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Fair Value Measurements

6 Months Ended

Mar. 31, 2024

FAIR VALUE MEASUREMENTS

ASC 820, "Fair Value Measurement," defines fair value as 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. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2: 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 inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value (in millions):


	Fair Value Measurements Using:
	Total as of March 31, 2024		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency exchange derivatives	$	25	$	—	$	25	$	—

Commodity derivatives	2		—		2		—



Other noncurrent assets
Cross-currency interest rate swap	7		—		7		—
Deferred compensation plan assets	53		53		—		—
Exchange traded funds (fixed income)(1)	81		81		—		—
Exchange traded funds (equity)(1)	186		186		—		—



Total assets	$	354	$	320	$	34	$	—
Other current liabilities
Foreign currency exchange derivatives	$	17	$	—	$	17	$	—


Contingent earn-out liabilities	63		—		—		63
Other noncurrent liabilities
Contingent earn-out liabilities	33		—		—		33
Total liabilities	$	113	$	—	$	17	$	96


	Fair Value Measurements Using:
	Total as of September 30, 2023		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency exchange derivatives	$	29	$	—	$	29	$	—

Interest rate swaps	22		—		22		—


Other noncurrent assets

Cross-currency interest rate swap	5		—		5		—
Deferred compensation plan assets	45		45		—		—
Exchange traded funds (fixed income)(1)	76		76		—		—
Exchange traded funds (equity)(1)	155		155		—		—



Total assets	$	332	$	276	$	56	$	—
Other current liabilities
Foreign currency exchange derivatives	$	25	$	—	$	25	$	—
Commodity derivatives	2		—		2		—
Contingent earn-out liabilities	48		—		—		48
Other noncurrent liabilities
Contingent earn-out liabilities	76		—		—		76
Total liabilities	$	151	$	—	$	27	$	124

(1) Classified as restricted investments for payment of asbestos liabilities. See Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for further details.

The following table summarizes changes in contingent earn-out liabilities, which are valued using significant unobservable inputs (Level 3) (in millions):



Balance at September 30, 2023	$	124

Payments	(20)
Reduction for change in estimates	(8)

Balance at March 31, 2024	$	96

Valuation Methods

Commodity derivatives: The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes.

Contingent earn-out liabilities: The contingent earn-out liabilities were established using a Monte Carlo simulation based on the forecasted operating results and the earn-out formula specified in the purchase agreements.

Cross-currency interest rate swaps: The fair value of cross-currency interest rate swaps represents the difference between the swap's reference rate and exchange rate and the interest and exchange rates for a similar instrument as of the reporting period. Cross-currency interest rate swaps are valued under a market approach using publicized prices.

Deferred compensation plan assets: Assets held in the deferred compensation plans will be used to pay benefits under certain of the Company's non-qualified deferred compensation plans. The investments primarily consist of mutual funds which are publicly traded on stock exchanges and are valued using a market approach based on the quoted market prices. Unrealized gains (losses) on the deferred compensation plan assets are recognized in the consolidated statements of income where they offset unrealized gains and losses on the related deferred compensation plan liability.

Exchange traded funds: Investments in exchange traded funds are valued using a market approach based on quoted market prices, where available, or broker/dealer quotes of identical or comparable instruments. Refer to Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for further information.

Foreign currency exchange derivatives: The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices.

Interest rate swaps: The fair value of interest rate swaps represent the difference between the swap's reference rate and the interest rate for a similar instrument as of the reporting period. Interest rate swaps are valued under a market approach using publicized prices.

The following table presents the portion of unrealized gains recognized in the consolidated statements of income that relate to equity securities still held at March 31, 2024 and 2023 (in millions):


	Three Months Ended March 31,				Six Months Ended March 31,
	2024		2023		2024		2023
Deferred compensation plan assets	$	3	$	2	$	7	$	5
Investments in exchange traded funds	17		12		39		23

The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values.

The fair value of long-term debt at March 31, 2024 and September 30, 2023 was as follows (in billions):


	March 31,		September 30,
	2024		2023
Public debt	$	7.6	$	7.1
Other long-term debt	0.4		0.4
Total fair value of long-term debt	$	8.0	$	7.5

The fair value of public debt was determined primarily using market quotes which are classified as Level 1 inputs within the ASC 820 fair value hierarchy. The fair value of other long-term debt was determined using quoted market prices for similar instruments and are classified as Level 2 inputs within the ASC 820 fair value hierarchy.

- 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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