Financial Instruments

Cash, Cash Equivalents and Marketable Securities

Financial instruments measured and recorded at fair value on a recurring basis as of June 28, 2014 and December 28, 2013 are summarized below:



		Total Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In millions)
June 28, 2014
Cash		$	372	$	372	$	—	$	—
Level 1^{(1) (2)}
Money market funds		$	6	$	6	$	—	$	—
Total level 1		$	6	$	6	$	—	$	—
Level 2^{(2) (3)}
Commercial paper		$	525	$	125	$	400	$	—
Corporate bonds		45		—		45		—
Total level 2		$	570	$	125	$	445	$	—
Total		$	948	$	503	$	445	$	—



		Total Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In millions)
December 28, 2013
Cash		$	429	$	429	$	—	$	—
Level 1^{(1) (2)}
Money market funds		$	21	$	19	$	—	$	2
Total level 1		$	21	$	19	$	—	$	2
Level 2^{(2) (3)}
Commercial paper		$	599	$	421	$	178	$	—
Time deposit		50		—		50		—
Corporate bonds		88		—		—		88
Total level 2		$	737	$	421	$	228	$	88
Total		$	1,187	$	869	$	228	$	90


(1)	The Company’s Level 1 assets are valued using quoted prices for identical instruments in active markets.


(2)	The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the quarter and six months ended June 28, 2014 or the year ended December 28, 2013.

(3)

The Company’s Level 2 short-term investments are valued using broker reports that utilize quoted market prices for identical or comparable instruments. Brokers gather observable inputs for all of the Company’s fixed income securities from a variety of industry data providers and other third-party sources. The Company’s Level 2 long-term investments were valued using broker reports that utilize a third-party professional pricing service that gathers information from multiple market sources and integrates relevant credit information, observed market movements and sector news into their pricing evaluation. The Company validated, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of the Level 2 long-term investments against the fair values of the portfolio balances of another third-party professional’s pricing service, other than that utilized by the brokers, that use a similar technique as the brokers to derive pricing as described above.

Available-for-sale securities held by the Company as of June 28, 2014 and December 28, 2013 consisted of money market funds, commercial paper, time deposits, corporate bonds and mutual funds. The amortized cost of available-for-sale securities approximates the fair value for all periods presented.

In addition to those amounts presented above, at June 28, 2014 and December 28, 2013, the Company had $19 million and $18 million, respectively, of available-for-sale investments in money market funds used as collateral for leased buildings and letters of credit deposits, which were included in Other Assets on the Company’s condensed consolidated balance sheets. These money market funds are classified within Level 1 because they are valued using quoted prices for identical instruments in active markets. Their amortized costs are the same as the fair value for all periods presented. The Company is restricted from accessing these deposits.

Also in addition to those amounts presented above, at June 28, 2014 and December 28, 2013, the Company had $14 million of available-for-sale investments in mutual funds held in a Rabbi trust established for the Company's deferred compensation plan, which were included in Other Assets on the Company's condensed consolidated balance sheets. These mutual funds are classified within Level 1 because they are valued using quoted prices for identical instruments in active markets. Their amortized cost approximates the fair value for all periods presented. The Company is restricted from accessing these investments.

There were no sales of available-for-sale securities during the quarter and six months ended June 28, 2014 or during the quarter ended June 29, 2013. During the six months ended June 29, 2013, the Company did not realize any gain or loss on sales of available-for-sale securities of $14 million. The cost of securities sold is determined based on the specific identification method.

During the three months ended June 28, 2014, the Company reclassified $45 million of its marketable securities that were previously classified as long-term to short-term. At June 28, 2014, the Company had no investments that were classified as long-term marketable securities. At December 28, 2013, $90 million of investments were classified as long-term marketable securities.

All contractual maturities of the Company’s available-for-sale marketable debt securities as of June 28, 2014 were within one year. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis. The Company carries its financial instruments at fair value with the exception of its debt. Financial instruments that are not recorded at fair value are measured at fair value on a quarterly basis for disclosure purposes. The carrying amounts and estimated fair values of financial instruments not recorded at fair value are as follows:



	June 28, 2014				December 28, 2013
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In millions)
Short-term debt (excluding capital leases)	$	96	$	98	$	55	$	55
Long-term debt (excluding capital leases)	$	2,100	$	2,232	$	1,986	$	2,132

The Company’s short-term and long-term debt are classified within Level 2. The fair value of the debt was estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing payment terms.

Hedging Transactions and Derivative Financial Instruments

The following table shows the amount of gain (loss) included in accumulated other comprehensive income (loss), the amount of gain (loss) reclassified from accumulated other comprehensive income (loss) and included in earnings related to the foreign currency forward contracts designated as cash flow hedges and the amount of gain (loss) included in other income (expense), net, related to contracts not designated as hedging instruments, which was allocated in the condensed consolidated statement of operations:



	Three Months Ended						Six Months Ended
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013
	(In millions)
Foreign Currency Forward Contracts
Contracts designated as cash flow hedging instruments
Other comprehensive income (loss)	$	5		$	(2	)	$	4		$	(4	)
Research and development	(1		)	—			(2		)	—
Marketing, general and administrative	—			—			(1		)	—
Contracts not designated as hedging instruments
Other income (expense), net	$	1		$	(1	)	$	—		$	(2	)

The Company’s foreign currency derivative contracts are classified within Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.

The following table shows the fair value amounts included in prepaid expenses and other current assets should the foreign currency forward contracts be in a gain position or included in accrued and other current liabilities should these contracts be in a loss position. These amounts were recorded in the condensed consolidated balance sheet as follows:



	June 28, 2014		December 28, 2013
	(In millions)
Foreign Currency Forward Contracts
Contracts designated as cash flow hedging instruments	$	1	$	(3	)
Contracts not designated as hedging instruments	$	—	$	(1	)

For the foreign currency contracts designated as cash flow hedges, the ineffective portions of the hedging relationship and the amounts excluded from the assessment of hedge effectiveness were immaterial.

As of June 28, 2014 and December 28, 2013, the notional values of the Company’s outstanding foreign currency forward contracts were $204 million and $124 million, respectively. All the contracts mature within 12 months, and, upon maturity, the amounts recorded in accumulated other comprehensive income (loss) are expected to be reclassified into earnings. The Company hedges its exposure to the variability in future cash flows for forecasted transactions over a maximum of 12 months. As of June 28, 2014, the Company’s outstanding contracts were in a net gain position of $1 million. The Company is required to post collateral should the derivative contracts be in a net loss position exceeding certain thresholds. As of June 28, 2014, the Company was not required to post any collateral.