Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.

Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.

Our derivatives are valued using various pricing models or discounted cash flow analyses that incorporate observable market data, such as interest rate yield curves and currency rates, and are classified as Level 2 within the valuation hierarchy. Our Level 3 fair value liabilities represent contingent consideration recorded for acquisitions to be paid if various financial targets are met. The amounts recorded were calculated for each payment scenario in each period using an estimate of the probability of the future cash outflows. The varying contingent payments were then discounted to the present value at the weighted average cost of capital. Fair value is assessed on a quarterly basis, or whenever events or circumstances change that indicates an adjustment is required. The assessment includes an evaluation of the performance of the acquired business compared to previous expectations, changes to future projections and the probability of achieving the earn out targets.

The following table presents the fair values and classification of our financial assets and liabilities measured on a recurring basis, all of which are classified as Level 2:



	Classification	July 4, 2015		September 27, 2014
Foreign currency forwards	Other current assets	$	745	$	821
Foreign currency forwards	Other assets	43		—
Interest rate swaps	Other current assets	—		70
Interest rate swaps	Other assets	—		107
	Total asset fair values	$	788	$	998
Foreign currency forwards	Other accrued liabilities	$	1,765	$	4,512
Foreign currency forwards	Other long-term liabilities	223		494
Interest rate swaps	Other accrued liabilities	522		110
Interest rate swaps	Other long-term liabilities	215		28
	Total liability fair values	$	2,725	$	5,144

There were no financial assets or liabilities classified as Level 3 within the fair value hierarchy for the three and nine months ended July 4, 2015. The changes in financial liabilities classified as Level 3 within the fair value hierarchy are as follows:



	Three Months Ended			Nine Months Ended
	June 28, 2014			June 28, 2014
Balance at beginning of period	$	2,422		$	4,007
Increase (decrease) in discounted future cash flows recorded as interest expense	(83		)	73
Decrease in earn out provisions recorded as other income	(859		)	(350		)
Settlements paid in cash	—			(2,250		)
Balance at end of period	$	1,480		$	1,480

Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At July 4, 2015, the fair value of long-term debt was $1,079,046 compared to its carrying value of $1,075,108. The fair value of long-term debt is classified as Level 2 within the fair value hierarchy and was estimated based on quoted market prices.