Fair Value Measurements

The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value.

The hierarchy can be described as follows:


•	Level 1- observable inputs such as quoted prices in active markets;

•

Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not 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- unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and liabilities recognized or disclosed at fair value in our consolidated financial statements on a nonrecurring basis include items such as property and equipment, cost and equity method investments, and other assets. These assets are measured at fair value if determined to be impaired. The fair values of these investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We have highly liquid investments classified as cash equivalents and short-term investments included in our consolidated balance sheets. Cash equivalents consist of financial instruments that have original maturities of 90 days or less. Short-term investments consist of financial instruments with maturities greater than 90 days, but that generally mature in less than 1 year.

Our financial assets and liabilities measured at fair value as of September 30, 2013, are summarized below:



	Fair Value Measurement Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Cash equivalents (1):
Money market funds	$	9,095	$	—	$	—	$	9,095
Time deposits	41,647		—		—		41,647
Commercial paper	—		146,424		—		146,424
Total cash equivalents	50,742		146,424		—		197,166
Short-term investments:
Commercial paper	—		385,223		—		385,223
Certificates of deposit	—		96,833		—		96,833
Other fixed-income securities	—		49,009		—		49,009
Total short-term investments	—		531,065		—		531,065
Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	3,182	$	3,182

⁽¹⁾Included in “cash and cash equivalents” in the consolidated balance sheets as of September 30, 2013, in addition to $104.5 million of cash.

Our financial assets and liabilities measured at fair value as of September 30, 2012, are summarized below:



	Fair Value Measurement Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Cash equivalents₍₁₎:
Time deposits	$	45,323	$	—	$	—	$	45,323
Commercial paper	—		136,072		—		136,072
Certificates of deposit	—		7,074		—		7,074
Total cash equivalents	45,323		143,146		—		188,469
Short-term investments:
Commercial paper	—		86,963		—		86,963
Certificates of deposit	—		79,503		—		79,503
Other fixed-income securities	—		34,596		—		34,596
Total short-term investments	—		201,062		—		201,062
Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	22,692	$	22,692

⁽¹⁾Included in “cash and cash equivalents” in the consolidated balance sheets as of September 30, 2012, in addition to $113.8 million of cash.

Our valuation techniques used to measure the fair values of our financial instruments that were classified as Level 1 in the table above were derived from quoted market prices as active markets for these instruments exist. Our valuation techniques used to measure the fair values of our financial instruments that were classified as Level 2 in the table above were derived from the following: non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.

Acquisition-Related Contingent Consideration

We estimate the fair value of acquisition-related contingent consideration using various valuation approaches including the Monte Carlo Simulation approach and the probability-weighted discounted cash flow approach. Acquisition-related contingent consideration liabilities are classified as Level 3 liabilities because we use unobservable inputs to value them, reflecting our assessment of the assumptions market participants would use to value these liabilities. Changes in the fair value of contingent consideration are recorded as income or expense in the consolidated statements of operations.

Acquisition of TripIt

The fair value of the contingent consideration was estimated using the Monte Carlo simulation approach, which utilizes certain inputs that are unobservable in the market. Key inputs include the expected term, risk-free rate, stock price, the volatility of our stock, and the strike price of $100.90. A volatility of 42% was used to calculate the fair value of our contingent consideration as of September 30, 2012. On the Top-Up Payment Date during 2013, the fair value of the contingent consideration was finalized at $11.3 million and we paid such amounts to the former TripIt shareholders during 2013.

The following table presents a reconciliation of TripIt contingent consideration liability measured at fair value using significant unobservable inputs (Level 3):



Balance as of September 30, 2011	$	30,972
Total gains:
Recorded as revaluation of contingent consideration	(7,884		)
Recorded as compensation expense	(396		)
Balance as of September 30, 2012	22,692
Total gains:
Recorded as revaluation of contingent consideration	(6,694		)
Recorded as compensation expense	(4,682		)
Contingent consideration paid	(11,316		)
Balance as of September 30, 2013	$	—

Acquisition of GlobalExpense

The fair value of the contingent consideration was estimated by applying a probability-weighted discounted cash flow approach, which utilizes significant inputs that are unobservable in the market. Key assumptions included a weighted probability of achieving certain revenue targets through September 30, 2012 at each reporting period. As of September 30, 2012 the revenue targets have been fully met. The additional GlobalExpense consideration of £2.0 million (US$3.2 million) was finalized in 2012 and paid in 2013.

The following table presents a reconciliation of GlobalExpense contingent consideration liability measured at fair value using significant unobservable inputs (Level 3):



Balance as of September 30, 2011	$	2,518
Total losses:
Recorded as revaluation of contingent consideration	610
Foreign currency translation	105
Balance as of September 30, 2012	$	3,233
Total gains:
Foreign currency translation	(146		)
Contingent consideration paid	(3,087		)
Balance as of September 30, 2013	$	—

Other Contingent Consideration

As part of the 2013 acquisitions, we agreed to pay additional cash consideration (“other contingent consideration”) of up to $5.5 million to the former shareholders of acquired entities based on the achievement of certain revenue targets. The fair value of the other contingent consideration was estimated by applying a probability-weighted discounted cash flow approach, which utilizes significant inputs that are unobservable in the market. Key assumptions include our assessment of the weighted probability of achieving certain revenue targets at each reporting period. The other contingent consideration was included in the current acquisition-related contingent consideration on our consolidated balance sheet as of September 30, 2013.

The following table presents a reconciliation of the contingent consideration based on the preliminary purchase price allocation and measured at fair value using significant unobservable inputs (Level 3) as of September 30, 2013:



Balance as of September 30, 2012	$	—
Other contingent consideration issued at business combination	3,049
Total losses:
Recorded as revaluation of other contingent consideration	—
Foreign currency translation	133
Balance as of September 30, 2013	$	3,182

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During 2013, fair value adjustments made to assets required to be measured at fair value on a nonrecurring basis were immaterial. In 2012 and 2011, there were no adjustments.

Other Fair Value Disclosures

The fair values of the 2015 Notes and 2018 Notes were estimated using Level 2 inputs based on quoted market prices in markets that are not active. The fair values of our convertible senior notes are primarily affected by our stock price and are also subject to interest. As of September 30, 2013, the carrying amount and fair value of the 2015 Notes was $265.4 million and $610.2 million, respectively. As of September 30, 2012, the carrying amount and fair value of the 2015 Notes was $251.6 million and $438.0 million, respectively. As of September 30, 2013, the carrying amount and fair value of the 2018 Notes were $381.8 million and $590.8 million, respectively.