Fair Value Measures

9 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measures

Fair Value Measures

Fair value is defined as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

ASC 820, Fair Value Measures and Disclosures, establishes a value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable:

• Level 1. Quoted prices for identical assets or liabilities in active markets which we can access.

• Level 2. Observable inputs other than those described as Level 1.

• Level 3. Unobservable inputs.

Items measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2014 and September 30, 2013 consisted of (dollars in thousands):

	June 30, 2014
	Level 1		Level 2			Level 3			Total
Assets:
Money market funds(a)	$	715,431	$	—		$	—		$	715,431
US government agency securities(a)	1,000		—			—			1,000
Marketable securities, $41,552 at cost(b)	—		41,552			—			41,552
Foreign currency exchange contracts(b)			650			—			650
Security price guarantees(c)	—		492			—			492
Total assets at fair value	$	716,431	$	42,694		$	—		$	759,125
Liabilities:
Foreign currency exchange contracts(b)	$	—	$	(135	)	$	—		$	(135	)
Contingent earn-out(d)	—		—			(6,947		)	(6,947		)
Total liabilities at fair value	$	—	$	(135	)	$	(6,947	)	$	(7,082	)

	September 30, 2013
	Level 1		Level 2			Level 3			Total
Assets:
Money market funds(a)	$	684,697	$	—		$	—		$	684,697
US government agency securities(a)	1,000		—			—			1,000
Marketable securities, $38,728 at cost (b)	—		38,728			—			38,728
Foreign currency exchange contracts(b)	—		2,201			—			2,201
Total assets at fair value	$	685,697	$	40,929		$	—		$	726,626
Liabilities:
Security price guarantees(c)	$	—	$	(1,044	)	$	—		$	(1,044	)
Contingent earn-out(d)	—		—			(450		)	(450		)
Total liabilities at fair value	$	—	$	(1,044	)	$	(450	)	$	(1,494	)

(a) Money market funds and U.S. government agency securities, included in cash and cash equivalents in the accompanying balance sheets, are valued at quoted market prices in active markets.

(b) The fair values of our time deposits, marketable securities and foreign currency exchange contracts are based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable.

(c) The fair values of the security price guarantees are determined using a modified Black-Scholes model, derived from observable inputs such as U.S. treasury interest rates, our common stock price, and the volatility of our common stock. The valuation model values both the put and call components of the guarantees simultaneously, with the net value of those components representing the fair value of each instrument.

(d) The fair value of our contingent consideration arrangements are determined based on our evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity.

The changes in the fair value of contingent earn-out liabilities are as follows (dollars in thousands):

	Three months Ended June 30,			Nine Months Ended June 30,
	2014			2014
Balance at beginning of period	$	8,096		$	450
Earn-out liability established at time of acquisition	(901		)	7,406
Charges to acquisition-related (income) costs, net	512			512
Payments upon settlement	(760		)	(1,421		)
Balance at end of period	$	6,947		$	6,947

Our financial liabilities valued based upon Level 3 inputs are comprised of contingent consideration arrangements relating to our acquisitions. We are contractually obligated to pay contingent consideration upon the achievement of specified objectives, including the achievement of future bookings and sales targets related to the products of the acquired entities and therefore recorded contingent consideration liabilities at the time of the acquisitions. We update our assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the considerations is paid upon the achievement of the specified objectives or eliminated upon failure to achieve the specified objectives.

Contingent liabilities are scheduled to be paid in periods through fiscal 2016. As of June 30, 2014, we could be required to pay up to $19.8 million for contingent consideration arrangements if the specified objectives are achieved. We have determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future payments was based on several factors, the most significant of which are the estimated cash flows projected from the future product sales and the risk adjusted discount rate for the fair value measurement.