Fair Value Measurements

3 Months Ended

Jan. 02, 2016

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;

•

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 January 2, 2016 and September 30, 2015 were as follows:



	January 2, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	76,480	$	—	$	—	$	76,480
Forward contracts (2)	—		1,479		—		1,479
	$	76,480	$	1,479	$	—	$	77,959
Financial liabilities:
Contingent consideration related to acquisitions (3)	$	—	$	—	$	11,750	$	11,750
Forward contracts (2)	—		365		—		365
	$	—	$	365	$	11,750	$	12,115



	September 30, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	91,216	$	—	$	—	$	91,216
Forward contracts (2)	—		507		—		507
	$	91,216	$	507	$	—	$	91,723
Financial liabilities:
Contingent consideration related to acquisitions (3)	$	—	$	—	$	13,000	$	13,000
Forward contracts (2)	—		46		—		46
	$	—	$	46	$	13,000	$	13,046

______________

(1) Money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

(2) The principal market in which we execute our foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large financial institutions. Our foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

(3) For a description of the inputs used to value the contingent consideration liability see Note 6 Acquisitions.

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



	Contingent Consideration
	(in thousands)
	ThingWorx		ColdLight
Balance, October 1, 2015	$	9,000	$	4,000
Change in present value of contingent consideration	—		—
Payment of contingent consideration			(1,250		)
Balance, January 2, 2016	$	9,000	$	2,750

Of the total, $10.2 million of the contingent consideration liabilities are included in accrued expenses and other current liabilities, with the remaining $1.5 million in other liabilities in the Consolidated Balance Sheet as of January 2, 2016.

- 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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