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Fair Value of Financial Instruments
 12 Months Ended
Jun. 26, 2011
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

Note 6 – Fair Value of Financial Instruments

Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., "the exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and market income models. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas, unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

 

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Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

 

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Level 2 - Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

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Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The financial assets for which the Company performs recurring fair value remeasurements are cash equivalents and short-term investments. As of June 26, 2011, financial assets utilizing Level 1 inputs included money market funds and investments traded on active securities exchanges. Financial assets utilizing Level 2 inputs included corporate bonds, municipal bonds and variable rate demand notes, and U.S. agency securities. Level 2 assets are valued using a third-party pricing services consensus price which is a weighted average price based on multiple sources. These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility. The Company does not have any significant financial assets requiring the use of Level 3 inputs. There were no transfers between Level 1 and Level 2 during the year ended June 26, 2011.

The following table sets forth financial instruments carried at fair value within the U.S. GAAP hierarchy and using the lowest level of input (in thousands):

 

     Financial Instruments Carried at Fair Value as of June  26, 2011  
     Quoted Prices in
Active Markets
for Identical
Items (Level 1)		      Significant Other
Observable
Inputs (Level 2)		      Significant
Unobservable
Inputs (Level 3)		      Total  

Assets:

            

Cash equivalents

            

Money market funds

    $ 7,386       $ —         $     —         $ 7,386   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total cash equivalents

      7,386         —           —           7,386   

Short-term investments

            

Municipal bonds

      —           395,398         —         $ 395,398   

Corporate bonds

      —           209,438         —           209,438   

Municipal variable rate demand notes

      —           295         —           295   

U.S. agency securities

      —           68,049         —           68,049   

Certificates of deposit

      —           10,015         —           10,015   

Commercial paper

      —           4,999         —           4,999   

Non-U.S. government securities

      —           7,005         —           7,005   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total short-term investments

      —           695,199         —           695,199   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

    $ 7,386       $ 695,199       $ —         $ 702,585   
  

 

 

     

 

 

     

 

 

     

 

 

  

The Company utilizes specific identification in computing realized gains and losses on the sale of investments. Realized gains and losses from the sale of investments are included in "Gain on sale of investments, net" and unrealized gains and losses are included as a separate component of equity, net of tax, unless the loss is determined to be "other-than-temporary."