Fair Value Measurements

12 Months Ended

Sep. 30, 2018

Money market funds, time deposits and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

Certificates of deposit, commercial paper and certain U.S. government agency securities are classified within Level 2 of the fair value hierarchy. These instruments are valued based on quoted prices in markets that are not active or based on other observable inputs consisting of market yields, reported trades and broker/dealer quotes.

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 are usually 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.

The fair value of our contingent consideration arrangements is determined based on our evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performances by the acquired entities. These arrangements are classified within Level 3 of the fair value hierarchy.

Our significant financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 and 2017 were as follows:



	September 30, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	93,058	$	—	$	—	$	93,058
Marketable securities:
Certificates of deposit	—		219		—		219
Corporate notes/bonds	54,737		—		—		54,737
U.S. government agency securities	—		995		—		995
Forward contracts	—		2,889		—		2,889
	$	147,795	$	4,103	$	—	$	151,898
Financial liabilities:
Contingent consideration related to acquisitions	$	—	$	—	$	1,575	$	1,575
Forward contracts	—		3,419		—		3,419
	$	—	$	3,419	$	1,575	$	4,994



	September 30, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash equivalents (1)	$	49,845	$	—	$	—	$	49,845
Marketable securities:
Certificates of deposit	—		240		—		240
Corporate notes/bonds	47,673		—		—		47,673
U.S. government agency securities	—		2,402		—		2,402
Forward contracts	—		1,163		—		1,163
	$	97,518	$	3,805	$	—	$	101,323
Financial liabilities:
Contingent consideration related acquisitions	$	—	$	—	$	8,400	$	8,400
Forward contracts	—		4,347		—		4,347
	$	—	$	4,347	$	8,400	$	12,747

(1) Money market funds and time deposits.

Since 2015, we have had two major acquisitions resulting in contingent consideration: ColdLight and Kepware. Changes in the fair value of Level 3 contingent consideration liability associated with these acquisitions were as follows:



	Contingent Consideration
	(in thousands)
	ColdLight			Kepware			Other			Total
Balance at October 1, 2016	$	2,500		$	17,070		$	—		$	19,570
Change in fair value of contingent consideration	—			930			—			930
Payment of contingent consideration	(2,500		)	(9,600		)	—			(12,100		)
Balance at October 1, 2017	$	—		$	8,400		$	—		$	8,400
Contingent consideration at acquisition	—			—			2,100			2,100
Payment of contingent consideration	—			(8,400		)	(525		)	(8,925		)
Balance at September 30, 2018	$	—		$	—		$	1,575		$	1,575

As of September 30, 2018, all contingent consideration liabilities are included in accrued expenses and other current liabilities. Contingent consideration is valued using a discounted cash flow method and a probability weighted estimate of achievement of the targets. Payments made against the original fair value ($8.3 million, $11.0 million and $10.6 million, in 2018, 2017 and 2016, respectively) were included in financing activities in the Consolidated Statement of Cash Flows. Payments related to changes in fair value after the respective acquisition dates are recorded in operating activities.

In connection with our acquisition of Kepware, the former shareholders were eligible to receive additional consideration of up to $18.0 million, which was contingent on the achievement of certain Financial Performance, Product Integration and Business Integration targets (as defined in the Stock Purchase Agreement) within 24 months from April 1, 2016. The estimated undiscounted range of outcomes for the contingent consideration was $16.9 million to $18.0 million at the acquisition date. As of September 30, 2018, we had made $18.0 million in payments and had no liability remaining.

- 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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