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; 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 25, 2014									April 26, 2013
	Cost or Amortized Cost		Gross Unrealized					Estimated Fair Value		Cost or Amortized Cost		Gross Unrealized					Estimated Fair Value
	Cost or Amortized Cost		Gains		Losses			Estimated Fair Value		Cost or Amortized Cost		Gains		Losses			Estimated Fair Value
Corporate bonds	$	2,142.3	$	10.5	$	(0.5	)	$	2,152.3	$	3,132.8	$	14.9	$	(0.6	)	$	3,147.1
U.S. Treasury and government debt securities		263.4		0.3		(0.1	)		263.6		392.8		0.9		0.0			393.7
Commercial paper		168.4		0.0		0.0			168.4		178.5		0.0		0.0			178.5
Certificates of deposit		245.0		0.0		0.0			245.0		135.4		0.1		0.0			135.5
Money market funds		0.0		0.0		0.0			0.0		1,463.1		0.0		0.0			1,463.1
Auction rate securities		36.9		0.0		(0.9	)		36.0		44.2		0.5		(2.7	)		42.0
Equity funds		32.7		0.0		0.0			32.7		28.3		0.0		0.0			28.3

Total debt and equity securities	$	2,888.7	$	10.8	$	(1.5	)	$	2,898.0	$	5,375.1	$	16.4	$	(3.3	)	$	5,388.2

The following tables show 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 (in millions):


	April 25, 2014
	Less than 12 Months					12 Months or Greater					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Corporate bonds	$	233.1	$	(0.5	)	$	0.0	$	0.0		$	233.1	$	(0.5	)
Auction rate securities		0.0		0.0			36.0		(0.9	)		36.0		(0.9	)
U.S. Treasury and government debt securities		63.0		(0.1	)		0.0		0.0			63.0		(0.1	)

Total	$	296.1	$	(0.6	)	$	36.0	$	(0.9	)	$	332.1	$	(1.5	)


	April 26, 2013
	Less than 12 Months					12 Months or Greater					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Corporate bonds	$	698.1	$	(0.5	)	$	38.4	$	(0.1	)	$	736.5	$	(0.6	)
Auction rate securities		0.0		0.0			39.2		(2.7	)		39.2		(2.7	)

Total	$	698.1	$	(0.5	)	$	77.6	$	(2.8	)	$	775.7	$	(3.3	)

As of April 25, 2014, 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 declines in market value are attributable to changes in market conditions and not credit quality, and because we have determined that (i) we do not have the intent to sell any of these investments and (ii) it is not more likely than not that we will be required to sell any of these investments before recovery of the entire amortized cost basis, we have determined that no other-than-temporary impairments were required to be recognized on these investments as of April 25, 2014.

The following table presents the contractual maturities of our debt investments as of April 25, 2014 (in millions):


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,325.7	$	1,328.4
Due in one through five years		1,493.4		1,500.9
Due after ten years*		36.9		36.0

	$	2,856.0	$	2,865.3

*	Consists of ARSs which have contractual maturities of greater than 10 years.

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 25, 2014
			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	$	2,152.3	$	0.0	$	2,152.3	$	0.0
U.S. Treasury and government debt securities		263.6		185.1		78.5		0.0
Commercial paper		168.4		0.0		168.4		0.0
Certificates of deposit		245.0		0.0		245.0		0.0
Auction rate securities		36.0		0.0		0.0		36.0
Equity funds		32.7		32.7		0.0		0.0
Foreign currency contracts		0.4		0.0		0.4		0.0

Total	$	2,898.4	$	217.8	$	2,644.6	$	36.0

Liabilities
Foreign currency contracts	$	1.9	$	0.0	$	1.9	$	0.0


	April 26, 2013
			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	$	3,147.1	$	0.0	$	3,147.1	$	0.0
U.S. Treasury and government debt securities		393.7		222.9		170.8		0.0
Commercial paper		178.5		0.0		178.5		0.0
Certificates of deposit		135.5		0.0		135.5		0.0
Money market funds		1,463.1		1,463.1		0.0		0.0
Auction rate securities		42.0		0.0		0.0		42.0
Equity funds		28.3		28.3		0.0		0.0
Foreign currency contracts		1.2		0.0		1.2		0.0

Total	$	5,389.4	$	1,714.3	$	3,633.1	$	42.0

Liabilities
Foreign currency contracts	$	3.1	$	0.0	$	3.1	$	0.0

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


	April 25, 2014
			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	$	117.0	$	0.0	$	117.0	$	0.0
Short-term investments		2,712.3		185.1		2,527.2		0.0
Other current assets		6.8		6.4		0.4		0.0
Other non-current assets		62.3		26.3		0.0		36.0

Total	$	2,898.4	$	217.8	$	2,644.6	$	36.0

Liabilities
Other current liabilities	$	1.9	$	0.0	$	1.9	$	0.0


	April 26, 2013
			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	$	1,642.4	$	1,463.1	$	179.3	$	0.0
Short-term investments		3,675.5		222.9		3,452.6		0.0
Other current assets		2.8		1.6		1.2		0.0
Other non-current assets		68.7		26.7		0.0		42.0

Total	$	5,389.4	$	1,714.3	$	3,633.1	$	42.0

Liabilities
Other current liabilities	$	3.1	$	0.0	$	3.1	$	0.0

Level 2 investments are held by a custodian who prices some of the investments 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 April 25, 2014 and April 26, 2013, we have not made any adjustments to the prices obtained from our third-party pricing providers.

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


	Estimated Fair Value as of April 25, 2014	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%)


	Estimated Fair Value as of April 26, 2013	Valuation Techniques	Unobservable Inputs	Range (Weighted average)
ARSs	$42.0	Discounted cash flow	Time-to-economic maturity	6.7 yrs. - 11.4 yrs. (8.6 yrs.)
			Illiquidity premium	1.6% - 2.8% (2.0%)
			Coupon rate	0.8% - 2.7% (1.5%)

		Market comparable securities	Discount rate	3.3% - 7.3% (6.3%)

All of our ARSs 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, 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. A significant increase (decrease) in the time-to-economic maturity, illiquidity 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 provider. We will continue to monitor our ARS investments in light of the asset-backed securities 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 ARSs measured at fair value on a recurring basis using significant unobservable inputs (in millions).


	Year Ended
	April 25, 2014			April 26, 2013			April 27, 2012
Balance at beginning of period	$	42.0		$	51.0		$	65.1
Total unrealized gains, net included in OCI		1.3			0.5			0.9
Total realized gains included in earnings		0.7			1.1			0.7
Sales		(8.0	)		0.0			0.0
Settlements		0.0			(10.6	)		(15.7	)

Balance at end of period	$	36.0		$	42.0		$	51.0

Fair Value of Debt

As of April 25, 2014, the fair value of our 2.00% Senior Notes and 3.25% Senior Notes (collectively referred to as Senior Notes) was approximately $1,000.0 million. The fair value of our 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.