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FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS | 9 Months Ended
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Jun. 30, 2019
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS | FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS We have certain assets and liabilities that are required to be measured and disclosed at fair value. 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.
The assets held in a Non-Qualified Supplemental Savings Plan are carried at fair value, which totaled $15.8 million at June 30, 2019 and $16.2 million at September 30, 2018. 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 Unaudited Condensed Consolidated Statements of Operations. The securities are recorded at fair value. Our non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at fair value when acquired in a business combination or when an impairment charge is recognized. If measured at fair value in the Unaudited Condensed Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy. 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. The carrying value of other current assets, accrued liabilities and other liabilities approximated fair value at June 30, 2019 and September 30, 2018. The following table summarizes our assets and liabilities measured at fair value presented in our Unaudited Condensed Consolidated Balance Sheet as of June 30, 2019:
(in thousands) | Fair Value |  | (Level 1) |  | (Level 2) |  | (Level 3)
Recurring fair value measurements: |  |  |  |  |  |  |
Short-term investments: |  |  |  |  |  |  |
Certificates of deposit | $ | 6,728 |  |  | $ | — |  |  | $ | 6,728 |  |  | $ | — |
Corporate and municipal debt securities | 12,180 |  |  | — |  |  | 12,180 |  |  | — |
U.S. government and federal agency securities | 26,840 |  |  | 26,840 |  |  | — |  |  | — |
Total short-term investments | 45,748 |  |  | 26,840 |  |  | 18,908 |  |  | — |
Cash and cash equivalents | 334,775 |  |  | 334,775 |  |  | — |  |  | — |
Investments | 32,517 |  |  | 32,226 |  |  | 291 |  |  | — |
Other current assets | 30,543 |  |  | 30,543 |  |  | — |  |  | — |
Other assets | 3,788 |  |  | 3,788 |  |  | — |  |  | — |
Total assets measured at fair value | $ | 447,371 |  |  | $ | 428,172 |  |  | $ | 19,199 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Contingent earnout liability | $ | 9,555 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,555 |
At June 30, 2019, our financial instruments measured at fair value utilizing Level 1 inputs include cash equivalents, U.S. Agency issued debt securities, equity securities with active markets and money market funds that are classified as restricted assets. The current portion of restricted amounts are included in prepaid expenses and other and the noncurrent portion is included in other assets. For these items, quoted current market prices are readily available. At June 30, 2019, assets measured at fair value using Level 2 inputs include certificates of deposit, municipal bonds and corporate bonds measured using broker quotations that utilize observable market inputs. Our financial instruments measured using Level 3 inputs consist of potential earnout payments associated with the acquisition of AJC in fiscal year 2019 and MOTIVE Drilling Technologies, Inc. in fiscal year 2017. The valuation techniques used for determining the fair value of the potential earnout payments use a Monte Carlo simulation which evaluates numerous potential earnings and pay out scenarios. The following table presents a reconciliation of changes in the fair value of our financial assets and liabilities classified as Level 3 fair value measurements in the fair value hierarchy for the indicated periods:
| Three Months Ended June 30, |  | Nine Months Ended June 30,
(in thousands) | 2019 |  | 2018 |  | 2019 |  | 2018
Net liabilities at beginning of period | $ | 9,015 |  |  | $ | 15,702 |  |  | $ | 11,160 |  |  | $ | 14,879 |
Additions | — |  |  | — |  |  | 673 |  |  | — |
Total gains or losses: |  |  |  |  |  |  |
Included in earnings | 540 |  |  | (175 | ) |  | (2,278 | ) |  | 5,148 |
Settlements (1) | — |  |  | (6,125 | ) |  | — |  |  | (10,625 | )
Net liabilities at end of period | $ | 9,555 |  |  | $ | 9,402 |  |  | $ | 9,555 |  |  | $ | 9,402 |
(1) | Settlements represent earnout payments that have been paid or earned during the period.
The following table provides quantitative information about our Level 3 unobservable inputs at June 30, 2019:
(in thousands) | Fair Value |  | Valuation Technique |  | Unobservable Input |  | Percentage
Contingent Consideration | $ | 9,555 |  |  | Monte Carlo simulation |  | Discount rate |  | 11.0 | %
|  |  |  |  | Revenue volatility |  | 13.0 | %
|  |  |  |  | Risk free rate |  | 2.0 | %
The following information presents the supplemental fair value information about long-term fixed-rate debt at June 30, 2019 and September 30, 2018:
(in millions) | June 30, 2019 |  | September 30, 2018
Carrying value of long-term fixed-rate debt | $ | 491.7 |  |  | $ | 494.0 |
Fair value of long-term fixed-rate debt | $ | 530.0 |  |  | $ | 509.3 |
The fair value for the $500 million fixed-rate debt was based on broker quotes. The notes are classified within Level 2 as they are not actively traded in markets. We adopted ASU No. 2016-01 on October 1, 2018, and as a result, we recognize our marketable equity securities that have readily determinable fair values at fair value, with changes in such values reflected in net income. Previously, we recognized changes in fair value of equity securities in other comprehensive income in the Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss). There is no longer a requirement to consider whether the decline in fair value is other-than-temporary. When equity securities are sold, the cost of securities used in determining realized gains and losses is based on the average cost basis of the security sold. The estimated fair value of our equity securities, reflected on our Unaudited Condensed Consolidated Balance Sheets as Investments, is based on Level 1 inputs. As of June 30, 2019, we recorded a loss of $50.3 million, which resulted from the decrease in the fair value of our investments from September 30, 2018. The following is a summary of our securities, which excludes assets held in a Non-Qualified Supplemental Savings Plan:
(in thousands) | Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Equity Securities: |  |  |  |  |  |  |
June 30, 2019 | $ | 38,473 |  |  | $ | 14,865 |  |  | $ | (21,112 | ) |  | $ | 32,226 |
September 30, 2018 | $ | 38,473 |  |  | $ | 44,023 |  |  | $ | — |  |  | $ | 82,496 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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