Fair Value Measurements

9 Months Ended

May 31, 2012

Notes to Financial Statements [Abstract]

Fair Value Measurements

Fair Value Measurements

Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

Fair Value Measurements on a Recurring Basis

All marketable debt and equity investments are classified as available-for-sale and are carried at fair value. Assets measured at fair value on a recurring basis were as follows:

	May 31, 2012								September 1, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	2,023	$	—	$	—	$	2,023	$	1,462	$	—	$	—	$	1,462
Commercial paper	—		18		—		18		—		—		—		—
Certificates of deposit	—		14		—		14		—		155		—		155
	2,023		32		—		2,055		1,462		155		—		1,617
Short-term investments:
Government bonds	—		61		—		61		—		—		—		—
Corporate bonds	—		56		—		56		—		—		—		—
Commercial paper	—		7		—		7		—		—		—		—
Asset-backed securities	—		6		—		6		—		—		—		—
Certificates of deposit	—		4		—		4		—		—		—		—
	—		134		—		134		—		—		—		—
Long-term marketable investments:
Corporate bonds	—		175		—		175		—		—		—		—
Government bonds	—		93		—		93		—		—		—		—
Asset-backed securities	—		77		—		77		—		—		—		—
Marketable equity securities	4		12		—		16		37		15		—		52
	4		357		—		361		37		15		—		52
Noncurrent assets:
Assets held for sale	—		—		32		32		—		—		35		35
	—		—		32		32		—		—		35		35
	$	2,027	$	523	$	32	$	2,582	$	1,499	$	170	$	35	$	1,704

Government bonds consist of securities issued directly by or deemed to be guaranteed by government entities such as U.S and non U.S. agency securities, government bonds and treasury securities. Level 2 securities are valued using information obtained from a pricing service, which obtains quoted market prices for similar instruments or non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or various other methodologies, such as weighting and other models, to determine the appropriate value at the measurement date. We periodically perform supplemental analysis to validate information obtained from our pricing service. As of May 31, 2012, no adjustments were made to such pricing information.

Level 3 assets consisted primarily of semiconductor equipment and facilities classified as held for sale. Fair value for semiconductor equipment was based on quotations obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment. Fair value for facilities was determined based on sales of similar facilities and properties in comparable markets. Losses recognized in the third quarters and first nine months of 2012 and 2011 due to fair value measurements using Level 3 inputs were not significant. For the third quarter and first nine months of 2012, activity of assets held for sale was not significant.

Marketable equity securities included approximately 20 million ordinary shares of Tower Semiconductor Ltd. ("Tower") received in connection with our sale of our wafer fabrication facility in Japan in June 2011. As of September 1, 2011, the shares were valued using quoted market prices in an active market and discounted using a protective put model for our resale restriction (Level 2). During the second quarter of 2012, the resale restrictions lapsed for 5 million of the shares, which were valued using quoted market prices (Level 1) as of May 31, 2012.

Fair Value Measurements on a Nonrecurring Basis

Our non-marketable securities, equity method investments, and non-financial assets such as intellectual property and property, plant and equipment are carried at cost unless impairment is deemed to have occurred.

During the third quarter and first nine months of 2012 we evaluated the fair value of equipment associated with certain sale-leaseback transactions and fair value approximated book value of $42 million and $199 million, respectively, and no significant losses were recognized on our sale-leaseback transactions. The fair value was determined based on various unobservable inputs such as price quotations obtained from tool suppliers for similar tools, historical cost of the tools, pricing indexes, technological obsolescence and usage (Level 3).

During the third quarter of 2012, we identified events and circumstances that significantly impacted the fair value of our equity investment in Transform. As a result, we measured the fair value of our investment in Transform based on liquidation values of its assets and liabilities using unobservable inputs. As of May 31, 2012, the fair value of the assets of Transform approximated the fair value of its liabilities and we recognized an other than temporary impairment charge of $69 million in the third quarter of 2012. As of May 31, 2012, the carrying value of our investment in Transform was zero.

Fair Value of Financial Instruments

Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair value and carrying value of debt instruments (carrying value excludes the equity component of the 2014 Notes, the 2027 Notes, the 2031 Notes, and the 2032 Notes, which is classified in equity) were as follows:

	May 31, 2012				September 1, 2011
	Fair Value		Carrying Value		Fair Value		Carrying Value
Convertible debt instruments	$	2,715	$	2,414	$	1,845	$	1,578
Other debt instruments	795		784		436		423

The fair value of our convertible debt instruments was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).  The fair value of our other debt instruments was estimated based on discounted cash flows using inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).