Fair Value

Measurement of Fair Value

Fair value is defined as 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 the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

A fair value hierarchy is based on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable inputs) or reflects the Company's own assumptions of market participant valuation (unobservable inputs). A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 - Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or

Level 3 - Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company's or the counterparty's non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

Items Measured at Fair Value on a Recurring Basis

The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis, excluding accrued interest components, as of June 30, 2017:



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	592	$	—	$	—	$	592
Time deposits	—		582		—		582
Total cash equivalents and short-term investments	592		582		—		1,174
Restricted cash and investments:
Money market funds	1		—		—		1
Time deposits and certificates of deposit	—		3		—		3
Total assets	$	593	$	585	$	—	$	1,178



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	592	$	582	$	—	$	1,174
Other current assets	1		3		—		4
Total assets	$	593	$	585	$	—	$	1,178

The Company reclassified demand deposits from certificates of deposit and money market funds to cash as of July 1, 2016 in the table below to conform to the current year's presentation. This reclassification did not result in any change to the cash and cash equivalents balance as reported in the Consolidated Balance Sheets and Statements of Cash Flows for all periods presented.

The following tables present the Company’s assets and liabilities, by financial instrument type and balance sheet line item that are measured at fair value on a recurring basis, excluding accrued interest components, as of July 1, 2016:



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	230	$	—		$	—	$	230
Corporate bonds	—		6			—		6
Total cash equivalents and short-term investments	230		6			—		236
Restricted cash and investments:
Money market funds	2		—			—		2
Certificates of deposit	—		5			—		5
Derivative assets	—		3			—		3
Total assets	$	232	$	14		$	—	$	246
Liabilities:
Derivative liabilities	$	—	$	(3	)	$	—	$	(3	)
Total liabilities	$	—	$	(3	)	$	—	$	(3	)



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	230	$	—		$	—	$	230
Short-term investments	—		6			—		6
Other current assets	2		8			—		10
Total assets	$	232	$	14		$	—	$	246
Liabilities:
Accrued expenses	$	—	$	(3	)	$	—	$	(3	)
Total liabilities	$	—	$	(3	)	$	—	$	(3	)

The Company classifies items in Level 1 if the financial assets consist of securities for which quoted prices are available in an active market.

The Company classifies items in Level 2 if the financial asset or liability is valued using observable inputs. The Company uses observable inputs including quoted prices in active markets for similar assets or liabilities. Level 2 assets include: agency bonds, corporate bonds, commercial paper, municipal bonds, U.S. Treasuries, time deposits and certificates of deposit. These debt investments are priced using observable inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair values of all of its cash equivalents and short-term investments. For the cash equivalents and short-term investments in the Company's portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry standard data providers or other third party sources and various methodologies, such as weighting and models, to determine the appropriate price at the measurement date. The Company corroborates the prices obtained from the pricing service against other independent sources and, as of June 30, 2017, has not found it necessary to make any adjustments to the prices obtained. The Company's derivative financial instruments are also classified within Level 2. The Company's derivative financial instruments consist of foreign currency forward exchange contracts and the TRS. The Company recognizes derivative financial instruments in its consolidated financial statements at fair value. The Company determines the fair value of these instruments by considering the estimated amount it would pay or receive to terminate these agreements at the reporting date.

As of June 30, 2017 and July 1, 2016, we had no Level 3 assets or liabilities measured at fair value on a recurring basis.

Items Measured at Fair Value on a Non-Recurring Basis

From time to time, the Company enters into certain strategic investments for the promotion of business and strategic objectives. These strategic investments primarily include cost basis investments representing those where the Company does not have the ability to exercise significant influence as well as equity method investments representing those where the Company does have the ability to exercise significant influence but does not have control. These investments are included in Other assets, net in the Consolidated Balance Sheets, and are periodically analyzed to determine whether or not there are indicators of impairment. The carrying value of the Company's strategic investments at June 30, 2017 and July 1, 2016 totaled $125 million and $113 million, respectively, and consisted primarily of privately held equity securities without a readily determinable fair value.

During the fiscal years 2017, 2016 and 2015, the Company determined that certain of its equity investments accounted for under the cost method were other-than-temporarily impaired, and recognized charges of $25 million, $13 million and $7 million, respectively, in order to write down the carrying amount of the investments to its estimated fair value. Since there was no active market for the equity securities of the investee, the Company estimated fair value of the investee by analyzing the underlying cash flows and future prospects of the investee. These amounts were recorded in Other, net in the Consolidated Statements of Operations.

In connection with the Company's manufacturing footprint reduction, the Company has $77 million held for sale assets included in Other current assets on the Consolidated Balance Sheet as of June 30, 2017. These assets primarily consisted of $37 million of land and building in Korea and $26 million of land and building in China, with the remainder of the balance comprised of property at other locations (collectively, the “properties”). The respective properties to be sold met the criteria to be classified as held for sale during the June 2017 and March 2017 quarters. Depreciation related to the properties ceased as of the date these were determined to be held for sale. During fiscal year 2017, the Company recorded impairment charges of $35 million in order to write down the carrying amount of such properties to their estimated fair values less costs to sell. The impairment charges were recorded in Operating expenses in the Consolidated Statement of Operations. The fair values were measured with the assistance of third-party valuation models which used inputs such as market comparable data for similar land sale transactions adjusted for difference to indicate value of the subject properties and the cost approach valuation techniques for buildings as part of the analysis. The fair value measurement was categorized as Level 3 as significant unobservable inputs were used in the valuation analysis.

Other Fair Value Disclosures

The Company's debt is carried at amortized cost. The fair value of the Company's debt is derived using the closing price of the same debt instruments as of the date of valuation, which takes into account the yield curve, interest rates and other observable inputs. Accordingly, these fair value measurements are categorized as Level 2. The following table presents the fair value and amortized cost of the Company's debt in order of maturity:



	June 30, 2017					July 1, 2016
(Dollars in millions)	Carrying Amount			Estimated Fair Value		Carrying Amount			Estimated Fair Value
3.75% Senior Notes due November 2018	$	710		$	726	$	800		$	804
7.00% Senior Notes due November 2021	—			—		158			164
4.250% Senior Notes due March 2022	748			765		—			—
4.75% Senior Notes due June 2023	951			987		990			857
4.875% Senior Notes due March 2024	497			511		—			—
4.75% Senior Notes due January 2025	975			984		995			795
4.875% Senior Notes due June 2027	695			698		698			514
5.75% Senior Notes due December 2034	489			488		489			357
	5,065			5,159		4,130			3,491
Less: debt issuance costs	(44		)	—		(39		)	—
Long-term debt, net of debt issuance costs	$	5,021		$	5,159	$	4,091		$	3,491