		9		—		9
Total long-term available-for-sale securities	5		89		—		94
Foreign exchange contracts	—		16		—		16
Total assets at fair value	$	2,845	$	135	$	—	$	2,980
Liabilities:
Foreign exchange contracts	$	—	$	8	$	—	$	8
Interest rate swap contract	—		1		—		1
Exchange options	—		—		1		1
Total liabilities at fair value	$	—	$	9	$	1	$	10

Money Market Funds. The Company’s money market funds are funds that invest in U.S. Treasury and U.S. Government agency securities. Money market funds are valued based on quoted market prices.

Certificates of Deposit. The Company’s certificates of deposit are investments which are held in custody by a third party. Certificates of deposit are valued using fixed interest rates.

Asset-Backed Securities, and Corporate and Municipal Notes and Bonds. The Company’s asset-backed securities, and Corporate and Municipal notes and bonds securities are investments issued by corporations and U.S. state municipalities which are held in custody by a third party. Asset-backed securities, and Corporate and Municipal notes and bonds are valued using a market approach which is based on observable inputs including market interest rates from multiple pricing sources.

U.S. Treasury Securities. The Company’s U.S. Treasury securities are direct obligations of the U.S. federal government and are held in custody by a third party. U.S. Treasury securities are valued using a market approach which is based on observable inputs including market interest rates from multiple pricing sources.

U.S. Government Agency and International Government Securities. The Company’s U.S. Government agency and international government securities are investments in fixed income securities sponsored by the U.S. Government and international governments and are held in custody by a third party. U.S. Government agency and international government securities are valued using a market approach which is based on observable inputs including market interest rates from multiple pricing sources.

Foreign Exchange Contracts. The Company’s foreign exchange contracts are short-term contracts to hedge the Company’s foreign currency risk. Foreign exchange contracts are valued using an income approach that is based on a present value of future cash flows model. The market-based observable inputs for the model include forward rates and credit default swap rates. For more information on the Company’s foreign exchange contracts, see Note 5, Derivative Instruments and Hedging Activities. Derivative assets and liabilities are reflected in the Company’s Consolidated Balance Sheet under Other current assets and Accrued expenses, respectively.

Interest Rate Swaps. The Company’s interest rate swaps are long-term contracts to hedge the Company’s variable rate debt risk. Interest rate swaps are valued based on estimated present value of future cash flows model. The market-based observable inputs for the model include interest rate curves and credit valuation adjustments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

Exchange Options. The Company’s 2020 Convertible Notes (as defined in Note 6, Debt) were bifurcated into a debt host and exchange option for accounting purposes. The exchange options are accounted for as derivative liabilities because they are predominantly settled in cash.

The fair value measurement of the exchange options arising from the Company’s 2020 Convertible Notes, which are not actively traded, is determined using unobservable inputs (Level 3). These inputs include (i) the estimated amount and timing of settlement of the underlying debt; (ii) the probability of the achievement of the factor(s) on which the settlement is based; (iii) the risk-adjusted discount rate based on the expected term to maturity of the debt; and (iv) the economic incentive for holders to exercise their exchange option. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

During 2018 and 2017, the Company had no transfers of financial assets and liabilities between levels.

Available-for-Sale Securities

The cost basis of the Company’s investments classified as available-for-sale securities, individually and in the aggregate, approximated its fair value as of June 29, 2018 and June 30, 2017.

Financial Instruments Not Carried at Fair Value

The carrying value of the Company’s revolving credit facility approximates its fair value given the revolving nature of the balance and the variable market interest rate. For financial instruments where the carrying value (which includes principal adjusted for any unamortized issuance costs, and discounts or premiums) differs from fair value (which is based on quoted market prices), the following table represents the related carrying value and fair value for each of the Company’s outstanding financial instruments. Each of the financial instruments presented below was categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the fourth quarter of 2018 and the fourth quarter of 2017, respectively.



	June 29, 2018				June 30, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
0.50% convertible senior notes due 2020	$	31	$	34	$	30	$	34
Variable interest rate Term Loan A maturing 2021	—		—		4,074		4,130
Variable interest rate Term Loan A-1 maturing 2023	4,982		5,013		—		—
Variable interest rate U.S. Term Loan B-2 maturing 2023	—		—		2,968		2,989
Variable interest rate U.S. Term Loan B-4 maturing 2023	2,448		2,452		—		—
Variable interest rate Euro Term Loan B-2 maturing 2023⁽¹⁾	—		—		1,000		1,010
7.375% senior secured notes due 2023	—		—		1,835		2,062
1.50% convertible notes due 2024	931		1,114		—		—
10.50% senior unsecured notes due 2024	—		—		3,244		3,956
4.750% senior unsecured notes due 2026	2,280		2,238		—		—
Total	$	10,672	$	10,851	$	13,151	$	14,181


⁽¹⁾	Euro Term Loan B-2 outstanding principal amount as of June 30, 2017 was based upon the Euro to U.S. dollar exchange rate as of that date.

Equity Method Investments

The Company has joint venture investments with Toshiba Memory Corporation and with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”). See Note 9, Commitments, Contingencies and Related Parties, for further discussion regarding these joint ventures.

Cost Method Investments

From time to time, the Company enters into certain strategic investments for the promotion of business and strategic objectives. The Company reports these investments under the cost method of accounting as it does not have a significant influence over the operations of these investees. These investments consist of debt and equity securities of privately-held companies that do not have a readily determinable fair value and are carried at historical cost. The Company assesses these securities for indications of other-than-temporary impairments.

In 2018 and 2017, the Company recorded impairment charges and losses related to the sale of these cost method investments of $17 million and $55 million, respectively, which were included in Other expense, net in the Consolidated Statements of Operations. There were no impairments in 2016 related to these investments. As of June 29, 2018 and June 30, 2017, these investments aggregated $39 million and $91 million, respectively, and are reported under Other non-current assets in the Consolidated Balance Sheets.