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Financial Instruments and Fair Value Measurements | 3 Months Ended
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Dec. 31, 2019
Financial Instruments and Fair Value Measurments |
Financial Instruments and Fair Value Measurements | Note 7. Financial instruments and fair value measurements Financial assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels: Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date. Level 2: Quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data. Level 3: Inputs that reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and are significant to the valuation of the instruments. The table below presents information about Woodward’s financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value.
|  | At December 31, 2019 |  | At September 30, 2019
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 85,366 |  | $ | - |  | $ | - |  | $ | 85,366 |  | $ | 52,971 |  | $ | - |  | $ | - |  | $ | 52,971
Investments in reverse repurchase agreements |  |  | 271 |  |  | - |  |  | - |  |  | 271 |  |  | 886 |  |  | - |  |  | - |  |  | 886
Investments in term deposits with foreign banks |  |  | 62,371 |  |  | - |  |  | - |  |  | 62,371 |  |  | 45,216 |  |  | - |  |  | - |  |  | 45,216
Equity securities |  |  | 23,636 |  |  | - |  |  | - |  |  | 23,636 |  |  | 20,504 |  |  | - |  |  | - |  |  | 20,504
Net assets held for sale (Note 10) |  |  | - |  |  | - |  |  | 11,950 |  |  | 11,950 |  |  | - |  |  | - |  |  | - |  |  | -
Cross currency interest rate swaps |  |  | - |  |  | 13,474 |  |  | - |  |  | 13,474 |  |  | - |  |  | 24,758 |  |  | - |  |  | 24,758
Total financial assets |  | $ | 171,644 |  | $ | 13,474 |  | $ | 11,950 |  | $ | 197,068 |  | $ | 119,577 |  | $ | 24,758 |  | $ | - |  | $ | 144,335
Investments in reverse repurchase agreements: Woodward sometimes invests excess cash in reverse repurchase agreements. Under the terms of Woodward’s reverse repurchase agreements, Woodward purchases an interest in a pool of securities and is granted a security interest in those securities by the counterparty to the reverse repurchase agreement. At an agreed upon date, generally the next business day, the counterparty repurchases Woodward’s interest in the pool of securities at a price equal to what Woodward paid to the counterparty plus a rate of return determined daily per the terms of the reverse repurchase agreement. Woodward believes that the investments in these reverse repurchase agreements are with creditworthy financial institutions and that the funds invested are highly liquid. The investments in reverse repurchase agreements are reported at fair value, with realized gains from interest income recognized in earnings, and are included in “Cash and cash equivalents” in the Condensed Consolidated Balance Sheets. Since the investments are generally overnight, the carrying value is considered to be equal to the fair value as the amount is deemed to be a cash deposit with no risk of change in value as of the end of each fiscal quarter. Investments in term deposits with foreign banks: Woodward’s foreign subsidiaries sometimes invest excess cash in various highly liquid financial instruments that Woodward believes are with creditworthy financial institutions. Such investments are reported in “Cash and cash equivalents” at fair value, with realized gains from interest income recognized in earnings. The carrying value of Woodward’s investments in term deposits with foreign banks are considered equal to the fair value given the highly liquid nature of the investments. Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in “Other (income) expense, net” on the Condensed Consolidated Statements of Earnings. The trading securities are included in “Other assets” in the Condensed Consolidated Balance Sheets. The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds. Cross-currency interest rate swaps: Woodward holds cross-currency interest rate swaps, which are accounted for at fair value. The swaps in an asset position are included in “Other assets,” and swaps in a liability position are included in “Other liabilities” in the Condensed Consolidated Balance Sheets. The fair values of Woodward’s cross-currency interest rate swaps are determined using a market approach that is based on observable inputs other than quoted market prices, including contract terms, interest rates, currency rates, and other market factors. As of December 31, 2019, swaps in an asset position in the amount of $13,474 were included in “Other assets” in the Condensed Consolidated Balance Sheets, compared to $24,758 as of September 30, 2019. As of December 31, 2019 and September 30, 2019, there were no swaps in a liability position that were included in “Other liabilities” in the Condensed Consolidated Balance Sheets. Trade accounts receivable, accounts payable, and short-term borrowings are not remeasured to fair value, as the carrying cost of each approximates its respective fair value. The estimated fair values and carrying costs of other financial instruments that are not required to be remeasured at fair value in the Condensed Consolidated Balance Sheets were as follows:
|  |  |  | At December 31, 2019 |  | At September 30, 2019
|  | Fair Value Hierarchy Level |  | Estimated Fair Value |  | Carrying Cost |  | Estimated Fair Value |  | Carrying Cost
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Notes receivable from municipalities |  | 2 |  | $ | 12,868 |  | $ | 12,020 |  | $ | 13,100 |  | $ | 12,346
Investments in short-term time deposits |  | 2 |  |  | 13,371 |  |  | 13,386 |  |  | 13,468 |  |  | 13,509
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt |  | 2 |  | $ | (887,834) |  | $ | (833,172) |  | $ | (928,618) |  | $ | (867,377)
In connection with certain economic incentives related to Woodward’s development of a second campus in the greater-Rockford, Illinois area for its Aerospace segment and Woodward’s development of a new campus at its corporate headquarters in Fort Collins, Colorado, Woodward received long-term notes from municipalities within the states of Illinois and Colorado. The fair value of the long-term notes was estimated based on a model that discounted future principal and interest payments received at an interest rate available to the Woodward at the end of the period for similarly rated municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the long-term notes were 1.8% at December 31, 2019 and 1.7% at September 30, 2019. From time to time, certain of Woodward’s foreign subsidiaries will invest excess cash in short-term time deposits with a fixed maturity date of longer than three months but less than one year from the date of the deposit. Woodward believes that the investments are with creditworthy financial institutions. The fair value of the investments in short-term time deposits was estimated based on a model that discounted future principal and interest payments to be received at an interest rate available to the foreign subsidiary entering into the investment for similar short-term time deposits of similar maturity. This was determined to be a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the short-term time deposits were 4.9% at December 31, 2019 and 5.7% at September 30, 2019. The fair value of long-term debt was estimated based on a model that discounted future principal and interest payments at interest rates available to the Woodward at the end of the period for similar debt of the same maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rate used to estimate the fair value of long-term debt was 2.5% at both December 31, 2019 and September 30, 2019.

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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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