(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 December 31, 2017 and March 31, 2017, 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 December 31, 2017		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Bank and time deposits	$	299	$	299	$	—	$	—	Cash equivalents
Money market funds	563		563		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	1,258		—		1,258		—		Short-term investments and cash equivalents
U.S. Treasury securities	446		446		—		—		Short-term investments
U.S. agency securities	118		—		118		—		Short-term investments and cash equivalents
Commercial paper	341		—		341		—		Short-term investments and cash equivalents
Foreign government securities	100		—		100		—		Short-term investments and cash equivalents
Asset-backed securities	134		—		134		—		Short-term investments
Certificates of deposit	22		—		22		—		Short-term investments
Foreign currency derivatives	8		—		8		—		Other current assets and other assets
Deferred compensation plan assets ^(a)	10		10		—		—		Other assets
Total assets at fair value	$	3,299	$	1,318	$	1,981	$	—
Liabilities
Contingent consideration ^(b)	$	122	$	—	$	—	$	122	Other liabilities
Foreign currency derivatives	41		—		41		—		Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities ^(a)	11		11		—		—		Other liabilities
Total liabilities at fair value	$	174	$	11	$	41	$	122



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Contingent Consideration
Balance as of March 31, 2017		$	—
Additions		122
Balance as of December 31, 2017		$	122



			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, 2017		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Bank and time deposits	$	233	$	233	$	—	$	—	Cash equivalents
Money market funds	405		405		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	963		—		963		—		Short-term investments and cash equivalents
U.S. Treasury securities	460		460		—		—		Short-term investments and cash equivalents
U.S. agency securities	172		—		172		—		Short-term investments and cash equivalents
Commercial paper	270		—		270		—		Short-term investments and cash equivalents
Foreign government securities	113		—		113		—		Short-term investments
Asset-backed securities	135		—		135		—		Short-term investments
Foreign currency derivatives	19		—		19		—		Other current assets and other assets
Deferred compensation plan assets ^(a)	8		8		—		—		Other assets
Total assets at fair value	$	2,778	$	1,106	$	1,672	$	—
Liabilities
Foreign currency derivatives	$	8	$	—	$	8	$	—	Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities ^(a)	9		9		—		—		Other liabilities
Total liabilities at fair value	$	17	$	9	$	8	$	—


(a)	The Deferred Compensation Plan assets consist of various mutual funds. See Note 13 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, for additional information regarding our Deferred Compensation Plan.

(b)

The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with our acquisition of Respawn Entertainment, LLC (“Respawn”) that is contingent upon the achievement of certain performance milestones. We estimated the fair value using a probability-weighted income approach combined with a real options methodology, and applied a discount rate that appropriately captures the risk associated with the obligation. The discount rates used ranged from 2.7 percent to 3.3 percent. See Note 6 for additional information regarding the Respawn acquisition.