Fair Value Measurements and Other-Than-Temporary Impairments

Fair Value Measurements

Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined 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 the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Valuation techniques used by the Company are based upon observable and unobservable inputs. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about market participant assumptions based on best information available. Observable inputs are the preferred source of values. These two types of inputs create the following fair value hierarchy:



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

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-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3	–	Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable.

The Company measures its cash equivalents, derivative instruments and debt securities at fair value and classifies its securities in accordance with the fair value hierarchy. The Company’s money market funds and U.S. treasuries are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.

The Company classifies its certificates of deposit, commercial paper, corporate bonds, and foreign currency exchange forward contracts within Level 2 of the fair value hierarchy as follows:

Certificates of Deposit

The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day. In the absence of any observable market transactions for a particular security, the fair market value at period end would be equal to the par value. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data, and result in the classification of these securities as Level 2 of the fair value hierarchy.

Commercial Paper

The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day and then follows a revised accretion schedule to determine the fair market value at period end. In the absence of any observable market transactions for a particular security, the fair market value at period end is derived by accreting from the last observable market price. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data accreted mathematically to par, and result in the classification of these securities as Level 2 of the fair value hierarchy.

Corporate Bonds

The Company reviews trading activity and pricing for each of the corporate bond securities in its portfolio as of the measurement date and determines if pricing data of sufficient frequency and volume in an active market exists in order to support Level 1 classification of these securities. Since sufficient quoted pricing for identical securities is not available, the Company obtains market pricing and other observable market inputs for similar securities from a number of industry standard data providers. In instances where multiple prices exist for similar securities, these prices are used as inputs into a distribution-curve to determine the fair market value at period end. As a result, the Company classifies its corporate bonds as Level 2 of the fair value hierarchy.

Foreign Currency Exchange Forward Contracts

As discussed in Note 5, “Derivative Instruments,” to the Notes to Condensed Consolidated Financial Statements, the Company mainly holds non-speculative foreign exchange forward contracts to hedge certain foreign currency exchange exposures. The Company estimates the fair values of derivatives based on quoted market prices or pricing models using current market rates. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. As a result, the Company classifies its derivative instruments as Level 2 of the fair value hierarchy.

The Company classified its auction rate securities (“ARS”) within Level 3 of the fair value hierarchy. The Company’s ARS were classified within Level 3 because they were valued, in part, by using inputs that were unobservable in the market and were significant to the valuation. During the first quarter of 2013, the Company disposed of its remaining $3.1 million (par value) ARS, with $0.1 million of ARS called at par value and $3.0 million of ARS tendered at 95% of par value. As of September 28, 2013, none of the Company’s existing securities were classified as Level 3 securities.

The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands):



	As of September 28, 2013								As of December 29, 2012
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	72,386	$	—	$	—	$	72,386	$	25,560	$	—	$	—	$	25,560
Certificates of deposit	—		2,640		—		2,640		—		2,160		—		2,160
Commercial paper	—		88,720		—		88,720		—		14,843		—		14,843
Corporate bonds	—		109,540		—		109,540		—		57,467		—		57,467
U.S. treasuries	7,806		—		—		7,806		15,020		—		—		15,020
ARS	—		—		—		—		—		—		2,873		2,873
Total assets	$	80,192	$	200,900	$	—	$	281,092	$	40,580	$	74,470	$	2,873	$	117,923
Liabilities
Foreign currency exchange forward contracts	$	—	$	64	$	—	$	64	$	—	$	112	$	—	$	112

During the three and nine months ended September 28, 2013, there were no transfers of assets or liabilities between Level 1 and Level 2 financial assets.

The Company’s remaining Level 3 financial assets were disposed during the first quarter of 2013. The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable (Level 3) inputs (in thousands):



	Nine Months Ended
	December 29, 2012		Total Net Gains Included in Other Comprehensive Loss		Calls				Sold				September 28, 2013
ARS – available-for-sale	$	2,873	$	—	$	(92	)	⁽¹⁾	$	(2,781	)	⁽²⁾	$	—



	Three Months Ended
	June 30, 2012		Total Net Gains Included in Other Comprehensive Loss			Calls		September 29, 2012
ARS – available-for-sale	$	2,796	$	83	⁽³⁾	$	—	$	2,879



	Nine Months Ended
	December 31, 2011		Total Net Gains Included in Other Comprehensive Loss			Calls				September 29, 2012
ARS – available-for-sale	$	7,675	$	143	⁽³⁾	$	(4,939	)	⁽⁴⁾	$	2,879


⁽¹⁾	Amount represents the fair market value of the securities called at par value. Realized gains for the nine months ended September 28, 2013 were not significant.


⁽²⁾	Amount represents the fair market value of the securities sold at 95% par value. Realized gains for the nine months ended September 28, 2013 were $0.2 million.


⁽³⁾	Amount represents the change in the non-credit loss related other-than-temporary impairments (“OTTI”) recorded in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets.


⁽⁴⁾	Amount represents the fair market value of the securities called. Realized gains on these calls for the nine months ended September 29, 2012 were $0.5 million.

Investments at fair value were as follows (in thousands):



	September 28, 2013
	Adjusted Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Money market funds	$	72,386	$	—	$	—		$	72,386
Certificates of deposit	2,640		—		—			2,640
Commercial paper	88,713		13		(6		)	88,720
Corporate bonds	109,598		36		(94		)	109,540
U.S. treasuries	7,803		3		—			7,806
Total available-for-sale investments	$	281,140	$	52	$	(100	)	$	281,092



	December 29, 2012
	Adjusted Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Money market funds	$	25,560		$	—	$	—		$	25,560
Certificates of deposit	2,160			—		—			2,160
Commercial paper	14,848			—		(5		)	14,843
Corporate bonds	57,451			22		(6		)	57,467
U.S. treasuries	15,015			5		—			15,020
ARS	2,707		⁽¹⁾	166		—			2,873
Total available-for-sale investments	$	117,741		$	193	$	(11	)	$	117,923


⁽¹⁾	Amount represents the par value less $0.4 million of credit-related OTTI recognized through earnings in prior years.

As of September 28, 2013, the Company’s available-for-sale investments in certificates of deposit, commercial paper, corporate bonds, and U.S. treasuries have a contractual maturity term of no more than 18 months. Proceeds from sales, maturities and calls of available-for-sale investments were $80.0 million for the nine months ended September 28, 2013, and $102.1 million for the nine months ended September 29, 2012. Net realized gains (losses) on short-term and long-term investments were $0.2 million for the nine months ended September 28, 2013 and were $0.5 million for the nine months ended September 29, 2012. The specific identification method is used to account for gains and losses on available-for-sale investments.

Other-Than-Temporary Impairments

As a result of the Company’s disposal of $3.1 million ARS (par value) during the first quarter of 2013, it recorded an approximately $0.2 million gain, which was recognized as Other gain (loss) in the Company’s condensed consolidated statements of operations.

A roll-forward of amortized cost, cumulative OTTI recognized in earnings and Accumulated other comprehensive loss is as follows (in thousands):



	Amortized Cost			Cumulative OTTI in Earnings			Unrealized Gain			OTTI Loss in Accumulated Other Comprehensive Loss			Accumulated Other Comprehensive Income (Loss)
Balance at December 29, 2012	$	2,707		$	(394	)	$	784		$	(618	)	$	166
Call on investments	(87		)	13			(25		)	20			(5		)
Investments sold	(2,620		)	381			(759		)	598			(161		)
Balance at September 28, 2013	$	—		$	—		$	—		$	—		$	—