Fair Value

12 Months Ended

Oct. 02, 2020

FAIR VALUE

Assets/Liabilities Measured at Fair Value on a Recurring Basis

In the tables below, the Company has segregated all assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.


	Fair Value Measurements at October 2, 2020
Type of Instruments	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
(In millions)
Assets:
Cash equivalents:
Money market funds	$	148.0	$	—	$	—	$	148.0
Equity investments	—		54.6		—		54.6
Available-for- sale securities:
MPTC Series B-1 Bonds	—		18.9		—		18.9
MPTC Series B-2 Bonds	—		20.6		—		20.6

APTC securities	—		5.4		—		5.4

Total assets measured at fair value	$	148.0	$	99.5	$	—	$	247.5

Liabilities:
Derivative liabilities	$	—	$	(0.1)	$	—	$	(0.1)
Contingent consideration	—		—		(43.1)		(43.1)
Total liabilities measured at fair value	$	—	$	(0.1)	$	(43.1)	$	(43.2)

The Company classifies its money market funds as Level 1 because they have daily liquidity, quoted prices for the underlying investments can be obtained, and there are active markets for the underlying investments. The Company's equity investment is in a publicly-traded company that is valued at quoted market prices and is subject to a 180-day lock up period. As such, it is classified as Level 2.

The Company's Level 2 available-for-sale securities consist of bonds for the Maryland Proton Therapy Center ("MPTC") and the Alabama Proton Therapy Center (“APTC”). The observable inputs for these securities are comparable bond issues, broker/dealer quotations for the same or similar investments in active markets, and other observable inputs such as yields, credit risks, default rates, and volatility. In fiscal year 2020, the MPTC Series B-1 and B-2 bonds (collectively "MPTC" bonds) and the APTC securities were determined to be other-than-temporarily impaired due to a decrease in trade prices of comparable bonds. The Company believed that it is more likely than not that it would not recover the losses before these bonds are sold and as such, the Company recorded impairment charges of $16.9 million on its MPTC bonds and $0.9 million on its APTC securities. The Company's available-for-sale securities are included in other assets on the Company's Consolidated Balance Sheets, except for amounts related to short-term interest receivable. As of October 2, 2020, and September 27, 2019, the carrying amount of the Company's Level 1 money market funds and Level 2 available-for-sale securities approximated their respective fair values. See Note 15, "Proton Solutions Loans and Investment," for more information about the available-for-sale securities.

The Company has elected to use the income approach to value its derivative instruments using standard valuation techniques and Level 2 inputs, such as currency spot rates, forward points and credit default swap spreads. The Company’s derivative instruments are generally short-term in nature, typically one month to fifteen months in duration.

The Company generally measures the fair value of its Level 3 contingent consideration liabilities based on Monte Carlo pricing models with key assumptions that include estimated revenues of the acquired business, the probability of completing certain milestone targets during the earn-out period, revenue volatility and estimated discount rates corresponding to the periods of expected payments. If the estimated revenues or probability of completing certain milestones were to increase or decrease during the respective earn-out period, the fair value of the contingent consideration would increase or decrease, respectively. If the estimated discount rates were to increase or decrease, the fair value of contingent consideration would decrease or increase, respectively. Changes in key assumptions may result in an increase or decrease in the fair value of contingent consideration. The Company's contingent consideration is from its business combinations and is included in accrued liabilities and other long-term liabilities on the Consolidated Balance Sheets.

The following table presents the reconciliation for all assets and liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):


(In millions)	Contingent Consideration
Balance at September 28, 2018	$	(24.4)
Additions	(45.4)
Measurement period adjustment to a business combination in prior year	11.6
Foreign exchange	0.5
Settlements	1.0
Change in fair value recognized in earnings	(18.6)


Balance at September 27, 2019	(75.3)



Additions	(8.9)


Settlements	41.4
Foreign exchange	(0.6)
Change in fair value recognized in earnings	0.3
Balance at October 2, 2020	$	(43.1)

Transfers between fair value measurement levels are recognized at the end of the reporting period.

Fair Value of Other Financial Instruments

The fair values of certain of the Company’s financial instruments, including bank deposits included in cash equivalents, trade and unbilled receivables, net of allowance for doubtful accounts, the revolving loan to CPTC, accounts payable, and short-term borrowings approximate their carrying amounts due to their short maturities.

As of October 2, 2020, the fair value of the Term Loan (as defined below) with CPTC approximated its carrying value of $11.8 million. In fiscal year 2020, the Company recorded a $40.5 million impairment charge on its CPTC Loans. The carrying value is based on the present value of expected future cash payments discounted at a rate reflecting the nature and duration of the loans, risks involved with CPTC, and its industry, as a result, the Term Loan is categorized as Level 3 in the fair value hierarchy. See Note 15, "Proton Solutions Loans and Investment," for further information.

The Company's equity investments in privately-held companies were $68.2 million and $64.2 million at October 2, 2020 and September 27, 2019, respectively. The Company measures these investments at cost, and these investments are adjusted through net earnings when they are deemed to be impaired or when there is an adjustment from observable price changes. In fiscal year 2020, the fair value of the Company’s equity investments in its privately-held companies increased by $14.5 million, which is included in other income, net, in the Consolidated Statements of Earnings.

Two of the Company's equity investments completed initial public offerings ("IPO's") in fiscal year 2020. The Company’s equity investments in these public companies are subject to a 180-day lock-up period from the effective date of their respective IPO's. At October 2, 2020, the Company's carrying value of its equity investments in these publicly-held companies was $54.6 million. These equity investments were transferred from Level 3 into Level 2 because the fair value can be determined using observable market data, but due to the 180-day lock-up period the market is considered inactive. In fiscal year 2020, the fair value of these investments increased by $25.5 million, which is included in other income, net, in the Consolidated Statements of Earnings.

The fair value of the outstanding long-term notes receivable, including accrued interest, approximated their carrying value of $36.7 million and $33.6 million at October 2, 2020 and September 27, 2019, respectively, because they are based on terms of recent comparable transactions and are categorized as Level 3 in the fair value hierarchy. The fair value is based on the income approach by using the discounted cash flow model with key assumptions that include discount rates corresponding to the terms and risks as well as underlying cash flow assumptions. See Note 15, "Proton Solutions Loans and Investment," for more information on the long-term notes receivable.

- 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.

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