FAIR VALUE

We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. We apply the following fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices of identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Our cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most marketable securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The contingent obligation related to the make-whole premium on our convertible notes was valued using a valuation model which estimated the value based on the probability and timing of conversion. The contingent obligation was previously classified within Level 3 of the fair value hierarchy. During the second quarter of fiscal year 2014, the holders of the convertible notes exercised their rights to exchange the convertible notes for common stock, and settled the make-whole premium.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are shown in the table below by their corresponding balance sheet captions and consisted of the following types of instruments at June 28, 2014:

Fair Value Measurement at Reporting Date Using

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

(Level 1)

(Level 2)

(Level 3)

Total

Assets:

(Thousands)

Cash and cash equivalents: (1)

Money market funds

1,214

—

1,214

Short-term investments:

Marketable securities

—

Total assets measured at fair value

1,309

—

1,309


(1)	Excludes $97.8 million in cash held in our bank accounts at June 28, 2014.

The following table provides details regarding the changes in assets and liabilities classified within Level 3 from June 30, 2012 to June 28, 2014:



	Other non-current
	liabilities
	(Thousands)
Balance at June 30, 2012	$	—
Initial calculation for the contingent obligation for make-whole premium	136
Adjustments to the contingent obligation for make-whole premium	(37		)
Balance at June 29, 2013	99
Adjustments to the contingent obligation for make-whole premium	600
Settlement of make-whole premium upon conversion of the convertible notes	(699		)
Balance at June 28, 2014	$	—

During the second quarter of fiscal year 2014, the holders of the convertible notes exercised their rights to exchange the convertible notes for our common stock. The conversion of the notes is more fully discussed in Note 7, Credit Line and Notes