Fair Value

Measurement of 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 to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

A fair value hierarchy is based on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable inputs) or reflects the Company’s own assumptions of market participant valuation (unobservable inputs). 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 three levels of inputs that may be used to measure fair value are:

Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 — Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or

Level 3 — Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company’s or the counterparty’s non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

Items Measured at Fair Value on a Recurring Basis

The following tables present the Company’s assets and liabilities, by financial instrument type and balance sheet line item that are measured at fair value on a recurring basis, excluding accrued interest components, as of December 28, 2018:



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	454	$	—		$	—	$	454
Time deposits and certificates of deposit	—		423			—		423
Total cash equivalents	454		423			—		877
Restricted cash and investments:
Time deposits and certificates of deposit	—		3			—		3
Derivative Assets	—		1			—		1
Total assets	$	454	$	427		$	—	$	881
Liabilities:
Derivative liabilities	$	—	$	(31	)	$	—	$	(31	)
Total liabilities	$	—	$	(31	)	$	—	$	(31	)



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	454	$	423		$	—	$	877
Other current assets	—		4			—		4
Total assets	$	454	$	427		$	—	$	881
Liabilities:
Accrued expenses	$	—	$	(31	)	$	—	$	(31	)
Total liabilities	$	—	$	(31	)	$	—	$	(31	)



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	620	$	—	$	—	$	620
Time deposits and certificates of deposit	—		392		—		392
Total cash equivalents	620		392		—		1,012
Restricted cash and investments:
Money market funds	1		—		—		1
Time deposits and certificates of deposit	—		3		—		3
Derivative assets	—		10		—		10
Total assets	$	621	$	405	$	—	$	1,026



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	620	$	392	$	—	$	1,012
Other current assets	1		13		—		14
Total assets	$	621	$	405	$	—	$	1,026

The Company classifies items in Level 1 if the financial assets consist of securities for which quoted prices are available in an active market.

The Company classifies items in Level 2 if the financial asset or liability is valued using observable inputs. The Company uses observable inputs including quoted prices in active markets for similar assets or liabilities. Level 2 assets include: agency bonds, corporate bonds, commercial paper, municipal bonds, U.S. Treasuries, time deposits and certificates of deposit. These debt investments are priced using observable inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair value of all of its cash equivalents and short-term investments. For the cash equivalents and short-term investments in the Company’s portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry standard data providers or other third party sources and various methodologies, such as weighting and models, to determine the appropriate price at the measurement date. The Company corroborates the prices obtained from the pricing service against other independent sources and, as of December 28, 2018, has not found it necessary to make any adjustments to the prices obtained. The Company’s derivative financial instruments are also classified within Level 2. The Company’s derivative financial instruments consist of foreign currency forward exchange contracts and the TRS. The Company recognizes derivative financial instruments in its condensed consolidated financial statements at fair value. The Company determines the fair value of these instruments by considering the estimated amount it would pay or receive to terminate these agreements at the reporting date.

As of December 28, 2018 and June 29, 2018, the Company had no Level 3 assets or liabilities measured at fair value on a recurring basis.

Items Measured at Fair Value on a Non-Recurring Basis

From time to time, the Company enters into certain strategic investments for the promotion of business and strategic objectives. These strategic investments primarily include cost basis investments representing those where the Company does have the ability to exercise significant influence but does not have control. These investments are included in Other assets, net in the Company's Condensed Consolidated Balance Sheets, and are periodically analyzed to determine whether or not there are indicators of impairment.

Prior to fiscal year 2019, the Company’s strategic investments in privately-held companies without readily determinable fair values were accounted for under the cost method and were recorded at historical cost at the time of investment, with adjustments to the balance only in the event of impairment. Effective June 30, 2018, the Company adopted ASU 2016-01, Financial Instruments, which changed the way the Company accounts for equity investments, excluding investments that qualify for the equity method of accounting. The Company's equity investments in privately-held companies without readily determinable fair values are now measured using the measurement alternative, defined by ASC 321, Investments - Equity Securities, as cost, less impairments, and adjusted up or down based on observable price changes in orderly transactions for identical or similar investments of the same issuer. Any adjustments resulting from impairments and/or observable price changes are recorded as Other, net in the Company's Condensed Consolidated Statements of Operations.

As of December 28, 2018 and June 29, 2018, the carrying value of the Company’s strategic investments were $111 million and $118 million, respectively. For the three and six months ended December 29, 2017, the Company did not have any equity investments accounted for under the cost method that were other-than-temporarily impaired and did not record any impairment charges. For the three and six months ended December 28, 2018, there were no upward or downward adjustments on equity investments as a result of adoption of the measurement alternative during the September 2018 quarter.

As of December 28, 2018 and June 29, 2018, the Company had $24 million and $26 million, respectively, of held for sale land and building (collectively, the "property") in Asia included in Other current assets on its Condensed Consolidated Balance Sheets. The respective property to be sold met the criteria to be classified as held for sale at the end of fiscal year 2017. During the September 2018 quarter, the Company accepted an offer to sell the property to a third party and recorded an impairment charge of approximately $2 million during the three and six months ended December 28, 2018. The impairment charge was recorded in Restructuring and other, net in the Company's Condensed Consolidated Statement of Operations. No impairment was identified for the three and six months ended December 29, 2017. The sale is expected to be completed by the end of fiscal year 2019, subject to government approval and customary closing conditions.

Other Fair Value Disclosures

The Company’s investment in a debt security, classified as held-to-maturity, represents shares of non-convertible preferred stock of TMC. This debt security has a maturity date of six years starting from May 31, 2018 and is classified as Investment in debt security on the Company’s Condensed Consolidated Balance Sheets. The debt security is recorded at amortized cost and its fair value approximated the carrying value at June 29, 2018. As of December 28, 2018, the fair value of this investment was $1,272 million with an unrealized loss of $28 million on the carrying value of $1,300 million. There was no other-than-temporary impairment identified for the three and six months ended December 28, 2018. The fair value was determined utilizing Level 2 inputs such as discount rates and yield terms of similar types of securities issued by comparable companies.

The Company’s debt is carried at amortized cost. The estimated fair value of the Company’s debt is derived using the closing price of the same debt instruments as of the date of valuation, which takes into account the yield curve, interest rates and other observable inputs. Accordingly, these fair value measurements are categorized as Level 2. The following table presents the fair value and amortized cost of the Company’s debt in order of maturity:



	December 28, 2018					June 29, 2018
(Dollars in millions)	Carrying Amount			Estimated Fair Value		Carrying Amount			Estimated Fair Value
3.75% Senior Notes due November 2018	$	—		$	—	$	499		$	501
4.25% Senior Notes due March 2022	749			720		749			743
4.75% Senior Notes due June 2023	951			897		951			942
4.875% Senior Notes due March 2024	497			460		497			489
4.75% Senior Notes due January 2025	975			881		975			936
4.875% Senior Notes due June 2027	695			590		695			650
5.75% Senior Notes due December 2034	489			385		489			441
	$	4,356		$	3,933	$	4,855		$	4,702
Less: debt issuance costs	(32		)	—		(36		)	—
Long-term debt, net of debt issuance costs	$	4,324		$	3,933	$	4,819		$	4,702
Less: current portion of long-term debt, net of debt issuance costs	—			—		(499		)	(501		)
Long-term debt, less current portion	$	4,324		$	3,933	$	4,320		$	4,201