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Fair Value of Financial Instruments
 12 Months Ended
Dec. 29, 2018
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 29, 2018 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

   $ 74,990   $ —   $ —   $ 74,990  

Corporate debt securities

     —     18,820     —     18,820  

Government debt securities

     9,338     —     —     9,338  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash equivalents

   $ 84,328   $ 18,820   $ —   $ 103,148  

Short-term investments:

    
 		    
 		    
 		    
 		  

Government debt securities

   $ 48,141   $ 99,211   $ —   $ 147,352  

Corporate debt securities

     —     269,427     —     269,427  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total short-term investments

   $ 48,141   $ 368,638   $ —   $ 416,779  

Other assets, net:

    
 		    
 		    
 		    
 		  

Auction rate securities

   $ —   $ —   $ 5,759   $ 5,759  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ —   $ —   $ 5,759   $ 5,759  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

  
$
132,469		  
$
387,458		  
$
5,759		  
$
525,686		  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​


 

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

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 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 loss in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company's available-for-sale investments at December 29, 2018 (in thousands):

 
   Cost   Fair Value  

Due in one year or less

   $ 338,623   $ 337,910  

Due after one year through ten years

     169,058     168,657  

Due after ten years

     19,360     19,119  
​ ​ ​ ​ ​ ​ ​ ​

  $ 527,041   $ 525,686  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

        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 29, 2018
  Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		  

Government debt securities

   $ 13,278   $ (10 ) $ 88,696   $ (583 ) $ 101,974   $ (593 )

Corporate debt securities

     112,699     (273 )   76,310     (448 )   189,009     (721 )

Auction rate securities

     —     —     5,759     (241 )   5,759     (241 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 125,977   $ (283 ) $ 170,765   $ (1,272 ) $ 296,742   $ (1,555 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​


 

 
   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 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        The gross unrealized losses as of December 29, 2018 and December 30, 2017 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. 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 29, 2018, the Company has determined that no other-than-temporary impairment losses existed.

        At December 29, 2018 and December 30, 2017, 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 29, 2018
(000s)
  Valuation Technique   Unobservable Input   Weighted
Average
$5,759   Discounted cash flow   Estimated yield   3.23%

 
 
 
 
Expected holding period
 
10 years

 
 
 
 
Estimated discount rate
 
3.76%

        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.

        The following summarizes the activity in Level 3 financial instruments for the years ended December 29, 2018 and December 30, 2017 (in thousands):

Assets

 
   Year Ended  
Auction Rate Securities
  December 29,
2018		   December 30,
2017		  

Beginning balance

   $ 5,681   $ 5,196  

Gain included in other comprehensive income (loss)

     78     485  
​ ​ ​ ​ ​ ​ ​ ​

Ending balance

   $ 5,759   $ 5,681  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Liabilities

 
   Year Ended  
Contingent Consideration (1)
  December 30,
2017		  

Beginning balance

   $ —  

Issues

     3,829  

Reclassification to acquisition-related liabilities

     (3,380 )

Gain recognized in selling, general and administrative expenses

     (449 )
​ ​ ​ ​ ​

Ending balance

   $ —  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​
(1)
In connection with the acquisition of Zentri, the Company recorded contingent consideration based on fiscal 2017 revenue from certain Zentri products.

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. As of December 29, 2018 and December 30, 2017, the fair value of the convertible senior notes was $419.0 million and $466.2 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.