Fair Value of Financial Instruments

9 Months Ended

Sep. 27, 2014

The Company accounts for its assets utilizing a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:


•	Level 1—Quoted prices for identical instruments in active markets;


•	Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and


•	Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.



Assets and liabilities measured and recorded at fair value on a recurring basis at September 27, 2014 are as follows:

	Carrying Amount		Total Fair Value
	Carrying Amount		Total Fair Value		Cash		Level 1		Level 2		Level 3
Measured on a recurring basis:
Assets:
Cash	$	97,133	$	97,133	$	97,133	$	—	$	—	$	—
Cash equivalents	126,479		126,479		—		117,481		8,998		—
Short-term—marketable securities	24,330		24,330		—		—		24,330		—
Non-qualified deferred compensation plan	7,149		7,149		—		7,149		—		—
Total	$	255,091	$	255,091	$	97,133	$	124,630	$	33,328	$	—
Liabilities:
Earnout and milestone payment liability	1,839		1,839		—		—		—		1,839
Non-qualified deferred compensation plan	7,149		7,149		—		7,149		—		—
Total	$	8,988	$	8,988	$	—	$	7,149	$	—	$	1,839

Assets and liabilities measured and recorded at fair value on a recurring basis at December 31, 2013 are as follows:

	Carrying Amount		Total Fair Value
	Carrying Amount		Total Fair Value		Cash		Level 1		Level 2		Level 3
Measured on a recurring basis:
Assets:
Cash	$	53,122	$	53,122	$	53,122	$	—	$	—	$	—
Cash equivalents	25,904		25,904		—		25,904		—		—
Non-qualified deferred compensation plan	6,571		6,571		—		6,571		—		—
Total	$	85,597	$	85,597	$	53,122	$	32,475	$	—	$	—
Liabilities:
Earnout and milestone payment liability	$	2,426	$	2,426	$	—	$	—	$	—	$	2,426
Non-qualified deferred compensation plan	6,571		6,571		—		6,571		—		—
Total	$	8,997	$	8,997	$	—	$	6,571	$	—	$	2,426

There were no transfers between Level 1, Level 2 or Level 3 fair value measurements during the three or nine months ended September 27, 2014.

The Company's non-qualified deferred compensation plan provides eligible employees and members of the Board of Directors with the opportunity to defer a specified percentage of their cash compensation. The Company includes the asset deferred by the participants in Other noncurrent assets, net on its consolidated balance sheets and the Company’s obligation to deliver the deferred compensation in Other long-term liabilities on its consolidated balance sheets.

The Company's earnout and milestone payment liability as of September 27, 2014 resulted from two acquisitions during 2012 and represents the fair value of the estimated payout to the former businesses contingent upon meeting certain requirements. For the first acquisition, as of September 27, 2014, the Company estimated the fair value of the obligation as $641 using a cash flow based approach discounted with a market discount rate. For the second acquisition, as of September 27, 2014, the Company estimated the fair value of the obligation as $1,198 using a Monte Carlo simulation model discounted using the risk free rate adjusted for an applicable credit spread. During the nine months ended September 27, 2014, the Company remeasured the fair value of its obligations based on a change in forecast related to the achievement of earnout targets. The change in estimate resulted in a decrease to the liability of $337 in aggregate and was recorded to selling, general and administrative expenses in the statement of operations. For both of the acquisitions, total accretion of $613 was recognized during the nine months ended September 27, 2014.



Ending earnout and milestone payment liability at December 31, 2013	$	2,426
Accretion	613
Change in estimate	(337		)
Payments	(863		)
Ending earnout and milestone payment liability at September 27, 2014	$	1,839

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company entered into two separate cross-licensing agreements, one in 2012 and another in the first quarter of 2014. The fair value of the first cross-licensing agreement was estimated using a discounted cash flow model which discounted the future cash flows using an incremental borrowing rate of 9%. The fair value of the second cross-licensing agreement was estimated using a discounted cash flow model which discounted the future cash flows using an incremental borrowing rate of 5%. These cross-licensing liabilities are categorized as Level 3 in the fair-value hierarchy and the ending carrying value at September 27, 2014 was $14,449, of which $3,140 was current and is included in other accrued liabilities on the consolidated balance sheets.

- 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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