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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2022

5. 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, 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

5. Fair Value of Financial Instruments (Continued)


	Fair Value Measurements
	at January 1, 2022 Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Cash equivalents:
Money market funds	$	845,740	$	—	$	—	$	845,740
Corporate debt securities		—		3,552		—		3,552
Government debt securities		—		2,950		—		2,950
Total cash equivalents	$	845,740	$	6,502	$	—	$	852,242

Short-term investments:
Corporate debt securities	$	—	$	773,461	$	—	$	773,461
Government debt securities		71,509		119,612		—		191,121
Total short-term investments	$	71,509	$	893,073	$	—	$	964,582

Other assets, net:
Auction rate securities	$	—	$	—	$	4,980	$	4,980
Total	$	—	$	—	$	4,980	$	4,980

Total	$	917,249	$	899,575	$	4,980	$	1,821,804

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. 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 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 Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at December 31, 2022 (in thousands):


			Fair
	Cost		Value
Due in one year or less	$	462,096	$	454,957
Due after one year through ten years		243,957		237,561
Due after ten years		2,755		2,755
	$	708,808	$	695,273

5. Fair Value of Financial Instruments (Continued)

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 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)


	Less Than 12 Months				12 Months or Greater				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
As of January 1, 2022	Value		Losses		Value		Losses		Value		Losses
Corporate debt securities	$	418,917	$	(1,451)	$	326	$	(1)	$	419,243	$	(1,452)
Government debt securities		126,957		(750)		—		—		126,957		(750)
Auction rate securities		—		—		4,980		(1,020)		4,980		(1,020)
	$	545,874	$	(2,201)	$	5,306	$	(1,021)	$	551,180	$	(3,222)

The gross unrealized losses as of December 31, 2022 were due primarily to changes in market interest rates. The gross unrealized losses as of January 1, 2022 were due primarily to changes in market interest rates and the illiquidity of the Company’s auction-rate securities.

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 December 31, 2022, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

At December 31, 2022 and January 1, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments.

5. Fair Value of Financial Instruments (Continued)

Level 3 fair value measurements

The following summarizes the activity in Level 3 financial instruments for the years ended December 31, 2022 and January 1, 2022 (in thousands):

Assets


	Year Ended
	December 31,		January 1,
Auction Rate Securities	2022		2022
Beginning balance	$	4,980	$	5,340
Sales (1)		(6,000)		—
Loss recognized in earnings		300		—
Gain (loss) included in other comprehensive income (loss)		720		(360)
Ending balance	$	—	$	4,980

(1)

On May 31, 2022, the Company sold its prior remaining holding of auction-rate securities for $5.7 million.

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 31, 2022 and January 1, 2022, the fair value of the notes was $671.9 million and $944.3 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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