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Fair Value of Financial Instruments
 12 Months Ended
Jan. 02, 2016
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

6. Fair Value of Financial Instruments

        The following summarizes the valuation of the Company's financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value.

 
   Fair Value Measurements
at January 2, 2016 Using		    
  
Description
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		   Significant Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  

Assets:

                          

Cash Equivalents:

                          

Money market funds

   $ 37,721   $ —   $ —   $ 37,721  

Commercial paper

     —     11,272     —     11,272  

Certificates of deposit

     —     2,845     —     2,845  

U.S. government agency

     —     1,599     —     1,599  

Municipal bonds

     —     1,577     —     1,577  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash equivalents

   $ 37,721   $ 17,293   $ —   $ 55,014  

Short-term Investments:

    
 		    
 		    
 		    
 		  

Municipal bonds

   $ —   $ 93,516   $ —   $ 93,516  

Commercial paper

     —     11,176     —     11,176  

Variable-rate demand notes

     —     8,995     —     8,995  

Certificates of deposit

     —     8,000     —     8,000  

U.S. government agency

     —     3,998     —     3,998  

International government bonds

     —     2,220     —     2,220  

Corporate bonds

     —     996     —     996  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total short-term investments

   $ —   $ 128,901   $ —   $ 128,901  

Long-term Investments:

    
 		    
 		    
 		    
 		  

Auction rate securities

   $ —   $ —   $ 7,126   $ 7,126  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total long-term investments

   $ —   $ —   $ 7,126   $ 7,126  

Other assets, net:

    
 		    
 		    
 		    
 		  

Derivative instruments

   $ —   $ 92   $ —   $ 92  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ —   $ 92   $ —   $ 92  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

  
$
37,721		  
$
146,286		  
$
7,126		  
$
191,133		  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Liabilities:

                          

Accrued expenses:

                          

Contingent consideration

   $ —   $ —   $ 4,749   $ 4,749  

Other non-current liabilities:

    
 		    
 		    
 		    
 		  

Contingent consideration

   $ —   $ —   $ 9,324   $ 9,324  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ —   $ —   $ 14,073   $ 14,073  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​


 

 
   Fair Value Measurements
at January 3, 2015 Using		    
  
Description
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		   Significant Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  

Assets:

                          

Cash Equivalents:

                          

Money market funds

   $ 71,415   $ —   $ —   $ 71,415  

Certificates of deposit

     —     7,739     —     7,739  

Commercial paper

     —     5,348     —     5,348  

Municipal bonds

     —     1,757     —     1,757  

U.S. government agency

     —     1,202     —     1,202  

Corporate bonds

     —     1,101     —     1,101  

U.S. government bonds

     1,000     —     —     1,000  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash equivalents

   $ 72,415   $ 17,147   $ —   $ 89,562  

Short-term Investments:

    
 		    
 		    
 		    
 		  

Municipal bonds

   $ —   $ 129,152   $ —   $ 129,152  

Corporate bonds

     —     33,033     —     33,033  

Variable-rate demand notes

     —     12,915     —     12,915  

Commercial paper

     —     8,995     —     8,995  

Asset-backed securities

     —     5,377     —     5,377  

International government bonds

     —     2,516     —     2,516  

U.S. government bond

     650     —     —     650  

U.S. government agency

     —     601     —     601  

Certificates of deposit

     —     250     —     250  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total short-term investments

   $ 650   $ 192,839   $ —   $ 193,489  

Long-term Investments:

    
 		    
 		    
 		    
 		  

Auction rate securities

   $ —   $ —   $ 7,419   $ 7,419  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total long-term investments

   $ —   $ —   $ 7,419   $ 7,419  

Other assets, net:

    
 		    
 		    
 		    
 		  

Derivative instruments

   $ —   $ 331   $ —   $ 331  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ —   $ 331   $ —   $ 331  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

  
$
73,065		  
$
210,317		  
$
7,419		  
$
290,801		  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Liabilities:

                          

Accrued expenses:

                          

Contingent consideration

   $ —   $ —   $ 4,288   $ 4,288  

Other non-current liabilities:

    
 		    
 		    
 		    
 		  

Contingent consideration

   $ —   $ —   $ 14,150   $ 14,150  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ —   $ —   $ 18,438   $ 18,438  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        The Company's cash equivalents and short-term investments that are classified as Level 1 are valued using quoted prices and other relevant information generated by market transactions involving identical assets. Cash equivalents and short-term investments classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company's inability to liquidate the securities. The Company's derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include quoted interest swap rates, foreign exchange rates, forward and spot prices for currencies, and market observable data of similar instruments.

        The Company's contingent consideration is valued using a Monte Carlo simulation model or a probability weighted discounted cash flow model. The assumptions used in preparing the Monte Carlo simulation model include estimates for revenue growth rates, revenue volatility, contractual terms and discount rates. The assumptions used in preparing the discounted cash flow model include estimates for outcomes if milestone goals are achieved, the probability of achieving each outcome and discount rates.

        The following summarizes quantitative information about Level 3 fair value measurements.

Auction rate securities

Fair Value at
January 2, 2016
(000s)
  Valuation Technique   Unobservable Input   Weighted
Average
$7,126   Discounted cash flow   Estimated yield   1.06%

 
 
 
 
Expected holding period
 
10 years

 
 
 
 
Estimated discount rate
 
3.69%

        The Company has followed an established internal control procedure used in valuing auction rate securities. The procedure involves the analysis of valuation techniques and evaluation of unobservable inputs commonly used by market participants to price similar instruments, and which have been demonstrated to provide reasonable estimates of prices obtained in actual market transactions. Outputs from the valuation process are assessed against various market sources when they are available, including marketplace quotes, recent trades of similar illiquid securities, benchmark indices and independent pricing services. The technique and unobservable input parameters may be recalibrated periodically to achieve an appropriate estimation of the fair value of the securities.

        Significant changes in any of the unobservable inputs used in the fair value measurement of auction rate securities in isolation could result in a significantly lower or higher fair value measurement. An increase in expected yield would result in a higher fair value measurement, whereas an increase in expected holding period or estimated discount rate would result in a lower fair value measurement. Generally, a change in the assumptions used for expected holding period is accompanied by a directionally similar change in the assumptions used for estimated yield and discount rate.

Contingent consideration

Fair Value at
January 2, 2016
(000s)
  Valuation Technique   Unobservable Input   Range
$14,073   Monte Carlo simulation   Expected revenue growth rate   29.8% - 55.8%

 
 
 
 
Expected revenue volatility
 
20.0%

 
 
 
 
Expected term
 
0.0 years - 3.0 years

 
 
 
 
Estimated discount rate
 
0.34% - 0.98%

        The Company has followed an established internal control procedure used in valuing contingent consideration. The valuation of contingent consideration for the Energy Micro acquisition is based on the Company's revenue data for fiscal 2015 and a Monte Carlo simulation model for fiscal 2016 to 2018. The fair value of this valuation is estimated on a quarterly basis through a collaborative effort by the Company's sales, marketing and finance departments.

        Significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration in isolation could result in a significantly lower or higher fair value. A change in projected revenue growth rates would be accompanied by a directionally similar change in fair value.

        The following summarizes the activity in Level 3 financial instruments for the years ended January 2, 2016 and January 3, 2015 (in thousands):

Assets

 
   Year Ended  
Auction Rate Securities
  January 2,
2016		   January 3,
2015		  

Beginning balance

   $ 7,419   $ 10,632  

Settlements

     —     (4,425 )

Gain (loss) included in other comprehensive income (loss)

     (293 )   1,212  
​ ​ ​ ​ ​ ​ ​ ​

Ending balance

   $ 7,126   $ 7,419  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Liabilities

 
   Year Ended  
Contingent Consideration (1)
  January 2,
2016		   January 3,
2015		  

Beginning balance

   $ 18,438   $ 12,919  

Settlements

     (4,464 )   —  

Loss recognized in earnings (2)

     99     5,519  
​ ​ ​ ​ ​ ​ ​ ​

Ending balance

   $ 14,073   $ 18,438  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Net loss for the period included in earnings attributable to contingent consideration held at the end of the period:

   $ (99 ) $ (5,519 )
​ ​ ​ ​ ​ ​ ​ ​
(1)
In connection with the acquisition of Energy Micro, the Company recorded contingent consideration based upon the expected achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2)
Changes to the estimated fair value of contingent consideration were primarily due to revisions to the Company's expectations of earn-out achievement.

Fair values of other financial instruments

        The Company's debt under the Credit Facilities bears interest at the Eurodollar rate plus an applicable margin. The Credit Facilities are recorded at cost, but are measured at fair value for disclosure purposes. Fair value is estimated based on Level 2 inputs, using a discounted cash flow analysis of future principal payments and projected interest based on current market rates. As of January 2, 2016 and January 3, 2015, the fair value of the Company's debt under the Credit Facilities was approximately $77.5 million and $87.4 million, respectively.

        The Company's other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.