Fair Value Measurements

9 Months Ended

Apr. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The authoritative guidance defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, we consider the principal or most advantageous market for an asset or liability and assumptions that market participants would use when pricing the asset or liability. In addition, we consider and use all valuation methods that are appropriate in estimating the fair value of an asset or liability.

The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows:

• Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.

• Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.

• Level 3 uses one or more significant inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes financial assets and financial liabilities that we measured at fair value on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above.

	April 30, 2012								July 31, 2011
(In millions)	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Assets:
Cash equivalents, primarily money market funds	$	798	$	—	$	—	$	798	$	854	$	—	$	—	$	854
Available-for-sale securities:
Municipal bonds	—		388		—		388		—		434		—		434
Municipal auction rate securities	—		—		54		54		—		—		59		59
Corporate notes	—		319		—		319		—		288		—		288
U.S. agency securities	—		131		—		131		—		152		—		152
Marketable equity securities	35		—		—		35		—		—		—		—
Total available-for-sale securities	35		838		54		927		—		874		59		933
Total assets measured at fair value on a recurring basis	$	833	$	838	$	54	$	1,725	$	854	$	874	$	59	$	1,787
Liabilities:
Senior notes (1)	$	—	$	576	$	—	$	576	$	—	$	1,084	$	—	$	1,084

______________________________

(1) Carrying value on our balance sheet at April 30, 2012 was $499 million and at July 31, 2011 was $999 million. See Note 6.

The following table summarizes our cash equivalents and available-for-sale debt and equity securities by balance sheet classification and level in the fair value hierarchy at the dates indicated.

	April 30, 2012								July 31, 2011
(In millions)	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents:
In cash and cash equivalents	$	648	$	—	$	—	$	648	$	615	$	—	$	—	$	615
In funds held for customers	150		—		—		150		239		—		—		239
Total cash equivalents	$	798	$	—	$	—	$	798	$	854	$	—	$	—	$	854
Available-for-sale securities:
In investments	$	—	$	663	$	—	$	663	$	—	$	699	$	—	$	699
In funds held for customers	—		175		—		175		—		175		—		175
In long-term investments	35		—		54		89		—		—		59		59
Total available-for-sale securities	$	35	$	838	$	54	$	927	$	—	$	874	$	59	$	933

We value our Level 1 assets, consisting primarily of money market funds, using quoted prices in active markets for identical instruments. Financial assets whose fair values we measure on a recurring basis using Level 2 inputs consist of municipal bonds, corporate notes and U.S. agency securities. We measure the fair values of these assets using quoted prices in active markets for similar instruments. Financial liabilities whose fair values we measure using Level 2 inputs consist of debt. See Note 6. We measure the fair value of our senior notes based on their trading prices and the interest rates we could obtain for other borrowings with similar terms. Financial assets whose fair values we measure using significant unobservable (Level 3) inputs consist of municipal auction rate securities that are no longer liquid. There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the nine months ended April 30, 2012.

The following table presents a reconciliation of activity for our Level 3 assets for the nine months ended April 30, 2012.

	Nine Months
	Ended
(In millions)	April 30, 2012
Beginning balance	$	59
Settlements at par	(5		)
Ending balance	$	54

We estimated the fair values of these municipal auction rate securities at April 30, 2012 and July 31, 2011 using a discounted cash flow model whose key inputs included the projected future interest rates; the likely timing of principal repayments; the probability of full repayment considering guarantees by the U.S. Department of Education of the underlying student loans or insurance by other third parties; publicly available pricing data for recently issued student loan backed securities that are not subject to auctions; and the impact of the reduced liquidity for auction rate securities. Any significant changes in the inputs to the model may have a significant impact on the estimated fair values of these securities.

Using our discounted cash flow model we determined that the fair values of the municipal auction rate securities we held at April 30, 2012 were approximately equal to their par values. As a result, we recorded no decrease in the fair values of those securities for the nine months then ended. These securities are included in long-term investments on our balance sheets at April 30, 2012 and July 31, 2011 based on the maturities of the underlying securities. We do not intend to sell our municipal auction rate securities and it is not more likely than not that we will be required to sell them before recovery at par, which may be at maturity. Based on our expected operating cash flows and our other sources of cash, we do not believe that the reduction in liquidity of our municipal auction rate securities will have a material impact on our overall ability to meet our liquidity needs.