3. FAIR VALUE

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. There is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

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

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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 Measurement Using
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 at December 27, 2013:
Money market funds	$	20.0	$	—		$	—		$	20.0
Corporate debt security		—		—			74.0			74.0
Derivative assets		—		3.0			—			3.0
Option to purchase a company		—		—			1.4			1.4
Total assets measured at fair value	$	20.0	$	3.0		$	75.4		$	98.4
Liabilities at December 27, 2013:
Derivative liabilities	$	—	$	(0.5	)	$	—		$	(0.5	)
Contingent consideration		—		—			(2.3	)		(2.3	)
Total liabilities measured at fair value	$	—	$	(0.5	)	$	(2.3	)	$	(2.8	)
Assets at September 27, 2013:
Money market funds	$	50.0	$	—		$	—		$	50.0
Corporate debt security		—		—			62.7			62.7
Option to purchase a company		—		—			1.4			1.4
Total assets measured at fair value	$	50.0	$	—		$	64.1		$	114.1
Liabilities at September 27, 2013:
Derivative liabilities	$	—	$	(1.1	)	$	—		$	(1.1	)
Contingent consideration		—		—			(2.5	)		(2.5	)
Total liabilities measured at fair value	$	—	$	(1.1	)	$	(2.5	)	$	(3.6	)

Money market funds are included under cash and cash equivalents, corporate debt security is included under short-term investment, option to purchase a company is included under other assets, derivative liabilities are included under accrued liabilities and contingent consideration is included under accrued liabilities and other-long term liabilities on the consolidated balance sheet.

The Company obtains valuations of Level 1 money market funds from quotes for transactions in active exchange markets involving identical assets.

The Company’s valuation of its Level 2 instruments includes valuations obtained from quoted prices for identical assets in markets that are not active. In addition, 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 short-term in nature, typically one month to thirteen months in duration.

The Company measures the fair value of its Level 3 contingent consideration liabilities based on the income approach by using a Monte Carlo simulation model with key assumptions that include estimated sales units of an acquired business during the earn-out period and estimated discount rates corresponding to the periods of expected payments. If the estimated sales units 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 used were to increase or decrease, the fair value of the contingent consideration would decrease or increase, respectively.

The fair value of the Company’s Level 3 corporate debt security 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 associated with the loan to CPTC. If the estimated discount rates used were to increase or decrease, the fair value of the debt security would decrease or increase, respectively. However, the Company does not increase the fair value above its par value as ORIX Capital Markets, LLC (“ORIX”), the loan agent, has the option to purchase this loan from the Company under the original terms and conditions at par value.

The fair value of the option to purchase a company, a Level 3 asset, is based on the income approach using key assumptions that include projected operating results of the company and an estimated discount rate corresponding to the period of expected payment.

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)	Corporate Debt Security		Contingent Consideration			Option to Purchase a Company
Balance at September 27, 2013	$	62.7	$	(2.5	)	$	1.4
Additions, including accrued interest		11.3		—			—
Settlements⁽¹⁾		—		0.2			—
Balance at December 27, 2013	$	74.0	$	(2.3	)	$	1.4

(1)	Amounts reported under “Contingent Consideration” represent cash payments to settle contingent consideration liabilities.

There were no transfers of assets or liabilities between fair value measurement levels during either the three months ended December 27, 2013 or the three months ended December 28, 2012. 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 and certificate of deposits included in cash and cash equivalents, accounts payable, accounts receivable, net of allowance for doubtful accounts, and note receivable approximate their carrying amounts due to their short maturities.

As of both December 27, 2013 and September 27, 2013, the fair value of current maturities of long-term debt approximated its carrying value of $56 million, due to their short-term maturities. The fair value of our long-term debt payable in installments through fiscal year 2018 approximated its carrying value of $425 million and $450 million, at December 27, 2013 and September 27, 2013, respectively, because the term loan is carried at a market observable interest rate that resets periodically and is categorized as level 2 in the fair value hierarchy.