Fair value disclosures

9 Months Ended

Sep. 30, 2016

Note 4. Fair value disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company's assets that are measured at fair value on a recurring basis (in thousands):


	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents and short-term investments:
Money market funds	$	4,703	$	—	$	—	$	4,703	$	11,318	$	—	$	—	$	11,318
U.S. government securities		4,757		—		—		4,757		997		—		—		997
Money market accounts		—		23,959		—		23,959		—		46,955		—		46,955
Corporate bonds		—		7,811		—		7,811		—		5,676		—		5,676
Government-sponsored enterprise obligations		—		4,292		—		4,292		—		3,284		—		3,284
Commercial papers		—		6,285		—		6,285		—		1,398		—		1,398
Sovereign government bonds		—		622		—		622		—		621		—		621
Variable rate demand notes		—		—		—		—		—		—		—		—
Total	$	9,460	$	42,969	$	—	$	52,429	$	12,315	$	57,934	$	—	$	70,249

Foreign currency forward contracts	$	—	$	*	$	—	$	*	$	—	$	—	$	—	$	—
Mutual funds held in Rabbi Trust, recorded in other long-term assets	$	599	$	—	$	—	$	599	$	435	$	—	$	—	$	435

*Fair values of the foreign currency forward contracts were immaterial as of September 30, 2016.

The Company offers a Non-Qualified Deferred Compensation Plan (“NQDC Plan”) to a select group of its highly compensated employees. The NQDC Plan provides participants the opportunity to defer payment of certain compensation as defined in the NQDC Plan. A Rabbi Trust has been established to fund the NQDC Plan obligation, which was fully funded at September 30, 2016. The assets held by the Rabbi Trust are substantially in the form of exchange traded mutual funds and are included in the Company’s other long-term assets on its condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015.

Effective July 1, 2016, the Company has established a hedging program using forward exchange contracts as economic hedges, to protect against volatility of foreign exchange rate exposure when it is deemed economical to do so, based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. The forward contracts are not designated for hedge accounting.

Under the hedging program, the Company enters into monthly forward exchange contracts, that have average maturities of one month, to offset the effects of exchange rate exposures for its net intercompany activities denominated in Japanese Yen, or JPY, and Chinese Renminbi, or RMB, by buying and selling foreign currencies in the future at fixed exchange rates, to offset the consequences of changes in foreign exchange on the balance sheet. If the U.S. dollar strengthens relative to the currency of the hedged assets, the increase in the fair value of the forward contracts offsets the decrease in the expected future U.S. dollar cash flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the decrease in the fair value of the forward contracts offsets the increase in the value of the anticipated foreign currency cash flows. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the re-measured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. The net effect of fair value changes is reported in other (income) expense, net. As of September 30, 2016, the fair values of the Company’s foreign currency forward contracts were immaterial due to the short-term nature of the contracts, which generally expire at each quarter-end. The total notional value of our foreign currency exchange contracts as of September 30, 2016 were approximately $39.2 million and $2.4 million for RMB and JPY, respectively.

The following table presents the Company's liabilities that are measured at fair value on a recurring basis (in thousands):


	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Penalty payment derivative (Note 10)	$	—	$	—	$	389	$	389	$	—	$	—	$	389	$	389

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2016. In the year ended December 31, 2015, the Company wrote off $0.2 million of property, plant and equipment and $0.2 million of held-for-sale assets. These assets were measured at fair value due to events or circumstances the Company identified as having significant impact on their fair value during the period. To arrive at the valuation of these assets, the Company considered the discounted cash flows to determine fair value using best estimates and unobservable inputs (Level 3).

Assets and Liabilities Not Measured at Fair Value

The carrying values of accounts receivable, accounts payable, notes payable and short-term borrowings approximate their fair values due to the short-term nature and liquidity of these financial instruments.

The fair values of the Company’s long-term debt have been calculated using an estimate of the interest rate the Company would have had to pay on the issuance of liabilities with a similar maturity and discounting the cash flows at that rate which it considers to be a level 2 fair value measurement. The fair values, which approximate the carrying value of the long-term debt, do not necessarily give an indication of the amount that the Company would currently have to pay to extinguish any of this debt.

- 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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