Financial Instruments

Debt Securities

The Company holds investments in marketable debt securities that are classified and accounted for as available-for-sale and are remeasured on a recurring basis. For information regarding the valuation techniques and inputs used in the fair value measurements, refer to Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 2018.

The following tables summarize the Company's investments in available-for-sale debt securities by significant investment category and the related consolidated balance sheet classification at January 25, 2019 and April 27, 2018:



	January 25, 2019
	Valuation									Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	523	$	—	$	(15	)	$	508	$	508	$	—
Level 2:
Corporate debt securities	3,259		3		(60		)	3,202		3,202		—
U.S. government and agency securities	841		—		(14		)	827		827		—
Mortgage-backed securities	464		1		(28		)	437		437		—
Non-U.S. government and agency securities	5		—		—			5		5		—
Other asset-backed securities	464		—		(4		)	460		460		—
Total Level 2	5,033		4		(106		)	4,931		4,931		—
Level 3:
Auction rate securities	47		—		(3		)	44		—		44
Total available-for-sale debt securities	$	5,603	$	4	$	(124	)	$	5,483	$	5,439	$	44



	April 27, 2018
	Valuation									Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Investments		Other Assets
Level 1:
U.S. government and agency securities	$	732	$	—	$	(26	)	$	706	$	706	$	—
Level 2:
Corporate debt securities	4,179		20		(75		)	4,124		4,124		—
U.S. government and agency securities	848		—		(24		)	824		824		—
Mortgage-backed securities	725		2		(34		)	693		693		—
Non-U.S. government and agency securities	74		—		(1		)	73		73		—
Other asset-backed securities	358		—		(2		)	356		356		—
Total Level 2	6,184		22		(136		)	6,070		6,070		—
Level 3:
Auction rate securities	47		—		(3		)	44		—		44
Total available-for-sale debt securities	$	6,963	$	22	$	(165	)	$	6,820	$	6,776	$	44

The following tables present the gross unrealized losses and fair values of the Company’s available-for-sale debt securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category at January 25, 2019 and April 27, 2018:



	January 25, 2019
	Less than 12 months					More than 12 months
(in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government and agency securities	$	42	$	—		$	812	$	(29	)
Corporate debt securities	1,543		(21		)	1,168		(39		)
Mortgage-backed securities	87		(1		)	287		(27		)
Other asset-backed securities	313		(3		)	81		(1		)
Auction rate securities	—		—			44		(3		)
Total	$	1,985	$	(25	)	$	2,392	$	(99	)



	April 27, 2018
	Less than 12 months					More than 12 months
(in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government and agency securities	$	762	$	(33	)	$	374	$	(17	)
Corporate debt securities	2,620		(58		)	272		(17		)
Mortgage-backed securities	442		(15		)	102		(19		)
Non-U.S. government and agency securities	32		—			36		(1		)
Other asset-backed securities	238		(1		)	63		(1		)
Auction rate securities	—		—			44		(3		)
Total	$	4,094	$	(107	)	$	891	$	(58	)

The following table presents the unobservable inputs utilized in the fair value measurement of the auction rate securities classified as Level 3 at January 25, 2019:



	Valuation Technique	Unobservable Input	Range (Weighted Average)
Auction rate securities	Discounted cash flow	Years to principal recovery	2 yrs. - 12 yrs. (3 yrs.)
Auction rate securities	Discounted cash flow	Illiquidity premium	6%

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended January 25, 2019 and January 26, 2018. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

There were no purchases, sales, settlements, or gains or losses recognized in earnings or other comprehensive income for available-for-sale securities classified as Level 3 during the three and nine months ended January 25, 2019 and January 26, 2018.

Activity related to the Company’s debt securities portfolio is as follows:



	Three months ended						Nine months ended
(in millions)	January 25, 2019			January 26, 2018			January 25, 2019			January 26, 2018
Proceeds from sales	$	1,301		$	667		$	3,217		$	2,618
Gross realized gains	9			3			17			22
Gross realized losses	(36		)	(2		)	(55		)	(16		)

Credit losses represent the difference between the present value of cash flows expected to be collected on certain mortgage-backed securities and auction rate securities and the amortized cost of these securities. Based on the Company’s assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which the Company is invested, the Company believes it has recognized all necessary other-than-temporary impairments, as the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, before recovery of the amortized cost.

At January 25, 2019 and April 27, 2018, the credit loss portion of other-than-temporary impairments on debt securities was not significant. The total reductions of available-for-sale debt securities sold during the three and nine months ended January 25, 2019 and January 26, 2018 were not significant.

The January 25, 2019 balance of available-for-sale debt securities by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.



(in millions)	January 25, 2019
Due in one year or less	$	1,139
Due after one year through five years	1,867
Due after five years through ten years	2,358
Due after ten years	119
Total	$	5,483

Equity Securities, Equity Method Investments, and Other Investments

The Company holds investments in equity securities with readily determinable fair values, equity investments without readily determinable fair values, investments accounted for under the equity method, and other investments.

Effective April 28, 2018, the Company adopted accounting standards update (ASU) 2016-01, which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. As a result of the adoption, the Company reclassified $47 million from accumulated other comprehensive loss to the opening balance of retained earnings as of April 28, 2018. The Company uses quoted market prices to determine the fair value of equity securities with readily determinable fair values. For equity investments without readily determinable fair values that do not qualify for the practical expedient to estimate fair value using the net asset value per share or its equivalent, the Company has elected to measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. This election is made for each investment separately and is reassessed at each reporting period as to whether the investment continues to qualify for this election. Additionally, at each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.

Equity securities with readily determinable fair values are included within Level 1 of the fair value hierarchy, as they are measured using quoted market prices. Equity method investments and investments without readily determinable fair values, as described above, are included within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. To determine the fair value of these investments, the Company uses all pertinent financial information available related to the investees, including financial statements, market participant valuations from recent and proposed equity offerings, and other third-party data.

The following table summarizes the Company's equity and other investments at January 25, 2019, which are classified as other assets in the consolidated balance sheets:



(in millions)	January 25, 2019
Investments with readily determinable fair values (marketable equity securities)	$	20
Investments without readily determinable fair values	240
Equity method and other investments	70
Total equity and other investments	$	330

Prior to the adoption of ASU 2016-01, marketable equity securities were classified as available-for-sale and measured at fair value with unrealized changes recognized in accumulated other comprehensive income (AOCI), net of deferred taxes. Gains and losses on available-for-sale marketable equity securities were recognized in net income when realized. The Company also accounted for certain investments without quoted market prices under the cost method of accounting.

The following table summarizes the values of the Company's equity and other investments by significant investment category and the related consolidated balance sheet classification at April 27, 2018:



	Valuation									Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Investments		Other Assets
Available-for-sale securities
Level 1:
Marketable equity securities	$	63	$	99	$	—		$	162	$	—	$	162
Level 2:
Debt funds	739		—		(154		)	585		585		—
Investments measured at net asset value⁽¹⁾:
Debt funds	199		—		(2		)	197		197		—
Total available-for-sale equity securities	1,001		99		(156		)	944		782		162
Cost method, equity method, and other investments:
Level 3:
Cost method, equity method, and other investments	353		—		—			N/A		—		353
Total equity and other investments	$	1,354	$	99	$	(156	)	$	944	$	782	$	515

(1) Certain investments that are measured at the net asset value per share (or its equivalent) as a practical expedient are excluded from the fair value hierarchy. The fair value amounts presented herein are intended to permit reconciliation to the consolidated balance sheets.

The table below includes activity related to the Company’s portfolio of equity and other investments. Gains and losses on equity and other investments are recognized in other non-operating (income) expense, net in the consolidated statements of income.



	Three months ended						Nine months ended
(in millions)	January 25, 2019			January 26, 2018⁽¹⁾			January 25, 2019			January 26, 2018⁽¹⁾
Proceeds from sales	$	33		$	39		$	941		$	442
Gross gains	8			8			131			15
Gross losses	(1		)	—			(30		)	(1		)
Impairment losses recognized	—			(227		)	(12		)	(228		)

(1) Gains and losses for the three and nine months ended January 26, 2018 represent realized amounts.

Net gains recognized during the three months ended January 25, 2019 were $7 million, comprised of $1 million net realized gains on equity and other investments sold during the period and $6 million of net unrealized gains on equity and other investments still held at January 25, 2019. Net gains recognized during the nine months ended January 25, 2019 were $101 million, comprised of $71 million of net realized gains on equity and other investments sold during the period and $30 million of net unrealized gains on equity and other investments still held at January 25, 2019.

During the three months ended January 26, 2018, the Company received bids from potential buyers and investors for some or all of its ownership in a portfolio of selected investments, which indicated that the fair values of certain of the underlying cost and equity method investments in the portfolio may be below the respective carrying values. The Company determined that the decline in the fair values was other-than-temporary given the uncertainty regarding the Company’s intent to hold the investments for a period of time that would be sufficient to recover the carrying values. As a result, the Company recognized impairment charges of $227 million during the three and nine months ended January 26, 2018, which were recognized in other non-operating (income) expense, net in the consolidated statements of income. The fair values of the investments were determined based on Level 3 inputs. The carrying values of the investments prior to recognizing the impairment charges was $317 million. There were no other significant impairments charges recognized during the three and nine months ended January 26, 2018 and January 25, 2019.