NOTE 3. CASH, CASH EQUIVALENTS AND SHORT-TERM MARKETABLE SECURITIES

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:


Level 1 –		Quoted prices in active markets for identical assets or liabilities.

Level 2 –		Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table summarizes our investment assets, measured at fair value on a recurring basis, as of January 1, 2012 and March 27, 2011 (in thousands, except for percentages):


	January 1, 2012
	Level 1		Level 2		Total
Assets:
Money market funds	$	4,771	$	—	$	4,771	2	%
U.S. Treasury securities		17,298		—		17,298	9	%
Asset-backed securities		—		20,454		20,454	11	%
Agency mortgage-backed securities		—		31,659		31,659	16	%
Agency pool mortgage-backed securities		—		3,981		3,981	2	%
Corporate bonds and notes		—		75,092		75,092	39	%
Government and agency bonds		—		40,240		40,240	21	%

Total investment assets	$	22,069	$	171,426	$	193,495	100	%


	March 27, 2011
	Level 1		Level 2		Total
Assets:
Money market funds	$	7,403	$	—	$	7,403	4	%
U.S. Treasury securities		20,726		—		20,726	10	%
Asset-backed securities		—		24,242		24,242	13	%
Agency mortgage-backed securities		—		35,565		35,565	18	%
Agency pool mortgage-backed securities		—		3,522		3,522	2	%
Corporate bonds and notes		—		78,588		78,588	41	%
Government and agency bonds		—		23,317		23,317	12	%

Total investment assets	$	28,129	$	165,234	$	193,363	100	%

Our cash, cash equivalents and short-term marketable securities as of January 1, 2012 and March 27, 2011 are as follows (in thousands):


	January 1, 2012		March 27, 2011
Cash and cash equivalents
Cash at financial institutions	$	4,974	$	7,636
Cash equivalents
Money market funds		4,771		7,403

Total cash and cash equivalents	$	9,745	$	15,039

Available-for-sale securities
U.S. government and agency securities	$	57,538	$	44,043
Corporate bonds and notes		75,092		78,588
Asset-backed securities		20,454		24,242
Mortgage-backed securities		35,640		39,087

Total short-term marketable securities	$	188,724	$	185,960

Our marketable securities include municipal securities, corporate bonds and notes, asset-backed and mortgage-backed securities and U.S. government and agency securities. We classify investments as available-for-sale at the time of purchase and re-evaluate such designation as of each balance sheet date. We amortize premiums and accrete discounts to interest income over the life of the investment. Our available-for-sale securities, which we intend to sell as necessary to meet our liquidity requirements, are classified as cash equivalents if the maturity date is 90 days or less from the date of purchase and as short-term marketable securities if the maturity date is greater than 90 days from the date of purchase.

All marketable securities are reported at fair value based on the estimated or quoted market prices as of each balance sheet date, with unrealized gains or losses, net of tax effect, recorded in accumulated other comprehensive income (loss) within stockholders' equity except those unrealized losses that are deemed to be other than temporary which would be reflected in the impairment charges on investments line item on the condensed consolidated statements of operations.

Realized gains or losses on the sale of marketable securities are determined by the specific identification method and are reflected in the interest income and other, net line item on the condensed consolidated statements of operations.

Our net realized gains (losses) on marketable securities were as follows for the periods indicated (in thousands):


	Three Months Ended						Nine Months Ended
	January 1, 2012			December 26, 2010			January 1, 2012			December 26, 2010
Gross realized gains	$	241		$	491		$	505		$	1,007
Gross realized losses		(348	)		(348	)		(775	)		(816	)

Net realized gains (losses)	$	(107	)	$	143		$	(270	)	$	191

The following table summarizes our investments in marketable securities as of January 1, 2012 and March 27, 2011 (in thousands):


	January 1, 2012
			Unrealized
	Amortized Cost		Gross Gains ⁽¹⁾		Gross Losses ⁽¹⁾			Net Gain (Loss) ⁽¹⁾			Fair Value
Money market funds	$	4,771	$	—	$	—		$	—		$	4,771
U.S. government and agency securities		57,285		280		(27	)		253			57,538
Corporate bonds and notes		75,369		273		(550	)		(277	)		75,092
Asset and mortgage-backed securities		56,190		194		(290	)		(96	)		56,094

Total investments	$	193,615	$	747	$	(867	)	$	(120	)	$	193,495


	March 27, 2011
			Unrealized
	Amortized Cost		Gross Gains ⁽¹⁾		Gross Losses ⁽¹⁾			Net Gain (Loss) ⁽¹⁾			Fair Value
Money market funds	$	7,403	$	—	$	—		$	—		$	7,403
U.S. government and agency securities		44,117		145		(219	)		(74	)		44,043
Corporate bonds and notes		77,957		694		(63	)		631			78,588
Asset and mortgage-backed securities		63,370		172		(213	)		(41	)		63,329

Total investments	$	192,847	$	1,011	$	(495	)	$	516		$	193,363

(1)	Gross of tax impact

The asset-backed securities are comprised primarily of premium tranches of vehicle loans and credit card receivables, while our mortgage-backed securities are primarily from Federal agencies. We do not own auction rate securities nor do we own securities that are classified as subprime. As of the date of this Form 10-Q, we have sufficient liquidity and do not intend to sell these securities to fund normal operations nor realize any significant losses in the short term.

We periodically review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security's loss position, our intent to not sell the security, and whether it is more likely than not that we will not have to sell the security before recovery of its cost basis. For the three and nine months ended January 1, 2012, there were no investments identified with other than temporary declines in value. Other-than-temporary declines in value of our investments are reported in the impairment charges on investments line item in the condensed consolidated statements of operations. In the three months ended September 27, 2009, an investment in GSAA Home Equity with a cost of $425,000 was downgraded from an AAA rating to a CCC rating. As a result of the reduction in the rating, quantitative analysis showing an increase in the default rate and decrease in prepayment rate of the investment, we recorded an other-than-temporary impairment charge of $91,000 during the three months ended September 27, 2009. In the three months ended September 26, 2010, due to further decline in the investment, we recorded an additional other-than-temporary impairment charge of $62,000.

The amortized cost and estimated fair value of cash equivalents and marketable securities classified as available-for-sale at January 1, 2012 and March 27, 2011, respectively, by expected maturity were as follows (in thousands):


	January 1, 2012				March 27, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Less than 1 year	$	55,994	$	55,510	$	78,378	$	78,684
Due in 1 to 5 years		137,621		137,985		114,469		114,679

Total	$	193,615	$	193,495	$	192,847	$	193,363

The following table summarizes the gross unrealized losses and fair values of our investments in an unrealized loss position as of January 1, 2012 and March 27, 2011, respectively, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


	January 1, 2012
	Less than 12 months					12 months or greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government and agency securities	$	13,999	$	(27	)	$	—	$	—		$	13,999	$	(27	)
Corporate bonds and notes		31,980		(550	)		—		—			31,980		(550	)
Asset and mortgage-backed securities		23,893		(200	)		5,443		(90	)		29,336		(290	)

Total	$	69,872	$	(777	)	$	5,443	$	(90	)	$	75,315	$	(867	)


	March 27, 2011
	Less than 12 months					12 months or greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government and agency securities	$	25,936	$	(219	)	$	325	$	(4	)	$	26,261	$	(223	)
Corporate bonds and notes		16,516		(63	)		1,948		(9	)		18,464		(72	)
Asset and mortgage-backed securities		34,143		(200	)		—		—			34,143		(200	)

Total	$	76,595	$	(482	)	$	2,273	$	(13	)	$	78,868	$	(495	)