Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability. Our financial assets and liabilities are measured and recorded at fair value, except for equity method investments, cost method investments, cost method loans receivable, and most of our liabilities.

The three levels of inputs that may be used to measure fair value are as follows:

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.

Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data.

Marketable debt instruments include instruments such as commercial paper, corporate bonds, government bonds, bank deposits, asset-backed securities, municipal bonds, and money market fund deposits. When we use observable market prices for identical securities that are traded in less active markets, we classify our marketable debt instruments as Level 2. When observable market prices for identical securities are not available, we price our marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs. We corroborate non-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.

Our marketable debt instruments that are classified as Level 3 are classified as such due to the lack of observable market data to corroborate either the non-binding market consensus prices or the non-binding broker quotes. When observable market data is not available, we corroborate non-binding market consensus prices and non-binding broker quotes using available unobservable data.

Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments as of July 2, 2011 and December 25, 2010:

		July 2, 2011								December 25, 2010
		Fair Value Measured and								Fair Value Measured and
		Recorded at Reporting Date Using								Recorded at Reporting Date Using
(In Millions)		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
	Commercial paper	$	—	$	2,272	$	—	$	2,272	$	—	$	2,600	$	—	$	2,600
	Bank deposits		—		889		—		889		—		560		—		560
	Money market fund deposits		550		—		—		550		34		—		—		34
	Government bonds		465		—		—		465		1,279		505		—		1,784
Short-term investments:
	Commercial paper		—		1,505		—		1,505		—		2,712		—		2,712
	Corporate bonds		107		693		8		808		121		1,378		1		1,500
	Government bonds		125		451		—		576		4,890		1,320		—		6,210
	Bank deposits		—		210		—		210		—		858		—		858
	Asset-backed securities		—		—		7		7		—		—		14		14
Trading assets:
	Government bonds		230		1,722		—		1,952		311		2,115		—		2,426
	Corporate bonds		204		738		—		942		199		916		—		1,115
	Municipal bonds		—		350		—		350		—		375		—		375
	Commercial paper		—		305		—		305		—		488		—		488
	Asset-backed securities		—		—		146		146		—		—		190		190
	Bank deposits		—		69		—		69		—		108		—		108
	Money market fund deposits		32		—		—		32		3		—		—		3
	Marketable equity securities		10		—		—		10		388		—		—		388
Other current assets:
	Marketable equity securities
	Derivative assets		—		209		—		209		—		330		—		330
	Loans receivable		—		36		—		36		—		—		—		—
Marketable equity securities			841		51		—		892		785		223		—		1,008
Other long-term investments:
	Corporate bonds		73		404		57		534		104		601		50		755
	Government bonds		—		351		—		351		83		2,002		—		2,085
	Bank deposits		—		55		—		55		—		133		—		133
	Asset-backed securities		—		—		52		52		—		—		53		53
Other long-term assets:
	Loans receivable		—		651		—		651		—		642		—		642
	Derivative assets		—		2		29		31		—		19		31		50
Total assets measured and
	recorded at fair value	$	2,637	$	10,963	$	299	$	13,899	$	8,197	$	17,885	$	339	$	26,421

Liabilities
Other accrued liabilities:
	Derivative liabilities	$	—	$	166	$	6	$	172	$	—	$	201	$	7	$	208
Long-term debt			—		—		128		128		—		—		128		128
Other long-term liabilities:
	Derivative liabilities		—		85		—		85		—		47		—		47
Total liabilities measured and
	recorded at fair value	$	—	$	251	$	134	$	385	$	—	$	248	$	135	$	383

Government bonds include bonds issued or deemed to be guaranteed by government entities, such as instruments issued by non-U.S. governments, U.S. Treasury securities, Federal Deposit Insurance Corporation (FDIC)-insured corporate bonds, and U.S. agency securities.

The tables below present reconciliations for all assets and liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended July 2, 2011 and for the twelve months ended December 25, 2010:

		Fair Value Measured and Recorded Using
		Significant Unobservable Inputs (Level 3)
		Corporate		Asset-Backed		Derivative		Derivative		Long-term		Total Gains
(In Millions)		Bonds		Securities		Assets		Liabilities		Debt		(Losses)
Balance as of December 25, 2010		$	51	$	257	$	31	$	(7)	$	(128)
Total gains or losses (realized and unrealized):
	Included in earnings		—		(1)		(2)		1		—		(2)
	Included in other comprehensive income (loss)		7		(1)		—		—		—		6
Purchases			12		13		3		—		—
Settlements and maturities			(5)		(63)		—		—		—
Transfers out of Level 3			—		—		(3)		—		—
Balance as of July 2, 2011		$	65	$	205	$	29	$	(6)	$	(128)

Changes in unrealized gains or losses included in
	earnings related to assets and liabilities still held
	as of July 2, 2011	$	—	$	(1)	$	(2)	$	1	$	—	$	(2)

		Fair Value Measured and Recorded Using
		Significant Unobservable Inputs (Level 3)
		Corporate		Asset-Backed		Derivative		Derivative		Long-term		Total Gains
(In Millions)		Bonds		Securities		Assets		Liabilities		Debt		(Losses)
Balance as of December 26, 2009		$	369	$	754	$	31	$	(65)	$	(123)
Total gains or losses (realized and unrealized):
	Included in earnings		(2)		6		(3)		(2)		(5)		(6)
	Included in other comprehensive income (loss)		4		9		—		—		—		13
Purchases			6		—		7		—		—
Sales			(44)		(28)		(4)		—		—
Settlements and maturities			(75)		(484)		—		—		—
Transfers out of Level 3			(207)		—		—		60		—
Balance as of December 25, 2010		$	51	$	257	$	31	$	(7)	$	(128)

Changes in unrealized gains or losses included in
	earnings related to assets and liabilities still held
	as of December 25, 2010	$	—	$	6	$	(4)	$	(1)	$	(5)	$	(4)

For all periods presented, gains and losses (realized and unrealized) included in earnings were primarily reported outside of operating income. During 2010, we transferred corporate bonds from Level 3 to Level 2 due to improved availability of observable market data and non-binding market consensus prices to value or corroborate the value of these instruments. Our policy is to reflect transfers in and transfers out at the beginning of the quarter in which a change in circumstances resulted in the transfer.

We elected the fair value option for loans made to third parties when the interest rate or foreign exchange rate risk was hedged at inception with a related derivative instrument. As of July 2, 2011, the fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance based on the contractual currency. These loans receivable are classified within other long-term assets and other current assets. Fair value is determined using a discounted cash flow model with all significant inputs derived from or corroborated with observable market data. Gains and losses from changes in fair value on the loans receivable and related derivative instruments, as well as interest income, are recorded in interest and other, net. During the three and six months ended July 2, 2011, changes in the fair value of our loans receivable were largely offset by changes in the related derivative instruments, resulting in an insignificant net impact on our consolidated condensed statements of income. Gains and losses attributable to changes in credit risk are determined using observable credit default spreads for the issuer or comparable companies and were insignificant during the three and six months ended July 2, 2011. We did not elect the fair value option for loans when the interest rate or foreign exchange rate risk was not hedged at inception with a related derivative instrument.

We elected this fair value option for the bonds issued in 2007 by the Industrial Development Authority of the City of Chandler, Arizona (2007 Arizona bonds). In connection with the 2007 Arizona bonds, we entered into a total return swap agreement that effectively converts the fixed-rate obligation on the bonds to a floating U.S.-dollar LIBOR-based rate. As a result, changes in the fair value of this debt are largely offset by changes in the fair value of the total return swap agreement, without the need to apply hedge accounting provisions. The 2007 Arizona bonds are included in long-term debt. As of July 2, 2011 and December 25, 2010, no other instruments were similar to the 2007 Arizona bonds for which we elected fair value treatment.

As of July 2, 2011, the fair value of the 2007 Arizona bonds did not significantly differ from the contractual principal balance. The fair value of the 2007 Arizona bonds was determined using inputs that are observable in the market or that can be derived from or corroborated with observable market data, as well as unobservable inputs that were significant to the fair value. Gains and losses on the 2007 Arizona bonds and the related total return swap are recorded in interest and other, net. We capitalize interest associated with the 2007 Arizona bonds. We add capitalized interest to the cost of qualified assets and amortize it over the estimated useful lives of the assets.

Our non-marketable equity investments and non-financial assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment charge is recognized. The following table presents the financial instruments and non-financial assets that were measured and recorded at fair value on a non-recurring basis during the six months ended July 2, 2011, and the gains (losses) recorded during the three and six months ended July 2, 2011 on those assets:

										Total Gains		Total Gains
										(Losses) for		(Losses) for
		Net Carrying								Three Months		Six Months
		Value as of		Fair Value Measured and Recorded Using						Ended		Ended
(In Millions)		July 2, 2011		Level 1		Level 2		Level 3		July 2, 2011		July 2, 2011
Non-marketable equity investments		$	37	$	—	$	—	$	37	$	(8)	$	(22)
Property, plant and equipment		$	—	$	—	$	—	$	—	$	—	$	(10)
Total gains (losses) for assets held
	as of July 2, 2011									$	(8)	$	(32)

Gains (losses) for non-marketable equity
Gains (losses) for property, plant and equipment
	no longer held									$	(19)	$	(45)
Total gains (losses) for recorded non-recurring
	measurement									$	(27)	$	(77)

The following table presents the financial instruments and non-financial assets that were measured and recorded at fair value on a non-recurring basis during the six months ended June 26, 2010, and the gains (losses) recorded during the three and six months ended June 26, 2010 on those assets:

										Total Gains		Total Gains
										(Losses) for		(Losses) for
		Net Carrying								Three Months		Six Months
		Value as of		Fair Value Measured and Recorded Using						Ended		Ended
(In Millions)		June 26, 2010		Level 1		Level 2		Level 3		June 26, 2010		June 26, 2010
Non-marketable equity investments		$	126	$	—	$	—	$	130	$	(17)	$	(63)
Total gains (losses) for assets held
	as of June 26, 2010									$	(17)	$	(63)

Gains (losses) for property, plant and equipment
	no longer held									$	(7)	$	(40)
Gains (losses) for non-marketable equity
Total gains (losses) for recorded non-recurring
	measurement									$	(24)	$	(103)

In the preceding tables, the carrying value of our impaired non-marketable equity investments at the end of the period may not equal our fair value measurement at the time of impairment due to the subsequent recognition of equity method adjustments. In addition, the carrying value of our impaired property, plant and equipment at the end of the period may not equal our fair value measurement at the time of impairment due to the subsequent recognition of depreciation expense.

A portion of our non-marketable equity investments were measured and recorded at fair value in the first half of 2011 and 2010 due to events or circumstances that significantly impacted the fair value of those investments, resulting in other-than-temporary impairment charges. We classified these measurements as Level 3, as we used unobservable inputs to the valuation methodologies that were significant to the fair value measurements, and the valuations required management judgment due to the absence of quoted market prices. We determine the fair value of our non-marketable equity investments using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable public companies. The selection of comparable companies requires management judgment and is based on a number of factors, including comparable companies' sizes, growth rates, industries, development stages, and other relevant factors. The income approach includes the use of a discounted cash flow model, which requires the following significant estimates for the investee: revenue, based on assumed market segment size and assumed market segment share; costs; and discount rates based on the risk profile of comparable companies. Estimates of market segment size, market segment share, and costs are developed using historical data and available market data. The valuation of these non-marketable equity investments also takes into account variables such as conditions reflected in the capital markets, recent financing activities by the investees, the investees' capital structure, and the terms of the investees' issued interests.

Additionally, certain of our property, plant and equipment was measured and recorded at fair value during the first half of 2011 and 2010 due to events or circumstances we identified that indicated that the carrying value of the assets or the asset grouping was not recoverable, resulting in impairment charges. Most of these asset impairments related to manufacturing assets.

We measure the fair value of our non-marketable equity investments, marketable equity method investment, debt carried at amortized cost, and cost method loans receivable quarterly for disclosure purposes; however, they are recorded at fair value only when an impairment charge is recognized. The carrying amounts and fair values of financial instruments not recorded at fair value on a recurring basis as of July 2, 2011 and December 25, 2010 were as follows:

As of July 2, 2011 and December 25, 2010, the unrealized loss position of our non-marketable equity investments was not significant.

Our marketable equity method investment is our ownership interest in SMART Technologies, Inc. The fair value of our ownership interest in SMART was $103 million based on the quoted closing stock price as of July 2, 2011 ($167 million as of December 25, 2010).

The carrying amount and fair value of loans receivable exclude loans measured and recorded at a fair value of $687 million as of July 2, 2011 ($642 million as of December 25, 2010). The carrying amount and fair value of long-term debt exclude long-term debt measured and recorded at a fair value of $128 million as of July 2, 2011 ($128 million as of December 25, 2010).

The fair value of our loans receivable is determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. The fair value of our long-term debt takes into consideration variables such as credit-rating changes and interest rate changes. The credit quality of our loans receivable remains high, with credit ratings of BBB+/A2 or better as of July 2, 2011.

In addition to the financial instruments in the table above, we incurred a liability as result of entering into a long-term patent cross-license agreement with NVIDIA Corporation in January 2011. We agreed to make payments to NVIDIA over six years. For further information on the payment terms and recognition of licensed technology intangible assets, see “Note 18: Identified Intangible Assets.” As of July 2, 2011, the carrying amount of the liability arising from the agreement was $1.1 billion and is classified within other accrued liabilities and other long-term liabilities, as applicable. The fair value of the liability arising from the NVIDIA cross-license agreement approximates the carrying amount. The fair value is determined using a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data.