Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments (Notes)

v2.4.0.6
Financial Instruments (Notes)
 3 Months Ended
Mar. 30, 2013
Fair Value, Assets and Liabilities Measured on Recurring Basis [Abstract]  
Financial Instruments
Financial Instruments
Available-for-sale securities held by the Company as of March 30, 2013 and December 29, 2012 were as follows:
 
March 30,
2013
 
December 29,
2012
 
(In millions)
Fair Value
 
 
 
Classified as cash equivalents:
 
 
 
Money market funds
$
115

 
$
402

Commercial paper
210

 
75

Total classified as cash equivalents
$
325

 
$
477

Classified as current marketable securities:
 
 
 
Commercial paper
$
472

 
$
324

Time deposits
75

 
100

Auction rate securities
15

 
28

Marketable equity security
—

 
1

Total classified as current marketable securities
$
562

 
$
453

Classified as long-term marketable securities:
 
 
 
Money market funds
$
—

 
$
13

Corporate bonds
180

 
168

Total classified as long-term marketable securities
$
180

 
$
181

Classified as other assets:
 
 
 
Money market funds
$
10

 
$
10

Mutual funds
13

 
14

Total classified as other assets
$
23

 
$
24



The amortized cost of available-for-sale securities approximates the fair value for all periods presented.
As of each of March 30, 2013 and December 29, 2012, the Company had approximately $10 million 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.
At March 30, 2013 and December 29, 2012, the Company had approximately $13 million and $14 million of available-for-sale investments in mutual funds held in a Rabbi trust established for the Company's deferred compensation plan, which were included in other assets on the Company's condensed consolidated balance sheets. The Company is restricted from accessing these investments.
The Company did not realize any gain or loss on sales of available-for-sale securities of approximately $14 million during the quarter ended March 30, 2013. The cost of securities sold is determined based on the specific identification method.
The carrying value of the Company’s remaining auction rate securities (ARS) holdings as of March 30, 2013 was $15 million (par value $22 million). The Company has the intent and believes it has the ability to sell these ARS within the next 12 months.
The Company intends to hold its long-term marketable securities for greater than one year and does not intend to use them in current operations.
All contractual maturities of the Company’s available-for-sale marketable debt securities as of March 30, 2013 were within one year, except those for ARS and certain long-term marketable securities. The Company’s ARS have stated maturities ranging from January 2036 to December 2050. The Company’s long-term marketable securities include corporate bonds. The corporate bonds have maximum stated maturities of two 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:
 
 
 
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)
March 30, 2013
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Classified as cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
115

 
$
115

 
$
—

 
$
—

Commercial paper
210

 
—

 
210

 
—

Total classified as cash equivalents
$
325

 
$
115

 
$
210

 
$
—

Classified as current marketable securities:
 
 
 
 
 
 
 
Commercial paper
$
472

 
$
—

 
$
472

 
$
—

Time deposits
75

 
—

 
75

 
—

Auction rate securities
15

 
—

 
—

 
15

Total classified as current marketable securities
$
562

 
$
—

 
$
547

 
$
15

Classified as long-term marketable securities:
 
 
 
 
 
 
 
Corporate bonds
$
180

 
$
—

 
$
180

 
$
—

Total classified as long-term marketable securities
$
180

 
$
—

 
$
180

 
$
—

Classified as other assets:
 
 
 
 
 
 
 
Money market funds
$
10

 
$
10

 
$
—

 
$
—

Mutual funds
13

 
13

 
—

 
—

Total classified as other assets
$
23

 
$
23

 
$
—

 
$
—

Total assets measured at fair value
$
1,090

 
$
138

 
$
937

 
$
15

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Classified as accrued liabilities – Foreign currency derivative contracts
$
(2
)
 
$
—

 
$
(2
)
 
$
—

Total liabilities measured at fair value
$
(2
)
 
$
—

 
$
(2
)
 
$
—

 
 
 
 
 
 
 
 
December 29, 2012
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Classified as cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
402

 
$
402

 
$
—

 
$
—

Commercial paper
75

 
—

 
75

 
—

Total classified as cash equivalents
$
477

 
$
402

 
$
75

 
$
—

Classified as current marketable securities:
 
 
 
 
 
 
 
Commercial paper
$
324

 
$
—

 
$
324

 
$
—

Time deposits
100

 
—

 
100

 
—

Auction rate securities
28

 
—

 
—

 
28

Marketable equity security
1

 
1

 
—

 
—

Total classified as current marketable securities
$
453

 
$
1

 
$
424

 
$
28

Classified as long-term marketable securities:
 
 
 
 
 
 
 
Money market funds
$
13

 
$
13

 
$
—

 
$
—

Corporate bonds
168

 
—

 
168

 
—

Total classified as long-term marketable securities
$
181

 
$
13

 
$
168

 
$
—

Classified as other assets:
 
 
 
 
 
 
 
Money market funds
$
10

 
$
10

 
$
—

 
$
—

Mutual funds
14

 
14

 
—

 
—

Total classified as other assets
$
24

 
$
24

 
$
—

 
$
—

Total assets measured at fair value
$
1,135

 
$
440

 
$
667

 
$
28



With the exception of its long-term debt, the Company carries its financial instruments at fair value. Investments in money market funds, commercial paper, time deposits, marketable equity securities, corporate bonds, mutual funds and foreign currency derivative contracts are 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 short-term investments are valued using broker reports that utilize quoted market prices for identical or comparable instruments. Brokers gather observable inputs for all of the Company’s fixed income securities from a variety of industry data providers and other third-party sources. The Company’s Level 2 long-term investments are valued using broker reports that utilize a third party professional pricing service who gathers information from multiple market sources and integrates relevant credit information, observed market movements and sector news into their pricing evaluation. The Company validates, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of the Level 2 long term investments against the fair values of the portfolio balances of another third-party professional’s pricing services, other than that utilized by the brokers, who use a similar technique as the brokers to derive pricing as described above. 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 Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the quarters ended March 30, 2013 and March 31, 2012.
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 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 not available for these ARS. In light of these developments, the Company performs its own discounted cash flow analysis to value these ARS. As of March 30, 2013 and December 29, 2012, 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 analyses indicated that the fair value of the ARS remained relatively unchanged as of March 30, 2013 when compared to the fair value as of December 29, 2012. As of March 30, 2013, these Level 3 ARS accounted for approximately one percent of the Company’s total cash, cash equivalents and current marketable securities.
The roll-forward of the ARS measured at fair value on a recurring basis using significant unobservable inputs (Level 3), is as follows:
 
 
Quarter Ended
 
March 30,
2013
 
March 31,
2012
 
(In millions)
Beginning balance
$
28

 
$
38

Redemption
(13
)
 
(6
)
Ending balance
$
15

 
$
32



The Company’s significant inputs and assumptions used in the discounted cash flow model to determine the fair value of its ARS are listed below:
 
March 30,
2013
 
December 29,
2012
Discount rate for periodic interest payments
0.73
%
 
0.84
%
Discount rate for principal repayments
1.18
%
 
1.31
%
Liquidity discount
0.90
%
 
0.90
%
Credit discount
2.00% to 12.00%

 
2.00% to 12.00%

Estimated period (years)
17 to 20 years

 
17 to 20 years


Significant increases (decreases) in the significant inputs and assumptions above in isolation would result in a significantly lower (higher) fair value measurement. There is no interrelationship between changes in the inputs.
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:
 
March 30, 2013
 
December 29, 2012
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(In millions)
Long-term debt (excluding capital leases)
$
2,023

 
$
2,005

 
$
2,019

 
$
1,837


The fair value of the Company’s short-term and long-term debt, Level 2 financial instruments, was 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 fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing payment terms.