Fair Value Measurements

3 Months Ended

Jun. 30, 2019

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 June 30, 2019 and March 31, 2019, 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 June 30, 2019		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Bank and time deposits	$	24	$	24	$	—	$	—	Cash equivalents
Money market funds	1,319		1,319		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	660		—		660		—		Short-term investments and cash equivalents
U.S. Treasury securities	584		584		—		—		Short-term investments and cash equivalents
U.S. agency securities	31		—		31		—		Short-term investments
Commercial paper	480		—		480		—		Short-term investments and cash equivalents
Foreign government securities	48		—		48		—		Short-term investments
Asset-backed securities	242		—		242		—		Short-term investments
Certificates of deposit	22		—		22		—		Short-term investments and cash equivalents
Foreign currency derivatives	36		—		36		—		Other current assets and other assets
Deferred compensation plan assets ^(a)	12		12		—		—		Other assets
Total assets at fair value	$	3,458	$	1,939	$	1,519	$	—
Liabilities
Contingent consideration ^(b)	$	102	$	—	$	—	$	102	Accrued and other current liabilities
Foreign currency derivatives	5		—		5		—		Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities ^(a)	13		13		—		—		Other liabilities
Total liabilities at fair value	$	120	$	13	$	5	$	102



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Contingent Consideration
Balance as of March 31, 2019		$	136
Change in fair value ^(c)		1
Payment ^(d)		(35		)
Balance as of June 30, 2019		$	102



			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, 2019		(Level 1)		(Level 2)		(Level 3)		Balance Sheet Classification
Assets
Bank and time deposits	$	23	$	23	$	—	$	—	Cash equivalents
Money market funds	2,704		2,704		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	327		—		327		—		Short-term investments and cash equivalents
U.S. Treasury securities	294		294		—		—		Short-term investments and cash equivalents
U.S. agency securities	57		—		57		—		Short-term investments and cash equivalents
Commercial paper	233		—		233		—		Short-term investments and cash equivalents
Foreign government securities	58		—		58		—		Short-term investments and cash equivalents
Asset-backed securities	55		—		55		—		Short-term investments and cash equivalents
Certificates of deposit	2		—		2		—		Short-term investments and cash equivalents
Foreign currency derivatives	33		—		33		—		Other current assets and other assets
Deferred compensation plan assets ^(a)	11		11		—		—		Other assets
Total assets at fair value	$	3,797	$	3,032	$	765	$	—
Liabilities
Contingent consideration ^(b)	$	136	$	—	$	—	$	136	Accrued and other current liabilities
Foreign currency derivatives	16		—		16		—		Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities ^(a)	12		12		—		—		Other liabilities
Total liabilities at fair value	$	164	$	12	$	16	$	136


(a)	The Deferred Compensation Plan assets consist of various mutual funds. See Note 15 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, 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 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. At June 30, 2019, the discount rates used ranged from 2.6 percent to 2.7 percent. There were no material changes in the fair value of the contingent consideration during the three months ended June 30, 2019. At March 31, 2019, the discount rates used ranged from 2.9 percent to 3.1 percent. See Note 7 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, for additional information regarding the Respawn acquisition.


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

(d) During the three months ended June 30, 2019, we paid $35 million for a performance milestone achieved in connection with our acquisition of Respawn.

- 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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