Note 7. Investments and Fair Value Measurements

The Company’s investments in marketable debt and equity securities were primarily classified as available-for-sale securities. As of January 2, 2016, the Company’s available-for-sale securities were as follows (in millions):



	Amortized Cost/Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt securities:
U.S. treasuries	$	46.3	$	—	$	—		$	46.3
U.S. agencies	59.7		—		(0.1		)	59.6
Municipal bonds and sovereign debt instruments	2.3		—		—			2.3
Asset-backed securities	49.8		—		(0.4		)	49.4
Corporate securities	183.8		—		(0.2		)	183.6
Total debt securities	341.9		—		(0.7		)	341.2
Marketable equity securities	100.3		157.2		—			257.5
Total available-for-sale securities	$	442.2	$	157.2	$	(0.7	)	$	598.7

The Company generally classifies debt securities as cash equivalents, short-term investments or other non-current assets based on the stated maturities; however, certain securities with stated maturities of longer than twelve months which are highly liquid and available to support current operations are also classified as short-term investments. As of January 2, 2016, of the total fair value, $15.8 million was classified as cash equivalents, $324.7 million was classified as short-term investments and $0.7 million was classified as other non-current assets.

Marketable equity securities consist of the Company’s ownership of 11.7 million shares of Lumentum common stock retained in connection with the Separation. These securities are stated at fair value, with unrealized gains and losses reported in other comprehensive income, net of tax and are classified as short-term investments on the Consolidated Balance Sheet as of January 2, 2016 at $257.5 million. The Company has not recognized any realized gains or losses related to these securities.

In addition to the amounts presented above, as of January 2, 2016, the Company’s short-term investments classified as trading securities related to the deferred compensation plan were $3.3 million, of which $0.6 million was invested in debt securities, $0.7 million was invested in money market instruments and funds and $2.0 million was invested in equity securities. Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in Interest and other income (expense), net.

During the three and six months ended January 2, 2016 and December 27, 2014, the Company recorded no other-than-temporary impairment charges in each respective period.

As of January 2, 2016, contractual maturities of the Company’s debt securities classified as available-for-sale securities were as follows (in millions):



	Amortized Cost/Carrying Cost		Estimated Fair Value
Amounts maturing in less than 1 year	$	233.9	$	233.8
Amounts maturing in 1 - 5 years	105.5		105.3
Amounts maturing in more than 5 years	2.5		2.1
Total debt available-for-sale securities	$	341.9	$	341.2

As of June 27, 2015, the Company’s available-for-sale securities were as follows (in millions):



	Amortized Cost/Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt securities:
U.S. treasuries	$	51.9	$	—	$	—		$	51.9
U.S. agencies	96.0		—		—			96.0
Municipal bonds and sovereign debt instruments	4.0		—		—			4.0
Asset-backed securities	70.6		—		(0.2		)	70.4
Corporate securities	274.1		0.1		(0.1		)	274.1
Total debt available-for-sale securities	$	496.6	$	0.1	$	(0.3	)	$	496.4

As of June 27, 2015, of the total fair value, $33.7 million was classified as cash equivalents, $461.9 million was classified as short-term investments and $0.8 million was classified as other non-current assets.

In addition to the amounts presented above, as of June 27, 2015, the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were $3.4 million, of which $0.6 million was invested in debt securities, $0.7 million was invested in money market instruments and funds and $2.1 million was invested in equity securities. Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in Interest and other income (expense), net.

Fair Value Measurements

Assets measured at fair value as of January 2, 2016 are summarized below (in millions):



	Fair value measurement as of
	January 2, 2016
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Debt available-for-sale securities
U.S. treasuries	$	46.3	$	46.3	$	—
U.S. agencies	59.6		—		59.6
Municipal bonds and sovereign debt instruments	2.3		—		2.3
Asset-backed securities	49.4		—		49.4
Corporate securities	183.6		—		183.6
Total debt available-for-sale securities	341.2		46.3		294.9
Marketable equity securities	257.5		257.5		—
Money market funds	203.0		203.0		—
Trading securities	3.3		3.3		—
Total assets (1)	$	805.0	$	510.1	$	294.9

(1) $204.5 million in cash and cash equivalents, $585.5 million in short-term investments, $10.5 million in restricted cash, and $4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets.

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. There is an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions about the factors that market participants would use in valuing the asset or liability.

The Company’s cash and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy based on quoted prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.


•	Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 1 assets of the Company include money market funds, U.S. Treasury securities and marketable equity securities as they are traded with sufficient volume and frequency of transactions.

•

Level 2 includes financial instruments for which the valuations are based on 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 data for substantially the full term of the assets or liabilities. Level 2 instruments of the Company generally include certain U.S. and foreign government and agency securities, commercial paper, corporate and municipal bonds and notes, asset-backed securities, and foreign currency forward contracts. To estimate their fair value, the Company utilizes pricing models based on market data. The significant inputs for the valuation model usually include benchmark yields, reported trades, broker and dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, and industry and economic events.


•	Level 3 includes financial instruments for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. As of June 27, 2015 and during the three and six months ended January 2, 2016 and December 27, 2014 the Company did not hold any Level 3 investment securities.

Foreign Currency Forward Contracts

The Company has foreign subsidiaries that operate and sell the Company’s products in various markets around the world. As a result, the Company is exposed to foreign exchange risks. The Company utilizes foreign exchange forward contracts and other instruments to manage foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables, and to reduce the volatility of earnings and cash flows related to foreign-currency transactions.

The forward contracts, most with a term of less than 120 days, were transacted near quarter end; therefore, the fair value of the contracts as of both January 2, 2016 and June 27, 2015 is not material. The change in the fair value of these foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of Interest and other income (expense), net.