Cash Equivalents and Available-for-Sale Investments | 2. Cash Equivalents and Available-for-Sale Investments At June 28, 2015, of the $72.9 million of the Company’s cash and cash equivalents, $60.1 million was cash and $12.8 million was cash equivalents invested in money market funds. At June 28, 2015, $48.5 million of the $72.9 million of cash and cash equivalents were held by our foreign subsidiaries. If these funds are needed for our operations in the United States, the Company would be required to accrue and pay U.S. taxes to repatriate these funds. However, the Company’s intent is to indefinitely reinvest these funds outside of the United States, and the Company’s current plans for the foreseeable future do not demonstrate a need to repatriate them to fund U.S. operations. Additionally, as of June 28, 2015, the Company had short-term available-for-sale investments of $168.7 million which are held in the US entity. At March 29, 2015, of the $85.6 million of the Company’s cash and cash equivalents, $61.6 million was cash, $24.0 million was cash equivalents, of which $22.0 million was invested in money market funds and $2.0 million was invested in corporate debt. At March 29, 2015, $47.7 million of the $85.6 million of cash and cash equivalents were held by our foreign subsidiaries. Additionally, as of March 29, 2015, the Company had short-term available-for-sale investments of $129.9 million which are held in the US entity. The Company applies the provisions of ASC 820-10, “ Fair Value Measurements Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2—Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or Level 3—Unobservable inputs in which there is little or no market data, and as a result, prices or valuation techniques are employed that require inputs that are significant to the fair value measurement. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value. The fair values of our money market funds were derived from quoted market prices as active markets for these instruments exist. The Company chose not to elect the fair value option as prescribed by ASC 825-10-05 “Fair Value Option” for its financial assets and liabilities that had not been previously carried at fair value. Therefore, financial assets and liabilities not carried at fair value, such as accounts payable, are still reported at their carrying values. Fair value measurements at each reporting date were as follows: June 28, 2015: Assets measured at fair value on a recurring basis were presented in the Company’s condensed consolidated balance sheet as of June 28, 2015. Quoted Prices Significant Significant in Active Other Other June 28, Markets for Observable Unobservable 2015 Identical Inputs Inputs Balance Assets Level 1 Level 2 Level 3 (in thousands) Assets Money Market Funds $ 12,752 $ 12,752 $ — $ — Corporate Notes and Bonds 151,885 — 151,885 — Commercial Paper 14,359 — 14,359 — U.S. Agency Securities 2,501 — 2,501 — Total investments $ 181,497 $ 12,752 $ 168,745 $ — Liabilities Contingent consideration $ 3,817 $ — $ — $ 3,817 Assets Cash equivalents $ 12,752 $ 12,752 $ — $ — Short-term investments 168,745 — 168,745 — Total investments $ 181,497 $ 12,752 $ 168,745 $ — Liabilities Accrued liabilities $ 3,817 $ 3,817 Total contingent consideration $ 3,817 $ — $ — $ 3,817 June 28, Gross Gross June 28, 2015 Unrealized Unrealized 2015 Amortized Cost Gain Loss Estimated FMV Corporate Notes and Bonds $ 151,949 $ 5 $ (69 ) $ 151,885 Commercial Paper 14,363 — (4 ) 14,359 U.S. Agency Securities 2,500 1 — 2,501 Total Available-for-sale investments $ 168,812 $ 6 $ (73 ) $ 168,745 Money Market Funds 12,752 Total Aggregate Fair Value $ 181,497 The fair values of money market funds were derived from quoted market prices as active markets for these instruments exist. The fair values of corporate notes and bonds, commercial paper, municipal notes and bonds and U.S. Agency Securities were derived from non-binding market consensus prices that are corroborated by observable market data. There were no transfers of assets measured at fair value between Level 1 and Level 2 during the three months ended June 28, 2015. March 29, 2015: Assets measured at fair value on a recurring basis were presented in the Company’s consolidated balance sheet as of March 29, 2015. Quoted Prices Significant Significant in Active Other Other March 29, Markets for Observable Unobservable 2015 Identical Inputs Inputs Balance Assets Level 1 Level 2 Level 3 (in thousands) Assets Money Market Funds $ 22,023 $ 22,023 $ — $ — Corporate Notes and Bonds 122,124 — 122,124 — Commercial Paper 6,991 — 6,991 — Municipal Notes and Bonds 302 — 302 — U.S. Agency Securities 2,502 — 2,502 — Total investments $ 153,942 $ 22,023 $ 131,919 $ — Liabilities Contingent consideration $ 9,124 $ — $ — $ 9,124 Assets Cash equivalents $ 24,023 $ 24,023 $ — $ — Short-term investments 129,919 — 129,919 — Long-term investments — — — — Total investments $ 153,942 $ 24,023 $ 129,919 $ — Liabilities Accrued liabilities $ 6,364 $ 6,364 Long-term liabilities 2,760 2,760 Total contingent consideration $ 9,124 $ — $ — $ 9,124 March 29, Gross Gross March 29, 2015 Unrealized Unrealized 2015 Amortized Cost Gain Loss Estimated FMV Corporate Notes and Bonds $ 122,131 $ 22 $ (29 ) $ 122,124 Commercial Paper 6,992 — (1 ) 6,991 Municipal Notes and Bonds 302 — — 302 U.S. Agency Securities 2,500 2 — 2,502 Total Available-for-sale investments $ 131,925 $ 24 $ (30 ) $ 131,919 Money Market Funds 22,023 Total Aggregate Fair Value $ 153,942 The fair values of money market funds were derived from quoted market prices as active markets for these instruments exist. The fair values of corporate notes and bonds, commercial paper, and U.S. Agency Securities were derived from non-binding market consensus prices that are corroborated by observable market data. There were no transfers of assets measured at fair value between Level 1 and Level 2 during fiscal 2015. Level 3 financial liabilities: The following table provides a summary of changes in fair value of the Company’s contingent consideration categorized as Level 3 for the three months ended June 28, 2015: June 28, 2015 (in thousands) Beginning balance $ 9,124 Add: Contingent consideration in connection with acquisitions — Payments made on contingent liabilities — Change in fair value and other (5,307 ) Ending balance $ 3,817 Contingent consideration on acquired businesses (See Note 8) was measured at fair value using Level 3 inputs as defined in the fair value hierarchy. The following table presents certain information about the significant unobservable inputs used in the fair value measurement for the contingent consideration measured at fair value on a recurring basis using significant unobservable inputs: Description Valuation Techniques Significant Unobservable Inputs Liabilities: Contingent consideration Present value of a Probability Weighted Earn-out model using an appropriate discount rate. Estimate of achieving the milestones. An increase in the estimate of probability of meeting the milestones could result in a significantly higher estimated fair value of the contingent consideration liability. Alternatively, a decrease in the estimate of probability of meeting the milestones could result in a significantly lower estimated fair value of contingent consideration liability. During the three months ended June 28, 2015, the fair value of contingent consideration declined by $5.3 million. The decline in fair value was the result of a reduction in the estimated probability of a design win milestone associated with the Movea, S.A., (“Movea”) acquisition from 50% to 0% and a reduction in the estimated probability of a design win associated with the Trusted Positioning, Inc. (“TPI”) acquisition from 50% to 0%. The decline in fair value of the design win milestones for Movea and TPI was $4.0 million and $2.4 million, respectively which were recorded as a credit to research and development expense. Offsetting this amount is an increase in the fair value of two TPI cloud application milestones as a result of an increase in the estimated probability of achievement of those milestones. The increase in the fair value of the cloud application milestones was $1.1 million which was recorded as a debit to research and development expense. The fair value of contingent consideration was derived from a probability weighted earn-out model of future contingent payments. The cash payments are expected to be made upon meeting the milestones (See Note 8). The valuation of the contingent consideration was based on a collaborative effort of the Company’s engineering and finance departments, and third party valuation experts. The estimate of meeting the milestones and discount rates will be reviewed quarterly and updated as and when necessary. Potential valuation adjustments will be made to adjust the contingent consideration payments. These adjustments will be recorded in the statements of operations. |