Financial Instruments

The Company holds investments consisting primarily of marketable debt and equity securities. The authoritative guidance is principally applied to financial assets and liabilities such as marketable equity securities and debt and equity securities that are classified and accounted for as trading and available-for-sale and are measured on a recurring basis. Further, we also hold cost or equity method investments which are measured at fair value on a nonrecurring basis.

The following table summarizes the Company's investments by significant investment categories and the related condensed consolidated balance sheets presentation at October 30, 2015:



	Valuation									Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Investments		Other Assets
Available-for-sale securities
Level 1:
U.S. government and agency securities	$	1,696	$	7	$	(4	)	$	1,699	$	1,699	$	—
Marketable equity securities	79		23		(3		)	99		—		99
Total Level 1	1,775		30		(7		)	1,798		1,699		99
Level 2:
Corporate debt securities	6,618		50		(56		)	6,612		6,612		—
U.S. government and agency securities	1,537		3		(3		)	1,537		1,537		—
Mortgage-backed securities	1,466		14		(14		)	1,466		1,466		—
Foreign government and agency securities	65		—		—			65		65		—
Certificates of deposit	47		—		—			47		47		—
Other asset-backed securities	510		2		—			512		512		—
Debt funds	3,148		6		(322		)	2,832		2,832		—
Total Level 2	13,391		75		(395		)	13,071		13,071		—
Level 3:
Corporate debt securities	1		—		—			1		—		1
Auction rate securities	109		—		(7		)	102		—		102
Total Level 3	110		—		(7		)	103		—		103
Total available-for-sale securities	15,276		105		(409		)	14,972		14,770		202
Trading securities:
Level 1:
Exchange-traded funds	65		16		—			81		81		—
Total Level 1:	65		16		—			81		81		—
Total trading securities	65		16		—			81		81		—
Cost method, equity method, and other investments:
Level 3:
Cost method, equity method, and other investments	484		—		—			N/A		—		484
Total Level 3:	484		—		—			N/A		—		484
Total cost method, equity method, and other investments	484		—		—			N/A		—		484
Total investments	$	15,825	$	121	$	(409	)	$	15,053	$	14,851	$	686

The following table summarizes the Company's investments by significant investment categories and the related condensed consolidated balance sheets presentation at April 24, 2015:



	Valuation									Balance Sheet Classification
(in millions)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Investments		Other Assets
Available-for-sale securities:
Level 1:
U.S. government and agency securities	$	1,525	$	17	$	(1	)	$	1,541	$	1,541	$	—
Marketable equity securities	64		35		(19		)	80		—		80
Total Level 1	1,589		52		(20		)	1,621		1,541		80
Level 2:
Corporate debt securities	6,282		105		(10		)	6,377		6,377		—
U.S. government and agency securities	1,597		4		(3		)	1,598		1,598		—
Mortgage-backed securities	1,462		22		(6		)	1,478		1,478		—
Foreign government and agency securities	85		—		—			85		85		—
Certificates of deposit	44		—		—			44		44		—
Other asset-backed securities	504		3		—			507		507		—
Debt funds	3,061		19		(150		)	2,930		2,930		—
Total Level 2	13,035		153		(169		)	13,019		13,019		—
Level 3:
Corporate debt securities	1		—		—			1		—		1
Auction rate securities	109		—		(4		)	105		—		105
Total Level 3	110		—		(4		)	106		—		106
Total available-for-sale securities	14,734		205		(193		)	14,746		14,560		186
Trading securities:
Level 1:
Exchange-traded funds	58		19		—			77		77		—
Total Level 1	58		19		—			77		77		—
Total trading securities	58		19		—			77		77		—
Cost method, equity method, and other investments:
Level 3:
Cost method, equity method, and other investments	520		—		—			N/A		—		520
Total Level 3	520		—		—			N/A		—		520
Total cost method, equity method, and other investments	520		—		—			N/A		—		520
Total investments	$	15,312	$	224	$	(193	)	$	14,823	$	14,637	$	706

Marketable Debt and Equity Securities:

The following tables show the gross unrealized losses and fair values of the Company’s available-for-sale securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category as of October 30, 2015 and April 24, 2015:



	October 30, 2015
	Less than 12 months					More than 12 months
(in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	2,932	$	(50	)	$	183	$	(6	)
Auction rate securities	—		—			102		(7		)
Mortgage-backed securities	622		(10		)	225		(4		)
U.S. government and agency securities	1,146		(5		)	142		(2		)
Debt funds	1,190		(93		)	1,128		(229		)
Marketable equity securities	26		(3		)	—		—
Total	$	5,916	$	(161	)	$	1,780	$	(248	)



	April 24, 2015
	Less than 12 months					More than 12 months
(in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	944	$	(9	)	$	34	$	(1	)
Auction rate securities	—		—			105		(4		)
Mortgage-backed securities	346		(3		)	206		(3		)
U.S. government and agency securities	356		(1		)	267		(3		)
Debt funds	1,291		(109		)	559		(41		)
Marketable equity securities	4		(19		)	—		—
Total	$	2,941	$	(141	)	$	1,171	$	(52	)

The following table represents the range of the unobservable inputs utilized in the fair value measurement of the auction rate securities classified as Level 3 as of October 30, 2015:



	Valuation Technique	Unobservable Input	Range (Weighted Average)
Auction rate securities	Discounted cash flow	Years to principal recovery	2 yrs. - 12 yrs. (3 yrs.)
Auction rate securities	Discounted cash flow	Illiquidity premium	6%

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended October 30, 2015 or October 24, 2014. 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 tables provide a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3):



Three months ended October 30, 2015
(in millions)	Total Level 3 Investments			Corporate debt securities		Auction rate securities
Balance as of July 31, 2015	$	103		$	1	$	102
Total unrealized gains included in other comprehensive income	—			—		—
Balance as of October 30, 2015	$	103		$	1	$	102

Three months ended October 24, 2014
(in millions)	Total Level 3 Investments			Corporate debt securities		Auction rate securities
Balance as of July 25, 2014	$	108		$	9	$	99
Total unrealized gains included in other comprehensive income	—			—		—
Balance as of October 24, 2014	$	108		$	9	$	99

Six months ended October 30, 2015
(in millions)	Total Level 3 Investments			Corporate debt securities		Auction rate securities
Balance as of April 24, 2015	$	106		$	1	$	105
Total unrealized losses included in other comprehensive income	(3		)	—		(3		)
Balance as of October 30, 2015	$	103		$	1	$	102

Six months ended October 24, 2014
(in millions)	Total Level 3 Investments			Corporate debt securities		Auction rate securities
Balance as of April 24, 2014	$	106		$	9	$	97
Total unrealized gains included in other comprehensive income	2			—		2
Balance as of October 24, 2014	$	108		$	9	$	99

Activity related to the Company’s investment portfolio is as follows:



	Three months ended
	October 30, 2015						October 24, 2014
(in millions)	Debt (a)			Equity (b) (c)			Debt (a)			Equity (b) (d)
Proceeds from sales	$	1,481		$	5		$	806		$	7
Gross realized gains	4			20			4			39
Gross realized losses	(7		)	—			(2		)	—
Impairment losses recognized	—			(19		)	—			(20		)

	Six months ended
	October 30, 2015						October 24, 2014
(in millions)	Debt (a)			Equity (b) (c)			Debt (a)			Equity (b) (e)
Proceeds from sales	$	2,718		$	34		$	2,636		$	29
Gross realized gains	9			32			16			58
Gross realized losses	(12		)	—			(5		)	—
Impairment losses recognized	—			(42		)	—			(20		)


(a)	Includes available-for-sale debt securities.


(b)	Includes marketable equity securities, cost method, equity method, exchange-traded funds, and other investments.


(c)	As a result of certain acquisitions that occurred during the three and six months ended October 30, 2015, the Company recognized a non-cash realized gain of $9 million on its previously-held minority investment included in other expense, net on the condensed consolidated statement of income.


(d)	As a result of certain acquisitions that occurred during the three months ended October 24, 2014, the Company recognized a non-cash realized gain of $35 million on its previously-held minority investment included in other expense, net on the condensed consolidated statement of income.


(e)	As a result of certain acquisitions that occurred during the six months ended October 24, 2014, the Company recognized a non-cash realized gain of $41 million on its previously-held minority investments included in other expense, net on the condensed consolidated statement of income.

Credit losses represent the difference between the present value of cash flows expected to be collected on certain mortgage-backed securities and auction rate securities and the amortized cost of these securities. Based on the Company’s assessment of the credit quality of the underlying collateral and credit support available to each of the remaining securities in which invested, the Company believes it has recorded all necessary other-than-temporary impairments as the Company does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, before recovery of the amortized cost.

As of October 30, 2015 and April 24, 2015, the credit loss portion of other-than temporary impairments on debt securities were not significant. The total reductions for available-for-sale debt securities sold during the three and six months ended October 30, 2015 and October 24, 2014 were not significant. The total other-than-temporary impairment losses on available-for-sale debt securities for the three and six months ended October 30, 2015 and October 24, 2014 were not significant.

The October 30, 2015 balance of available-for-sale debt securities, excluding debt funds which have no single maturity date, by contractual maturity is shown in the following table. Within the table, maturities of mortgage-backed securities have been allocated based upon timing of estimated cash flows assuming no change in the current interest rate environment. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.



(in millions)	October 30, 2015
Due in one year or less	$	2,245
Due after one year through five years	6,314
Due after five years through ten years	3,197
Due after ten years	285
Total	$	12,041

The Company holds investments in marketable equity securities, which are classified as other assets in the condensed consolidated balance sheets. The aggregate carrying amount of these investments was $99 million and $80 million as of October 30, 2015 and April 24, 2015, respectively. The Company did not record any significant impairment charges related to marketable equity securities during the three months ended October 30, 2015. During the six months ended October 30, 2015, the Company determined that the fair value of certain marketable equity securities were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $20 million in impairment charges for the six months ended October 30, 2015, which were recorded within other expense, net in the condensed consolidated statements of income. During the three and six months ended October 24, 2014, the Company determined that the fair value of certain marketable equity securities were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $7 million in impairment charges for the three and six months ended October 24, 2014, which were recorded in other expense, net in the condensed consolidated statements of income.

Cost method, equity method, and other investments

The Company holds investments in equity and other securities that are accounted for using the cost or equity method, which are classified as other assets in the condensed consolidated balance sheets. As of October 30, 2015 and April 24, 2015, the aggregate carrying amount of equity and other securities without a quoted market price and accounted for using the cost or equity method was $484 million and $520 million, respectively. These cost or equity method investments are measured at fair value on a nonrecurring basis. The total carrying value of these investments is reviewed quarterly for changes in circumstance or the occurrence of events that suggest the Company’s investment may not be recoverable. The value of cost or equity method investments is not adjusted if there are no identified events or changes in circumstances that may have a material adverse effect on the fair value of the investment.

During the three and six months ended October 30, 2015, the Company determined that the fair values of certain cost method investments were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $19 million and $21 million in impairment charges during the three and six months ended October 30, 2015, respectively, which were recorded in other expense, net in the condensed consolidated statements of income. During the three and six months ended October 24, 2014, the Company determined that the fair values of certain cost method investments were below their carrying values and that the carrying values of these investments were not expected to be recoverable within a reasonable period of time. As a result, the Company recognized $13 million in impairment charges during the three and six months ended October 24, 2014, which were recorded in other expense, net in the condensed consolidated statements of income. These investments fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value, as the investments are privately-held entities without quoted market prices. To determine the fair value of these investments, the Company used all pertinent financial information available related to the entities, including financial statements and market participant valuations from recent and proposed equity offerings.