v2.4.0.6
Financial Instruments and Fair Value Measurements
 6 Months Ended
Oct. 26, 2012
Financial Instruments and Fair Value Measurements

8.  Financial Instruments and Fair Value Measurements

The accounting guidance for fair value measurements provides a framework for measuring fair value on either a recurring or nonrecurring basis whereby the inputs used in valuation techniques are assigned a hierarchical level. The following are the three levels of inputs to measure fair value:

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Inputs that reflect quoted prices for identical assets or liabilities in less active markets; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Unobservable inputs that reflect our own assumptions incorporated in valuation techniques used to measure fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

We consider 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 on-going basis, and consider an inactive market to be one in which there are infrequent or 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, our own or the counterparty’s non-performance risk is considered in measuring the fair values of liabilities and assets, respectively.

Investments

The following is a summary of our investments (in millions):

 

     October 26, 2012      April 27, 2012  
            Gross Unrealized                   Gross Unrealized        
     Cost or
Amortized
Cost		      Gains      Losses     Estimated
Fair Value		      Cost or
Amortized
Cost		      Gains      Losses     Estimated
Fair Value		  

Corporate bonds

    $ 2,964.3       $ 14.7       $ (0.7 )    $ 2,978.3       $ 2,665.2       $ 9.5       $ (1.4 )    $ 2,673.3   

U.S. Treasury and government debt securities

      518.9         0.8         0.0        519.7         836.7         1.2         (0.1 )      837.8   

Commercial paper

      85.0         0.0         0.0        85.0         164.6         0.0         0.0        164.6   

Certificates of deposit

      222.6         0.3         0.0        222.9         347.7         0.5         0.0        348.2   

Municipal bonds

      8.4         0.0         (0.1 )      8.3         0.0         0.0         0.0        0.0   

Money market funds

      481.6         0.0         0.0        481.6         724.8         0.0         0.0        724.8   

Auction rate securities

      49.1         0.9         (3.5 )      46.5         54.1         0.9         (4.0 )      51.0   

Equity funds

      26.1         0.0         0.0        26.1         25.5         0.0         0.0        25.5   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Total debt and equity securities

    $ 4,356.0       $ 16.7       $ (4.3 )    $ 4,368.4       $ 4,818.6       $ 12.1       $ (5.5 )    $ 4,825.2   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

The following table presents the contractual maturities of our debt investments as of October 26, 2012 (in millions):

 

     Amortized
Cost		      Fair Value  

Due in one year or less

    $ 1,586.3       $ 1,589.3   

Due in one through five years

      2,152.9         2,164.9   

Due after ten years*

      49.1         46.5   
  

 

 

     

 

 

  
   $ 3,788.3       $ 3,800.7   
  

 

 

     

 

 

  

 

*

Consists of auction rate securities which have contractual maturities of greater than 10 years.

Fair Value of Financial Instruments

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of October 26, 2012 (in millions):

 

            Fair Value Measurements at Reporting Date Using  
     Total      Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Assets

            

Corporate bonds

    $ 2,978.3       $ 0.0       $ 2,978.3       $ 0.0   

U.S. Treasury and government debt securities

      519.7         203.6         316.1         0.0   

Commercial paper

      85.0         0.0         85.0         0.0   

Certificates of deposit

      222.9         0.0         222.9         0.0   

Municipal bonds

      8.3         0.0         8.3         0.0   

Money market funds

      481.6         481.6         0.0         0.0   

Auction rate securities

      46.5         0.0         0.0         46.5   

Equity funds

      26.1         26.1         0.0         0.0   

Foreign currency contracts

      2.9         0.0         2.9         0.0   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 4,371.3       $ 711.3       $ 3,613.5       $ 46.5   
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities

            

Foreign currency contracts

    $ 1.8       $ 0.0       $ 1.8       $ 0.0   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

The following table summarizes the balance sheet classifications of our financial assets and liabilities measured at fair value on a recurring basis as of October 26, 2012 (in millions):

 

            Fair Value Measurements at Reporting Date Using  
     Total      Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Assets

            

Cash equivalents

    $ 541.6       $ 481.6       $ 60.0       $ 0.0   

Short-term investments

      3,754.2         203.6         3,550.6         0.0   

Other current assets

      8.9         6.0         2.9         0.0   

Other non-current assets

      66.6         20.1         0.0         46.5   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 4,371.3       $ 711.3       $ 3,613.5       $ 46.5   
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities

            

Other current liabilities

    $ 1.8       $ 0.0       $ 1.8       $ 0.0   
  

 

 

     

 

 

     

 

 

     

 

 

  

Level 2 investments are held by a custodian who prices some of the investments itself using standard inputs in various asset price models or obtains investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models. We review Level 2 inputs and fair value for reasonableness and the values may be further validated by comparison to multiple independent pricing sources. In addition, we review third-party pricing provider models, key inputs and assumptions and understand the pricing processes at our third-party providers in determining the overall reasonableness of the fair value of our Level 2 financial instruments. As of October 26, 2012 and April 27, 2012, we have not made any adjustments to the prices obtained from our third-party pricing providers.

The unrealized losses on our available-for-sale investments were caused by market value declines as a result of the economic environment, as well as fluctuations in market interest rates. Because the decline in market value is attributable to changes in market conditions and not credit quality, and because we have concluded currently that we neither intend to sell nor is it more likely than not that we will be required to sell these investments prior to a recovery of par value, we do not consider these investments to be other-than temporarily impaired as of October 26, 2012.

Quantitative information about our Level 3 fair value measurements is as follows (fair value in millions):

 

     Fair Value at
October  26, 2012		      Valuation Techniques    Unobservable Inputs    Range
(Weighted average)

ARS

    $ 46.5       Discounted cash flow    Time-to-economic maturity    6.7 yrs – 13.7 yrs (9.2 yrs)
         Liquidity risk premium, market
credit spread and other factors		    1.8% - 2.4% (2.0%)
         Coupon rate    0.0% - 2.7% (1.4%)
     

 
      Market comparable securities    Discount rate    4.7% - 15.0% (9.0%)

All of our auction rate securities (ARS) are classified as other non-current assets and are backed by pools of student loans guaranteed by the U.S. Department of Education. We estimate the fair value of each individual ARS using an income (discounted cash flow) and market approach that incorporate both observable and unobservable inputs. Key inputs into the discounted cash flow analysis include the time-to-economic maturity, liquidity risk premium, market credit spread and other factors and a coupon rate. The key input into the market approach is a discount rate. A significant increase (decrease) in the time-to-economic maturity, liquidity risk premium, market credit spread and other factors, coupon rate or discount rate could result in a significantly lower (higher) fair value estimate. We review the fair value of our Level 3 financial instruments for overall reasonableness by reviewing service provider pricing methodologies, key inputs and assumptions and by understanding the processes used by our third-party service providers. We will continue to monitor our ARS investments in light of the debt market environment and evaluate these investments for impairment and classification.

The table below provides a reconciliation of the beginning and ending balance of our Level 3 ARS measured at fair value on a recurring basis using significant unobservable inputs (in millions):

 

     Three Months Ended     Six Months Ended  
     October 26,
2012		     October 28,
2011		     October 26,
2012		     October 28,
2011		  

Balance at beginning of period

    $ 46.3      $ 56.3      $ 51.0      $ 65.1   

Total unrealized gains, net included in other comprehensive income (loss)

      0.2        0.4        0.5        1.3   

Settlements

      (0.0 )      (0.7 )      (5.0 )      (10.4 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Balance at end of period

    $ 46.5      $ 56.0      $ 46.5      $ 56.0