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Fair Value Measurements | 9 Months Ended
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Feb. 28, 2019
Fair Value Disclosures [Abstract] |
Fair Value Measurements |
Note 4 — Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives, equity securities and available-for-sale debt securities. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. The Company uses a three-level hierarchy established by the FASB that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels of the fair value hierarchy are described below:
• | Level 1: Quoted prices in active markets for identical assets or liabilities.
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
• | Level 3: Unobservable inputs with little or no market data available, which require the reporting entity to develop its own assumptions.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement. Pricing vendors are utilized for a majority of Level 1 and Level 2 investments. These vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities and credit risks. The fair value of derivative contracts is determined using observable market inputs such as the daily market foreign currency rates, forward pricing curves, currency volatilities, currency correlations and interest rates, and considers non-performance risk of the Company and its counterparties. The Company’s fair value measurement process includes comparing fair values to another independent pricing vendor to ensure appropriate fair values are recorded. The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of February 28, 2019 and May 31, 2018, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement.
|  | As of February 28, 2019
(In millions) |  | Assets at Fair Value |  | Cash and Equivalents |  | Short-term Investments
Cash |  | $ | 540 |  |  | $ | 540 |  |  | $ | — |
Level 1: |  |  |  |  |  |
U.S. Treasury securities |  | 417 |  |  | 100 |  |  | 317 |
Level 2: |  |  |  |  |  |
Commercial paper and bonds |  | 31 |  |  | 1 |  |  | 30 |
Money market funds |  | 1,379 |  |  | 1,379 |  |  | — |
Time deposits |  | 1,678 |  |  | 1,675 |  |  | 3 |
U.S. Agency securities |  | 1 |  |  | — |  |  | 1 |
Total Level 2: |  | 3,089 |  |  | 3,055 |  |  | 34 |
TOTAL |  | $ | 4,046 |  |  | $ | 3,695 |  |  | $ | 351 |
|  | As of May 31, 2018
(In millions) |  | Assets at Fair Value |  | Cash and Equivalents |  | Short-term Investments
Cash |  | $ | 415 |  |  | $ | 415 |  |  | $ | — |
Level 1: |  |  |  |  |  |
U.S. Treasury securities |  | 1,178 |  |  | 500 |  |  | 678 |
Level 2: |  |  |  |  |  |
Commercial paper and bonds |  | 451 |  |  | 153 |  |  | 298 |
Money market funds |  | 2,174 |  |  | 2,174 |  |  | — |
Time deposits |  | 925 |  |  | 907 |  |  | 18 |
U.S. Agency securities |  | 102 |  |  | 100 |  |  | 2 |
Total Level 2: |  | 3,652 |  |  | 3,334 |  |  | 318 |
TOTAL |  | $ | 5,245 |  |  | $ | 4,249 |  |  | $ | 996 |
The Company elects to record the gross assets and liabilities of its derivative financial instruments on the Unaudited Condensed Consolidated Balance Sheets. The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. Any amounts of cash collateral received related to these instruments associated with the Company’s credit-related contingent features are recorded in Cash and equivalents and Accrued liabilities, the latter of which would further offset against the Company’s derivative asset balance. Any amounts of cash collateral posted related to these instruments associated with the Company’s credit-related contingent features are recorded in Prepaid expenses and other current assets, which would further offset against the Company’s derivative liability balance. Cash collateral received or posted related to the Company’s credit-related contingent features is presented in the Cash provided by operations component of the Unaudited Condensed Consolidated Statements of Cash Flows. Any amounts of non-cash collateral received, such as securities, are not recorded on the Unaudited Condensed Consolidated Balance Sheets pursuant to U.S. GAAP. For further information related to credit risk, refer to Note 9 — Risk Management and Derivatives. The following tables present information about the Company’s derivative assets and liabilities measured at fair value on a recurring basis as of February 28, 2019 and May 31, 2018, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement.
|  | As of February 28, 2019
|  | Derivative Assets |  | Derivative Liabilities
(In millions) |  | Assets at Fair Value |  | Other Current Assets |  | Other Long-term Assets |  | Liabilities at Fair Value |  | Accrued Liabilities |  | Other Long-term Liabilities
Level 2: |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange forwards and options(1) |  | $ | 481 |  |  | $ | 414 |  |  | $ | 67 |  |  | $ | 83 |  |  | $ | 83 |  |  | $ | — |
Embedded derivatives |  | 7 |  |  | 1 |  |  | 6 |  |  | 6 |  |  | 4 |  |  | 2 |
TOTAL |  | $ | 488 |  |  | $ | 415 |  |  | $ | 73 |  |  | $ | 89 |  |  | $ | 87 |  |  | $ | 2 |
(1) | If the foreign exchange derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $82 million as of February 28, 2019. As of that date, the Company had received $137 million of cash collateral from various counterparties related to foreign exchange derivative instruments. No amount of collateral was posted on the Company’s derivative liability balance as of February 28, 2019.
|  | As of May 31, 2018
|  | Derivative Assets |  | Derivative Liabilities
(In millions) |  | Assets at Fair Value |  | Other Current Assets |  | Other Long-term Assets |  | Liabilities at Fair Value |  | Accrued Liabilities |  | Other Long-term Liabilities
Level 2: |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange forwards and options(1) |  | $ | 389 |  |  | $ | 237 |  |  | $ | 152 |  |  | $ | 182 |  |  | $ | 182 |  |  | $ | — |
Embedded derivatives |  | 11 |  |  | 3 |  |  | 8 |  |  | 8 |  |  | 2 |  |  | 6 |
TOTAL |  | $ | 400 |  |  | $ | 240 |  |  | $ | 160 |  |  | $ | 190 |  |  | $ | 184 |  |  | $ | 6 |
(1) | If the foreign exchange derivative instruments had been netted on the Condensed Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $182 million as of May 31, 2018. As of that date, the Company had received $23 million of cash collateral from various counterparties related to these foreign exchange derivative instruments. No amount of collateral was posted on the Company’s derivative liability balance as of May 31, 2018.
The Company’s investment portfolio consists of investments in U.S. Treasury and Agency securities, time deposits, money market funds, corporate commercial paper and bonds. These securities are valued using market prices in both active markets (Level 1) and less active markets (Level 2). As of February 28, 2019, the Company held $313 million of available-for-sale debt securities with maturity dates within one year and $38 million with maturity dates over one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets. The gross realized gains and losses on sales of securities were immaterial for the three and nine months ended February 28, 2019 and 2018. Unrealized gains and losses on available-for-sale debt securities included in Accumulated other comprehensive income (loss) were immaterial as of February 28, 2019 and May 31, 2018. The Company regularly reviews its available-for-sale debt securities for other-than-temporary impairment. For the nine months ended February 28, 2019 and 2018, the Company did not consider any of its securities to be other-than-temporarily impaired and, accordingly, did not recognize any impairment losses. Included in Interest expense (income), net for the three months ended February 28, 2019 and 2018 was interest income related to the Company’s investment portfolio of $20 million and $12 million, respectively, and $60 million and $36 million for the nine months ended February 28, 2019 and 2018, respectively. The Company’s Level 3 assets comprise investments in certain non-marketable preferred stock. These Level 3 investments are an immaterial portion of the Company’s portfolio. Changes in Level 3 investments were immaterial during the nine months ended February 28, 2019 and the fiscal year ended May 31, 2018. No transfers among levels within the fair value hierarchy occurred during the nine months ended February 28, 2019 and the fiscal year ended May 31, 2018. For additional information related to the Company’s derivative financial instruments, refer to Note 9 — Risk Management and Derivatives. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value. As of February 28, 2019 and May 31, 2018, assets or liabilities required to be measured at fair value on a non-recurring basis were immaterial. Financial Assets and Liabilities Not Recorded at Fair Value Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts and debt issuance costs. The fair value of Long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2). The fair value of the Company’s Long-term debt, including the current portion, was approximately $3,345 million at February 28, 2019 and $3,294 million at May 31, 2018. For fair value information regarding Notes payable, refer to Note 5 — Short-Term Borrowings and Credit Lines.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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