Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.5.0.2
Fair Value Measurements
 12 Months Ended
Sep. 25, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]  
Fair Value Measurements
Fair Value Measurements
The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 25, 2016 (in millions):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
2,679

 
$
2,598

 
$
—

 
$
5,277

Marketable securities
 
 
 
 
 
 
 
U.S. Treasury securities and government-related securities
867

 
1,348

 
—

 
2,215

Corporate bonds and notes
—

 
18,743

 
—

 
18,743

Mortgage- and asset-backed and auction rate securities
—

 
1,854

 
43

 
1,897

Equity and preferred securities and equity funds
1,005

 
741

 
—

 
1,746

Debt funds
—

 
1,803

 
—

 
1,803

Total marketable securities
1,872

 
24,489

 
43

 
26,404

Derivative instruments
—

 
71

 
—

 
71

Other investments
303

 
—

 
—

 
303

Total assets measured at fair value
$
4,854

 
$
27,158

 
$
43

 
$
32,055

Liabilities
 
 
 
 
 
 
 
Derivative instruments
$
—

 
$
11

 
$
—

 
$
11

Other liabilities
302

 
—

 
—

 
302

Total liabilities measured at fair value
$
302

 
$
11

 
$
—

 
$
313


Activity between Levels of the Fair Value Hierarchy. There were no significant transfers between Level 1 and Level 2 during fiscal 2016 and 2015. 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. The following table includes the activity for mortgage- and asset-backed and auction rate securities classified within Level 3 of the valuation hierarchy (in millions):
 
2016
 
2015
Beginning balance of Level 3
$
224

 
$
269

Total realized and unrealized gains or losses:
 
 
 
Included in investment income, net
(4
)
 
3

Included in other comprehensive income (loss)
(1
)
 
(4
)
Purchases
2

 
69

Sales
(106
)
 
(46
)
Settlements
(45
)
 
(64
)
Transfers out of Level 3
(27
)
 
(3
)
Ending balance of Level 3
$
43

 
$
224


The Company recognizes transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual event or change in circumstances that caused the transfer occurs. Transfers out of Level 3 during fiscal 2016 and 2015 primarily consisted of debt securities with significant upgrades in credit ratings or for which there were observable inputs. There were no transfers into Level 3 during fiscal 2016 and 2015.
Nonrecurring Fair Value Measurements. The Company measures certain assets at fair value on a nonrecurring basis. These assets include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During fiscal 2016, the Company recorded impairment charges of $43 million to write down certain intangible assets based on updated cash flow projections. Such charges were recorded in cost of revenues, research and development expenses and selling, general and administrative expenses. The estimation of fair value and cash flows used in the fair value measurements required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3. During fiscal 2015 and 2014, the Company updated the business plans and related internal forecasts related to certain of the Company’s businesses, resulting in impairment charges to write down certain property, plant and equipment, intangible assets and goodwill (Note 2). The Company determined the fair values using cost, income and market approaches. The estimation of fair value and cash flows used in the fair value measurements required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3. During fiscal 2016, 2015 and 2014, the Company did not have any other significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.