Note 7. Investments, Forward Contracts and Fair Value Measurements

Available-For-Sale Investments

The Company’s investments in marketable debt securities were primarily classified as available-for-sale securities. As of September 30, 2017, the Company’s available-for-sale securities were as follows (in millions):



	Amortized Cost/ Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale debt securities:
U.S. treasuries	$	88.5	$	—	$	(0.1	)	$	88.4
U.S. agencies	13.9		—		(0.1		)	13.8
Municipal bonds and sovereign debt instruments	4.4		—		—			4.4
Asset-backed securities	62.7		—		(0.4		)	62.3
Corporate securities	330.4		0.1		(0.1		)	330.4
Total available-for-sale debt securities	$	499.9	$	0.1	$	(0.7	)	$	499.3

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 September 30, 2017, of the total estimated fair value, $69.8 million was classified as cash equivalents, $428.8 million was classified as short-term investments and $0.7 million was classified as other non-current assets.

In addition to the amounts presented above, as of September 30, 2017, the Company’s short-term investments classified as trading securities related to the deferred compensation plan were $2.1 million, of which $0.4 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $1.4 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, net.

During the three months ended September 30, 2017 and October 1, 2016, the Company recorded no other-than-temporary impairment charges in each respective period.

As of September 30, 2017, 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	$	384.9	$	384.8
Amounts maturing in 1 - 5 years	114.0		113.8
Amounts maturing in more than 5 years	1.0		0.7
Total debt available-for-sale securities	$	499.9	$	499.3

As of July 1, 2017, the Company’s available-for-sale securities were as follows (in millions):



	Amortized Cost/ Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. treasuries	$	56.8	$	—	$	(0.1	)	$	56.7
U.S. agencies	45.0		—		(0.1		)	44.9
Municipal bonds and sovereign debt instruments	4.4		—		—			4.4
Asset-backed securities	71.5		—		(0.4		)	71.1
Corporate securities	326.1		0.1		(0.2		)	326.0
Certificates of deposit	6.0		—		—			6.0
Total available-for-sale securities	$	509.8	$	0.1	$	(0.8	)	$	509.1

As of July 1, 2017, of the total estimated fair value, $78.2 million was classified as cash equivalents, $430.2 million was classified as short-term investments and $0.7 million was classified as other non-current assets.

In addition to the amounts presented above, as of July 1, 2017, the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were $2.0 million, of which $0.5 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $1.2 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, net.

Fair Value Measurements

Assets measured at fair value as of September 30, 2017 and July 1, 2017 are summarized below (in millions):



	Fair value measurement as of						Fair value measurement as of
	September 30, 2017						July 1, 2017
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		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	$	88.4	$	88.4	$	—	$	56.7	$	56.7	$	—
U.S. agencies	13.8		—		13.8		44.9		—		44.9
Municipal bonds and sovereign debt instruments	4.4		—		4.4		4.4		—		4.4
Asset-backed securities	62.3		—		62.3		71.1		—		71.1
Corporate securities	330.4		—		330.4		326.0		—		326.0
Certificate of deposits	—		—		—		6.0		—		6.0
Total debt available-for-sale securities	499.3		88.4		410.9		509.1		56.7		452.4
Money market funds	530.5		530.5		—		726.4		726.4		—
Trading securities	2.1		2.1		—		2.0		2.0		—
Foreign currency forward contracts	4.0		—		4.0		7.3		—		7.3
Total assets (1)	$	1,035.9	$	621.0	$	414.9	$	1,244.8	$	785.1	$	459.7

Liability:
Foreign currency forward contracts	0.9		—		0.9		1.3		—		1.3
Total liabilities (2)	$	0.9	$	—	$	0.9	$	1.3	$	—	$	1.3

(1) $588.7 million in cash and cash equivalents, $430.9 million in short-term investments, $7.3 million in restricted cash, $4.0 million in prepayments and other current assets, and $5.0 million in other non-current assets on the Company’s Consolidated Balance Sheets as of September 30, 2017. $789.2 million in cash and cash equivalents, $432.2 million in short-term investments, $11.0 million in restricted cash, $7.3 million in prepayments and other current assets, and $5.1 million in other non-current assets on the Company’s Consolidated Balance Sheets as of July 1, 2017.

(2) $0.9 million in other current liabilities on the Company’s Consolidated Balance Sheets as of September 30, 2017. $1.3 million in other current liabilities on the Company’s Consolidated Balance Sheets as of July 1, 2017.

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, certificates of deposit, 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 September 30, 2017 and July 1, 2017, the Company did not hold any Level 3 investment securities.

Non-Designated 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 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 Company does not use these foreign currency forward contracts for trading purposes.

As of September 30, 2017, the Company had forward contracts that were effectively closed but not settled with the counterparties by quarter end. Therefore, the fair value of these contracts of $4.0 million and $0.9 million is reflected as prepayments and other current assets and other current liabilities in the Consolidated Balance Sheets as of September 30, 2017, respectively. As of July 1, 2017, the fair value of these contracts of $7.3 million and $1.3 million is reflected as prepayments and other current assets and other current liabilities, respectively.

The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near quarter end; therefore, the fair value of the contracts is not significant. As of September 30, 2017 and July 1, 2017, the notional amounts of the forward contracts the Company held to purchase foreign currencies were $135.2 million and $134.3 million, respectively, and the notional amounts of forward contracts the Company held to sell foreign currencies were $25.9 million and $25.4 million, respectively.

The change in the fair value of 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, net. The cash flows related to the settlement of foreign currency forward contracts are classified as operating activities. The gains on foreign exchange forward contracts were $3.1 million and $0.3 million for the three months ended September 30, 2017 and October 1, 2016, respectively.