Investments and Fair Value Measurements

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



	December 28, 2014		December 29, 2013
Cash and cash equivalents	$	809,003	$	986,246
Short-term marketable securities	1,455,509		1,919,611
Long-term marketable securities	2,758,475		3,179,471
Total cash, cash equivalents and marketable securities	$	5,022,987	$	6,085,328

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 and U.S. Treasury 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 U.S. government-sponsored agency securities, international government securities, corporate notes and bonds, asset-backed securities, mortgage-backed securities and municipal notes and bonds. The Company’s Level 2 securities are primarily valued using quoted market prices for similar instruments and non-binding 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):



	December 28, 2014								December 29, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Money market funds	$	533,133	$	—	$	—	$	533,133	$	760,363	$	—	$	—	$	760,363
Fixed income securities	25,162		4,213,599		—		4,238,761		160,194		4,985,059		—		5,145,253
Derivative assets	—		4,800		—		4,800		—		777		—		777
Total financial assets	$	558,295	$	4,218,399	$	—	$	4,776,694	$	920,557	$	4,985,836	$	—	$	5,906,393

Derivative liabilities	$	—	$	8,224	$	—	$	8,224	$	—	$	45,859	$	—	$	45,859
Total financial liabilities	$	—	$	8,224	$	—	$	8,224	$	—	$	45,859	$	—	$	45,859

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):



	December 28, 2014								December 29, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents⁽¹⁾	$	533,133	$	24,777	$	—	$	557,910	$	773,435	$	33,099	$	—	$	806,534
Short-term marketable securities	3,327		1,452,182		—		1,455,509		15,090		1,904,521		—		1,919,611
Long-term marketable securities	21,835		2,736,640		—		2,758,475		132,032		3,047,439		—		3,179,471
Other current assets	—		4,800		—		4,800		—		777		—		777
Total financial assets	$	558,295	$	4,218,399	$	—	$	4,776,694	$	920,557	$	4,985,836	$	—	$	5,906,393
Other current accrued liabilities	$	—	$	8,224	$	—	$	8,224	$	—	$	45,741	$	—	$	45,741
Non-current liabilities	—		—		—		—		—		118		—		118
Total financial liabilities	$	—	$	8,224	$	—	$	8,224	$	—	$	45,859	$	—	$	45,859


⁽¹⁾	Cash equivalents exclude cash holdings of $251.1 million and $179.7 million included in Cash and cash equivalents on the Company’s Consolidated Balance Sheets as of December 28, 2014 and December 29, 2013, respectively.

During the fiscal year ended December 28, 2014, the Company had no transfers of financial assets or liabilities between Level 1 and Level 2. As of December 28, 2014 and December 29, 2013, 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):



	December 28, 2014									December 29, 2013
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
U.S. Treasury securities	$	25,194	$	—	$	(32	)	$	25,162	$	160,598	$	21	$	(424	)	$	160,195
U.S. government-sponsored agency securities	7,511		—		(18		)	7,493		8,112		10		(1		)	8,121
International government securities	82,033		—		(314		)	81,719		38,492		1		(224		)	38,269
Corporate notes and bonds	774,869		325		(2,052		)	773,142		864,331		1,504		(1,565		)	864,270
Asset-backed securities	171,221		42		(353		)	170,910		226,620		114		(170		)	226,564
Mortgage-backed securities	48,378		6		(173		)	48,211		86,542		18		(554		)	86,006
Municipal notes and bonds	3,124,189		9,733		(1,798		)	3,132,124		3,744,138		18,931		(1,241		)	3,761,828
Total available-for-sale investments	$	4,233,395	$	10,106	$	(4,740	)	$	4,238,761	$	5,128,833	$	20,599	$	(4,179	)	$	5,145,253

The fair value and gross unrealized losses on the available-for-sale securities that have been in a continuous 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 December 28, 2014, 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 securities	$	25,162	$	(32	)	$	—	$	—
U.S. government-sponsored agency securities	7,394		(18		)	—		—
International government securities	81,719		(314		)	—		—
Corporate notes and bonds	586,903		(2,046		)	2,494		(6		)
Asset-backed securities	137,007		(353		)	—		—
Mortgage-backed securities	31,954		(132		)	9,518		(41		)
Municipal notes and bonds	709,505		(1,796		)	4,453		(2		)
Total	$	1,579,644	$	(4,691	)	$	16,465	$	(49	)

The gross unrealized loss related to these securities was due primarily to changes in interest rates. The gross unrealized loss on all available-for-sale fixed income securities at December 28, 2014 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 realized gains and (losses) on sales of available-for-sale securities (in thousands):



	Fiscal years ended
	December 28, 2014			December 29, 2013			December 30, 2012
Realized gains	$	8,918		$	4,724		$	3,867
Realized losses	(1,375		)	(2,349		)	(898		)
Net realized gains	$	7,543		$	2,375		$	2,969

Fixed income securities by contractual maturity as of December 28, 2014 are shown below (in thousands). Actual maturities may differ from contractual maturities because issuers of the securities may have the right to prepay obligations or the Company has the option to demand payment.



	Amortized Cost		Fair Value
Due in one year or less	$	860,203	$	861,915
After one year through five years	2,603,444		2,606,289
After five years through ten years	122,637		122,643
After ten years	647,111		647,914
Total	$	4,233,395	$	4,238,761

For those financial instruments where the carrying amounts differ from fair value, the following table (in thousands) represents the related carrying values and fair values, which are based on quoted market prices. The 1.5% Convertible Senior Notes due 2017 were categorized as Level 1 and the 0.5% Convertible Senior Notes due 2020 were categorized as Level 2, based on the frequency of trading as of December 28, 2014 and December 29, 2013. See Note 7, “Financing Arrangements,” regarding details of each convertible note presented.



	December 28, 2014				December 29, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
1.5% Convertible Senior Notes due 2017	$	869,645	$	1,948,721	$	829,792	$	1,467,160
0.5% Convertible Senior Notes due 2020	1,199,696		1,789,500		1,155,571		1,480,290
Total	$	2,069,341	$	3,738,221	$	1,985,363	$	2,947,450