Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

 v2.3.0.11
Financial Instruments
 6 Months Ended
Jul. 02, 2011
Financial Instruments  
Financial Instruments

NOTE 6. Financial Instruments

Available-for-sale securities held by the Company as of July 2, 2011 and December 25, 2010 were as follows:

 

         
     Fair
Value 		 
     (In millions)  

July 2, 2011

         

Classified as cash equivalents:

         

Money market funds

    $ 175   

Commercial paper

      306   
    

 

 

  

Total classified as cash equivalents

    $ 481   
    

 

 

  

Classified as marketable securities:

         

Commercial paper

    $ 1,095   

Time deposits

      160   

Auction rate securities

      52   
    

 

 

  

Total classified as marketable securities

    $ 1,307   
    

 

 

  

Classified as other assets:

         

Money market funds

    $ 10   

Equity securities

      1   
    

 

 

  

Total classified as other assets

    $ 11   
    

 

 

  
   

December 25, 2010

         

Classified as cash equivalents:

         

Money market funds

    $ 405   

Commercial paper

      51   
    

 

 

  

Total cash equivalents

    $ 456   
    

 

 

  

Classified as marketable securities:

         

Commercial paper

    $ 983   

Time deposits

      135   

Equity securities

      8   

Auction rate securities

      57   
    

 

 

  

Total marketable securities

    $ 1,183   
    

 

 

  

Classified as other assets:

         

Money market funds

    $ 29   

Equity securities

      1   
    

 

 

  

Total investments classified as other assets

    $ 30   
    

 

 

  

 

The amortized costs of the available-for-sale securities equal the fair value for the periods presented as there were no unrealized gains or losses in the period.

At July 2, 2011 and December 25, 2010, the Company had approximately $10 million and $29 million, respectively, of available-for-sale investment in money market funds used as collateral for leased buildings and letter of credit deposits, which was 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 $2 million on sales of available-for-sale securities of approximately $13 million during the six months ended July 2, 2011. The gain includes approximately $1 million in other income (expense), net from redemption of auction rate securities (ARS) called at par for $6 million with a net carrying amount of $5 million during the second quarter of 2011. The carrying value of the Company's remaining ARS holdings as of July 2, 2011 was $52 million (par value $60 million). The Company has the intent and believes it has the ability to sell these securities within the next 12 months.

The Company realized net gains of $8 million on sales of available-for-sale securities during the second quarter and six months ended June 26, 2010.

All contractual maturities of the Company's available-for-sale marketable debt securities at July 2, 2011 were within one year, except those for ARS. The Company's ARS have stated maturities ranging from January 2030 to December 2050. 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)  

July 2, 2011

                                    

Assets

                                    

Classified as cash equivalents:

                                    

Money market funds

    $ 175       $ 175       $ —         $ —     

Commercial paper

      306         —           306         —     
                                     

Total classified as cash equivalents

    $ 481       $ 175       $ 306       $ —     
                                     

Classified as marketable securities:

                                    

Commercial paper

    $ 1,095       $ —         $ 1,095       $ —     

Time deposits

      160         —           160         —     

Auction rate securities

      52         —           —           52   
                                     

Total classified as marketable securities

    $ 1,307       $ —         $ 1,255       $ 52   
                                     

Classified as other assets:

                                    

Money market funds

    $ 10       $ 10       $ —         $ —     

Equity securities

      1         1         —           —     
                                     

Total classified as other assets

    $ 11       $ 11       $ —         $ —     
                                     

Classified as prepaid expenses and other current assets:

                                    

Foreign currency derivative contracts

      4         —           4         —     
                                     

Total classified as prepaid expenses and other current assets

    $ 4       $ —         $  4        $ —     
                                     

Total assets measured at fair value

    $ 1,803       $ 186       $ 1,565       $ 52   
                                     

 

                                 

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 marketable securities:

                                  

Commercial paper

    $ 983      $ —         $ 983      $ —     

Time deposits

      135        —           135        —     

Equity securities

      8        8         —          —     

Auction rate securities

      57        —           —          57   
                                   

Total classified as 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 investment in GF, the Company carries financial instruments at fair value. Investments in money market mutual funds, commercial paper, time deposits, marketable equity 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 one year, 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 July 2, 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 July 2, 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  
    July 2, 2011     June 26, 2010  
    Auction
Rate Securities		     Auction
Rate Securities		     UBS
Put Option		  
    (In millions)  

Beginning balance

   $ 57      $ 150      $ 2   

Redemption at par

     (6 )      (40 )      —     

Gain (loss) included in net income (loss)

     1        1        (1 ) 

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

     —          (3 )      —     
                         

Ending balance

   $ 52      $ 108      $ 1   
                         

 

                         
   
     Six Months Ended  
     July 2, 2011     June 26, 2010  
     Auction
Rate Securities		     Auction
Rate Securities		     UBS
Put Option		  
     (In millions)  

Beginning balance

    $ 57      $ 159      $ 2   

Redemption at par

      (6 )      (48 )      —     

Gain (loss) included in net income (loss)

      1        1        (1 ) 

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

      —          (4 )      —     
    

 

 

    

 

 

    

 

 

  

Ending balance

    $ 52      $ 108      $ 1   

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:

     July 2, 2011      December 25, 2010  
     Carrying
amount		      Estimated
Fair Value		      Carrying
amount		      Estimated
Fair Value		  
     (in millions)  

Long-term debt (excluding capital leases)

    $ 2,170       $ 2,330       $ 2,162       $ 2,326   

The fair value of the Company's long-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. For the Company's investment in GF, the Company believes the fair value of the Company's 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.