v2.4.0.6
Fair Value
 12 Months Ended
Jul. 28, 2012
Fair Value

9. 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 or permitted to be either recorded or disclosed at fair value, the Company considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.

(a) Fair Value Hierarchy

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. 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 fair value hierarchy is as follows:

Level 1    applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2    applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

(b) Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of July 28, 2012 and July 30, 2011 were as follows (in millions):

 

    JULY 28, 2012
FAIR VALUE MEASUREMENTS		     JULY 30, 2011
FAIR VALUE MEASUREMENTS		  
    Level 1     Level 2     Level 3     Total
Balance		     Level 1     Level 2     Level 3     Total
Balance		  

Assets

                

Cash equivalents:

                

Money market funds

   $ 2,506      $ —        $ —        $ 2,506      $ 5,852      $ —        $ —        $ 5,852   

U.S. government agency securities

     —          —          —          —          —          1        —          1   

Available-for-sale investments:

                

U.S. government securities

     —          24,241        —          24,241        —          19,139        —          19,139   

U.S. government agency securities

     —          5,388        —          5,388        —          8,776        —          8,776   

Non-U.S. government and agency securities

     —          1,638        —          1,638        —          3,132        —          3,132   

Corporate debt securities

     —          6,030        —          6,030        —          4,394        —          4,394   

Asset-backed securities

     —          —          —          —          —          —          121        121   

Publicly traded equity securities

     1,620        —          —          1,620        1,361        —          —          1,361   

Derivative assets

     —          263        1        264        —          220        2        222   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 4,126      $ 37,560      $ 1      $ 41,687      $ 7,213      $ 35,662      $ 123      $ 42,998   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

                

Derivative liabilities

   $ —        $ 42      $ —        $ 42      $ —        $ 24      $ —        $ 24   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ —        $ 42      $ —        $ 42      $ —        $ 24      $ —        $ 24   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Level 2 fixed income securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. The Company is ultimately responsible for the financial statements and underlying estimates. The Company’s derivative instruments are primarily classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

Level 3 assets include certain derivative instruments, the values of which are determined based on discounted cash flow models using inputs that the Company could not corroborate with market data.

The following tables present a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended July 28, 2012 and July 30, 2011 (in millions):

 

    Asset-Backed
Securities		     Derivative
Assets		     Total  

Balance at July 30, 2011

   $ 121      $ 2      $ 123   

Total gains and losses (realized and unrealized):

      

Included in other income, net

     3        —          3   

Included in other comprehensive income

     (3 )      —          (3 ) 

Sales

     (14 )      (1 )      (15 ) 
     

Transfer into Level 2

     (107 )      —          (107 ) 
 

 

 

    

 

 

    

 

 

  

Balance at July 28, 2012

   $ —        $ 1      $ 1   
 

 

 

    

 

 

    

 

 

  

 

The Company’s asset-backed securities, prior to being sold, were reclassified from Level 3 to Level 2 during fiscal 2012, as the Company observed an increase in market activity and that observable market data was available for these financial assets.

 

    Asset-Backed
Securities		     Derivative
Assets		     Total  

Balance at July 31, 2010

   $ 149      $ 3      $ 152   

Total gains and losses (realized and unrealized):

      

Included in other income, net

     3        (1 )      2   

Purchases, sales and maturities

     (31 )      —          (31 ) 
 

 

 

    

 

 

    

 

 

  

Balance at July 30, 2011

   $ 121      $ 2      $ 123   
 

 

 

    

 

 

    

 

 

  

Losses attributable to assets still held as of July 30, 2011

   $ —        $ (1 )    $ (1 ) 

(c) Assets Measured at Fair Value on a Nonrecurring Basis

The following tables present the Company’s financial instruments and nonfinancial assets that were measured at fair value on a nonrecurring basis during the indicated periods and the related recognized gains and losses for the periods (in millions):

 

    July 28, 2012     July 30, 2011     July 31, 2010  
    Net Carrying
Value as of
Year End		     Total Gains
(Losses)
for the
Year Ended		     Net Carrying
Value as of
Year End		     Total Gains
(Losses)
for the
Year Ended		     Net Carrying
Value as of
Year End		     Total Gains
(Losses)
for the
Year Ended		  

Property held for sale

   $ 63      $ (413 )    $ 20      $ (38 )    $ 25      $ (86 ) 

Investments in privately held companies

   $ 47        (23 )    $ 13        (10 )    $ 45        (25 ) 

Purchased intangible assets

   $ —          (12 )    $ —          (164 )    $ —          (28 ) 

Manufacturing operations held for sale

   $ —          —        $ 167        (61 )    $ —          —     

Gains on assets no longer held at end of fiscal year

       14          —            2   
   

 

 

      

 

 

      

 

 

  

Total losses for nonrecurring measurements

     $ (434 )      $ (273 )      $ (137 ) 
   

 

 

      

 

 

      

 

 

  

The assets in the preceding table were measured at fair value due to events or circumstances the Company identified as having significant impact on their fair value during the respective periods. To arrive at the valuation of these assets, the Company considers any significant changes in the financial metrics and economic variables and also uses third-party valuation reports to assist in the valuation as necessary. These assets were classified as Level 3 assets because the Company used unobservable inputs to value them.

The property held for sale represents land and buildings which met the criteria to be classified as held for sale. The fair value of property held for sale was measured with the assistance of third-party valuation models which used comparable property values or discounted cash flow techniques as part of its analysis. The fair value measurement was categorized as Level 3 as significant unobservable inputs were used in the valuation report. The impairment charges as a result of the valuations, which represented the difference between the fair value less cost to sell and the carrying amount of the assets held for sale, were included in G&A expenses.

The fair value measurement of the impaired investments was classified as Level 3 because significant unobservable inputs were used in the valuation due to the absence of quoted market prices and inherent lack of liquidity. Significant unobservable inputs, which included financial metrics of comparable private and public companies, financial condition and near-term prospects of the investees, recent financing activities of the investee, and the investee’s capital structure as well as other economic variables, reflected the assumptions market participants would use in pricing these assets. The impairment charges, representing the difference between the cost and the fair value as a result of the evaluation, were recorded to other income, net.

The fair value of purchased intangible assets measured at fair value on a nonrecurring basis was categorized as Level 3 due to the use of significant unobservable inputs in the valuation. Significant unobservable inputs that were used included expected revenues and net income related to the assets and the expected life of the assets. The difference between the estimated fair value and the carrying value of the assets was recorded as an impairment charge. For the years ended July 28, 2012, July 30, 2011, and July 31, 2010, such impairment charges were recorded in cost of sales and operating expenses as appropriate. See Note 4.

 

The loss related to the manufacturing operations held for sale was primarily related to a reduction in goodwill related to the sale of the Company’s set-top box manufacturing operations in Juarez, Mexico. See Note 5. This goodwill reduction represents the difference between the carrying value and the implied fair value of the goodwill associated with the disposal group being evaluated.

(d) Other Fair Value Disclosures

As of July 28, 2012, the carrying value of the Company’s investments in privately held companies that were accounted for under the cost method was $249 million. It was not practicable to estimate the fair value of this portfolio.

The fair value of the Company’s short-term loan receivables and financed service contracts approximates their carrying value due to their short duration.

The aggregate carrying value of the Company’s long-term loan receivables and financed service contracts and other as of July 28, 2012 and July 30, 2011 was $1.9 billion and $2.0 billion, respectively. The estimated fair value of the Company’s long-term loan receivables and financed service contracts and other approximates their carrying value. The Company uses significant unobservable inputs in determining discounted cash flows to estimate the fair value of its long-term loan receivables and financed service contracts and therefore they are categorized as Level 3.

As of July 28, 2012, the fair value of the Company’s long-term debt was $18.8 billion with a carrying amount of $16.3 billion. This compares to a fair value of $17.4 billion and a carrying amount of $16.2 billion as of July 30, 2011. The fair value of the long-term debt was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy.