(3) Financial Instruments

We measure certain financial instruments at fair value on a recurring basis using the following valuation techniques:

(A) Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

(B) Income approach — Uses valuation techniques to convert future estimated cash flows to a single present amount based on current market expectations about those future amounts, using present value techniques.

The fair values of our financial instruments were determined using the following input levels and valuation techniques:


	Valuation	December 31, 2012								March 31, 2012
	Technique	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
		(In millions)
Assets
Cash equivalents
Money-market funds	A	$	26.2	$	—	$	—	$	26.2	$	769.3	$	—	$	—	$	769.3
United States Treasury securities	A		150.0		—		—		150.0		49.9		—		—		49.9
Short-term and long-term investments
United States Treasury securities	A		128.7		—		—		128.7		92.2		—		—		92.2
Auction rate securities	B		—		—		18.7		18.7		—		—		26.9		26.9
United States government agency bonds	A		—		15.4		—		15.4		—		—		—		—
Corporate bonds and commercial paper	A		—		12.0		—		12.0		—		—		—		—
Mutual funds	A		20.4		—		—		20.4		19.6		—		—		19.6
Foreign currency forward contracts	A		—		3.8		—		3.8		—		8.1		—		8.1

Total		$	325.3	$	31.2	$	18.7	$	375.2	$	931.0	$	8.1	$	26.9	$	966.0

Liabilities
Foreign currency forward contracts	A	$	—	$	2.3	$	—	$	2.3	$	—	$	0.6	$	—	$	0.6
Interest rate swap	B		—		—		0.2		0.2		—		—		—		—

Total		$	—	$	2.3	$	0.2	$	2.5	$	—	$	0.6	$	—	$	0.6

Level 1 classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted price.

Level 2 classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either directly or indirectly, but do not represent quoted market prices from an active market.

Level 3 classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own assumptions about how market participants would value the asset or liability.

The following table summarizes the activity in our Level 3 financial instruments for the quarters and nine months ended December 31, 2012 and 2011, respectively:


	Quarter Ended								Nine Months Ended
	December 31, 2012								December 31, 2012
	Auction Rate Securities		Interest Rate Swap			Total			Auction Rate Securities			Interest Rate Swap			Total
	(In millions)
Balance at the beginning of the period	$	18.6	$	—		$	18.6		$	26.9		$	—		$	26.9
Redemption and sales		—		—			—			(7.6	)		—			(7.6	)
Change in fair value included in other comprehensive income		0.1		(0.2	)		(0.1	)		(0.6	)		(0.2	)		(0.8	)

Balance at the end of the period	$	18.7	$	(0.2	)	$	18.5		$	18.7		$	(0.2	)	$	18.5


	Quarter Ended			Nine Months Ended
	December 31, 2011			December 31, 2011
	Auction Rate Securities
	(In millions)
Balance at the beginning of the period	$	25.6		$	27.2
Redemption and sales		(0.1	)		(0.5	)
Change in fair value included in other comprehensive income		0.4			(0.8	)

Balance at the end of the period	$	25.9		$	25.9

Investments

Our cash, cash equivalents and investments were comprised of the following:


	December 31, 2012						March 31, 2012
	Cash and Cash Equivalents		Short-term Investments		Long-term Investments		Cash and Cash Equivalents		Short-term Investments		Long-term Investments
	(In millions)
Measured at fair value:
Available-for-sale
United States Treasury securities	$	150.0	$	113.2	$	15.5	$	49.9	$	86.1	$	6.1
Auction rate securities		—		—		18.7		—		—		26.9
United States government agency bonds		—		5.0		10.4		—		—		—
Corporate bonds and commercial paper		—		5.4		6.6		—		—		—
Trading
Mutual funds		—		—		20.4		—		—		19.6

Total debt and equity investments measured at fair value		150.0		123.6		71.6		49.9		86.1		52.6

Cash on hand		829.7		—		—		632.6		—		—
Certificates of deposit		52.0		—		—		45.1		—		—
Money-market funds		26.2		—		—		769.3		—		—

Total cash, cash equivalents and investments	$	1,057.9	$	123.6	$	71.6	$	1,496.9	$	86.1	$	52.6

Amounts included in accumulated other comprehensive income from available-for-sale securities (pre-tax):
Unrealized losses*	$	—	$	—	$	3.0	$	—	$	—	$	2.4

*	The unrealized losses on available-for-sale securities at December 31, 2012 and March 31, 2012 relate to the auction rate securities.

The following summarizes the underlying contractual maturities of our available-for-sale investments in debt securities at December 31, 2012:


			Fair
	Cost		Value
	(In millions)
Due in one year or less	$	273.6	$	273.6
Due between one and two years		32.5		32.5
Due after ten years		21.7		18.7

Total	$	327.8	$	324.8

At December 31, 2012 and March 31, 2012, we held auction rate securities with a par value of $21.7 million and $29.3 million, respectively, which were classified as available-for-sale. The total estimated fair value of our auction rate securities was $18.7 million and $26.9 million at December 31, 2012 and March 31, 2012, respectively. Our auction rate securities consist entirely of bonds issued by public agencies that are backed by student loans with at least a 97% guarantee by the federal government under the United States Department of Education’s Federal Family Education Loan Program. All of these bonds are currently rated investment grade by Moody’s or Standard and Poor’s. Auctions for these securities began failing in early 2008 and have continued to fail, resulting in our continuing to hold such securities and the issuers paying interest at the maximum contractual rates. We do not believe that any of the underlying issuers of these auction rate securities is presently at risk of default or that the underlying credit quality of the assets backing the auction rate security investments has been impacted by the reduced liquidity of these investments. Due to the illiquidity in the auction rate securities market caused by failed auctions, we estimated the fair value of these securities using internally developed models of the expected cash flows of the securities on a discounted basis. These models incorporate assumptions about the expected cash flows of the underlying student loans discounted at an estimate of the rate of return required by investors, which includes an adjustment to reflect a lack of liquidity in the market for these securities. The range of and weighted average discount rates used in our valuation models at December 31, 2012 were 3.6% to 4.1%, and 3.9%, respectively. Significant increases (decreases) in the discount rate used in the valuation would result in decreases (increases) in the fair value of the auction rate securities. Periodically, the issuers of certain of our auction rate securities have redeemed portions of our holdings at par value plus accrued interest. There were no redemptions during the quarter ended December 31, 2012. During the nine months ended December 31, 2012, issuers redeemed available-for-sale holdings of $7.6 million par value. During the quarter and nine months ended December 31, 2011, issuers redeemed available-for-sale holdings of $0.1 million and $0.5 million par value, respectively.

The unrealized loss on our available-for-sale auction rate securities, which had a fair value of $18.7 million at December 31, 2012, was $3.0 million and was recorded in accumulated other comprehensive income as we believe the decline in fair value of these auction rate securities is temporary. In making this determination, we primarily considered the financial condition and near-term prospects of the issuers, the probability scheduled cash flows will continue to be made and the likelihood we would be required to sell the investments before recovery of our cost basis. These available-for-sale auction rate securities have been in an unrealized loss position for greater than twelve months. Because of the uncertainty related to the timing of liquidity associated with these auction rate securities, these securities were classified as long-term investments at December 31, 2012 and March 31, 2012.

Derivative Financial Instruments

We operate globally and are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of business.

Our foreign currency exposures relate primarily to certain foreign currency denominated assets and liabilities, primarily non-U.S. dollar denominated accounts receivable, cash and intercompany balances held by U.S. dollar functional currency entities. To minimize the risk from changes in foreign currency exchange rates, we have established a program that utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. Gains or losses on our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts entered into under this program. These foreign currency forward contracts generally have terms of one month or less and are generally entered into at the prevailing market exchange rate at the end of each month. We do not use foreign currency forward contracts for speculative purposes. While these foreign currency forward contracts are utilized to hedge foreign currency exposures, they are not formally designated as hedges for accounting purposes, and therefore, the changes in the fair values of these contracts are recognized currently in earnings. We record these foreign currency forward contracts at fair value as either assets or liabilities depending on their net settlement position with each respective counterparty at the balance sheet date.

The fair value of our outstanding foreign currency forward contracts that closed in a gain position at December 31, 2012 and March 31, 2012 was $3.8 million and $8.1 million, respectively, and was recorded within other current assets in our condensed consolidated balance sheets. The fair value of our outstanding foreign currency forward contracts that closed in a loss position at December 31, 2012 and March 31, 2012 was $2.3 million and $0.6 million, respectively, and was recorded within accrued liabilities in our condensed consolidated balance sheets. The notional amounts at contract exchange rates of our foreign currency forward contracts outstanding were:


	Notional Amount
	December 31,		March 31,
	2012		2012
	(In millions)
Foreign Currency Forward Contracts (receive United States dollar/pay foreign currency)

Euro	$	180.9	$	214.2
Australian dollar		31.8		29.9
Chinese yuan renminbi		14.9		11.7
Swiss franc		9.5		6.8
Singapore dollar		6.4		3.8
Brazilian real		5.9		8.7
Danish krone		4.9		3.9
South Korean won		3.2		2.6
Norwegian krone		2.8		2.9
New Zealand dollar		2.5		3.4
British pound		—		19.2
Swedish krona		0.5		8.2
Mexican peso		—		3.2
Other		3.3		3.5

Total	$	266.6	$	322.0

Foreign Currency Forward Contracts (pay United States dollar/receive foreign currency)

Israeli shekel	$	165.0	$	158.2
Indian rupee		12.0		15.0
British pound		3.2		—
Other		0.7		4.8

Total	$	180.9	$	178.0

Our use of foreign currency forward contracts is intended to offset gains and losses associated with foreign currency exposures. Therefore, the notional amounts and currencies underlying our foreign currency forward contracts will fluctuate period to period as they are principally dependent on the balances and currency denomination of monetary assets and liabilities maintained by our global entities. The net effect of the foreign currency forward contracts for the quarter and nine months ended December 31, 2012, was a gain of $4.6 million and $9.2 million, respectively, which, after including gains and losses on our foreign currency exposures, resulted in a $0.1 million net loss and a $0.6 million net gain, respectively, recorded in interest and other income, net. The net effect of the foreign currency forward contracts for the quarter and nine months ended December 31, 2011, was a loss of $1.7 million and $7.6 million, respectively, which, after including gains and losses on our foreign currency exposures, resulted in net losses of $0.6 million and $2.5 million, respectively, recorded in interest and other income, net.

In November 2012, we entered into a $200.0 million unsecured term loan due November 2015 (the Term Loan) with variable-rate interest payments (see Note 4). To minimize the impact of changes in interest rates on our interest payments, in November 2012, we also entered into an interest rate swap agreement with a financial institution to swap variable-rate interest payments for fixed-rate interest payments on a notional amount of $200.0 million. The interest rate swap matures in November 2015 and has periodic interest settlements, both consistent with the terms of our Term Loan. We have designated the interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark interest rate.

At December 31, 2012, the fair value of our interest rate swap was a liability of $0.2 million and was recorded within other liabilities in our condensed consolidated balance sheets, with the effective portion of the loss recognized in other comprehensive income. There was no hedge ineffectiveness during the quarter or nine months ended December 31, 2012. Periodic settlements on the interest rate swap are recorded as interest expense in the condensed consolidated statements of comprehensive income and are reflected within cash flows from operating activities in our condensed consolidated statements of cash flows.

We estimated the fair value of the interest rate swap using an internally developed model of the expected cash flows of the interest payments on a discounted basis. This model incorporates assumptions about the expected cash flows of the interest payments discounted at a market rate, which includes an adjustment to reflect our entity-specific risk. The discount rate used in our valuation model at December 31, 2012 equates to a weighted average of 1.5% and will fluctuate with the U.S. Treasury yield curve in future periods. Significant increases (decreases) in the interest rates used in the valuation would result in increases (decreases) in the fair value of the interest rate swap.

We are exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, but we do not expect any counterparties to fail to meet their obligations given their high credit ratings. In addition, we diversify this risk across several counterparties and utilize netting agreements to mitigate the counterparty credit risk.

Trade Finance Receivables

A substantial portion of our trade finance receivables is transferred to financial institutions on a non-recourse basis. We utilize wholly-owned finance subsidiaries in these finance receivables transfers. These entities are consolidated into our financial position and results of operations. We account for such transfers as sales in accordance with applicable accounting rules pertaining to the transfer of financial assets and the sale of future revenue when we have surrendered control of such receivables (including determining that such assets have been isolated beyond our reach and the reach of our creditors) and when we do not have significant continuing involvement in the generation of cash flows due the financial institutions. During the quarter and nine months ended December 31, 2012, we transferred $43.2 million and $155.0 million, respectively, of such receivables through these programs. During the quarter and nine months ended December 31, 2011, we transferred $49.0 million and $208.0 million, respectively, of such receivables through these programs. Finance receivables are typically transferred within several months after origination and the outstanding principal balance at the time of transfer typically approximates fair value.

For those finance receivables not transferred, we evaluate the credit risk of finance receivables in our portfolio based on regional characteristics specific to the risk climate in each of our geographic operations as well as based on internal credit quality indicators for individual receivables. We evaluate the credit risk of finance receivables using an internal credit rating system based on whether an individual receivable meets specific internal criteria including counterparty credit rating and receivable maturity date and assign an internal credit rating of 1, 2 or 3, with a credit rating of 1 representing the best credit quality.

For all regions and credit categories, a finance receivable will be specifically reserved once deemed uncollectible. As of December 31, 2012, we held $112.4 million of finance receivables, net of $0.3 million of specific receivables which have been fully reserved.

At December 31, 2012, our finance receivables balance, net of allowance, by region and by class of internal credit rating was as follows:


	North America		EMEA		Asia Pacific		Latin America		Total
	(In millions)
Class 1	$	27.9	$	45.1	$	4.4	$	1.2	$	78.6
Class 2		3.2		19.0		6.9		3.9		33.0
Class 3		0.1		—		0.2		0.5		0.8

Balance at the end of the period	$	31.2	$	64.1	$	11.5	$	5.6	$	112.4

Other Financial Instruments

The carrying values and fair values of our debt instruments at December 31, 2012 and March 31, 2012 are as follows:


	December 31, 2012				March 31, 2012
	Carrying value		Fair value		Carrying value		Fair value
	(In millions)
Senior unsecured notes due June 2018 (Level 2)	$	299.0	$	363.5	$	298.9	$	368.4
Senior unsecured notes due February 2022 (Level 2)		497.6		521.3		497.4		506.6
Senior unsecured notes due December 2022 (Level 2)		297.7		308.0		—		—
Term Loan due November 2015 (Level 3)		200.0		200.3		—		—

The fair values of the senior unsecured notes due June 2018, February 2022 and December 2022 were determined using quoted market prices. We estimated the fair value of the Term Loan using an internally developed model of the expected cash flows of the principal and interest payments on a discounted basis. This model incorporates assumptions about the expected cash flows of the principal and interest payments discounted at a market rate, which includes an adjustment to reflect our entity-specific risk. The discount rate used in our valuation model at December 31, 2012 equates to a weighted average of 2.0% and will fluctuate with the U.S. Treasury yield curve in future periods. Significant increases in the entity-specific risk used in the valuation would result in decreases in the fair value of the Term Loan.

The carrying values of all other financial instruments, consisting primarily of trade and finance receivables, accounts payable and other borrowings, approximate their respective fair values.