Fair Value Measurements

3 Months Ended

Dec. 28, 2012

Fair Value Measurements

4. Fair Value Measurements

ASC 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

• Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. The Company’s Level 1 assets include investments in money market funds.

• Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data.

• Level 3 uses one or more significant inputs that are unobservable and supported by little or no market activity, and reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

The following table represents financial assets and liabilities that the Company measured at fair value. The Company has classified these assets and liabilities in accordance with the fair value hierarchy set forth in ASC 820:

	Fair Value as of December 28, 2012		Fair Value Measurements at December 28, 2012 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
	(in thousands)
Assets
Money market fund	$	20,046	$	20,046	$	—	$	—
Assets at fair value	$	20,046	$	20,046	$	—	$	—
Liabilities
Contingent consideration	$	1,866	$	—	$	—	$	1,866
Liabilities at fair value	$	1,866	$	—	$	—	$	1,866
	Fair Value as of September 28, 2012		Fair Value Measurements at September 28, 2012 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
	(in thousands)
Assets
Money market fund	$	20,040	$	20,040	$	—	$	—
Assets at fair value	$	20,040	$	20,040	$	—	$	—
Liabilities
Contingent consideration	$	1,876	$	—	$	—	$	1,876
Liabilities at fair value	$	1,876	$	—	$	—	$	1,876

The following table presents a reconciliation of the beginning and ending balances of the Company’s liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 28, 2012:

	Contingent Consideration
	(in thousands)
Balance as of September 28, 2012	$	1,876
Additions		—
Change in fair value of contingent consideration		(10	)
Balance as of December 28, 2012	$	1,866

The fair value measurements of the contingent consideration discussed above were based primarily on significant inputs not observable in the market and thus represent a Level 3 measurement as defined in ASC 820. The key assumptions were as follows:

Quantitative Information about Level 3 Fair Value Measurements as of December 28, 2012
Liability	Fair Value		Valuation Technique	Unobservable Inputs	Selected Input (Range)
(in thousands, except percentages)
Revenue Earnout	$	—	N/A	Probability of Achieving		0.0	%
Business Development Earnout	$	—	N/A	Probability of Achieving		0.0	%
Product Development Earnout (1 of 2)	$	—	Income Approach	Probability of Achieving		0.0	%
Product Development Earnout (2 of 2)	$	2,500	Income Approach	Probability of Achieving		100.0% (90.0% - 100.0	%)
Quantitative Information about Level 3 Fair Value Measurements as of September 28, 2012
Liability	Fair Value		Valuation Technique	Unobservable Inputs	Selected Input (Range)
(in thousands, except percentages)
Revenue Earnout	$	—	N/A	Probability of Achieving		0.00	%
Business Development Earnout	$	—	N/A	Probability of Achieving		0.00	%
Product Development Earnout (1 of 2)	$	—	Income Approach	Probability of Achieving		0.00	%
Product Development Earnout (2 of 2)	$	2,500	Income Approach	Probability of Achieving		100.0% (90.0% - 100.0	%)

As of December 28, 2012, the offsetting employee termination expenses and costs expected to be incurred to achieve the product development earnout were estimated to be $634,000 and are not included in the above tables.

Intangible asset valuations completed in connection with the Company’s acquisition of picoChip have been based on level 3 inputs. The following table represents the Company’s acquired intangible assets subject to fair value measurements that were based primarily on significant inputs not observable in the market and thus represent a Level 3 measurement as defined in ASC 820:

Quantitative Information about Level 3 Fair Value Measurements as of February 6, 2012
Asset	Fair Value		Valuation Technique	Unobservable Inputs	Selected Input (Range)
(in thousands, except percentages)
Trade Names and Trademarks	$	310	Relief from Royalty	Revenue Projections	12.5% Market Share
				Estimated Useful Life	2 years (1 year - 3 years)
Developed Technology	$	11,800	Relief from Royalty	Revenue Attrition	5.0% - 10.0% (5.0% - 10.0%)
				Core Revenue Attributable	25.0% (15.0% - 35.0%)
				Base Revenue Projections	12.5% Market Share
IPR&D	$	800	Income Approach	Revenue Attrition	5.0% (5.0 % - 10.0% per Year)
				Expected Product Cycle	5 Years (3 Years to 7 Years)
				Base Revenue Projections	12.5% Market Share
Customer Relationships	$	1,500	Multi-Period Excess Earnings	Revenue Attrition	20.0% (19.3% - 20.8% per Year)
				Base Revenue Projections	12.5% Market Share
				Margin Improvement	80.0% (60.0% - 90.0% of Sales and Executive Professional Time)
				Estimated Useful Life	7 Years (5 Years to 10 Years)