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Fair Value of Financial Instruments
 12 Months Ended
Dec. 31, 2016
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

4. 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 December 31, 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

   $ 69,432   $ —   $ —   $ 69,432  

Certificates of deposit

     —     7,153     —     7,153  

Municipal bonds

     —     3,904     —     3,904  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash equivalents

   $ 69,432   $ 11,057   $ —   $ 80,489  

Short-term investments:

    
 		    
 		    
 		    
 		  

Municipal bonds

   $ —   $ 79,702   $ —   $ 79,702  

Corporate bonds

     —     31,036     —     31,036  

Variable-rate demand notes

     —     16,400     —     16,400  

U.S. government bonds

     12,416     —     —     12,416  

Asset-backed securities

     —     8,173     —     8,173  

Commercial paper

     —     5,233     —     5,233  

International government bonds

     —     1,001     —     1,001  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total short-term investments

   $ 12,416   $ 141,545   $ —   $ 153,961  

Long-term investments:

    
 		    
 		    
 		    
 		  

Auction rate securities

   $ —   $ —   $ 5,196   $ 5,196  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total long-term investments

   $ —   $ —   $ 5,196   $ 5,196  

Other assets, net:

    
 		    
 		    
 		    
 		  

Derivative instruments

   $ —   $ 1,808   $ —   $ 1,808  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ —   $ 1,808   $ —   $ 1,808  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 81,848   $ 154,410   $ 5,196   $ 241,454  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 
   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  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Valuation methodology

        The Company's cash equivalents and short-term investments that are 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.

Available-for-sale investments

        The Company's investments typically have original maturities greater than ninety days as of the date of purchase. Investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive income (loss) in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company's available-for-sale investments at December 31, 2016 (in thousands):

 
   Cost   Fair Value  

Due in one year or less

   $ 159,670   $ 159,624  

Due after one year through ten years

     59,628     59,426  

Due after ten years

     21,400     20,596  
​ ​ ​ ​ ​ ​ ​ ​

  $ 240,698   $ 239,646  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

        The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands):

 
   Less Than 12 Months   12 Months or Greater   Total  
As of December 31, 2016
  Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		  

Municipal bonds

   $ 69,379   $ (140 ) $ —   $ —   $ 69,379   $ (140 )

Corporate bonds

     18,561     (128 )   —     —     18,561     (128 )

U.S. government bonds

     10,364     (16 )   —     —     10,364     (16 )

Auction rate securities

     —     —     5,196     (804 )   5,196     (804 )

Asset-backed securities

     3,176     (4 )   —     —     3,176     (4 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 101,480   $ (288 ) $ 5,196   $ (804 ) $ 106,676   $ (1,092 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​


 

 
   Less Than 12 Months   12 Months or Greater   Total  
As of January 2, 2016
  Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		  

Municipal bonds

   $ 29,271   $ (30 ) $ 1,198   $ (2 ) $ 30,469   $ (32 )

Auction rate securities

     —     —     7,126     (874 )   7,126     (874 )

International government bonds

     2,220     (7 )   —     —     2,220     (7 )

Corporate bonds

     996     (3 )   —     —     996     (3 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 32,487   $ (40 ) $ 8,324   $ (876 ) $ 40,811   $ (916 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        The gross unrealized losses as of December 31, 2016 and January 2, 2016 were due primarily to the illiquidity of the Company's auction-rate securities and, to a lesser extent, to changes in market interest rates. The Company's auction-rate securities have been illiquid since 2008 when auctions for the securities failed because sell orders exceeded buy orders. These securities have a contractual maturity date of 2046 at December 31, 2016. The Company is unable to predict if these funds will become available before their maturity date.

        The Company does not expect to need access to the capital represented by any of its auction-rate securities prior to their maturities. The Company does not intend to sell, and believes it is not more likely than not that it will be required to sell, its auction-rate securities before their anticipated recovery in market value or final settlement at the underlying par value. The Company believes that the credit ratings and credit support of the security issuers indicate that they have the ability to settle the securities at par value. As such, the Company has determined that no other-than-temporary impairment losses existed as of December 31, 2016.

        At December 31, 2016 and January 2, 2016, there were no material unrealized gains associated with the Company's available-for-sale investments.

Level 3 fair value measurements

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

Auction rate securities

Fair Value at
December 31, 2016
(000s)
  Valuation Technique   Unobservable Input   Weighted
Average
$5,196   Discounted cash flow   Estimated yield   1.09%

 
 
 
 
Expected holding period
 
10 years

 
 
 
 
Estimated discount rate
 
3.89%

        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

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

        The following summarizes the activity in Level 3 financial instruments for the years ended December 31, 2016 and January 2, 2016 (in thousands):

Assets

 
   Year Ended  
Auction Rate Securities
  December 31,
2016		   January 2,
2016		  

Beginning balance

   $ 7,126   $ 7,419  

Settlements

     (2,000 )   —  

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

     70     (293 )
​ ​ ​ ​ ​ ​ ​ ​

Ending balance

   $ 5,196   $ 7,126  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Liabilities

 
   Year Ended  
Contingent Consideration (1)
  December 31,
2016		   January 2,
2016		  

Beginning balance

   $ 14,073   $ 18,438  

Settlements (2)

     (11,375 )   (4,464 )

(Gain) loss recognized in earnings (3)

     (2,698 )   99  
​ ​ ​ ​ ​ ​ ​ ​

Balance at December 31, 2016

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

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

   $ —   $ (99 )
​ ​ ​ ​ ​ ​ ​ ​
(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 were recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2)
On March 11, 2016, the Company entered into an agreement which settled the total amount of contingent consideration related to the Energy Micro acquisition (including all amounts for fiscal 2015 through 2018). See Note 8, Acquisitions, for additional information.

(3)
The gain recognized in earnings was due to the settlement of the Energy Micro contingent consideration. This gain was offset in part by a charge of approximately $2.7 million recorded in fiscal 2016 for a portion of the contingent consideration accounted for as post-combination compensation expense.

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 December 31, 2016 and January 2, 2016, the fair value of the Company's debt under the Credit Facilities was approximately $72.5 million and $77.5 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.