Investments and Fair Value Measurements

The Company’s total cash, cash equivalents and marketable securities was as follows:



	April 3, 2016		January 3, 2016
	(In thousands)
Cash and cash equivalents	$	3,271,927	$	1,478,948
Short-term marketable securities	1,249,367		2,527,245
Long-term marketable securities	112,195		117,142
Total cash, cash equivalents and marketable securities	$	4,633,489	$	4,123,335

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

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



	April 3, 2016								January 3, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)
Money market funds	$	2,512,412	$	—	$	—	$	2,512,412	$	1,180,614	$	—	$	—	$	1,180,614
Fixed income securities	36,582		1,392,002		—		1,428,584		122,899		2,609,123		—		2,732,022
Derivative assets	—		35,689		—		35,689		—		3,376		—		3,376
Total financial assets	$	2,548,994	$	1,427,691	$	—	$	3,976,685	$	1,303,513	$	2,612,499	$	—	$	3,916,012

Derivative liabilities	$	—	$	512	$	—	$	512	$	—	$	1,747	$	—	$	1,747
Total financial liabilities	$	—	$	512	$	—	$	512	$	—	$	1,747	$	—	$	1,747

Financial assets and liabilities measured and recorded at fair value on a recurring basis were presented on the Condensed Consolidated Balance Sheets as follows:



	April 3, 2016								January 3, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)
Cash equivalents⁽¹⁾	$	2,512,412	$	67,022	$	—	$	2,579,434	$	1,180,614	$	87,635	$	—	$	1,268,249
Short-term marketable securities	32,246		1,217,121		—		1,249,367		122,899		2,404,346		—		2,527,245
Long-term marketable securities	4,336		107,859		—		112,195		—		117,142		—		117,142
Other current assets	—		35,689		—		35,689		—		3,376		—		3,376
Total financial assets	$	2,548,994	$	1,427,691	$	—	$	3,976,685	$	1,303,513	$	2,612,499	$	—	$	3,916,012

Other current accrued liabilities	$	—	$	512	$	—	$	512	$	—	$	1,747	$	—	$	1,747
Total financial liabilities	$	—	$	512	$	—	$	512	$	—	$	1,747	$	—	$	1,747


⁽¹⁾	Cash equivalents exclude cash holdings of $692.5 million and $210.7 million included in Cash and cash equivalents on the Condensed Consolidated Balance Sheets as of April 3, 2016 and January 3, 2016, respectively.

During three months ended April 3, 2016 and March 29, 2015, the Company had no transfers of financial assets and liabilities between Level 1 and Level 2 other than the transfer from Level 2 to Level 1 of the $1.5 billion 0.5% Convertible Senior Notes due 2020 outstanding during the three months ended March 29, 2015 due to active market trading directly prior to the end of the first quarter of 2015.

As of April 3, 2016 and January 3, 2016, 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:



	April 3, 2016									January 3, 2016
	Amortized Cost⁽¹⁾		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Amortized Cost⁽¹⁾		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	(In thousands)
U.S. Treasury securities	$	36,547	$	35	$	—		$	36,582	$	122,891	$	11	$	(3	)	$	122,899
U.S. government-sponsored agency securities	21,138		97		—			21,235		37,447		14		(74		)	37,387
International government securities	1,664		—		(3		)	1,661		47,463		—		(16		)	47,447
Corporate notes and bonds	260,940		357		(106		)	261,191		471,421		52		(559		)	470,914
Asset-backed securities	45,080		32		(14		)	45,098		133,518		3		(75		)	133,446
Mortgage-backed securities	2,149		2		(1		)	2,150		12,661		—		(4		)	12,657
Municipal notes and bonds	1,060,129		538		—			1,060,667		1,905,299		1,991		(18		)	1,907,272
Total available-for-sale investments	$	1,427,647	$	1,061	$	(124	)	$	1,428,584	$	2,730,700	$	2,071	$	(749	)	$	2,732,022


⁽¹⁾	Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization and other-than- temporary impairment.

The Company recorded other-than-temporary impairment losses of $0.5 million as of April 3, 2016 related to securities it now expects to sell prior to their maturity dates as a result of the pending acquisition of SanDisk by Western Digital. See Note 1, “Organization and Summary of Significant Accounting Policies-Pending Acquisition by Western Digital Corporation.”

Available-for-Sale Investments in Gross Unrealized Loss Positions. The fair value and gross unrealized losses on the available-for-sale securities, net of the impact of other-than-temporary impairment losses, 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 April 3, 2016, are summarized in the following table. Available-for-sale securities that were in an unrealized gain position have been excluded from the following table.



	Less than 12 months					Greater than 12 months
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
International government securities	$	1,654	$	(3	)	$	—	$	—
Corporate notes and bonds	117,285		(105		)	973		(1		)
Asset-backed securities	21,820		(11		)	2,535		(3		)
Mortgage-backed securities	502		0			138		(1		)
Municipal notes and bonds	189,025		0			—		—
Total	$	330,286	$	(119	)	$	3,646	$	(5	)

The gross unrealized loss, net of the impact of other-than-temporary impairment losses, related to these securities was due primarily to changes in interest rates. The gross unrealized loss, net of the impact of other-than-temporary impairment losses, on available-for-sale fixed income securities at April 3, 2016 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.

Available-for-Sale Investments Realized Gains (Losses). The following table shows the realized gains and (losses) on sales of available-for-sale securities:



	Three months ended
	April 3, 2016			March 29, 2015
	(In thousands)
Realized gains	$	2,060		$	2,320
Realized losses	(2,022		)	(323		)
Net realized gains	$	38		$	1,997

Fixed Income Securities by Contractual Maturity. Fixed income securities by contractual maturity as of April 3, 2016 are shown below. Effective 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. Fixed income securities are classified on the balance sheet based upon effective maturities or the Company’s intended holding period, if shorter.



	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	886,076	$	886,479
After one year through five years	218,573		219,038
After five years through ten years	60,531		60,532
After ten years	262,467		262,535
Total	$	1,427,647	$	1,428,584

Financial Instruments. For those financial instruments where the carrying amounts differ from fair value, the following table represents the related carrying values and fair values, which are based on quoted market prices. As of April 3, 2016 and January 3, 2016, the 1.5% Convertible Senior Notes due 2017 and the 0.5% Convertible Senior Notes due 2020 were both categorized as Level 1, based on the frequency of trading of each respective convertible note directly prior to the end of the first quarter of 2016 and the fourth quarter of 2015, respectively. See Note 7, “Financing Arrangements,” regarding details of each convertible note presented.



	April 3, 2016				January 3, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
1.5% Convertible Senior Notes due 2017	$	925,486	$	1,577,929	$	913,178	$	1,573,285
0.5% Convertible Senior Notes due 2020	1,250,092		1,560,300		1,237,776		1,563,750
Total	$	2,175,578	$	3,138,229	$	2,150,954	$	3,137,035

Cost Method Investments. As of April 3, 2016 and January 3, 2016, the Company had aggregate net investments under the cost method of accounting of $32.6 million and $38.6 million, respectively, and these investments consisted of privately-held equity securities without a readily determinable fair value. These privately-held equity investments are reported under Other non-current assets in the Condensed Consolidated Balance Sheets.