Fair Value of Financial Instruments

3 Months Ended

Apr. 01, 2023

Fair Value of Financial Instruments

Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The fair values of the Company’s financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 – Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities and quoted prices in less active markets.

Level 3 – Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.

3. Fair Value of Financial Instruments (Continued)

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 April 1, 2023 Using
	Quoted Prices in		Significant Other
	Active Markets for		Observable
	Identical Assets		Inputs
Description	(Level 1)		(Level 2)		Total
Cash equivalents:
Money market funds	$	563,856	$	—	$	563,856
Total cash equivalents	$	563,856	$	—	$	563,856
Short-term investments:
Corporate debt securities	$	—	$	296,619	$	296,619
Government debt securities		—		139,080		139,080
Total short-term investments	$	—	$	435,699	$	435,699
Total	$	563,856	$	435,699	$	999,555

	Fair Value Measurements
	at December 31, 2022 Using
	Quoted Prices in		Significant Other
	Active Markets for		Observable
	Identical Assets		Inputs
Description	(Level 1)		(Level 2)		Total
Cash equivalents:
Money market funds	$	310,969	$	—	$	310,969
Corporate debt securities		—		3,249		3,249
Total cash equivalents	$	310,969	$	3,249	$	314,218
Short-term investments:
Corporate debt securities	$	—	$	501,014	$	501,014
Government debt securities		—		191,010		191,010
Total short-term investments	$	—	$	692,024	$	692,024
Total	$	310,969	$	695,273	$	1,006,242

3. Fair Value of Financial Instruments (Continued)

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; quoted prices in less active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. The Company’s foreign currency 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.

Contractual maturities of investments

The Company’s available-for-sale 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 Condensed Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at April 1, 2023 (in thousands):

			Fair
	Cost		Value
Due in one year or less	$	188,907	$	186,023
Due after one year through five years		254,715		249,676
	$	443,622	$	435,699

Unrealized Gains and Losses

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
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
As of April 1, 2023	Value		Losses		Value		Losses		Value		Losses
Corporate debt securities	$	59,723	$	(625)	$	222,231	$	(4,895)	$	281,954	$	(5,520)
Government debt securities		23,652		(20)		89,889		(2,473)		113,541		(2,493)
	$	83,375	$	(645)	$	312,120	$	(7,368)	$	395,495	$	(8,013)

	Less Than 12 Months				12 Months or Greater				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
As of December 31, 2022	Value		Losses		Value		Losses		Value		Losses
Corporate debt securities	$	307,085	$	(5,297)	$	185,467	$	(4,090)	$	492,552	$	(9,387)
Government debt securities		76,651		(626)		100,209		(3,541)		176,860		(4,167)
	$	383,736	$	(5,923)	$	285,676	$	(7,631)	$	669,412	$	(13,554)

The gross unrealized losses as of April 1, 2023 and December 31, 2022 were due primarily to changes in market interest rates. At April 1, 2023 and December 31, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments.

3. Fair Value of Financial Instruments (Continued)

The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity 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 April 1, 2023, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

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 April 1, 2023 and December 31, 2022, the fair value of the notes was $803.4 million and $671.9 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.