Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.8
Fair Value Measurements
12 Months Ended
Sep. 30, 2014
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, 2014
Using Inputs Considered as:

 

 

 

2014

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

58.0 

 

$

58.0 

 

$

 

$

 

Investments in rabbi trust

 

5.0 

 

5.0 

 

 

 

Derivative instruments

 

1.2 

 

 

1.2 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

$150 senior unsecured notes

 

148.9 

 

163.7 

 

 

 

Revolving credit facilities

 

229.6 

 

 

229.6 

 

 

Term loan

 

180.0 

 

 

180.0 

 

 

Derivative instruments

 

4.1 

 

 

4.1 

 

 

 

 

 

Carrying
Value at
September 30,

 

Fair Value at September 30, 2013
Using Inputs Considered as:

 

 

 

2013

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

42.7 

 

$

42.7 

 

$

 

$

 

Equity investments

 

1.0 

 

 

 

5.0 

 

Investments in rabbi trust

 

5.6 

 

5.6 

 

 

 

Derivative instruments

 

1.5 

 

 

1.5 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

$150 senior unsecured notes

 

148.8 

 

155.3 

 

 

 

Revolving credit facilities

 

325.5 

 

 

325.5 

 

 

Term loan

 

190.0 

 

 

190.0 

 

 

Derivative instruments

 

0.5 

 

 

0.5 

 

 

 

Valuation Techniques

 

·

The carrying amount of equity investments (included as a component of other assets within the balance sheet) was $0 and $1.0 at September 30, 2014 and 2013.  The equity investments were composed of warrants to purchase the common stock of Forethought, which was acquired by a third-party in 2014.  These warrants were exercised in 2014 for $6.2 resulting in a $5.2 gain recorded in other income (expense), net.  The fair value of the warrants was determined at September 30, 2013, using the Black Scholes model and was discounted to account for risks inherent in the pending transaction.  This technique involves some degree of management judgment and, as a result, is not necessarily indicative of the amount 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.

·

We estimate the fair value of our foreign currency derivatives using industry accepted models.  The significant Level 2 inputs used in the valuation of our derivatives include spot rates, forward rates, and volatility.  These inputs were obtained from pricing services, broker quotes, and other sources.

·

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

·

The fair values of the revolving credit facility and term loan were 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 facilities or term loan.

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 balance sheet) was $12.1 and $10.3 at September 30, 2014 and 2013. The fair value of these equity method investments was not readily available.