Fair Value Measurements

3 Months Ended

Aug. 31, 2012

Fair Value Measurements

NOTE 5 — Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and available-for-sale securities. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. The Company uses a three-level hierarchy established by the FASB that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach).

The levels of hierarchy are described below:

• Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

• Level 3: Unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement.

Pricing vendors are utilized for certain Level 1 or Level 2 investments. These vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities and credit risks. The Company’s fair value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include an analysis of period-over-period fluctuations and comparison to another independent pricing vendor.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of August 31, 2012 and May 31, 2012 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

	August 31, 2012
	Fair Value Measurements Using						Assets / Liabilities at Fair Value		Balance Sheet Classification
(In millions)	Level 1		Level 2		Level 3
ASSETS
Derivatives:
Foreign exchange forwards and options	$	0	$	153	$	0	$	153	Other current assets and other long-term assets
Interest rate swap contracts		0		14		0		14	Other long-term assets
Total derivatives		0		167		0		167
Available-for-sale securities:
U.S. Treasury securities		519		0		0		519	Cash and equivalents
Commercial paper and bonds		0		243		0		243	Cash and equivalents
Money market funds		0		341		0		341	Cash and equivalents
U.S. Treasury securities		633		0		0		633	Short-term investments
U.S. Agency securities		0		229		0		229	Short-term investments
Commercial paper and bonds		0		240		0		240	Short-term investments
Non-marketable preferred stock		0		0		3		3	Other long-term assets
Total available-for-sale securities		1,152		1,053		3		2,208
TOTAL ASSETS	$	1,152	$	1,220	$	3	$	2,375
LIABILITIES
Derivatives:
Foreign exchange forwards and options	$	0	$	58	$	0	$	58	Accrued liabilities and other long-term liabilities
TOTAL LIABILITIES	$	0	$	58	$	0	$	58

	May 31, 2012
	Fair Value Measurements Using						Assets / Liabilities at Fair Value		Balance Sheet Classification
(In millions)	Level 1		Level 2		Level 3
ASSETS
Derivatives:
Foreign exchange forwards and options	$	0	$	265	$	0	$	265	Other current assets and other long-term assets
Embedded derivatives		0		1		0		1	Other current assets
Interest rate swap contracts		0		15		0		15	Other current assets and other long-term assets
Total derivatives		0		281		0		281
Available-for-sale securities:
U.S. Treasury securities		226		0		0		226	Cash and equivalents
U.S. Agency securities		0		254		0		254	Cash and equivalents
Commercial paper and bonds		0		159		0		159	Cash and equivalents
Money market funds		0		770		0		770	Cash and equivalents
U.S. Treasury securities		927		0		0		927	Short-term investments
U.S. Agency securities		0		230		0		230	Short-term investments
Commercial paper and bonds		0		283		0		283	Short-term investments
Non-marketable preferred stock		0		0		3		3	Other long-term assets
Total available-for-sale securities		1,153		1,696		3		2,852
TOTAL ASSETS	$	1,153	$	1,977	$	3	$	3,133
LIABILITIES
Derivatives:
Foreign exchange forwards and options	$	0	$	55	$	0	$	55	Accrued liabilities and other long-term liabilities
TOTAL LIABILITIES	$	0	$	55	$	0	$	55

Derivative financial instruments include foreign exchange forwards, embedded derivatives and interest rate swap contracts. The fair value of derivative contracts is determined using observable market inputs such as the daily market foreign currency rates, forward pricing curves, currency volatilities, currency correlations and interest rates, and considers nonperformance risk of the Company and that of its counterparties. Adjustments relating to these nonperformance risks were not material at August 31, 2012 or May 31, 2012. Refer to Note 9 — Risk Management and Derivatives for additional detail.

Available-for-sale securities are comprised of investments in U.S. Treasury and agency securities, money market funds, and corporate commercial paper and bonds. These securities are valued using market prices on both active markets (Level 1) and less active markets (Level 2).

The Company’s Level 3 assets are comprised of investments in certain non-marketable preferred stock. These investments are valued using internally developed models with unobservable inputs. These Level 3 investments are an immaterial portion of our portfolio. Changes in Level 3 investment assets were immaterial during the three months ended August 31, 2012 and the year ended May 31, 2012.

No transfers among the levels within the fair value hierarchy occurred during the three months ended August 31, 2012 and the year ended May 31, 2012.

As of August 31, 2012 and May 31, 2012, the Company had no assets or liabilities that were required to be measured at fair value on a non-recurring basis.

Short-Term Investments

As of August 31, 2012 and May 31, 2012, short-term investments consisted of available-for-sale securities. As of August 31, 2012, the Company held $803 million of available-for-sale securities with maturity dates within one year from purchase date and $299 million with maturity dates over one year and less than five years from purchase date within short-term investments. As of May 31, 2012, the Company held $1,129 million of available-for-sale securities with maturity dates within one year from purchase date and $311 million with maturity dates over one year and less than five years from purchase date within short-term investments.

Short-term investments classified as available-for-sale consist of the following at fair value:

(In millions)	August 31, 2012		May 31, 2012
Available-for-sale investments:
U.S. treasury and agencies	$	862	$	1,157
Commercial paper and bonds		240		283
TOTAL AVAILABLE-FOR-SALE INVESTMENTS	$	1,102	$	1,440

Interest income related to cash and equivalents and short-term investments included within interest (income) expense, net was $8 million for each of the three month periods ended August 31, 2012 and 2011, respectively.

Fair Value of Long-Term Debt and Notes Payable

The Company’s long-term debt is recorded at adjusted cost, net of amortized premiums and discounts and interest rate swap fair value adjustments. The fair value of long-term debt is estimated based upon quoted prices for similar instruments (Level 2). The fair value of the Company’s long-term debt, including the current portion, was approximately $240 million at August 31, 2012 and $283 million at May 31, 2012.

The carrying amounts reflected in the unaudited condensed consolidated balance sheet for notes payable approximate fair value.