NOTE 4 — FINANCIAL INSTRUMENTS

The Company maintains an investment portfolio of various holdings, types, and maturities. The Company's mutual funds, which are correlated to the Company's obligations under the deferred compensation plan, are classified as trading securities. Investments classified as trading securities are recorded at fair value based upon quoted market prices. Differences between the cost and fair value of trading securities are recognized as "Other income (expense)" in the Consolidated Statements of Operations. All of the Company's other short-term investments are classified as available-for-sale and consequently are recorded in the Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of tax.

Fair Value

The Company defines fair value as 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 the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.

A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value. The level of an asset or liability in the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities with sufficient volume and frequency of transactions.

Level 2: Valuations based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or model-derived valuations techniques for which all significant inputs are observable in the market or can be corroborated by, observable market data for substantially the full term of the assets or liabilities.

Level 3: Valuations based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities and based on non-binding, broker-provided price quotes and may not have been corroborated by observable market data.

The following table sets forth the Company's financial assets and liabilities measured at fair value on a recurring basis:


			Fair Value Measurement at December 25, 2011
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets
Short-Term Investments
Money Market Funds	$	1,364,760	$	1,364,760	$	—	$	—
Municipal Notes and Bonds		400,290		—		400,290		—
US Treasury and Agencies		6,064		6,064		—		—
Government-Sponsored Enterprises		37,851		—		37,851		—
Foreign Government Bonds		1,002		—		1,002		—
Corporate Notes and Bonds		378,264		164,885		213,379		—
Mortgage Backed Securities – Residential		1,343		—		1,343		—
Mortgage Backed Securities – Commercial		53,684		—		53,684		—

Total Short-Term Investments	$	2,243,258	$	1,535,709	$	707,549	$	—
Equities		7,945		7,945		—		—
Mutual Funds		18,164		18,164		—		—
Derivatives Assets		1,002		—		1,002		—

Total	$	2,270,369	$	1,561,818	$	708,551	$	—

Liabilities
Derivative Liabilities	$	5,785	$	—	$	5,785	$	—

The amounts in the table above are reported in the Consolidated Balance Sheet as of December 25, 2011 as follows:


Reported As:	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Cash Equivalents	$	1,365,517	$	1,364,760	$	757	$	—
Short-Term Investments		712,856		6,064		706,792		—
Restricted Cash and Investments		164,885		164,885		—		—
Prepaid Expenses and Other Current Assets		26,109		26,109		—		—
Other Assets		1,002		—		1,002		—

Total	$	2,270,369	$	1,561,818	$	708,551	$	—

Accrued Expenses and Other Current Liabilities	$	5,785	$	—	$	5,785	$	—

The following table sets forth the Company's financial assets and liabilities measured at fair value on a recurring basis:


			Fair Value Measurement at June 26, 2011
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets
Short-Term Investments
Money Market Funds	$	1,300,098	$	1,300,098	$	—	$	—
Municipal Notes and Bonds		321,339		—		321,339		—
US Treasury and Agencies		8,496		8,496		—		—
Government-Sponsored Enterprises		19,868		—		19,868		—
Foreign Government Bond		1,005		—		1,005		—
Corporate Notes and Bonds		382,432		164,885		217,547		—
Mortgage Backed Securities – Residential		2,633		—		2,633		—
Mortgage Backed Securities – Commercial		60,729		—		60,729		—

Total Short-Term Investments	$	2,096,600	$	1,473,479	$	623,121	$	—
Equities		7,443		7,443		—		—
Mutual Funds		19,467		19,467		—		—
Derivatives Assets		1,994		—		1,994		—

Total	$	2,125,504	$	1,500,389	$	625,115	$	—

Liabilities
Derivative Liabilities	$	1,924	$	—	$	1,924	$	—

The amounts in the table above are reported in the Consolidated Balance Sheet as of June 26, 2011 as follows:


Reported As:	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Cash Equivalents	$	1,301,600	$	1,300,098	$	1,502	$	—
Short-Term Investments		630,115		8,496		621,619		—
Restricted Cash and Investments		164,885		164,885		—		—
Prepaid Expenses and Other Current Assets		26,910		26,910		—		—
Other Assets		1,994		—		1,994		—

Total	$	2,125,504	$	1,500,389	$	625,115	$	—

Accrued Expenses and Other Current Liabilities	$	1,924	$	—	$	1,924	$	—

The Company's primary financial instruments include its cash, cash equivalents, short-term investments, restricted cash and investments, long-term investments, accounts receivable, accounts payable, long-term debt and capital leases, and foreign currency related derivatives. The estimated fair value of cash, accounts receivable and accounts payable approximates their carrying value due to the short period of time to their maturities. The estimated fair values of long-term debt, excluding convertible notes, and capital lease obligations approximate their carrying value as the substantial majority of these obligations have interest rates that adjust to market rates on a periodic basis. Refer to Note 13 of the Notes to the Condensed Consolidated Financial Statements for additional information regarding the fair value of the Company's convertible notes.

Investments

The following tables summarize the Company's investments (in thousands):


	December 25, 2011									June 26, 2011
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Value		Cost		Unrealized Gain		Unrealized (Loss)			Fair Value
Cash	$	141,743	$	—	$	—		$	141,743	$	190,903	$	—	$	—		$	190,903
Fixed Income Money Market Funds		1,364,760		—		—			1,364,760		1,300,098		—		—			1,300,098
Municipal Notes and Bonds		398,723		1,591		(24	)		400,290		319,913		1,510		(84	)		321,339
US Treasury and Agencies		6,036		28		—			6,064		8,462		34		—			8,496
Government-Sponsored Enterprises		37,846		39		(34	)		37,851		19,864		6		(2	)		19,868
Foreign Government Bonds		1,002		—		—			1,002		1,004		1		—			1,005
Corporate Notes and Bonds		378,021		827		(584	)		378,264		380,992		1,498		(58	)		382,432
Mortgage Backed Securities – Residential		1,257		86		—			1,343		2,521		144		(32	)		2,633
Mortgage Backed Securities – Commercial		53,598		348		(262	)		53,684		60,639		277		(187	)		60,729

Total Cash and Short- Term Investments	$	2,382,986	$	2,919	$	(904	)	$	2,385,001	$	2,284,396	$	3,470	$	(363	)	$	2,287,503

Publicly Traded Equity Securities	$	9,320	$	—	$	(1,375	)	$	7,945	$	9,320	$	—	$	(1,877	)	$	7,443
Mutual Funds		18,051		277		(164	)		18,164		17,975		1,492		—			19,467

Total Financial Instruments	$	2,410,357	$	3,196	$	(2,443	)	$	2,411,110	$	2,311,691	$	4,962	$	(2,240	)	$	2,314,413

As Reported
Cash and Cash Equivalents	$	1,506,927	$	1	$	—		$	1,506,928	$	1,492,132	$	—	$	—		$	1,492,132
Short-Term Investments		710,842		2,918		(904	)		712,856		627,008		3,470		(363	)		630,115
Restricted Cash and Investments		165,217		—		—			165,217		165,256		—		—			165,256
Other assets		27,371		277		(1,539	)		26,109		27,295		1,492		(1,877	)		26,910

Total	$	2,410,357	$	3,196	$	(2,443	)	$	2,411,110	$	2,311,691	$	4,962	$	(2,240	)	$	2,314,413

The Company accounts for its investment portfolio at fair value. Realized gains (losses) for investment sales and pay-downs are specifically identified. Management assesses the fair value of investments in debt securities that are not actively traded through consideration of interest rates and their impact on the present value of the cash flows to be received from the investments. The Company also considers whether changes in the credit ratings of the issuer could impact the assessment of fair value. The Company recognized a $1.7 million other-than-temporary impairment of a strategic private equity investment during the six months ended December 25, 2011. The Company did not recognize any losses on investments due to other-than-temporary impairments during the three months ended December 25, 2011 or the three or six months ended December 26, 2010. Additionally, gross realized gains and losses from sales of investments were both less than $0.4 million during the three and six months ended December 25, 2011 and December 26, 2010.

The following is an analysis of the Company's fixed income securities in unrealized loss positions (in thousands):


	December 25, 2011
	Unrealized Losses					Unrealized Losses
	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
Short-Term Investments
Municipal Notes and Bonds	$	26,581	$	(24	)	$	—	$	—		$	26,581	$	(24	)
Government-Sponsored Enterprises		19,449		(34	)		—		—			19,449		(34	)
Corporate Notes and Bonds		86,980		(584	)				—			86,980		(584	)
Mortgage Backed Securities - Commercial		25,307		(216	)		966		(46	)		26,273		(262	)

Total Short-Term Investments	$	158,317	$	(858	)	$	966	$	(46	)	$	159,283	$	(904	)

The amortized cost and fair value of cash equivalents, short-term investments, and restricted cash and investments with contractual maturities are as follows:


	December 25, 2011				June 26, 2011
	Cost		Estimated Fair Value		Cost		Estimated Fair Value
	(in thousands)
Due in less than one year	$	1,726,678	$	1,727,063	$	1,606,390	$	1,606,925
Due in more than one year		514,565		516,195		487,103		489,675

	$	2,241,243	$	2,243,258	$	2,093,493	$	2,096,600

Management has the ability, if necessary, to liquidate any of its cash equivalents and short-term investments in order to meet the Company's liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase nonetheless are classified as short-term on the accompanying Consolidated Balance Sheets.

Derivative Instruments and Hedging

The Company carries derivative financial instruments ("derivatives") on its Consolidated Balance Sheets at their fair values. The Company enters into foreign exchange forward contracts with financial institutions with the primary objective of reducing volatility of earnings and cash flows related to foreign currency exchange rate fluctuations. The counterparties to these foreign exchange forward contracts are large international financial institutions that the Company believes are creditworthy, and therefore, we do not consider the risk of counterparty nonperformance to be material.

Cash Flow Hedges

In the normal course of business, the Company's financial position is routinely subjected to market risk associated with foreign currency exchange rate fluctuations on non-US dollar transactions or cash flows, primarily from Japanese yen-denominated revenues and Euro-denominated expenses. The Company's policy is to mitigate the foreign exchange risk arising from the fluctuations in the value of these non-US dollar denominated transactions or cash flows through a foreign currency cash flow hedging program, using foreign exchange forward contracts that generally expire within 12 months and no later than 24 months. These foreign exchange forward contracts are designated as cash flow hedges and are carried on the Company's balance sheet at fair value with the effective portion of the contracts' gains or losses included in accumulated other comprehensive income (loss) and subsequently recognized in revenue in the same period the hedged revenue is recognized.

At inception and at each quarter end, hedges are tested prospectively and retrospectively for effectiveness using regression analysis. Changes in the fair value of foreign exchange forward contracts due to changes in time value are excluded from the assessment of effectiveness and are recognized in revenue in the current period. The change in time value related to these contracts was not material for all reported periods. To qualify for hedge accounting, the hedge relationship must meet criteria relating both to the derivative instrument and the hedged item. These criteria include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows will be measured. There were no gains or losses during the three or six months ended December 25, 2011 or December 26, 2010 associated with ineffectiveness or forecasted transactions that failed to occur.

To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge and the hedges must be tested to demonstrate an expectation of providing highly effective offsetting changes to future cash flows on hedged transactions. When derivative instruments are designated and qualify as effective cash flow hedges, the Company is able to defer effective changes in the fair value of the hedging instrument within accumulated other comprehensive income (loss) until the hedged exposure is realized. Consequently, with the exception of excluded time value and hedge ineffectiveness recognized, the Company's results of operations are not subject to fluctuation as a result of changes in the fair value of the derivative instruments. If hedges are not highly effective or if the Company does not believe that the underlying hedged forecasted transactions will occur, the Company may not be able to account for its derivative instruments as cash flow hedges. If this were to occur, future changes in the fair values of the Company's derivative instruments would be recognized in earnings. Additionally, related amounts previously recorded in "Other comprehensive income" would be reclassified to income immediately. At December 25, 2011, the Company had losses of $5.7 million accumulated in Other Comprehensive Income, which it expects to reclassify from Other Comprehensive Income into earnings over the next 12 months.

Balance Sheet Hedges

The Company also enters into foreign exchange forward contracts to hedge the effects of foreign currency fluctuations associated with foreign currency denominated monetary assets and liabilities, primarily intercompany receivables and payables. These foreign exchange forward contracts are not designated for hedge accounting treatment. Therefore, the change in fair value of these derivatives is recorded as a component of other income (expense) and offsets the change in fair value of the foreign currency denominated assets and liabilities, recorded in other income (expense).

As of December 25, 2011, the Company had the following outstanding foreign currency forward contracts that were entered into under its cash flow and balance sheet hedge program:


	Derivatives Designated as Hedging Instruments:		Derivatives Not Designated as Hedging Instruments:
	(in thousands)
Foreign Currency Forward Contracts
Sell JPY	$	51,278	$	37,179
Buy CHF		—		236,471
Buy TWD		—		69,394
Buy EUR		78,774		36,395

	$	130,052	$	379,439

The fair value of derivatives instruments in the Company's Condensed Consolidated Balance Sheets as of December 25, 2011 was as follows:


	Fair Value of Derivative Instruments
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location		Fair Value
	(in thousands)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expense and other assets	$	88		Accrued liabilities	$	(5,236	)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expense and other assets	$	914		Accrued liabilities	$	(549	)

Total derivatives		$	1,002			$	(5,785	)

The fair value of derivatives instruments in the Company's Condensed Consolidated Balance Sheets as of June 26, 2011 was as follows:


	Fair Value of Derivative Instruments
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location		Fair Value
	(in thousands)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expense and other assets	$	1,881		Accrued liabilities	$	(1,142	)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expense and other assets	$	113		Accrued liabilities	$	(782	)

Total derivatives		$	1,994			$	(1,924	)

The effect of derivative instruments designated as cash flow hedges on the Company's Condensed Consolidated Statements of Operations was as follows:


	Three Months Ended December 25, 2011											Six Months Ended December 25, 2011
Derivatives Designated as Hedging Instruments:	Gain (Loss) Recognized (Effective Portion) (1)			Gain (Loss) Recognized (Effective Portion) (2)			Gain (Loss) Recognized (Ineffective Portion) (3)			Gain (Loss) Recognized (Excluded from Effectiveness Testing) (4)		Gain (Loss) Recognized (Effective Portion) (1)			Gain (Loss) Recognized (Effective Portion) (2)			Gain (Loss) Recognized (Ineffective Portion) (3)			Gain (Loss) Recognized (Excluded from Effectiveness Testing) (4)
	(in thousands)
Foreign exchange forward contracts	$	(3,581	)	$	(2,906	)	$	(1	)	$	223	$	(11,793	)	$	(5,512	)	$	(2	)	$	754

	Three Months Ended December 26, 2010											Six Months Ended December 26, 2010
Derivatives Designated as Hedging Instruments:	Gain (Loss) Recognized (Effective Portion) (1)			Gain (Loss) Recognized (Effective Portion) (2)			Gain (Loss) Recognized (Ineffective Portion) (3)			Gain (Loss) Recognized (Excluded from Effectiveness Testing) (4)		Gain (Loss) Recognized (Effective Portion) (1)			Gain (Loss) Recognized (Effective Portion) (2)			Gain (Loss) Recognized (Ineffective Portion) (3)			Gain (Loss) Recognized (Excluded from Effectiveness Testing) (4)
	(in thousands)
Foreign exchange forward contracts	$	317		$	(2,192	)	$	—		$	73	$	(4,777	)	$	(5,802	)	$	—		$	187

(1)	Amount recognized in other comprehensive income (effective portion).

(2)	Amount of gain (loss) reclassified from accumulated other comprehensive income into income (effective portion) located in revenue and operating expenses.

(3)	Amount of gain (loss) recognized in income on derivative (ineffective portion) located in other income (expense), net.

(4)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) located in other income (expense), net.

The effect of derivative instruments not designated as cash flow hedges on the Company's Condensed Consolidated Statement of Operations was as follows:


	Three Months Ended					Six Months Ended
	December 25, 2011			December 26, 2010		December 25, 2011			December 26, 2010
Derivatives Not Designated as Hedging Instruments:	Gain (Loss) Recognized (5)			Gain (Loss) Recognized (5)		Gain (Loss) Recognized (5)			Gain (Loss) Recognized (5)
	(in thousands)
Foreign exchange forward contracts	$	(20,411	)	$	5,798	$	(42,823	)	$	14,177

(5)	Amount of gain (loss) recognized in income located in other income (expense), net.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short term investments, restricted cash and investments, trade accounts receivable, and derivative financial instruments used in hedging activities. Cash is placed on deposit in large international financial institutions. Such deposits may be in excess of insured limits. Management believes that the financial institutions that hold the Company's cash are credit worthy and, accordingly, minimal credit risk exists with respect to these balances.

The Company's available-for-sale securities must have a minimum rating of A2 / A at the time of purchase, as rated by two of the following three rating agencies: Moody's, Standard & Poor's (S&P), or Fitch. To ensure diversification and minimize concentration, the Company's policy limits the amount of credit exposure with any one financial institution or commercial issuer.

The Company is exposed to credit losses in the event of nonperformance by counterparties on the foreign currency forward contracts that are used to mitigate the effect of exchange rate fluctuations and on contracts related to structured share repurchase agreements. These counterparties are large international financial institutions and to date, no such counterparty has failed to meet its financial obligations to the Company.

Credit risk evaluations, including trade references, bank references and Dun & Bradstreet ratings, are performed on all new customers and the Company monitors its customers' financial statements and payment performance. In general, the Company does not require collateral on sales.