Fair Value of Financial Instruments

9 Months Ended

Sep. 29, 2012

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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 29, 2012 are as follows:
	Carrying Amount		Total Fair Value
					Cash		Level 1		Level 2		Level 3
Measured on a recurring basis:
Assets:
Cash	$	57,730	$	57,730	$	57,730	$	—	$	—	$	—
Cash equivalents	56,668		56,668		—		39,071		17,597		—
Short-term—marketable securities	30,191		30,191		—		10,258		19,933		—
Non-qualified deferred compensation plan	4,528		4,528		—		4,528		—		—
Total	$	149,117	$	149,117	$	57,730	$	53,857	$	37,530	$	—
Liabilities:
Earnout and milestone payment liability	1,870		1,870		—		—		—		1,870
Non-qualified deferred compensation plan	4,528		4,528		—		4,528		—		—
Total	$	6,398	$	6,398	$	—	$	4,528	$	—	$	1,870
Assets and liabilities measured and recorded at fair value on a recurring basis at December 31, 2011 are as follows:
	Carrying Amount		Total Fair Value
					Cash		Level 1		Level 2		Level 3
Measured on a recurring basis:
Assets:
Cash	$	47,502	$	47,502	$	47,502	$	—	$	—	$	—
Cash equivalents	68,803		68,803		—		40,793		28,010		—
Short-term—marketable securities	46,006		46,006		—		7,501		38,505		—
Non-qualified deferred compensation plan	3,635		3,635		—		3,635		—		—
Total	$	165,946	$	165,946	$	47,502	$	51,929	$	66,515	$	—
Liabilities:
Earnout payment liability	$	890	$	890	$	—	$	—	$	—	$	890
Non-qualified deferred compensation plan	3,635		3,635		—		3,635		—		—
Total	$	4,525	$	4,525	$	—	$	3,635	$	—	$	890

The instruments classified as Level 1 are measured at fair value using quoted market prices. The investments classified as Level 2 were valued using quoted prices for similar instruments in markets that are not active since identical instruments were not available. The Company determines the hierarchy levels at the end of each quarter.

The 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 the “Other noncurrent assets, net” line item of its consolidated balance sheets and the Company’s obligation to deliver the deferred compensation in the “Other long-term liabilities” line item on its consolidated balance sheets.

The earnout and milestone payment liability as of September 29, 2012 resulted from the acquisition of developed technology on August 14, 2012 and represents the fair value of the estimated payout of $1,870 to the former owners of the technology contingent upon meeting certain requirements. The Company has estimated the fair value of the obligation using a cash flow based approach discounted with a market discount rate.

The earnout payment liability as of December 31, 2011 resulted from the acquisition of TriAccess Technologies, Inc. ("TA") on September 3, 2009 and represents an initial obligation to pay up to $5,000 to the former TA shareholders over three years upon TA product sales meeting certain revenue thresholds. No earnout payments have been made since acquisition and during the nine months ended September 29, 2012, the Company changed its estimate and determined there would be no further obligation to the former TA shareholders. The write off of the obligation was recorded as an offset to selling, general and administrative expenses in the statement of operations.

Ending earnout payment liability at December 31, 2011	$	890
Accretion	26
Change in estimate	(916		)
Additions	$	1,870
Ending earnout and milestone payment liability at September 29, 2012	$	1,870

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The fair value of the cross-licensing liability was estimated using a discounted cash flow model which discounts future cash flows using an incremental borrowing rate of 9%. The ending fair value of the cross-licensing liability at September 29, 2012 was $15,470.

In conjunction with the cross-licensing agreement, the Company recognized a prepaid cross-licensing asset of $20,716. In determining the estimated fair value of the prepaid cross-licensing asset, the Company used a relief from royalty valuation methodology. The inputs and assumptions used in the valuation included projected revenue, royalty rates, discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model required a significant amount of management judgment and is based upon a number of factors, including the selection of royalty rates, market growth rates and other relevant factors.

Both the asset and liability were categorized as Level 3 in the fair value hierarchy.