Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments

Fair Value of Financial Instruments

6. 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, 2011 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	$	50,851	$	—	$	—	$	50,851
Total cash equivalents	$	50,851	$	—	$	—	$	50,851
Short-term Investments:
Corporate bonds	$	—	$	75,060	$	—	$	75,060
Municipal bonds		—		56,984		—		56,984
Variable-rate demand notes		—		41,280		—		41,280
U.S. government agency		—		19,836		—		19,836
U.S. Treasury bills		8,600		—		—		8,600
Asset-backed securities		—		5,739		—		5,739
U.S. government bonds		2,507		—		—		2,507
Certificates of deposit		—		1,570		—		1,570
International government bonds		—		950		—		950
Total short-term investments	$	11,107	$	201,419	$	—	$	212,526
Long-term Investments:
Auction rate securities	$	—	$	—	$	17,477	$	17,477
Total long-term investments	$	—	$	—	$	17,477	$	17,477
Total	$	61,958	$	201,419	$	17,477	$	280,854
Liabilities:
Derivative instruments	$	—	$	1,998	$	—	$	1,998
Contingent consideration		—		—		876		876
Total	$	—	$	1,998	$	876	$	2,874

	Fair Value Measurements at January 1, 2011 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2) (1)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
U.S. Treasury bills	$	50,097	$	—	$	—	$	50,097
Money market funds		45,167		—		—		45,167
Commercial paper		—		2,659		—		2,659
Total cash equivalents	$	95,264	$	2,659	$	—	$	97,923
Short-term Investments:
Corporate bonds	$	—	$	88,518	$	—	$	88,518
Variable-rate demand notes		—		39,425		—		39,425
Municipal bonds		—		38,414		—		38,414
U.S. government agency		—		34,680		—		34,680
International government bonds		—		10,830		—		10,830
U.S. Treasury bills		6,999		—		—		6,999
Certificates of deposit		—		5,742		—		5,742
Commercial paper		—		2,687		—		2,687
Total short-term investments	$	6,999	$	220,296	$	—	$	227,295
Long-term Investments:
Auction rate securities	$	—	$	—	$	17,500	$	17,500
Total long-term investments	$	—	$	—	$	17,500	$	17,500
Total	$	102,263	$	222,955	$	17,500	$	342,718
Liabilities:
Derivative instruments	$	—	$	3,811	$	—	$	3,811
Contingent consideration		—		—		1,780		1,780
Total	$	—	$	3,811	$	1,780	$	5,591

(1)

The Company previously classified all of its cash equivalents and short-term investments as using Level 1 inputs. The Company has determined that the pricing methods for certain of these investments use significant other observable inputs. Accordingly, such investments held in prior periods have been properly presented as Level 2. The reclassification had no impact on the fair value of investments in any of the periods presented.

        The Company's cash equivalents and short-term investments that are classified as Level 1 are valued using quoted prices and other relevant information generated by market transactions involving identical assets. Cash equivalents and short-term investments 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 a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include quoted interest swap rates and market observable data of similar instruments. The Company's contingent consideration is valued using a probability weighted discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for possible outcomes if certain milestone goals are achieved, the probability of achieving each outcome and discount rates.

        The following summarizes the activity in Level 3 financial instruments for the years ended December 31, 2011 and January 1, 2011 (in thousands):

Assets	Auction Rate Securities
Balance at January 1, 2011	$	17,500
Settlements		(500	)
Unrealized gains		477
Balance at December 31, 2011	$	17,477

	Auction Rate Securities			Put Option			Total
Balance at January 2, 2010	$	45,575		$	3,093		$	48,668
Settlements (1)		(31,142	)		(2,226	)		(33,368	)
Unrealized gains		179			—			179
Net recognized gains (losses)		2,888			(867	)		2,021
Balance at January 1, 2011	$	17,500		$	—		$	17,500

Liabilities	Contingent Consideration
Balance at January 1, 2011	$	1,780
Issuance (2)		1,025
Recognized gain (3)		(1,929	)
Balance at December 31, 2011	$	876
Net gain for period included in earnings attributable to contingent consideration still held at December 31, 2011:	$	1,929

	Contingent Consideration
Balance at January 2, 2010	$	—
Issuance (2)		1,840
Recognized gain		(60	)
Balance at January 1, 2011	$	1,780
Gain for period included in earnings attributable to contingent consideration still held at January 1, 2011:	$	60

(1)

The Company previously held $23.5 million par value auction-rate securities purchased through UBS AG. During fiscal 2010, the Company sold these securities to UBS at par value under an agreement which provided the Company with certain rights to sell to UBS the auction-rate securities that were purchased through them. Recognized gains and losses on these securities and the related UBS put option were recorded in other income (expense), net in the Consolidated Statement of Income.

(2)

In connection with the acquisitions of Spectra Linear and ChipSensors, the Company recorded contingent consideration based upon the achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the discounted cash flow model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income. Changes resulting from foreign currency remeasurement adjustments to the contingent consideration liability are recorded in other income (expense), net.

(3)

The Company reduced the estimated fair value of contingent consideration because certain milestone goals were either not achieved or are less likely to be achieved.

        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.