Investments and Fair Value Measurements

The Company’s total cash, cash equivalents and marketable securities was as follows (in thousands):



	January 1, 2012		January 2, 2011
Cash and cash equivalents	$	1,167,496	$	829,149
Short-term marketable securities	1,681,492		2,018,565
Long-term marketable securities	2,766,263		2,494,972
Total cash, cash equivalents and marketable securities	$	5,615,251	$	5,342,686

Fair Value of Financial Instruments. For certain of the Company’s financial instruments, including cash held in banks, accounts receivable and accounts payable, the carrying amounts approximate fair value due to their short maturities, and are therefore excluded from the fair value tables below.

The Company categorizes the fair value of its financial assets and liabilities according to the hierarchy established by the FASB, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:



Level 1	Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to directly access.
Level 2	Valuations based on quoted prices for similar assets or liabilities; valuations for interest-bearing securities based on non-daily quoted prices in active markets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3	Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

In circumstances in which a quoted price in an active market for the identical liability is not available, the Company is required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, the Company is required to use another valuation technique, such as an income approach or a market approach.

The Company’s financial assets are measured at fair value on a recurring basis. Instruments that are classified within Level 1 of the fair value hierarchy generally include money market funds, U.S. Treasury securities and equity securities. Level 1 securities represent quoted prices in active markets, and therefore do not require significant management judgment.

Instruments that are classified within Level 2 of the fair value hierarchy primarily include government agency securities, asset-backed securities, mortgage-backed securities, commercial paper, U.S. government-sponsored agency securities and corporate/municipal notes and bonds. The Company’s Level 2 securities are primarily valued using quoted market prices for similar instruments and nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data, which are obtained from independent pricing vendors, quoted market prices or other sources to determine the ultimate fair value of the Company’s assets and liabilities. The inputs and fair value are reviewed for reasonableness and may be further validated by comparison to publicly available information or compared to multiple independent valuation sources. In addition, the Company reviews third-party valuation models, independently calculates the fair value of selective financial instruments and assesses the controls at its third-party valuation service providers in determining the overall reasonableness of the fair value of its Level 2 financial instruments.

Financial assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments (in thousands):



	January 1, 2012								January 2, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Money market funds	$	901,500	$	—	$	—	$	901,500	$	587,973	$	—	$	—	$	587,973
Fixed income securities	214,431		4,312,929		—		4,527,360		30,803		4,418,034		—		4,448,837
Equity securities	—		—		—		—		90,425		—		—		90,425
Derivative assets	—		21,093		—		21,093		—		19,462		—		19,462
Other	—		4,501		—		4,501		—		4,379		—		4,379
Total financial assets	$	1,115,931	$	4,338,523	$	—	$	5,454,454	$	709,201	$	4,441,875	$	—	$	5,151,076

Derivative liabilities	$	—	$	45,835	$	—	$	45,835	$	—	$	76,762	$	—	$	76,762
Total financial liabilities	$	—	$	45,835	$	—	$	45,835	$	—	$	76,762	$	—	$	76,762

Financial assets and liabilities measured and recorded at fair value on a recurring basis were presented on the Company’s Consolidated Balance Sheets as follows (in thousands):



	January 1, 2012								January 2, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents⁽¹⁾	$	926,994	$	54,111	$	—	$	981,105	$	587,973	$	25,725	$	—	$	613,698
Short-term marketable securities	155,538		1,525,954		—		1,681,492		112,906		1,905,659		—		2,018,565
Long-term marketable securities	33,399		2,732,864		—		2,766,263		8,322		2,486,650		—		2,494,972
Other current assets and other non-current assets	—		25,594		—		25,594		—		23,841		—		23,841
Total assets	$	1,115,931	$	4,338,523	$	—	$	5,454,454	$	709,201	$	4,441,875	$	—	$	5,151,076

Other current accrued liabilities	$	—	$	40,045	$	—	$	40,045	$	—	$	33,606	$	—	$	33,606
Non-current liabilities	—		5,790		—		5,790		—		43,156		—		43,156
Total liabilities	$	—	$	45,835	$	—	$	45,835	$	—	$	76,762	$	—	$	76,762

————


⁽¹⁾	Cash equivalents exclude cash of $186.4 million and $215.5 million included in Cash and cash equivalents on the Consolidated Balance Sheets as of January 1, 2012 and January 2, 2011, respectively.

As of January 1, 2012 and January 2, 2011, the Company had no financial assets or liabilities categorized as Level 3 and had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.

Available-for-Sale Investments. Available-for-sale investments were as follows (in thousands):



	January 1, 2012									January 2, 2011
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Fixed income securities:
U.S. Treasury and government agency securities	$	219,366	$	69	$	(4	)	$	219,431	$	36,015	$	53	$	(33	)	$	36,035
U.S. government-sponsored agency securities	97,087		10		(26		)	97,071		24,336		85		—			24,421
Corporate notes and bonds	780,650		1,707		(3,889		)	778,468		401,182		2,689		(196		)	403,675
Asset-backed securities	180,828		61		(149		)	180,740		10,069		45		(5		)	10,109
Mortgage-backed securities	1,137		5		—			1,142		6,500		35		—			6,535
Municipal notes and bonds	3,231,240		20,470		(1,202		)	3,250,508		3,972,268		9,435		(13,641		)	3,968,062
Total fixed income securities	4,510,308		22,322		(5,270		)	4,527,360		4,450,370		12,342		(13,875		)	4,448,837
Equity investments	—		—		—			—		68,525		21,900		—			90,425
Total available-for-sale investments	$	4,510,308	$	22,322	$	(5,270	)	$	4,527,360	$	4,518,895	$	34,242	$	(13,875	)	$	4,539,262

The fair value and gross unrealized losses on the available-for-sale securities that have been in an unrealized loss position, aggregated by type of investment instrument, and the length of time that individual securities have been in a continuous unrealized loss position as of January 1, 2012, are summarized in the following table (in thousands). Available-for-sale securities that were in an unrealized gain position have been excluded from the table.



	Less than 12 months					Greater than 12 months
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
U.S. Treasury and government agency securities	$	23,680	$	(4	)	$	—	$	—
U.S. government-sponsored agency securities	79,922		(26		)	—		—
Corporate notes and bonds	311,254		(3,889		)	—		—
Asset-backed securities	122,694		(149		)	—		—
Municipal notes and bonds	346,930		(1,152		)	21,713		(50		)
Total	$	884,480	$	(5,220	)	$	21,713	$	(50	)

The gross unrealized loss related to U.S. Treasury and government agency securities, corporate and municipal notes and bonds and asset-backed securities was primarily due to changes in interest rates. The gross unrealized loss on all available-for-sale fixed income securities at January 1, 2012 was considered temporary in nature. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold an investment for a period of time sufficient to allow for any anticipated recovery in market value. For debt security investments, the Company considered additional factors including the Company’s intent to sell the investments or whether it is “more likely than not” the Company will be required to sell the investments before the recovery of its amortized cost.

The following table shows the gross realized gains and (losses) on sales of available-for-sale securities (in thousands).



	Fiscal years ended
	January 1, 2012			January 2, 2011			January 3, 2010
Gross realized gains	$	36,762		$	20,867		$	13,997
Gross realized losses	(2,213		)	(344		)	(576		)

Fixed income securities by contractual maturity as of January 1, 2012 are shown below (in thousands). Actual maturities may differ from contractual maturities because issuers of the securities may have the right to prepay obligations.



	Amortized Cost		Fair Value
Due in one year or less	$	1,758,354	$	1,761,097
Due after one year through five years	2,751,954		2,766,263
Total	$	4,510,308	$	4,527,360

For certain of the Company’s other financial instruments, including accounts receivable and accounts payable, the carrying amounts approximate fair value due to their short maturities. For those financial instruments where the carrying amounts differ from fair value, the following table represents the related carrying values and the fair values, which are based on quoted market prices (in thousands).



	January 1, 2012				January 2, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
1% Sr. Convertible Notes due 2013	$	852,146	$	914,140	$	993,199	$	1,118,375
1.5% Sr. Convertible Notes due 2017	752,765		1,177,500		717,833		1,132,500
Total	$	1,604,911	$	2,091,640	$	1,711,032	$	2,250,875