Investments, Forward Contracts and Fair Value Measurements

12 Months Ended

Jun. 29, 2019

Investments and Fair Value Measurements [Abstract]

Investments, Forward Contracts and Fair Value Measurements

Note 8. Investments, Forward Contracts and Fair Value Measurements

Available-For-Sale Investments

The Company’s investments in marketable debt securities were primarily classified as available-for-sale investments. The following table presents as of June 29, 2019, the Company’s available-for-sale securities (in millions):

	Amortized Cost/ Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Asset-backed securities	0.9		—		(0.3		)	0.6
Total available-for-sale securities	$	0.9	$	—	$	(0.3	)	$	0.6

The Company generally classifies debt securities as cash equivalents, short-term investments or other non-current assets based on the stated maturities; however, certain securities with stated maturities of longer than twelve months, which are highly liquid and available to support current operations are also classified as short-term investments. As of June 29, 2019, the estimated fair value of $0.6 million was classified as other non-current assets.

In addition to the amounts presented above, as of June 29, 2019, the Company’s short-term investments classified as trading securities related to the deferred compensation plan were $1.5 million, of which $0.4 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $0.8 million was invested in equity securities. Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in the Company’s Consolidated Statements of Operations as a component of interest and other income, net.

During the fiscal year ended June 29, 2019, June 30, 2018 and July 1, 2017, respectively, the Company recorded no other-than-temporary impairment charges in each respective period.

As of June 29, 2019, the Company’s total gross unrealized losses on available-for-sale securities, aggregated by type of investment instrument, are as follows (in millions):

	Less than 12 Months		Greater than 12 Months			Total
Asset-backed securities	—		(0.3		)	(0.3		)
Total gross unrealized losses	$	—	$	(0.3	)	$	(0.3	)

As of June 29, 2019, the Company’s debt securities classified as available-for-sale securities with contractual maturities are as follows (in millions):

	Amortized Cost/Carrying Cost		Estimated Fair Value
Amounts maturing in less than 1 year	$	—	$	—
Amounts maturing in 1 - 5 years	—		—
Amounts maturing in more than 5 years	0.9		0.6
Total debt available-for-sale securities	$	0.9	$	0.6

As of June 30, 2018, the Company’s available-for-sale securities are as follows (in millions):

	Amortized Cost/ Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. treasuries	$	36.0	$	—	$	(0.1	)	$	35.9
U.S. agencies	13.3		—		(0.1		)	13.2
Municipal bonds and sovereign debt instruments	2.7		—		—			2.7
Asset-backed securities	23.9		—		(0.4		)	23.5
Corporate securities	114.9		—		(0.6		)	114.3
Total available-for-sale securities	$	190.8	$	—	$	(1.2	)	$	189.6

As of June 30, 2018, of the total estimated fair value, $21.2 million was classified as cash equivalents, $167.7 million was classified as short-term investments and $0.7 million was classified as other non-current assets.

In addition to the amounts presented above, as of June 30, 2018, the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were $1.6 million, of which $0.4 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $0.9 million was invested in equity securities.

As of June 30, 2018, the Company’s total gross unrealized losses on available-for-sale securities, aggregated by investment type, are as follows (in millions):

	Less than 12 Months			Greater than 12 Months			Total
U.S. treasuries and agencies	$	(0.1	)	$	(0.1	)	$	(0.2	)
Asset-backed securities	(0.1		)	(0.3		)	(0.4		)
Corporate securities	(0.4		)	(0.2		)	(0.6		)
Total gross unrealized losses	$	(0.6	)	$	(0.6	)	$	(1.2	)

Fair Value Measurements

The Company’s assets measured at fair value for the periods presented are as follows (in millions):

	June 29, 2019								June 30, 2018
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Debt available-for-sale securities:
U.S. treasuries	$	—	$	—	$	—	$	—	$	35.9	$	35.9	$	—	$	—
U.S. agencies	—		—		—		—		13.2		—		13.2		—
Municipal bonds and sovereign debt instruments	—		—		—		—		2.7		—		2.7		—
Asset-backed securities	0.6		—		0.6		—		23.5		—		23.5		—
Corporate securities	—		—		—		—		114.3		—		114.3		—
Certificate of deposits	—		—		—		—		—		—		—		—
Total debt available-for-sale securities	0.6		—		0.6		—		189.6		35.9		153.7		—
Marketable equity securities	—		—		—		—		—		—		—		—
Money market funds	322.9		322.9		—		—		354.9		354.9		—		—
Trading securities	1.5		1.5		—		—		1.6		1.6		—		—
Foreign currency forward contracts	1.2		—		1.2		—		2.7		—		2.7		—
Total assets (1)	$	326.2	$	324.4	$	1.8	$	—	$	548.8	$	392.4	$	156.4	$	—
Liability:
Foreign currency forward contracts (2)	$	4.0	$	—	$	4.0	$	—	$	11.7	$	—	$	11.7	$	—
Contingent consideration (3)	38.4		—		—		38.4		—		—		—		—
Total liabilities	$	42.4	$	—	$	4.0	$	38.4	$	11.7	$	—	$	11.7	$	—

(1) Includes as of June 29, 2019, $315.5 million in cash and cash equivalents, $1.5 million in short-term investments, $3.5 million in restricted cash, $1.2 million in other current assets, and $4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets. Includes as of June 30, 2018, $364.8 million in cash and cash equivalents, $169.3 million in short-term investments, $7.3 million in restricted cash, $2.7 million in other current assets and $4.7 million in other non-current assets on the Company’s Consolidated Balance Sheets.

(2) Includes $4.0 million and $11.7 million in other current liabilities on the Company’s Consolidated Balance Sheets as of June 29, 2019 and June 30, 2018, respectively.

(3) Includes $37.7 million in other non-current liabilities and $0.7 million in other current liabilities as of June 29, 2019.

The Company’s Level 3 liabilities as of June 29, 2019, consist of contingent purchase consideration. The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2019. The earn-out liabilities represent future payments by the Company of up to $63.0 million over four years, that are contingent on the achievement of certain revenue and gross profit targets. As June 29, 2019 the aggregate fair value of contingent consideration was $38.4 million. The fair value of earn-out liabilities were determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of acquired business over the earn-out period. The fair value of contingent consideration liabilities is remeasured at each reporting period at the estimated fair value based on the inputs on the date of remeasurement, with the change in fair value recognized in the selling, general and administrative expense of the Consolidated Statements of Operations.

The following table provides a reconciliation of changes in fair value of the Company’s Level 3 liabilities for the year ended June 29, 2019 (in millions):

	Contingent Consideration
Balance as of June 30, 2018	$	—
Additions: To Level 3 contingent consideration liabilities	44.3
Change: In fair value of contingent consideration liabilities	(5.9		)
Balance as of June 29, 2019	$	38.4

In connection with the acquisition of RPC, the Company agreed to pay RPC’s Securityholders up to $53.0 million over the subsequent 4-year period based on subsequent achievement of gross profit targets agreed upon at the time of close. The fair value of earn-out payments at the date of acquisition was $36.2 million. As of June 29, 2019, the fair value was remeasured at $30.3 million. The decrease in fair value of earn-out liability of $5.9 million was primarily due to revised projected forecast of RPC, primarily driven by rate of adoption assumptions.

No payments were made in connection with the Company’s contingent earn-out liabilities during fiscal 2019.

As of July 1, 2017, the Company had sold all of its ownership of Lumentum Holdings Inc. (“Lumentum”) common stock. During fiscal 2017, the Company sold 7.2 million Lumentum common shares and recognized gross gains of $203.0 million, included in gain on sale of investments in the Company’s Consolidated Statements of Operations. The sale resulted in no tax effect and the realized gain is also reflected within the operating activities section of the Consolidated Statements of Cash Flows, while the cash proceeds received are included in, sales of available-for-sale investments, within the investing activities section.

Non-Designated Foreign Currency Forward Contracts

The Company has foreign subsidiaries that operate and sell the Company’s products in various markets around the world. As a result, the Company is exposed to foreign exchange risks. The Company utilizes foreign exchange forward contracts to manage foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables, and to reduce the volatility of earnings and cash flows related to foreign-currency transactions. The Company does not use these foreign currency forward contracts for trading purposes.

As of June 29, 2019, the Company had forward contracts that were effectively closed but not settled with the counterparties by year end. Therefore, the fair value of these contracts of $1.2 million and $4.0 million is reflected as prepayments and other current assets and other current liabilities in the Consolidated Balance Sheets as of June 29, 2019, respectively.

The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near year end; therefore, the fair value of the contracts is not significant. As of June 29, 2019 and June 30, 2018, the notional amounts of the forward contracts that Company held to purchase foreign currencies were $117.8 million and $167.5 million, respectively, and the notional amounts of forward contracts that Company held to sell foreign currencies were $31.3 million and $28.6 million, respectively.

The change in the fair value of these foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of interest and other income, net. The cash flows related to the settlement of foreign currency forward contracts are classified as operating activities. The foreign exchange forward contracts incurred a loss of $6.9 million and a loss of $0.8 million for the years ended June 29, 2019 and June 30, 2018 respectively.