FAIR VALUE

9 Months Ended

Sep. 28, 2012

FAIR VALUE

NOTE 4: FAIR VALUE

The applicable accounting guidance establishes a framework for measuring fair value and required disclosure about the fair value measurements of assets and liabilities. This guidance requires the Company to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured on a nonrecurring basis in periods subsequent to initial measurement, in a three-tier fair value hierarchy as described below.

The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes three levels of inputs that may be used to measure fair value:

• Level 1 — Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

• Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company primarily uses broker quotes for valuation of its short-term investments. Forward exchange contracts are classified as Level 2 because they are valued using quoted market prices and other observable data for similar instruments in an active market.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company uses the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. During the nine months ended September 28, 2012, there were no nonrecurring fair value measurements of assets and liabilities subsequent to initial recognition.

The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 28, 2012 and December 31, 2011, based on the three-tier fair value hierarchy:

	Total		Level 1		Level 2		Level 3
	(In thousands)
September 28, 2012
Cash equivalents
Money market funds	$	61,481	$	61,481	$	—	$	—
Short-term investments
Certificate of deposit		1,601		—		1,601		—
State, municipal and local government agencies bonds		47,730		—		47,730		—
Corporate bonds		27,026		—		27,026		—
Commercial paper		10,388		—		10,388		—
U.S. federal government bonds		2,002		2,002		—		—
Prepaids and other current assets
Foreign exchange forward contracts		142		—		142		—
Total assets measured and recorded at fair value	$	150,370	$	63,483	$	86,887	$	—
Accrued liabilities
Foreign exchange forward contracts	$	496	$	—	$	496	$	—
Total liabilities measured and recorded at fair value	$	496	$	—	$	496	$	—
	Total		Level 1		Level 2		Level 3
	(In thousands)
December 31, 2011
Cash equivalents
Money market funds	$	62,131	$	62,131	$	—	$	—
Short-term investments
State, municipal and local government agencies bonds		38,825		—		38,825		—
Corporate bonds		18,604		—		18,604		—
Commercial paper		4,195		—		4,195		—
U.S. federal government bonds		9,230		9,230		—		—
Prepaids and other current assets
Foreign exchange forward contracts		373		—		373		—
Total assets measured and recorded at fair value	$	133,358	$	71,361	$	61,997	$	—
Accrued liabilities
Foreign exchange forward contracts	$	159	$	—	$	159	$	—
Total liabilities measured and recorded at fair value	$	159	$	—	$	159	$	—

At September 28, 2012 and December 31, 2011, maturities of short-term investments are as follows:

	September 28, 2012		December 31, 2011
	(In thousands)
Short-term investments:
Less than one year	$	69,995	$	43,470
Due in 1—2 years		18,752		27,384
Total short-term investments	$	88,747	$	70,854

The following is a summary of available-for-sale securities at September 28, 2012 and December 31, 2011:

	Amortized Cost		Gross  Unrealized Gains		Gross  Unrealized Losses			Estimated Fair Value
	(In thousands)
September 28, 2012
Certificate of deposit	$	1,601	$	—	$	—		$	1,601
State, municipal and local government agencies bonds		47,672		61		(3	)		47,730
Corporate bonds		27,020		11		(5	)		27,026
Commercial paper		10,387		1		—			10,388
U.S. federal government bonds		2,001		1		—			2,002
Total	$	88,681	$	74	$	(8	)	$	88,747
December 31, 2011
State, municipal and local government agencies bonds	$	38,785	$	46	$	(6	)	$	38,825
Corporate bonds		18,613		6		(15	)		18,604
Commercial paper		4,195		—		—			4,195
U.S. federal government bonds		9,226		4		—			9,230
Total	$	70,819	$	56	$	(21	)	$	70,854

Harmonic monitors its investment portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. A decline of fair value below amortized costs of debt securities is considered other-than temporary if the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis. At the present time, the Company does not intend to sell its investments that have unrealized losses in accumulated other comprehensive loss. In addition, the Company does not believe that it is more likely than not that it will be required to sell its investments that have unrealized losses in accumulated other comprehensive loss before the Company recovers the principal amounts invested. The Company believes that the unrealized losses are temporary and do not require an other-than-temporary impairment, based on its evaluation of available evidence as of September 28, 2012.

As of September 28, 2012, there were no individual available-for-sale securities in a material unrealized loss position and the amount of unrealized losses on the total investment balance was insignificant.