Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
12 Months Ended
Sep. 30, 2012
Fair Value Measurements  
Fair Value Measurements

13.             Fair Value Measurements

 

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.  The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are from sources independent of the Company.  Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances.  The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The hierarchy is broken down into three levels:

 

Level 1:

Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2:

Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.

Level 3:

Inputs are unobservable for the asset or liability.

 

See the section below titled “Valuation Techniques” for further discussion of how Hillenbrand determines fair value for investments.

 

 

 

Carrying
Value at
September 30,

 

Fair Value at September 30, 2012
Using Inputs Considered as:

 

 

 

2012

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20.2

 

$

20.2

 

$

 

$

 

Equity investments

 

2.5

 

1.5

 

 

1.0

 

Investments in rabbi trust

 

5.5

 

5.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

$150 senior unsecured notes

 

148.6

 

165.6

 

 

 

Revolving credit facility

 

123.0

 

 

 

123.0

 

 

 

Derivative instruments

 

0.4

 

 

0.4

 

 

 

 

 

 

Carrying
Value at
September 30,

 

Fair Value at September 30, 2011
Using Inputs Considered as:

 

 

 

2011

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

115.5

 

$

115.5

 

$

 

$

 

Equity investments

 

3.6

 

2.6

 

 

1.0

 

Investments in rabbi trust

 

5.2

 

5.2

 

 

 

Derivative instruments

 

0.4

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

283.0

 

 

277.9

 

 

$150 senior unsecured notes

 

148.5

 

157.6

 

 

 

 

The following table reconciles the change in the Company’s Level 3 financial assets:

 

 

 

Fair Value Measurements
Using Significant Unobservable Inputs

 

 

 

Forethought
Note

 

Equity
Investments

 

Balance at September 30, 2010

 

$

127.0

 

$

3.0

 

Total realized and unrealized gains or (losses):

 

 

 

 

 

Included in earnings, net

 

 

 

Included in other comprehensive income

 

 

 

Change in fair value, disclosure only

 

24.2

 

 

Purchases, issuances and settlements

 

(151.2

)

 

Transfers in and/or (out) of Level 3

 

 

(2.0

)

Balance at September 30, 2011

 

$

 

$

1.0

 

Total realized and unrealized gains or (losses):

 

 

 

 

 

Included in earnings, net

 

 

 

 

Included in other comprehensive income

 

 

 

 

Change in fair value, disclosure only

 

 

 

 

Purchases, issuances and settlements

 

 

 

 

Transfers in and/or (out) of Level 3

 

 

 

 

Balance at September 30, 2012

 

 

 

$

1.0

 

 

Valuation Techniques

 

·                  We estimate the fair value of derivative financial instruments based on the amount that we would receive or pay to terminate the agreements at the reporting date.

 

·                  The carrying amount of equity investments (included as a component of other assets within the consolidated balance sheet) was $2.5 and $3.6 at September 30, 2012 and 2011, and approximates fair value. The fair value was determined using either quoted prices in an active market or using present value or other techniques appropriate for a particular financial instrument. These techniques involve some degree of management judgment and as a result are not necessarily indicative of the amounts we would realize in a current market exchange.

 

·                  The fair value of the investments in the rabbi trust were based on quoted prices in active markets. The trust assets consist of participant-directed investments in publicly traded mutual funds.

 

·                  The fair value of the revolving credit facility approximated book value at September 30, 2012.  The fair value of the revolving credit facility is estimated based on internally developed models, using current market interest rate data for similar issues as there is no active market for our revolving credit facility.

 

·                  The fair value of the 10-year, 5.5% fixed rate senior unsecured notes was based on quoted prices in an active market.

 

·                  The private equity limited partnerships were excluded from the tables above. The carrying amount of these assets (included as a component of other assets within the consolidated balance sheet) was $13.3 and $13.8 at September 30, 2012 and 2011. The fair value of these equity method investments is not readily available.