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Fair Value Measurements
 12 Months Ended
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.