Fair Value Measurements

12 Months Ended

Sep. 30, 2015

14. Fair Value Measurements

Fair value is defined as an exit price, i.e., 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.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:

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

Level 2—Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

Level 3—Inputs that are unobservable for the asset or liability based on our own assumptions (about the assumptions market participants would use in pricing the asset or liability).

The methods and assumptions used to measure the fair value of financial instruments are as follows:

Derivatives

The fair value of our interest rate management contracts and forward exchange contracts are quantified using the income approach and are based on estimates using standard pricing models. These models take into account the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match both the time to maturity and currency of the underlying instruments. The computation of the fair values of these instruments is generally performed by the Company. These standard pricing models utilize inputs which are derived from or corroborated by observable market data such as interest rate yield curves and currency spot and forward rates. Therefore, the fair value of our derivatives is classified as a level 2 measurement. On an ongoing basis, we randomly test a subset of our valuations against valuations received from the transaction’s counterparty to validate the accuracy of our standard pricing models. Counterparties to these derivative contracts are highly rated financial institutions.

Refer to Note 13, Financial Instruments, for a description of derivative instruments, including details on the balance sheet line classifications.

Long-term Debt

The fair value of our debt is based on estimates using standard pricing models that take into account the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match both the time to maturity and currency of the underlying instruments. These standard valuation models utilize observable market data such as interest rate yield curves and currency spot rates. Therefore, the fair value of our debt is classified as a level 2 measurement. We generally perform the computation of the fair value of these instruments.

The carrying values and fair values of financial instruments were as follows:

			30 September 2015				30 September 2014
			Carrying Value		Fair Value		Carrying Value		Fair Value
	Assets
	Derivatives
		Forward exchange contracts	$	147.1	$	147.1	$	93.4	$	93.4
		Interest rate management contracts		171.8		171.8		78.3		78.3
	Liabilities
	Derivatives
		Forward exchange contracts	$	124.4	$	124.4	$	66.8	$	66.8
		Interest rate management contracts		.8		.8		19.1		19.1
	Long-term debt, including current portion			4,384.7		4,645.7		4,889.8		5,130.7

The carrying amounts reported in the balance sheet for cash and cash items, trade receivables, payables and accrued liabilities, accrued income taxes, and short-term borrowings approximate fair value due to the short-term nature of these instruments. Accordingly, these items have been excluded from the above table.

The following table summarizes assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets:

			30 September 2015								30 September 2014
			Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	Assets at Fair Value
	Derivatives
		Forward exchange contracts	$	147.1	$	-	$	147.1	$	-	$	93.4	$	-	$	93.4	$	-
		Interest rate management contracts		171.8		-		171.8		-		78.3		-		78.3		-
	Total Assets at Fair Value		$	318.9	$	-	$	318.9	$	-	$	171.7	$	-	$	171.7	$	-
	Liabilities at Fair Value
	Derivatives
		Forward exchange contracts	$	124.4	$	-	$	124.4	$	-	$	66.8	$	-	$	66.8	$	-
		Interest rate management contracts		.8		-		.8		-		19.1		-		19.1		-
	Total Liabilities at Fair Value		$	125.2	$	-	$	125.2	$	-	$	85.9	$	-	$	85.9	$	-

In conjunction with the business realignment and reorganization in 2015, long-lived assets held for sale were written down to fair value, and the loss was included in the respective charges. For additional information, see Note 5, Business Restructuring and Cost Reduction Actions. We quantified the fair value of the assets held for sale using a market approach, based on prices for other market transactions involving comparable assets and our assessment of value considering out knowledge of the markets.

During the fourth quarter ended 30 September 2014, we recognized a goodwill impairment charge of $305.2 and an intangible asset impairment charge of $4.9. Refer to Note 10, Goodwill, and Note 11, Intangible Assets, for more information related to these charges and the associated fair value measurements, which were classified as Level 3 since unobservable inputs were used in the valuation.

- 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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