9. 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; benchmark yields, reported trades, broker/dealer quotes, 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 ongoing 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):

	April 24, 2015									April 25, 2014
	Cost or							Estimated		Cost or							Estimated
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Corporate bonds	$	2,249.4	$	8.7	$	(0.5	)		2,257.6	$	2,142.3	$	10.5	$	(0.5	)	$	2,152.3
U.S. Treasury and government debt securities		1,055.7		2.5		—			1,058.2		263.4		0.3		(0.1	)		263.6
Foreign government debt securities		37.7		0.2		—			37.9		—		—		—			—
Commercial paper		20.0		—		—			20.0		168.4		—		—			168.4
Certificates of deposit		286.2		—		—			286.2		245.0		—		—			245.0
Auction rate securities		—		—		—			—		36.9		—		(0.9	)		36.0
Mutual funds		32.2		—		—			32.2		32.7		—		—			32.7
Total debt and equity securities	$	3,681.2	$	11.4	$	(0.5	)	$	3,692.1	$	2,888.7	$	10.8	$	(1.5	)	$	2,898.0

As of April 24, 2015, gross unrealized losses related to individual securities were not significant. The following table shows the gross unrealized losses and estimated fair values of our available-for-sale investments with gross unrealized losses and the length of time that individual securities have been in continuous unrealized loss positions as of April 25, 2014 (in millions):

	April 25, 2014
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Corporate bonds	$	233.1	$	(0.5	)	$	—	$	—		$	233.1	$	(0.5	)
U.S. Treasury and government debt securities		63.0		(0.1	)		—		—			63.0		(0.1	)
Auction rate securities		—		—			36.0		(0.9	)		36.0		(0.9	)
Total	$	296.1	$	(0.6	)	$	36.0	$	(0.9	)	$	332.1	$	(1.5	)

The following table presents the contractual maturities of our debt investments as of April 24, 2015 (in millions):

	Amortized Cost		Fair Value
Due in one year or less	$	1,437.8	$	1,440.2
Due after one year through five years		2,211.2		2,219.7
	$	3,649.0	$	3,659.9

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

Fair Value of Financial Instruments

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis (in millions):

	April 24, 2015
				Fair Value Measurements at Reporting Date Using
	Total			Level 1		Level 2
Cash	$	1,666.3		$	1,666.3	$	—
Corporate bonds		2,257.6			—		2,257.6
U.S. Treasury and government debt securities		1,058.2			145.6		912.6
Foreign government debt securities		37.9			—		37.9
Commercial paper		20.0			—		20.0
Certificates of deposit		286.2			—		286.2
Total cash, cash equivalents and short-term investments	$	5,326.2		$	1,811.9	$	3,514.3
Other items:
Mutual funds ⁽¹⁾	$	2.8		$	2.8	$	—
Mutual funds ⁽²⁾	$	29.4		$	29.4	$	—
Foreign currency exchange contracts assets ⁽¹⁾	$	3.4		$	—	$	3.4
Long-term debt	$	(1,523.6	)	$	—	$	(1,523.6	)

	April 25, 2014
				Fair Value Measurements at Reporting Date Using
	Total			Level 1		Level 2			Level 3
Cash	$	2,174.0		$	2,174.0	$	—		$	—
Corporate bonds		2,152.3			—		2,152.3			—
U.S. Treasury and government debt securities		263.6			185.1		78.5			—
Commercial paper		168.4			—		168.4			—
Certificates of deposit		245.0			—		245.0			—
Total cash, cash equivalents and short-term investments	$	5,003.3		$	2,359.1	$	2,644.2		$	—
Other items:
Auction rate securities ⁽²⁾	$	36.0		$	—	$	—		$	36.0
Mutual funds ⁽¹⁾	$	6.4		$	6.4	$	—		$	—
Mutual funds ⁽²⁾	$	26.3		$	26.3	$	—		$	—
Foreign currency exchange contracts assets ⁽¹⁾	$	0.4		$	—	$	0.4		$	—
Foreign currency exchange contracts liabilities ⁽³⁾	$	(1.9	)	$	—	$	(1.9	)	$	—
Long-term debt	$	(1,000.0	)	$	—	$	(1,000.0	)	$	—

⁽¹⁾	Reported as other current assets in the consolidated balance sheets

⁽²⁾	Reported as other non-current assets in the consolidated balance sheets

⁽³⁾	Reported as accrued expenses in the consolidated balance sheets

Our Level 2 debt instruments are held by a custodian who prices some of the investments using standard inputs in various asset price models or obtains investment prices from third-party pricing providers that incorporate standard inputs in various asset price models. These pricing providers utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities. 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 April 24, 2015 and April 25, 2014, we have not made any adjustments to the prices obtained from our third-party pricing providers.

During fiscal 2015, we settled our remaining ARS investments, which had been classified as Level 3 financial instruments at their respective par values. Quantitative information about our Level 3 fair value measurements as of April 24, 2014 for our ARSs is as follows:

	Estimated Fair Value as of April 25, 2014 (in millions)		Valuation Techniques	Unobservable Inputs	Range (Weighted average)
ARSs	$	36.0	Discounted cash flow	Time-to-economic maturity	6.7 yrs - 10.0 yrs (8.2 yrs)
				Illiquidity premium	1.1% - 2.8% (1.8%)
				Coupon rate	1.1% - 2.7% (1.8%)
			Market comparable securities	Discount rate	1.0% - 5.0% (2.4%)

All of our ARSs were backed by pools of student loans guaranteed by the U.S. Department of Education. We estimated the fair value of each individual ARS using an income (discounted cash flow) and market approach that incorporated both observable and unobservable inputs. Key inputs into the discounted cash flow analysis included the time-to-economic maturity, illiquidity premium, (which factors in liquidity risk, market credit spread and other factors), and a coupon rate. The key input into the market approach is a discount rate. We reviewed 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 provider.

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

	Year Ended
	April 24, 2015			April 25, 2014			April 26, 2013
Balance at beginning of year	$	36.0		$	42.0		$	51.0
Total unrealized gains, net included in other comprehensive income (loss)		0.9			1.3			0.5
Total realized gains included in earnings		—			0.7			1.1
Sales		(10.0	)		(8.0	)		—
Settlements		(26.9	)		—			(10.6	)
Balance at end of year	$	—		$	36.0		$	42.0

Fair Value of Long-Term Debt

The fair value of our long-term debt was based on observable market prices in a less active market and discounted cash flow models that take into consideration variables such as credit-rating and interest rate changes. All of our debt obligations are categorized as Level 2 instruments.