FAIR VALUE MEASUREMENTS

9 Months Ended

Mar. 31, 2012

FAIR VALUE MEASUREMENTS

NOTE 6    FAIR VALUE MEASUREMENTS

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. Our Level 1 non-derivative investments primarily include U.S. treasuries, domestic and international equities, and actively traded mutual funds. Our Level 1 derivative assets and liabilities include those actively traded on exchanges.

• Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. Our Level 2 non-derivative investments consist primarily of corporate notes and bonds, mortgage-backed securities, agency securities, certificates of deposit, and commercial paper. Our Level 2 derivative assets and liabilities primarily include certain over-the-counter option and swap contracts.

• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 non-derivative assets primarily comprise investments in certain corporate bonds. We value these corporate bonds using internally developed valuation models, inputs to which include interest rate curves, credit spreads, stock prices, and volatilities. Unobservable inputs used in these models are significant to the fair values of the investments. Our Level 3 derivative assets and liabilities primarily comprise derivatives for foreign equities. In certain cases, market-based observable inputs are not available and we use management judgment to develop assumptions to determine fair value for these derivatives.

We measure certain assets, including our cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value of our financial instruments that are measured at fair value on a recurring basis:

(In millions)	Level 1		Level 2		Level 3		Gross Fair Value		Netting(a)			Net Fair Value
March 31, 2012
Assets
Mutual funds	$	667	$	0	$	0	$	667	$	0		$	667
Commercial paper		0		329		0		329		0			329
Certificates of deposit		0		715		0		715		0			715
U.S. government and agency securities		37,226		6,666		0		43,892		0			43,892
Foreign government bonds		10		979		0		989		0			989
Mortgage-backed securities		0		1,865		0		1,865		0			1,865
Corporate notes and bonds		0		8,418		9		8,427		0			8,427
Municipal securities		0		395		0		395		0			395
Common and preferred stock		7,603		56		5		7,664		0			7,664
Derivatives		12		375		0		387		(78	)		309
Total	$	45,518	$	19,798	$	14	$	65,330	$	(78	)	$	65,252
Liabilities
Derivatives and other	$	4	$	82	$	0	$	86	$	(76	)	$	10

(In millions)	Level 1		Level 2		Level 3		Gross Fair Value		Netting(a)			Net Fair Value
June 30, 2011
Assets
Mutual funds	$	1,752	$	0	$	0	$	1,752	$	0		$	1,752
Commercial paper		0		639		0		639		0			639
Certificates of deposit		0		598		0		598		0			598
U.S. government and agency securities		23,591		10,175		0		33,766		0			33,766
Foreign government bonds		303		367		0		670		0			670
Mortgage-backed securities		0		2,428		0		2,428		0			2,428
Corporate notes and bonds		0		10,600		58		10,658		0			10,658
Municipal securities		0		454		0		454		0			454
Common and preferred stock		9,821		55		5		9,881		0			9,881
Derivatives		8		388		20		416		(204	)		212
Total	$	35,475	$	25,704	$	83	$	61,262	$	(204	)	$	61,058
Liabilities
Derivatives and other	$	109	$	257	$	0	$	366	$	(203	)	$	163

(a) These amounts represent the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement exists and fair value adjustments related to our own credit risk and counterparty credit risk.

The following table reconciles the total Net Fair Value of assets above to the balance sheet presentation of these same assets in Note 4 – Investments.

(In millions)
	March 31, 2012			June 30, 2011
Net fair value of assets measured at fair value on a recurring basis	$	65,252		$	61,058
Cash		2,080			1,648
Common and preferred stock measured at fair value on a nonrecurring basis		444			334
Other investments measured at fair value on a nonrecurring basis		960			650
Less derivative assets classified as other current assets		(140	)		(54	)
Other		1			1
Recorded basis of investment components	$	68,597		$	63,637

Changes in Financial Instruments Measured at Level 3 Fair Value on a Recurring Basis

The following tables present the changes during the periods presented in our Level 3 financial instruments that are measured at fair value on a recurring basis. The majority of these instruments consist of investment securities classified as available-for-sale with changes in fair value included in OCI.

(In millions)	Corporate Notes and Bonds			Common and Preferred Stock		Derivative Assets			Total
Three and Nine Months Ended March 31, 2012
Balance as of June 30, 2011	$	58		$	5	$	20		$	83
Total realized and unrealized gains (losses):
Included in other income (expense)		0			0		(2	)		(2	)
Included in other comprehensive income		(21	)		0		0			(21	)
Balance as of September 30, 2011	$	37		$	5	$	18		$	60
Total realized and unrealized gains (losses):
Included in other income (expense)		0			0		(3	)		(3	)
Included in other comprehensive income		0			0		0			0
Conversions of Level 3 instruments to Level 1 instruments		(28	)		0		(15	)		(43	)
Balance as of December 31, 2011	$	9		$	5	$	0		$	14
Total realized and unrealized gains (losses):
Included in other income (expense)		0			0		0			0
Included in other comprehensive income		0			0		0			0
Balance as of March 31, 2012	$	9		$	5	$	0		$	14
Change in unrealized gains (losses) included in other income (expense) for the three months ended March 31, 2012 related to assets held as of March 31, 2012	$	0		$	0	$	0		$	0
Change in unrealized gains (losses) included in other income (expense) for the nine months ended March 31, 2012 related to assets held as of March 31, 2012	$	0		$	0	$	0		$	0

(In millions)	Corporate Notes and Bonds			Common and Preferred Stock		Derivative Assets			Total
Three and Nine Months Ended March 31, 2011
Balance as of June 30, 2010	$	167		$	5	$	9		$	181
Total realized and unrealized gains (losses):
Included in other income (expense)		2			0		7			9
Included in other comprehensive income		(2	)		0		0			(2	)
Balance as of September 30, 2010	$	167		$	5	$	16		$	188
Total realized and unrealized gains (losses):
Included in other income (expense)		2			0		(1	)		1
Included in other comprehensive income		2			0		0			2
Balance as of December 31, 2010	$	171		$	5	$	15		$	191
Total realized and unrealized gains (losses):
Included in other income (expense)		34			0		(1	)		33
Included in other comprehensive income		(55	)		0		0			(55	)
Purchases, issuances and settlements		(85	)		0		0			(85	)
Balance as of March 31, 2011	$	65		$	5	$	14		$	84
Change in unrealized gains (losses) included in other income (expense) for the three months ended March 31, 2011 related to assets held as of March 31, 2011	$	1		$	0	$	(1	)	$	0
Change in unrealized gains (losses) included in other income (expense) for the nine months ended March 31, 2011 related to assets held as of March 31, 2011	$	5		$	0	$	5		$	10

Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three and nine months ended March 31, 2012 and 2011, we did not record any other-than-temporary impairments on those financial assets required to be measured at fair value on a nonrecurring basis.