Financial Instruments and Fair Value Measurement

3 Months Ended

Dec. 31, 2016

Financial Instruments and Fair Value Measurement

Financial Instruments and Fair Value Measurement

4.Financial Instruments and Fair Value Measurement

The estimated fair value of our available-for-sale securities, reflected on our Consolidated Condensed Balance Sheets as Investments, is based on market quotes.  The following is a summary of available-for-sale securities, which excludes assets held in a Non-qualified Supplemental Savings Plan:

			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
Equity securities December 31, 2016	$	38,473	$	53,294	$	—	$	91,767
Equity securities September 30, 2016	$	38,473	$	33,051	$	—	$	71,524

On an ongoing basis we evaluate the marketable equity securities to determine if any decline in fair value below cost is other-than-temporary.  If a decline in fair value below cost is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis established.  We review several factors to determine whether a loss is other-than-temporary.  These factors include, but are not limited to, (i) the length of time a security is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near-term prospects of the issuer and (iv) our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of securities used in determining realized gains and losses is based on the average cost basis of the security sold.

The assets held in the Non-qualified Supplemental Savings Plan are carried at fair value which totaled $13.4 million at December 31, 2016 and September 30, 2016.  The assets are comprised of mutual funds that are measured using Level 1 inputs.

Short-term investments include securities classified as trading securities. Both realized and unrealized gains and losses on trading securities are included in other income (expense) in the Consolidated Statements of Operations. The securities are recorded at fair value.

The majority of cash equivalents are invested in highly liquid money-market mutual funds invested primarily in direct or indirect obligations of the U.S. Government.  The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those investments.

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  We use the fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:

· Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

· Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· 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.  This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

At December 31, 2016, our financial instruments utilizing Level 1 inputs include cash equivalents, equity securities with active markets, money market funds we have elected to classify as restricted assets that are included in other current assets and other assets.  Also included is cash denominated in a foreign currency that we have elected to classify as restricted to be used to settle the remaining liabilities of discontinued operations.  For these items, quoted current market prices are readily available.

At December 31, 2016, Level 2 inputs include U.S. Agency issued debt securities and corporate bonds measured using broker quotations that utilize observable market inputs. Also included in level 2 inputs are bank certificate of deposits included in short-term investments or current assets.

Currently, we do not have any financial instruments utilizing Level 3 inputs.

The following table summarizes our assets measured at fair value presented in our Consolidated Condensed Balance Sheet as of December 31, 2016:

	Total		Level 1		Level 2		Level 3
	(in thousands)
Recurring fair value measurements:
Short-term investments:
Corporate debt securities	$	25,392	$	—	$	25,392	$	—
U.S. government and federal agency securities	19,871		15,883		3,988		—
Total short-term investments	45,263		15,883		29,380		—
Cash and cash equivalents	825,893		825,893		—		—
Investments	91,767		91,767		—		—
Other current assets	28,361		28,111		250		—
Other assets	2,000		2,000		—		—
Total assets measured at fair value	$	993,284	$	963,654	$	29,630	$	—
Nonrecurring fair value measurements:
Assets:
Assets held for sale (1)	$	1,106	$	—	$	—	$	1,106

(1) Represents the book value as of December 31, 2016 of decommissioned rigs and rig related equipment written down to their estimated recoverable amounts at December 31, 2016.  These assets are included in assets held for sale in our Consolidated Condensed BalanceSheets.

The following information presents the supplemental fair value information about long-term fixed-rate debt at December 31, 2016 and September 30, 2016:

	December 31,		September 30,
	2016		2016
	(in millions)
Carrying value of long-term fixed-rate debt	$	492.1	$	491.8
Fair value of long-term fixed-rate debt	$	513.1	$	529.6

The fair value for the $500 million fixed-rate debt was based on broker quotes at December 31, 2016.  The notes are classified within Level 2 as they are not actively traded in markets.