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Fair Value Measurements | 12 Months Ended
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Sep. 30, 2019
Fair Value Disclosures [Abstract] |
Fair Value Measurements | NOTE G – FAIR VALUE MEASUREMENTS As required by U.S. GAAP, Ashland uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value. Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows. Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect Ashland’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include Ashland’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment. For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable. The following table summarizes financial instruments subject to recurring fair value measurements as of September 30, 2019. For additional information on fair value hierarchy measurements of pension plan asset holdings, see Note N.
|  |  |  |  |  |  |  |  |  | Quoted prices |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | in active |  |  | Significant |  |  |  |  |
|  |  |  |  |  |  |  |  |  | markets for |  |  | other |  |  | Significant |
|  |  |  |  |  |  |  |  |  | identical |  |  | observable |  |  | unobservable |
|  | Carrying |  |  | Total fair |  |  | assets |  |  | inputs |  |  | inputs |
(In millions) |  | value |  |  | value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 232 |  |  | $ | 232 |  |  | $ | 232 |  |  | $ | — |  |  | $ | — |
Restricted investments (a) |  |  | 334 |  |  |  | 334 |  |  |  | 334 |  |  |  | — |  |  |  | — |
Investments of captive insurance company (b) |  |  | 5 |  |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | — |
Foreign currency derivatives |  |  | 2 |  |  |  | 2 |  |  |  | — |  |  |  | 2 |  |  |  | — |
Total assets at fair value |  | $ | 573 |  |  | $ | 573 |  |  | $ | 571 |  |  | $ | 2 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | 2 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
(a) | Included in restricted investments and $24 million within other current assets in the Consolidated Balance Sheets.
(b) | Included in other noncurrent assets in the Consolidated Balance Sheets.
The following table summarizes financial instruments subject to recurring fair value measurements as of September 30, 2018.
|  |  |  |  |  |  |  |  |  | Quoted prices |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | in active |  |  | Significant |  |  |  |  |
|  |  |  |  |  |  |  |  |  | markets for |  |  | other |  |  | Significant |
|  |  |  |  |  |  |  |  |  | identical |  |  | observable |  |  | unobservable |
|  | Carrying |  |  | Total fair |  |  | assets |  |  | inputs |  |  | inputs |
(In millions) |  | value |  |  | value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 294 |  |  | $ | 294 |  |  | $ | 294 |  |  | $ | — |  |  | $ | — |
Restricted investments (a) |  |  | 342 |  |  |  | 342 |  |  |  | 342 |  |  |  | — |  |  |  | — |
Investments of captive insurance company (b) |  |  | 3 |  |  |  | 3 |  |  |  | 3 |  |  |  | — |  |  |  | — |
Foreign currency derivatives |  |  | 11 |  |  |  | 11 |  |  |  | — |  |  |  | 11 |  |  |  | — |
Total assets at fair value |  | $ | 650 |  |  | $ | 650 |  |  | $ | 639 |  |  | $ | 11 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | 3 |  |  | $ | 3 |  |  | $ | — |  |  | $ | 3 |  |  | $ | — |
(a) | Included in restricted investments and $30 million within other current assets in the Consolidated Balance Sheets.
(b) | Included in other noncurrent assets in the Consolidated Balance Sheets.
Restricted investments As discussed in Note A, Ashland maintains certain investments in a company restricted renewable annual trust for the purpose of paying future asbestos indemnity and defense costs. The investments are designated as available-for-sale securities, classified as Level 1 measurements within the fair value hierarchy. These securities were classified primarily as noncurrent restricted investment assets, with $24 million classified within other current assets, in the Consolidated Balance Sheets. The current year included a portfolio rebalancing between equity and bond funds held within the portfolio resulting in significant purchases and sales of investment securities totaling $348 million each. The following table provides a summary of the activity within the available-for-sale securities portfolio as of September 30, 2019 and 2018:
(In millions) |  | 2019 |  |  | 2018 |
Original cost |  | $ | 335 |  |  | $ | 335 |
Accumulated adjustments, net |  |  | (47 | ) |  |  | (38 | )
Adjusted cost, beginning of year (a) |  |  | 288 |  |  |  | 297 |
Investment income (b) |  |  | 10 |  |  |  | 8 |
Net unrealized gain (c) |  |  | 29 |  |  |  | 54 |
Realized gain (c) |  |  | 32 |  |  |  | 6 |
Settlement funds |  |  | 7 |  |  |  | 10 |
Disbursements |  |  | (32 | ) |  |  | (33 | )
Fair value |  | $ | 334 |  |  | $ | 342 |
(a) | The adjusted cost of the demand deposit includes accumulated investment income, realized gains, disbursements and settlements recorded in previous periods.
(b) | Investment income relates to the demand deposit and includes interest income as well as dividend income transferred from the equity and corporate bond mutual funds.
(c) | Presented under the original cost method.
The following table presents gross unrealized gains and losses for the available-for-sale securities as of September 30, 2019 and 2018:
|  |  |  |  |  | Gross |  |  | Gross |  |  |  |  |
(In millions) |  | Adjusted Cost |  |  | Unrealized Gain |  |  | Unrealized Loss |  |  | Fair Value |
As of September 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand Deposit |  | $ | 9 |  |  | $ | — |  |  | $ | — |  |  | $ | 9 |
Equity Mutual Fund |  |  | 120 |  |  |  | 24 |  |  |  | (2 | ) |  |  | 142 |
Bond Mutual Fund |  |  | 176 |  |  |  | 7 |  |  |  | — |  |  |  | 183 |
Fair value |  | $ | 305 |  |  | $ | 31 |  |  | $ | (2 | ) |  | $ | 334 |
As of September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand Deposit |  | $ | 20 |  |  | $ | — |  |  | $ | — |  |  | $ | 20 |
Equity Mutual Fund |  |  | 148 |  |  |  | 59 |  |  |  | — |  |  |  | 207 |
Bond Mutual Fund |  |  | 120 |  |  |  | — |  |  |  | (5 | ) |  |  | 115 |
Fair value |  | $ | 288 |  |  | $ | 59 |  |  | $ | (5 | ) |  | $ | 342 |
The unrealized gains and losses of $54 million, net of the related deferred income taxes of $20 million, as of September 30, 2018, were reclassified from AOCI to retained earnings within the Consolidated Balance Sheets due to the new accounting guidance adopted in the first quarter of fiscal year 2019. The following table presents the investment income, net unrealized gains and losses, realized gains and disbursements related to the investments within the portfolio during 2019, 2018 and 2017.
(In millions) |  | 2019 |  |  | 2018 |  |  | 2017 |
Investment income |  | $ | 10 |  |  | $ | 8 |  |  | $ | 9 |
Net unrealized gains (losses) (a) |  |  | 7 |  |  |  | 18 |  |  |  | 25 |
Realized gains (b) |  |  | — |  |  |  | 6 |  |  |  | 2 |
Disbursements |  |  | (32 | ) |  |  | (33 | ) |  |  | (27 | )
(a) | Ashland determined that all unrealized gains and losses were related to equity securities with readily determinable fair values. Due to the new accounting guidance adopted in the first quarter of fiscal year 2019, the net unrealized losses during the year ended September 30, 2019 were recorded within the net interest and other expense (income) caption in the Statements of Consolidated Income (Loss). In 2018 and 2017 these net unrealized gains (losses) were in AOCI.
(b) | Relates only to the years ended September 30, 2018 and 2017 prior to adoption of the new accounting guidance for equity securities.
Foreign currency derivatives Ashland conducts business in a variety of foreign currencies. Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to curtail potential earnings volatility effects of certain assets and liabilities, including short-term inter-company loans denominated in currencies other than Ashland’s functional currency of an entity. These derivative contracts generally require exchange of one foreign currency for another at a fixed rate at a future date and generally have maturities of less than twelve months. All contracts are valued at fair value with net changes in fair value recorded within the selling, general and administrative expense caption. The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies. The following table summarizes the gains and losses recognized during 2019, 2018 and 2017 within the Statements of Consolidated Comprehensive Income (Loss).
(In millions) |  | 2019 |  |  | 2018 |  |  | 2017 |
Foreign currency derivative gain (loss) |  | $ | 2 |  |  | $ | (32 | ) |  | $ | 3 |
The following table summarizes the fair values of the outstanding foreign currency derivatives as of September 30, 2019 and 2018 included in accounts receivable and accrued expenses and other liabilities of the Consolidated Balance Sheets.
(In millions) |  | 2019 |  |  | 2018 |
Foreign currency derivative assets |  | $ | 2 |  |  | $ | 11 |
Notional contract values |  |  | 271 |  |  |  | 1,209 |
Foreign currency derivative liabilities |  | $ | 2 |  |  | $ | 3 |
Notional contract values |  |  | 168 |  |  |  | 755 |
Other financial instruments At September 30, 2019 and 2018, Ashland’s long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying values of $1,513 million and $2,307 million, respectively, compared to a fair value of $1,680 million and $2,372 million, respectively. The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland’s incremental borrowing rates, which are deemed to be Level 2 measurements within the fair value hierarchy.

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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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