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Fair Value and Derivative Instruments | 6 Months Ended
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Jun. 26, 2021
Fair Value Disclosures [Abstract] |
Fair Value and Derivative Instruments | Fair Value and Derivative Instruments Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows: •Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities; •Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and •Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances. We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three and six months ended June 26, 2021 or the year ended December 26, 2020. The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, Accrued liabilities, and term loans, net of unamortized issuance costs, approximate fair value due to their short maturities. No changes were made to our valuation techniques during the first six months of fiscal 2021. Assets and Liabilities Measured at Fair Value on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
June 26, 2021 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Cash equivalents: |  |  |  |  |  |  |  |
Money market funds |  | $ | 25,917 |  |  | $ | — |  |  | $ | — |  |  | $ | 25,917 |
Marketable securities: |  |  |  |  |  |  |  |
U.S. treasuries |  | 27,112 |  |  | — |  |  | — |  |  | 27,112 |
Certificates of deposit |  | — |  |  | 1,207 |  |  | — |  |  | 1,207 |
U.S. agency securities |  | — |  |  | 575 |  |  | — |  |  | 575 |
Corporate bonds |  | — |  |  | 28,893 |  |  | — |  |  | 28,893 |
Commercial paper |  | — |  |  | 38,175 |  |  | — |  |  | 38,175 |
|  | 27,112 |  |  | 68,850 |  |  | — |  |  | 95,962 |
Foreign exchange derivative contracts (Designated) |  | — |  |  | 152 |  |  | — |  |  | 152 |
Interest rate swap derivative contracts |  | — |  |  | 571 |  |  | — |  |  | 571 |
Total assets |  | $ | 53,029 |  |  | $ | 69,573 |  |  | $ | — |  |  | $ | 122,602 |
Liabilities: |  |  |  |  |  |  |  |
Foreign exchange derivative contracts (Designated) |  | $ | — |  |  | $ | (53) |  |  | $ | — |  |  | $ | (53) |
Interest rate swap derivative contracts |  | — |  |  | (103) |  |  | — |  |  | (103) |
Total liabilities |  | $ | — |  |  | $ | (156) |  |  | $ | — |  |  | $ | (156) |
December 26, 2020 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Cash equivalents: |  |  |  |  |  |  |  |
Money market funds |  | $ | 43,019 |  |  | $ | — |  |  | $ | — |  |  | $ | 43,019 |
Marketable securities: |  |  |  |  |  |  |  |
U.S. treasuries |  | 40,726 |  |  | — |  |  | — |  |  | 40,726 |
Certificates of deposit |  | — |  |  | 2,179 |  |  | — |  |  | 2,179 |
U.S. agency securities |  | — |  |  | 575 |  |  | — |  |  | 575 |
Corporate bonds |  | — |  |  | 24,330 |  |  | — |  |  | 24,330 |
|  | 40,726 |  |  | 27,084 |  |  | — |  |  | 67,810 |
Foreign exchange derivative contracts |  | — |  |  | 1,057 |  |  | — |  |  | 1,057 |
Interest rate swap derivative contracts |  | — |  |  | 57 |  |  | — |  |  | 57 |
Total assets |  | $ | 83,745 |  |  | $ | 28,198 |  |  | $ | — |  |  | $ | 111,943 |
Liabilities: |  |  |  |  |  |  |  |
Interest rate swap derivative contracts |  | $ | — |  |  | $ | (87) |  |  | $ | — |  |  | $ | (87) |
Contingent consideration |  | — |  |  | — |  |  | (4,012) |  |  | (4,012) |
Total liabilities |  | $ | — |  |  | $ | (87) |  |  | $ | (4,012) |  |  | $ | (4,099) |
Cash Equivalents The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities. Marketable Securities We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price is more reflective of fair value. Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments. In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate. Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive income in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements. Contingent Consideration Contingent consideration, arising from the acquisition of FRT, was a cash amount equal to 1.5x EBIT as defined in the purchase agreement, up to a maximum of €10.3 million, payable subject to the performance of the acquired business in calendar 2020. We estimated the fair value of contingent consideration using a probability weighted approach. Key assumptions in determining the fair value of contingent consideration included estimating EBIT levels that we believed as of the acquisition date were likely to be achieved during the performance period and discounting at an appropriate discount rate. We settled our contingent consideration in the current quarter for $3.9 million, resulting in a $0.1 million credit to Selling, general and administrative expense with the remaining change from December 26, 2020 resulting from foreign currency translation. Interest Rate Swaps The fair value of our interest rate swap contracts is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. For accounting purposes, our interest rate swap contracts qualify for, and are designated as, cash flow hedges. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Accrued liabilities and Other liabilities in our Condensed Consolidated Balance Sheets. The impact of the interest rate swaps on our Condensed Consolidated Statements of Income was as follows (in thousands):
|  | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) |  | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |  | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |  | Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) |  | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Three Months Ended June 26, 2021 |  | $ | (203) |  |  | Interest expense |  | $ | (39) |  |  | Interest expense |  | $ | — |
Three Months Ended June 27, 2020 |  | $ | (174) |  |  | Interest expense |  | $ | (10) |  |  | Interest expense |  | $ | — |
Six Months Ended June 26, 2021 |  | $ | 421 |  |  | Interest expense |  | $ | (77) |  |  | Interest expense |  | $ | — |
Six Months Ended June 27, 2020 |  | $ | (270) |  |  | Interest expense |  | $ | 12 |  |  | Interest expense |  | $ | — |
Foreign Exchange Derivative Contracts We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses. We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other expense, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction. The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at June 26, 2021 will mature by the second quarter of fiscal 2022. The following table provides information about our foreign currency forward contracts outstanding as of June 26, 2021 (in thousands):
Currency |  | Contract Position |  | Contract Amount (Local Currency) |  | Contract Amount (U.S. Dollars)
Euro Dollar |  | Buy |  | (12,678) |  |  | $ | (15,124) |
Japanese Yen |  | Sell |  | 1,802,229 |  |  | 16,251 |
Korean Won |  | Buy |  | (3,050,367) |  |  | (2,703) |
Total USD notional amount of outstanding foreign exchange contracts |  |  |  |  |  | $ | (1,576) |
Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs. The impact of foreign exchange derivative contracts not designated as cash flow hedges on our Condensed Consolidated Statements of Income was as follows (in thousands):
|  |  |  | Amount of Gain (Loss) Recognized on Derivatives
|  |  |  | Three Months Ended |  | Six Months Ended
Derivatives Not Designated as Hedging Instruments |  | Location of Gain (Loss) Recognized on Derivatives |  | June 26, 2021 |  | June 27, 2020 |  | June 26, 2021 |  | June 27, 2020
Foreign exchange forward contracts |  | Other expense, net |  | $ | (69) |  |  | $ | 234 |  |  | $ | 1,220 |  |  | $ | 349 |
The impact of foreign exchange derivative contracts designated as cash flow hedges on our Condensed Consolidated Statements of Income was as follows (in thousands):
|  | Amount of Gain (Loss) Recognized in Accumulated OCI on Derivative |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Income |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income |  |  |  |
Three Months Ended June 26, 2021 |  | $ | 278 |  |  | Cost of revenues |  | $ | 134 |  |  |  |  |
|  |  |  | Research and development |  | 16 |  |  |  |  |
|  |  |  | Selling, general and administrative |  | 52 |  |  |  |  |
|  |  |  |  |  | $ | 202 |  |  |  |  |
Three Months Ended June 27, 2020 |  | $ | 52 |  |  | Cost of revenues |  | $ | (139) |  |  |  |  |
|  |  |  | Research and development |  | (17) |  |  |  |  |
|  |  |  | Selling, general and administrative |  | (35) |  |  |  |  |
|  |  |  |  |  | $ | (191) |  |  |  |  |
Six Months Ended June 26, 2021 |  | $ | (248) |  |  | Cost of revenues |  | $ | 384 |  |  |  |  |
|  |  |  | Research and development |  | 46 |  |  |  |  |
|  |  |  | Selling, general and administrative |  | 134 |  |  |  |  |
|  |  |  |  |  | $ | 564 |  |  |  |  |
Six Months Ended June 27, 2020 |  | $ | (126) |  |  | Cost of revenues |  | $ | (258) |  |  |  |  |
|  |  |  | Research and development |  | (35) |  |  |  |  |
|  |  |  | Selling, general and administrative |  | (79) |  |  |  |  |
|  |  |  |  |  | $ | (372) |  |  |  |  |
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis We measure and report our non-financial assets such as Property, plant and equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. Other than as discussed in Note 4, Acquisition, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 26, 2021 or June 27, 2020.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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