Fair Value Measurements

6 Months Ended

Sep. 30, 2013

(2) FAIR VALUE MEASUREMENTS

There are various valuation techniques used to estimate fair value, the primary one being 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 fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and nonrecurring basis.

Fair Value Hierarchy

The three levels of inputs that may be used to measure fair value are as follows:


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

•

Level 2. Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.


•	Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2013 and March 31, 2013, our assets and liabilities that were measured and recorded at fair value on a recurring basis were as follows (in millions):



			Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs
	As of September 30, 2013		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Money market funds	$	253	$	253	$	—	$	—	Cash equivalents
Available-for-sale securities:
Corporate bonds	179		—		179		—		Short-term investments
U.S. agency securities	58		—		58		—		Short-term investments
U.S. Treasury securities	54		54		—		—		Short-term investments
Commercial paper	42		—		42		—		Short-term investments and cash equivalents
Deferred compensation plan assets ^(a)	12		12		—		—		Other assets
Foreign currency derivatives	1		—		1		—		Other current assets
Total assets at fair value	$	599	$	319	$	280	$	—
Liabilities
Contingent consideration ^(b)	$	2	$	—	$	—	$	2	Accrued and other current liabilities and other liabilities
Foreign currency derivatives	4		—		4		—		Accrued and other current liabilities
Total liabilities at fair value	$	6	$	—	$	4	$	2



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Contingent Consideration
Balance as of March 31, 2013		$	43
Change in fair value ^(c)		(37		)
Payments ^(d)		(4		)
Balance as of September 30, 2013		$	2



			Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs
	As of March 31, 2013		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Money market funds	$	469	$	469	$	—	$	—	Cash equivalents
Available-for-sale securities:
Corporate bonds	178		—		178		—		Short-term investments
U.S. agency securities	91		—		91		—		Short-term investments and cash equivalents
U.S. Treasury securities	88		88		—		—		Short-term investments and cash equivalents
Commercial paper	73		—		73		—		Short-term investments and cash equivalents
Deferred compensation plan assets ^(a)	11		11		—		—		Other assets
Foreign currency derivatives	6		—		6		—		Other current assets
Total assets at fair value	$	916	$	568	$	348	$	—
Liabilities
Contingent consideration ^(b)	$	43	$	—	$	—	$	43	Accrued and other current liabilities and other liabilities
Total liabilities at fair value	$	43	$	—	$	—	$	43



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Contingent Consideration
Balance as of March 31, 2012		$	112
Change in fair value ^(c)		(64		)
Payment ^(d)		(5		)
Balance as of March 31, 2013		$	43


(a)	The deferred compensation plan assets consist of various mutual funds.

(b)

The contingent consideration as of September 30, 2013 and March 31, 2013 represents the estimated fair value of the additional variable cash consideration payable primarily in connection with our acquisitions of PopCap Games, Inc. (“PopCap”), KlickNation Corporation (“KlickNation”), and Chillingo Limited (“Chillingo”) that are contingent upon the achievement of certain performance milestones. We estimated the fair value of the acquisition-related contingent consideration payable using probability-weighted discounted cash flow models, and applied a discount rate that appropriately captures the risk associated with the obligation. The weighted average of the discount rates used during the six months ended September 30, 2013 was 16 percent. The weighted average of the discount rates used during the fiscal year 2013 was 13 percent. The significant unobservable input used in the fair value measurement of the contingent consideration payable are forecasted earnings. Significant changes in forecasted earnings would result in a significantly higher or lower fair value measurement. At September 30, 2013 and March 31, 2013, the fair market value of acquisition-related contingent consideration totaled $2 million and $43 million, respectively, compared to a maximum potential payout of $560 million and $566 million, respectively.


(c)	The change in fair value is reported as acquisition-related contingent consideration in our Condensed Consolidated Statements of Operations.


(d)	During the six months ended September 30, 2013, we made payments totaling $4 million to settle certain performance milestones achieved in connection with one of our acquisitions. During fiscal year 2013, we made payments totaling $5 million to settle certain performance milestones achieved in connection with two of our acquisitions.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three and six months ended September 30, 2013, our assets that were measured and recorded at fair value on a nonrecurring basis and the related impairments on those assets were as follows (in millions):



			Fair Value Measurements Using
	Net Carrying Value as of September 30, 2013		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Impairments for the Three Months Ended September 30, 2013		Total Impairments for the Six Months Ended September 30, 2013
	Net Carrying Value as of September 30, 2013		(Level 1)		(Level 2)		(Level 3)
Assets
Royalty-based asset	$	—	$	—	$	—	$	—	$	—	$	17
Total impairments recorded for non-recurring measurements on assets held as of September 30, 2013									$	—	$	17

During the six months ended September 30, 2013, we became aware of facts and circumstances that indicated that the carrying value of one of our royalty-based assets was not recoverable. The impairment charge is included in cost of revenue on our Condensed Consolidated Statements of Operations.

During the three and six months ended September 30, 2012, there were no material impairment charges for assets and liabilities measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.

- 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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