Fair Value of Financial Instruments (Tables)

9 Months Ended

Oct. 03, 2015

Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis

The following summarizes the valuation of the Company’s financial instruments (in thousands).

	Fair Value Measurements at October 3, 2015 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	$	63,316	$	—	$	—	$	63,316
Certificates of deposit	—		3,903		—		3,903
Total cash equivalents	$	63,316	$	3,903	$	—	$	67,219
Short-term Investments:
Municipal bonds	$	—	$	98,741	$	—	$	98,741
Variable-rate demand notes	—		9,495		—		9,495
International government bonds	—		2,235		—		2,235
Corporate bonds	—		2,199		—		2,199
Total short-term investments	$	—	$	112,670	$	—	$	112,670
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,240	$	7,240
Total long-term investments	$	—	$	—	$	7,240	$	7,240
Total	$	63,316	$	116,573	$	7,240	$	187,129
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,070	$	4,070
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	9,192	$	9,192
Derivative instruments	—		329		—		329
	$	—	$	329	$	9,192	$	9,521
Total	$	—	$	329	$	13,262	$	13,591

	Fair Value Measurements at January 3, 2015 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	$	71,415	$	—	$	—	$	71,415
Certificates of deposit	—		7,739		—		7,739
Commercial paper	—		5,348		—		5,348
Municipal bonds	—		1,757		—		1,757
U.S. government agency	—		1,202		—		1,202
Corporate bonds	—		1,101		—		1,101
U.S. government bonds	1,000		—		—		1,000
Total cash equivalents	$	72,415	$	17,147	$	—	$	89,562
Short-term Investments:
Municipal bonds	$	—	$	129,152	$	—	$	129,152
Corporate bonds	—		33,033		—		33,033
Variable-rate demand notes	—		12,915		—		12,915
Commercial paper	—		8,995		—		8,995
Asset-backed securities	—		5,377		—		5,377
International government bonds	—		2,516		—		2,516
U.S. government bond	650		—		—		650
U.S. government agency	—		601		—		601
Certificates of deposit	—		250		—		250
Total short-term investments	$	650	$	192,839	$	—	$	193,489
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,419	$	7,419
Total long-term investments	$	—	$	—	$	7,419	$	7,419
Other assets, net:
Derivative instruments	$	—	$	331	$	—	$	331
Total	$	—	$	331	$	—	$	331
Total	$	73,065	$	210,317	$	7,419	$	290,801
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,288	$	4,288
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	14,150	$	14,150
Total	$	—	$	—	$	18,438	$	18,438

Summary of quantitative information about level 3 asset fair value measurements

Auction rate securities

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Weighted Average
$	7,240	Discounted cash flow	Estimated yield	1.04%
			Expected holding period	10 years
			Estimated discount rate	3.46%

Summary of quantitative information about level 3 liability fair value measurements

Contingent consideration

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Range
$	13,262	Monte Carlo simulation	Expected revenue growth rate	38.6% – 47.0%
			Expected revenue volatility	20.0%
			Expected term	0.3 years – 3.3 years
			Estimated discount rate	0.34% – 1.44%

Summary of activity in Level 3 financial instruments

The following summarizes the activity in Level 3 financial instruments for the three and nine months ended October 3, 2015 (in thousands):

Assets

Auction Rate Securities	Three Months Ended		Nine Months Ended
Beginning balance	$	7,179	$	7,419
Gain (loss) included in other comprehensive income (loss)	61		(179		)
Balance at October 3, 2015	$	7,240	$	7,240

Liabilities

Contingent Consideration (1)	Three Months Ended			Nine Months Ended
Beginning balance	$	15,092		$	18,438
Settlements	—			(4,464		)
Gain recognized in earnings (2)	(1,830		)	(712		)
Balance at October 3, 2015	$	13,262		$	13,262
Net gain for the period included in earnings attributable to contingent consideration held at the end of the period:	$	1,830		$	712

(1) In connection with the acquisition of Energy Micro, the Company recorded contingent consideration based upon the expected achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2) Changes to the estimated fair value of contingent consideration were primarily due to revisions to the Company’s expectations of earn-out achievement.