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):

	October 27, 2017									April 28, 2017
	Cost or							Estimated		Cost or							Estimated
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Corporate bonds	$	1,747	$	6	$	(3	)	$	1,750	$	1,535	$	3	$	(2	)	$	1,536
U.S. Treasury and government debt securities		474		—		(2	)		472		629		1		(2	)		628
Foreign government debt securities		21		—		—			21		21		—		—			21
Commercial paper		504		—		—			504		362		—		—			362
Certificates of deposit		107		—		—			107		99		—		—			99
Mutual funds		34		—		—			34		31		—		—			31
Total debt and equity securities	$	2,887	$	6	$	(5	)	$	2,888	$	2,677	$	4	$	(4	)	$	2,677

As of October 27, 2017 and April 28, 2017, gross unrealized losses related to individual securities were not significant.

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

	Amortized Cost		Fair Value
Due in one year or less	$	1,242	$	1,242
Due after one year through five years		1,187		1,186
Due after five years through ten years		419		421
Due after ten years		5		5
	$	2,853	$	2,854

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):

	October 27, 2017
				Fair Value Measurements at Reporting Date Using
	Total			Level 1		Level 2
Cash	$	3,111		$	3,111	$	—
Corporate bonds		1,750			—		1,750
U.S. Treasury and government debt securities		472			191		281
Foreign government debt securities		21			—		21
Commercial paper		504			—		504
Certificates of deposit		107			—		107
Total cash, cash equivalents and short-term investments	$	5,965		$	3,302	$	2,663
Other items:
Mutual funds ⁽¹⁾	$	7		$	7	$	—
Mutual funds ⁽²⁾	$	27		$	27	$	—
Foreign currency exchange contracts assets ⁽¹⁾	$	8		$	—	$	8
Foreign currency exchange contracts liabilities ⁽³⁾	$	(4	)	$	—	$	(4	)

⁽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 October 27, 2017 and April 28, 2017, we have not made any adjustments to the prices obtained from our third-party pricing providers.

Fair Value of Debt

As of October 27, 2017 and April 28, 2017, the fair value of our long-term debt was approximately $2,316 million and $1,520 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.