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FAIR VALUE MEASUREMENTS
 6 Months Ended
Nov. 30, 2012
Fair Value Measurements [Abstract]  
FAIR VALUE MEASUREMENTS

3.

FAIR VALUE MEASUREMENTS

We perform fair value measurements in accordance with the guidance provided by FASB’s Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value 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 their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions and risk of nonperformance.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value: 

 

·Level 1: quoted prices in active markets for identical assets or liabilities;

 

·Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or 

 

·Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Our assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following (Level 1, 2 and 3 inputs are defined above): 

 

 

 

November 30, 2012

 

 

May 31, 2012 .


 

Fair Value Measurements

Using Input Types

 

 

 

Fair Value Measurements

Using Input Types

 

 

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury, U.S. government and U.S. government agency debt securities

 

$

350

 

$

—

 

$

—

 

$

350

 

$

100

 

$

—

 

$

—

 

$

100

Commercial paper debt securities

 

 

—

 

 

   16,620

 

 

          —

 

 

      16,620

 

             

—

 

 

      13,954

 

 

          —

 

 

      13,954

Corporate debt securities and other

 

 

           300

 

 

     4,305

 

 

          —

 

 

        4,605

 

           

254

 

 

        1,983

 

 

          —

 

 

        2,237

Derivative financial instruments

 

            

—

 

 

          57

 

 

          —

 

 

57

 

             

—

 

 

             69

 

 

          —

 

 

            69

      Total assets

 

$

650

 

$

20,982

 

$

—

 

$

21,632

 

$

354

 

$

16,006

 

$

—

 

$

16,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

—

 

$

—

 

$

258

 

$

258

 

$

—

 

$

—

 

$

387

 

$

387

 

Our valuation techniques used to measure the fair values of our U.S. Treasury, U.S. government and U.S. government agency debt securities and certain other marketable securities that were classified as Level 1 in the table above were derived from quoted market prices and active markets for these instruments exist. Substantially all of these instruments have maturity dates, if any, within two years from our date of purchase. Our valuation techniques used to measure the fair values of Level 2 instruments listed in the table above, substantially all of which mature within two years and the counterparties to which have high credit ratings, were derived from the following: non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data including LIBOR-based yield curves, among others. The fair value of contingent consideration payable that was classified as Level 3 in the table above was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity included our probability assessments of expected future year three revenues related to our acquisition of Pillar Data and their related impact to the liability calculation, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the Merger Agreement.

Based on the trading prices of our $19.8 billion and $16.5 billion of borrowings, which consisted of senior notes that were outstanding as of November 30, 2012 and senior notes and short-term borrowings that were outstanding as of May 31, 2012, respectively, the estimated fair values of our borrowings using Level 2 inputs at November 30, 2012 and May 31, 2012 were $22.8 billion and $19.3 billion, respectively.