Fair Value Measurements

9 Months Ended

Jun. 28, 2014

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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. Generally accepted accounting principles prescribe a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs that may be used to measure fair value:


•	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

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Level 2: inputs other than Level 1 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; or


•	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.

Our significant financial assets and liabilities measured at fair value on a recurring basis as of June 28, 2014 and September 30, 2013 were as follows:



	June 28, 2014
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	52,478	$	—	$	—	$	52,478
Forward contracts	—		626		—		626
	$	52,478	$	626	$	—	$	53,104
Financial liabilities:
Contingent consideration related to ThingWorx acquisition	$	—	$	—	$	13,993	$	13,993
Forward contracts	—		1,204		—		1,204
	$	—	$	1,204	$	13,993	$	15,197



	September 30, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	56,706	$	—	$	—	$	56,706
Forward contracts	—		301		—		301
	$	56,706	$	301	$	—	$	57,007
Financial liabilities:
Forward contracts	—		438		—		438
	$	—	$	438	$	—	$	438

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(1) Money market funds and time deposits.

Changes in the fair value of Level 3 contingent consideration liability associated with our acquisition of ThingWorx were as follows:



	Contingent Consideration
	(in thousands)
Balance at October 1, 2013	$	—
ThingWorx contingent consideration at acquisition	13,048
Change in present value of contingent consideration	945
Balance at June 28, 2014	$	13,993

In connection with accounting for the ThingWorx business combination, we recorded a liability of $13.0 million representing the fair value of contingent consideration payable upon achievement of certain financial targets over the next two years. The liability that we recorded was valued using a discounted cash flow method and a probability weighted estimate of achievement of the financial targets based on inputs that are not observable in the market, which represents a level 3 measurement within the fair value hierarchy. Changes in the fair value of the contingent consideration liability will be reflected in acquisition-related charges in general and administrative expense until the liability is fully settled. The contingent consideration liability of $14.0 million as of June 28, 2014 is included in other liabilities in the consolidated balance sheet.

- 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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