XML 24 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
Fair Value of Financial Instruments
 12 Months Ended
Dec. 30, 2017
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 30, 2017 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

   $ 106,047   $ —   $ —   $ 106,047  

Corporate debt securities

     —     11,231     —     11,231  

Government debt securities

     53,615     1,453     —     55,068  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash equivalents

   $ 159,662   $ 12,684   $ —   $ 172,346  

Short-term investments:

    
 		    
 		    
 		    
 		  

Government debt securities

   $ 94,575   $ 228,247   $ —   $ 322,822  

Corporate debt securities

     —     171,835     —     171,835  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total short-term investments

   $ 94,575   $ 400,082   $ —   $ 494,657  

Other assets, net:

    
 		    
 		    
 		    
 		  

Auction rate securities

   $ —   $ —   $ 5,681   $ 5,681  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ —   $ —   $ 5,681   $ 5,681  

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

Total

   $ 254,237   $ 412,766   $ 5,681   $ 672,684  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 
   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  

Corporate debt securities

     —     7,153     —     7,153  

Government debt securities

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

Total cash equivalents

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

Short-term investments:

    
 		    
 		    
 		    
 		  

Government debt securities

   $ 12,416   $ 97,103   $ —   $ 109,519  

Corporate debt securities

     —     44,442     —     44,442  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total short-term investments

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

Other assets, net:

    
 		    
 		    
 		    
 		  

Auction rate securities

   $ —   $ —   $ 5,196   $ 5,196  

Derivative instruments

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

Total

   $ —   $ 1,808   $ 5,196   $ 7,004  

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

Total

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

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.

Available-for-sale investments

        The Company's 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 30, 2017 (in thousands):

 
   Cost   Fair Value  

Due in one year or less

   $ 393,600   $ 393,201  

Due after one year through ten years

     198,981     197,922  

Due after ten years

     81,884     81,561  
​ ​ ​ ​ ​ ​ ​ ​

  $ 674,465   $ 672,684  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

        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 30, 2017
  Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		  

Government debt securities

   $ 244,880   $ (931 ) $ 3,027   $ (15 ) $ 247,907   $ (946 )

Corporate debt securities

     151,149     (447 )   11,578     (73 )   162,727     (520 )

Auction rate securities

     —     —     5,681     (319 )   5,681     (319 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 396,029   $ (1,378 ) $ 20,286   $ (407 ) $ 416,315   $ (1,785 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​


 

 
   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		  

Government debt securities

   $ 79,743   $ (156 ) $ —   $ —   $ 79,743   $ (156 )

Corporate debt securities

     21,737     (132 )   —     —     21,737     (132 )

Auction rate securities

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

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

        The gross unrealized losses as of December 30, 2017 and December 31, 2016 were due primarily to changes in market interest rates and the illiquidity of the Company's auction-rate securities. 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 30, 2017. The Company is unable to predict if these funds will become available before their maturity date.

        The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the severity and duration of the impairment, changes in underlying credit ratings, forecasted recovery, the Company's intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of December 30, 2017, the Company has determined that no other-than-temporary impairment losses existed .

        At December 30, 2017 and December 31, 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 30, 2017
(000s)
  Valuation Technique   Unobservable Input   Weighted
Average
$5,681   Discounted cash flow   Estimated yield   1.74%

 
 
 
 
Expected holding period
 
10 years

 
 
 
 
Estimated discount rate
 
3.37%

        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 Zentri acquisition was based on a discounted cash flow model. The valuation of contingent consideration for the Energy Micro acquisition was based on a Monte Carlo simulation model. The fair value of the valuations 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 30, 2017 and December 31, 2016 (in thousands):

Assets

 
   Year Ended  
Auction Rate Securities
  December 30,
2017		   December 31,
2016		  

Beginning balance

   $ 5,196   $ 7,126  

Settlements

     —     (2,000 )

Gain included in other comprehensive income (loss)

     485     70  
​ ​ ​ ​ ​ ​ ​ ​

Ending balance

   $ 5,681   $ 5,196  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Liabilities

 
   Year Ended  
Contingent Consideration (1)
  December 30,
2017		   December 31,
2016		  

Beginning balance

   $ —   $ 14,073  

Issues

     3,829     —  

Settlements (2)

     —     (11,375 )

Reclassification to acquisition-related liabilities (3)

     (3,380 )   —  

Gain recognized in earnings (4)

     (449 )   (2,698 )
​ ​ ​ ​ ​ ​ ​ ​

Ending balance

   $ —   $ —  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
(1)
In connection with the acquisitions of Zentri and 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 models 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 milestone goal related to the Zentri contingent consideration was based on fiscal 2017 revenue from certain Zentri products, which is now completed. The accrued consideration is recorded in other current liabilities in the Consolidated Balance Sheet.

(4)
The gain recognized in earnings in fiscal 2016 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 is recorded at cost, but is measured at fair value for disclosure purposes. The fair value of the Company's convertible senior notes is determined using observable market prices. The notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement. The fair value of the convertible senior notes at December 30, 2017 was $466.2 million. The Company's prior debt under the Credit Facility bore interest at the Eurodollar rate plus an applicable margin. Fair value was 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 30, 2017, there were no amounts outstanding under the Credit Facility. As of December 31, 2016, the fair value of the Company's debt under the Credit Facility was approximately $72.5 million.

        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.