7. 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):

	January 27, 2017									April 29, 2016
	Cost or							Estimated		Cost or							Estimated
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Corporate bonds	$	1,411	$	2	$	(3	)	$	1,410	$	1,370	$	5	$	(1	)	$	1,374
U.S. Treasury and government debt securities		688		—		(3	)		685		878		2		—			880
Foreign government debt securities		27		—		—			27		35		—		—			35
Commercial paper		426		—		—			426		202		—		—			202
Certificates of deposit		102		—		—			102		98		—		—			98
Mutual funds		30		—		—			30		30		—		—			30
Total debt and equity securities	$	2,684	$	2	$	(6	)	$	2,680	$	2,613	$	7	$	(1	)	$	2,619

As of January 27, 2017, gross unrealized losses related to individual securities were not significant.

The following table presents the contractual maturities of our debt investments as of January 27, 2017 (in millions):

	Amortized Cost		Fair Value
Due in one year or less	$	1,281	$	1,281
Due after one year through five years		1,363		1,359
Due after five years through ten years		5		5
Due after ten years		5		5
	$	2,654	$	2,650

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):

	January 27, 2017
				Fair Value Measurements at Reporting Date Using
	Total			Level 1		Level 2
Cash	$	1,989		$	1,989	$	—
Corporate bonds		1,410			—		1,410
U.S. Treasury and government debt securities		685			270		415
Foreign government debt securities		27			—		27
Commercial paper		426			—		426
Certificates of deposit		102			—		102
Total cash, cash equivalents and short-term investments	$	4,639		$	2,259	$	2,380
Other items:
Mutual funds ⁽¹⁾	$	7		$	7	$	—
Mutual funds ⁽²⁾	$	23		$	23	$	—
Foreign currency exchange contracts assets ⁽¹⁾	$	2		$	—	$	2
Foreign currency exchange contracts liabilities ⁽³⁾	$	(2	)	$	—	$	(2	)

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

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

⁽³⁾	Reported as accrued expenses in the condensed 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 debt instruments. As of January 27, 2017 and April 29, 2016, we have not made any adjustments to the prices obtained from our third-party pricing providers.

Fair Value of Debt

As of January 27, 2017 and April 29, 2016, the fair value of our long-term debt was approximately $1,511 million and $1,519 million, respectively. The fair value of our long-term debt was based on observable market prices in a less active market. The fair value of our commercial paper notes approximated their carrying value. All of our debt obligations are categorized as Level 2 instruments.