Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

v2.3.0.15
Financial Instruments
 9 Months Ended
Oct. 01, 2011
Financial Instruments [Abstract]  
Financial Instruments

NOTE 6. Financial Instruments

Available-for-sale securities held by the Company as of October 1, 2011 and December 25, 2010 were as follows:

 

     Fair
Value		  
     (In millions)  

October 1, 2011

   

Classified as cash equivalents:

   

Money market funds

    $ 362   

Commercial paper

      111   
  

 

 

  

Total classified as cash equivalents

    $ 473   
  

 

 

  

Classified as current marketable securities:

   

Commercial paper

    $ 952   

Time deposits

      185   

Auction rate securities

      45   
  

 

 

  

Total classified as current marketable securities

    $ 1,182   
  

 

 

  

Classified as long-term marketable securities:

   

Money market funds

    $ 29   

Corporate bonds

      21   
  

 

 

  

Total classified as long-term marketable securities

    $ 50   
  

 

 

  

Classified as other assets:

   

Money market funds

    $ 10   
  

 

 

  

Total classified as other assets

    $ 10   
  

 

 

  

December 25, 2010

   

Classified as cash equivalents:

   

Money market funds

    $ 405   

Commercial paper

      51   
  

 

 

  

Total classified as cash equivalents

    $ 456   
  

 

 

  

Classified as current marketable securities:

   

Commercial paper

    $ 983   

Time deposits

      135   

Equity securities

      8   

Auction rate securities

      57   
  

 

 

  

Total classified as current marketable securities

    $ 1,183   
  

 

 

  

Classified as other assets:

   

Money market funds

    $ 29   

Equity securities

      1   
  

 

 

  

Total classified as other assets

    $ 30   
  

 

 

  

 

The amortized costs of available-for-sale securities approximates the fair value for the periods presented. The unrealized losses during the third quarter and for the nine months ended October 1, 2011 were immaterial.

At October 1, 2011 and December 25, 2010, the Company had approximately $10 million and $29 million, respectively, of available-for-sale investments in money market funds used as collateral for leased buildings and letter of credit deposits, which were included in other assets on the Company's condensed consolidated balance sheets. The Company is restricted from accessing these deposits.

The Company realized a gain of approximately $3 million on sales of available-for-sale securities of approximately $21 million during the nine months ended October 1, 2011. The gain includes approximately $1 million in other income (expense), net from redemption of auction rate securities (ARS) called at par for $8 million with a net carrying amount of $7 million during the third quarter of 2011. The carrying value of the Company's remaining ARS holdings as of October 1, 2011 was $45 million (par value $52 million). The Company has the intent and believes it has the ability to sell these ARS within the next 12 months. During the third quarter of 2011, the Company invested $50 million in long-term marketable securities, which the Company intends to hold greater than one year, and does not intend to use in current operations.

The Company realized net gains of $8 million on sales of available-for-sale securities during the nine months ended September 25, 2010.

All contractual maturities of the Company's available-for-sale marketable debt securities at October 1, 2011 were within one year, except those for ARS and certain long-term marketable securities. The Company's ARS have stated maturities ranging from January 2030 to December 2050. The Company's long-term marketable securities include corporate bonds and money market funds. The corporate bonds have stated maturities of 1 to 2 years, and the Company intends to invest the money market funds into corporate bonds with maturities of greater than a year. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

 

Fair Value Measurements

Financial instruments measured and recorded at fair value on a recurring basis are summarized below:

 

Identical Assets Identical Assets Identical Assets Identical Assets
           Fair value measurement at reporting dates using  
     Total     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		      Significant
Other
Observable
Inputs
    (Level 2)     		     Significant
Unobservable
Inputs
    (Level 3)     		 
     (In millions)  

October 1, 2011

          

Assets

          

Classified as cash equivalents:

          

Money market funds

    $ 362      $ 362       $ —        $ —     

Commercial paper

      111        —           111        —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total classified as cash equivalents

    $ 473      $ 362       $ 111      $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Classified as current marketable securities:

          

Commercial paper

    $ 952      $ —         $ 952      $ —     

Time deposits

      185        —           185        —     

Auction rate securities

      45        —           —          45   
  

 

 

    

 

 

     

 

 

    

 

 

  

Total classified as current marketable securities

    $ 1,182      $ —         $ 1,137      $ 45   
  

 

 

    

 

 

     

 

 

    

 

 

  

Classified as long-term marketable securities:

          

Money market funds

    $ 29      $ 29       $ —        $ —     

Corporate bonds

      21        —           21        —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total classified as long-term marketable securities

    $ 50      $ 29       $ 21      $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Classified as other assets:

          

Money market funds

    $ 10      $ 10       $ —        $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total classified as other assets

    $ 10      $ 10       $ —        $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total assets measured at fair value

    $ 1,715      $ 401       $ 1,269      $ 45   
  

 

 

    

 

 

     

 

 

    

 

 

  

Liabilities

          

Classified as accrued liabilities - Foreign currency derivative contracts

    $ (7 )    $ —         $ (7 )    $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total liabilities measured at fair value

    $ (7 )    $ —         $ (7 )    $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

December 25, 2010

          

Assets

          

Classified as cash equivalents:

          

Money market funds

    $ 405      $ 405       $ —        $ —     

Commercial paper

      51        —           51        —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total classified as cash equivalents

    $ 456      $ 405       $ 51      $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Classified as current marketable securities:

          

Commercial paper

    $ 983      $ —         $ 983      $ —     

Time deposits

      135        —           135        —     

Equity securities

      8        8         —          —     

Auction rate securities

      57        —           —          57   
  

 

 

    

 

 

     

 

 

    

 

 

  

Total classified as current marketable securities

    $ 1,183      $ 8       $ 1,118      $ 57   
  

 

 

    

 

 

     

 

 

    

 

 

  

Classified as other assets:

          

Money market funds

    $ 29      $ 29       $ —        $ —     

Equity securities

      1        1         —          —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total classified as other assets

    $ 30      $ 30       $ —        $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total assets measured at fair value

    $ 1,669      $ 443       $ 1,169      $ 57   
  

 

 

    

 

 

     

 

 

    

 

 

  

Liabilities

          

Classified as accrued liabilities - Foreign currency derivative contracts

    $ (3 )    $ —         $ (3 )    $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

Total liabilities measured at fair value

    $ (3 )    $ —         $ (3 )    $ —     
  

 

 

    

 

 

     

 

 

    

 

 

  

 

With the exception of its long-term debt and its investment in GF, the Company carries its financial instruments at fair value. Investments in money market mutual funds, commercial paper, time deposits, marketable securities and foreign currency derivative contracts are primarily classified within Level 1 or Level 2. This is because such financial instruments are valued primarily using quoted market prices or alternative pricing sources and models utilizing market observable inputs, as provided to the Company by its brokers. The Company's Level 1 assets are valued using quoted prices for identical instruments in active markets. The Company's Level 2 assets, all of which mature within two years, are valued using broker reports that utilize quoted market prices for similar instruments. The ARS investments are classified within Level 3 because they are valued using a discounted cash flow model. Some of the inputs to this model are unobservable in the market and are significant. The Company's foreign currency derivative contracts are classified within Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.

The continuing uncertainties in the credit markets have affected all of the Company's ARS investments and auctions for these securities have failed to settle on their respective settlement dates since February 2008. As a result, reliable Level 1 or Level 2 pricing is no longer available for these ARS. In light of these developments, the Company performs its own discounted cash flow analysis to value these ARS. As of October 1, 2011 and December 25, 2010, the Company's significant inputs and assumptions used in the discounted cash flow model to determine the fair value of its ARS include interest rate, liquidity and credit discounts and the estimated life of the ARS investments. The outcomes of these activities indicated that the fair value of the ARS remained relatively flat as of October 1, 2011 when compared to the fair value as of December 25, 2010.

The roll-forward of the financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3), is as follows:

 

     Quarter Ended  
     October 1, 2011     September 25, 2010  
     Auction
Rate Securities		     Auction
Rate Securities		     UBS
Put Option		  
     (In millions)  

Beginning balance

    $ 52      $ 108      $ 1   

Redemption at par

      (8 )      (43 )      —     

Gain (loss) included in net income (loss)

      1        2        (1 ) 

Change in fair value included in other comprehensive income (loss)

      —          (3 )      —     
  

 

 

    

 

 

    

 

 

  

Ending balance

    $ 45      $ 64      $ —     
  

 

 

    

 

 

    

 

 

  
     Nine Months Ended  
     October 1, 2011     September 25, 2010  
     Auction
Rate Securities		     Auction
Rate Securities		     UBS
Put Option		  
     (In millions)  

Beginning balance

    $ 57      $ 159      $ 2   

Redemption at par

      (14 )      (91 )      —     

Gain (loss) included in net income (loss)

      2        3        (2 ) 

Change in fair value included in other comprehensive income (loss)

      —          (7 )      —     
  

 

 

    

 

 

    

 

 

  

Ending balance

    $ 45      $ 64      $ —     
  

 

 

    

 

 

    

 

 

  

 

Financial Instruments Not Recorded at Fair Value on a Recurring Basis. Financial instruments that are not recorded at fair value are measured at fair value on a quarterly basis for disclosure purposes. The carrying amounts and estimated fair values of financial instruments not recorded at fair value are as follows:

 

     October 1, 2011      December 25, 2010  
     Carrying
amount		      Estimated
Fair Value		      Carrying
amount		      Estimated
Fair Value		  
     (in millions)  

Short-term debt (excluding capital leases)

    $ 485       $ 489       $ —         $ —     

Long-term debt (excluding capital leases)

    $ 1,548       $ 1,625       $ 2,162       $ 2,326   

The fair value of the Company's long-term and short-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The Company believes the fair value of its investment in GF approximates its carrying value. The fair value of the Company's accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing payment terms.