Financial Instruments

12 Months Ended

May 29, 2011

Financial Instruments

Financial Instruments

Note 3. Financial Instruments

Cash Equivalents

Our policy is to diversify our investment portfolio to minimize the exposure of our principal to credit, geographic and investment sector risk. At May 29, 2011, investments were placed with a variety of different financial institutions and other issuers. Investments with maturity of one year or less have a rating of A1/P1 or better.

               Our cash equivalents consisted of the following as of May 29, 2011 and May 30, 2010:

(In Millions)		2011		2010
CASH EQUIVALENTS
Available-for-sale securities:
	Institutional money market funds	$	231.1	$	216.6
	Commercial paper		369.9		79.9
			601.0		296.5
Held-to-maturity securities:
	Bank time deposits		345.4		530.0
Total cash equivalents		$	946.4	$	826.5

Short-Term Investments

(In Millions)	2011		2010
Bank time deposit maturing September 2011	$	40.0	$	-
Total short-term investments	$	40.0	$	-

Derivative Financial Instruments

The objective of our foreign exchange risk management policy is to preserve the U.S. dollar value of after-tax cash inflow in relation to non-U.S. dollar currency movements. We are exposed to foreign currency exchange rate risk that is inherent in orders, sales, cost of sales, expenses, and assets and liabilities denominated in currencies other than the U.S. dollar. We enter into foreign exchange contracts, primarily forwards and purchased options, to hedge against exposure to changes in foreign currency exchange rates. These contracts are matched at inception to the related foreign currency exposures that are being hedged. Exposures which are hedged include sales by subsidiaries, and assets and liabilities denominated in currencies other than the U.S. dollar. Our foreign currency hedges typically mature within six months.

               Derivative instruments used to hedge exposures to variability in expected future foreign denominated cash flows are not designated as cash flow hedges. Gains or losses on these derivative instruments are immediately recorded in earnings.

               We had an interest rate swap agreement that managed our exposure to interest rate changes from our $250 million senior unsecured notes due April 2015 (see below). The agreement effectively converted the fixed interest rate of the $250 million principal amount of senior unsecured notes to a floating interest rate. We designated this swap agreement as a fair value hedge and recognized the changes in the fair value of both the swap and the related debt, which we recorded as gains or losses on derivative instrument in fair value hedge included in other non-operating income, net.

               The following table provides information about gains (losses) associated with our derivative financial instruments:

			Amount of Gains (Losses) Recognized in Income on Derivative										Amount of Losses Recognized in Income on Hedged Item
		Location of Gains (Losses) Recognized in Income on Derivative										Location of Losses Recognized in Income on Hedged Item
(In Millions)			2011			2010			2009				2011			2010			2009
Fair value hedge:
	Interest rate swap	Other non-operating income (expense), net	$	12.0		$	1.6		$	-		Other non-operating income (expense), net	$	(14.1	)	$	(3.8	)	$	-
Instruments without hedge accounting designation:
	Forward contracts	Selling, general and administrative	$	(2.8	)	$	0.1		$	2.4
	Purchased options	Selling, general and administrative		(0.6	)		(0.1	)		(0.2	)
			$	(3.4	)	$	-		$	2.2

               In September 2010, we liquidated our interest rate swap for which we received proceeds of $16.1 million including accrued interest through the liquidation date. Upon the date of liquidation, we measured the fair value of both the swap and the related debt, which resulted in a net gain on derivative instrument in fair value hedge of $0.3 million. We also incurred a loss of $0.7 million due to the derecognition of the fair value hedge in connection with the liquidation of the interest rate swap. These amounts are included in other non-operating income, net for fiscal 2011. The accumulated fair value adjustment to the carrying value of the senior unsecured notes will be amortized over the remaining term of the debt on an effective yield basis and will be recorded as a reduction of interest expense. No further fair value adjustments will be made to the carrying value of the senior unsecured notes.

Fair Value and Notional Principal of Derivative Financial Instruments

The notional principal amounts for derivative financial instruments provide one measure of the transaction volume outstanding as of fiscal year-end and do not represent the amount of the exposure to credit or market loss. The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information at May 29, 2011. The table below shows the fair value and notional principal of derivative financial instruments:

		Liability Derivatives
(In Millions)		Balance Sheet Location		Notional Principal		Fair Value
Balances at May 29, 2011:
Instruments without hedge accounting designation:
	Forward contracts		Accrued liabilities	$	28.7	$	0.1

		Asset Derivatives
(In Millions)		Balance Sheet Location		Notional Principal		Fair Value
Balances at May 30, 2010:
Fair value hedge:
	Interest rate swap		Other assets	$	250.0	$	1.6
Instruments without hedge accounting designation:
	Forward contracts		Other current assets		20.0		0.6
Total				$	270.0	$	2.2

Concentrations of Credit Risk

Financial instruments that may subject us to concentrations of credit risk are primarily investments and trade receivables. Our investment policy requires cash investments to be placed with high-credit quality counterparties and limits the amount of investments with any one financial institution or direct issuer. We sell our products to distributors and manufacturers involved in a variety of industries including computers and peripherals, wireless communications and automotive. We perform continuing credit evaluations of our customers whenever necessary and we generally do not require collateral. Our top ten customers combined represented approximately 61 percent of total accounts receivable at May 29, 2011 and approximately 58 percent of total accounts receivable at May 30, 2010.

               Net sales to major customers as a percentage of total net sales were as follows:

		2011			2010			2009
Distributor:
	Avnet		20	%		17	%		15	%
	Arrow		16	%		15	%		13	%

               Sales to the distributors included above are mostly for our Analog segment products, but also include some sales for our other operating segment products. Historically, we have not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area.