5. FAIR VALUE

We group our financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

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

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.

Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by us.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

We measure certain assets and liabilities at fair value on a recurring basis such as our financial instruments and derivatives. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the three and six months ended April 1, 2016.

Money market funds are actively traded and consist of highly liquid investments with original maturities of 90 days or less. They are measured at their net asset value (“NAV”) and classified as Level 1. Corporate and agency bonds are categorized as Level 2 assets except where sufficient quoted prices exist in active markets, in which case such securities are categorized as Level 1 assets. These securities are valued using third-party pricing services. These services may use, for example, model-based pricing methods that utilize observable market data as inputs. Broker dealer bids or quotes on securities with similar characteristics may also be used.

The fair values of the contingent consideration liabilities were estimated based upon a risk-adjusted present value of the probability-weighted expected payments by us. Specifically, we considered base, upside and downside scenarios for the operating metrics upon which the contingent payments are to be based. Probabilities were assigned to each scenario and the probability-weighted payments were discounted to present value using risk-adjusted discount rates. The maximum possible payment of contingent consideration is $1.5 million.

The fair value of the stock warrants has been estimated using a Black-Scholes option pricing model giving consideration to the quoted market price of the common stock on that date, an exercise price of $14.04, expected life of 4.7 years, expected volatility of 36.9% and risk free rate of 1.2%. Any significant change in these assumptions could have a material impact on the fair value of the stock warrants.

These estimates include significant judgments and actual results could materially differ and have a material impact upon the values of the recorded liabilities. Any changes in the estimated fair values of the liabilities in the future will be reflected in our earnings and such changes could be material.

Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):


	April 1, 2016
	Fair Value		Active Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Money market funds	$	2,117	$	2,117	$	—	$	—
Agency bonds		9,028		—		9,028		—
Corporate bonds		14,604		—		14,604		—

Total assets measured at fair value	$	25,749	$	2,117	$	23,632	$	—

Liabilities
Contingent consideration	$	796	$	—	$	—	$	796
Common stock warrant liability		40,901		—		—		40,901

Total liabilities measured at fair value	$	41,697	$	—	$	—	$	41,697


	October 2, 2015
	Fair Value		Active Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Money market funds	$	15,000	$	15,000	$	—	$	—
US treasuries and agency bonds		15,095		—		15,095		—
Corporate bonds		24,462		—		24,462		—

Total assets measured at fair value	$	54,557	$	15,000	$	39,557	$	—

Liabilities
Contingent consideration	$	1,150	$	—	$	—	$	1,150
Common stock warrant liability		21,822		—		—		21,822

Total liabilities measured at fair value	$	22,972	$	—	$	—	$	22,972

The changes in assets and liabilities with inputs classified within Level 3 of the fair value hierarchy consist of the following (in thousands):


	October 2, 2015		Net Realized/Unrealized Losses Included in Earnings		Purchases and Issuances		Sales and Settlements			Transfers in and/or (out) of Level 3		April 1, 2016
Contingent consideration	$	1,150	$	46	$	—	$	(400	)	$	—	$	796

Common stock warrant liability	$	21,822	$	19,079	$	—	$	—		$	—	$	40,901


	October 3, 2014		Net Realized/Unrealized Losses Included in Earnings		Purchases and Issuances		Sales and Settlements		Transfers in and/or (out) of Level 3		April 3, 2015
Trading Securities	$	250	$	—	$	250	$	—	$	—	$	500

Contingent consideration	$	820	$	—	$	—	$	—	$	—	$	820

Common stock warrant liability	$	15,801	$	16,217	$	—	$	—	$	—	$	32,018