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Fair Value Measurements and Derivative Instruments | 6 Months Ended
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Mar. 31, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Derivative Instruments | 8. Fair Value Measurements and Derivative Instruments Fair value is defined as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). Fair Value Hierarchy The following hierarchy for inputs used in measuring fair value should maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available: Level 1 Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement dates. Level 2 Significant observable inputs that are used by market participants in pricing the asset or liability based on market data obtained from independent sources. Level 3 Significant unobservable inputs the Company believes market participants would use in pricing the asset or liability based on the best information available. The carrying amounts shown for the Company’s cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value due to the short-term maturity of those instruments. The valuation is based on settlements of similar financial instruments all of which are short-term in nature and are generally settled at or near cost. Investments held in Rabbi Trust A non-qualified deferred compensation plan is available to certain executives. Under this plan, participants may elect to defer up to 70% of their compensation. The Company invests the deferrals in participant-selected diversified investments that are held in a Rabbi Trust and which are classified within Other assets on the Consolidated Balance Sheets. The fair value of the investments held in the Rabbi Trust is based on the quoted market prices of the underlying mutual fund investments. These investments are based on the participants’ selected investments, which represent the underlying liabilities to the participants in the non-qualified deferred compensation plan. Gains and losses on these investments are included in Other (income) on the Consolidated Statements of Operations. Derivatives The Company’s objective in entering into derivative transactions is to manage its exposure to interest rate movements associated with its variable rate debt and changes in fuel prices. The Company recognizes derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of each derivative. Although the Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2024 and September 30, 2023, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The following tables summarize the financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and September 30, 2023:
|  | March 31, 2024 |
|  | Carrying Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Other current assets: |  |  |  |  |  |  |  |  |  |  |  |
Fuel derivative contracts |  |  | 0.1 |  |  |  | — |  |  |  | 0.1 |  |  |  | — |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |
Investments held by Rabbi Trust |  | $ | 11.9 |  |  | $ | 11.9 |  |  | $ | — |  |  | $ | — |
Interest rate derivative contracts |  |  | 12.4 |  |  |  | — |  |  |  | 12.4 |  |  |  | — |
Total assets |  | $ | 24.4 |  |  | $ | 11.9 |  |  | $ | 12.5 |  |  | $ | — |
Other liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Obligation to Rabbi Trust |  | $ | 11.9 |  |  | $ | 11.9 |  |  | $ | — |  |  | $ | — |
Total liabilities |  | $ | 11.9 |  |  | $ | 11.9 |  |  | $ | — |  |  | $ | — |
|  | September 30, 2023 |
|  | Carrying Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |
Investments held by Rabbi Trust |  | $ | 10.9 |  |  | $ | 10.9 |  |  | $ | — |  |  | $ | — |
Interest rate derivative contracts |  |  | 21.3 |  |  |  | — |  |  |  | 21.3 |  |  |  | — |
Total Assets |  | $ | 32.2 |  |  | $ | 10.9 |  |  | $ | 21.3 |  |  | $ | — |
Other liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Obligation to Rabbi Trust |  | $ | 10.9 |  |  | $ | 10.9 |  |  | $ | — |  |  | $ | — |
Total Liabilities |  | $ | 10.9 |  |  | $ | 10.9 |  |  | $ | — |  |  | $ | — |
Hedging Activities As of March 31, 2024 and September 30, 2023, the Company’s outstanding derivatives qualified as cash flow hedges. The Company assesses whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of the hedged forecasted transactions. Regression analysis is used for the hedge relationships and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. The entire change in the fair value for highly effective derivatives is reported in Other comprehensive income (loss) and subsequently reclassified into Interest expense, net (in the case of interest rate contracts) and Cost of services provided (in the case of fuel hedge contracts) in the Consolidated Statements of Operations when the hedged item affects earnings. If the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in Accumulated other comprehensive income is released to earnings. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. Interest Rate Contracts The Company has exposures to variability in interest rates associated with its variable interest rate debt, which includes the Series B Term Loan. As such, the Company has entered into interest rate contracts to help manage interest rate exposure by economically converting a portion of its variable-rate debt to fixed-rate debt. Effective for the periods March 18, 2016 through December 31, 2022, the Company held interest rate swaps with a notional amount of $500.0. In January 2023, the Company entered into an interest rate swap agreement with a notional amount of $500.0 and an interest rate collar agreement with a notional amount of $500.0, each effective for the period January 31, 2023 through January 31, 2028. On August 28, 2023, the Company terminated $400.0 of the notional amount of its outstanding interest rate collar agreement. The notional amount of interest rate contracts was $600.0 and $600.0 at March 31, 2024 and September 30, 2023, respectively. As of March 31, 2024, net deferred gain on the interest rate swaps of $6.1, net of taxes, is expected to be recognized in Interest expense over the next 12 months. The effects on the consolidated financial statements of the interest rate contracts which were designated as cash flow hedges were as follows:
|  | Three Months Ended March 31, |  |  | Six Months Ended March 31, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Income (Loss) recognized in Other comprehensive income (loss) |  | $ | 10.9 |  |  | $ | 1.5 |  |  | $ | (3.6 | ) |  | $ | 1.5 |
Net income reclassified from Accumulated other comprehensive income into Interest expense |  |  | 2.8 |  |  |  | 1.3 |  |  |  | 5.6 |  |  |  | 4.3 |
Fuel Contracts The Company has exposures to variability in fuel pricing associated with its purchase and usage of fuel during the ordinary course of business operating a large fleet of vehicles and equipment. As such, the Company has entered into gasoline hedge contracts to help reduce its exposure to volatility in the fuel markets. In March 2024, the Company entered into a fuel swap agreement with a notional volume of 4.0 million gallons covering the period March 4, 2024 through February 24, 2025. The net deferred gain on the fuel swap as of March 31, 2024 was immaterial and is expected to be recognized in Cost of services provided over the next 12 months. The effects on the consolidated financial statements of the fuel swap contracts which were designated as cash flow hedges were as follows:
|  | Three Months Ended March 31, |  |  | Six Months Ended March 31, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Income recognized in Other comprehensive income (loss) |  | $ | 0.1 |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | — |
Net gain reclassified from Accumulated other comprehensive income into Cost of services provided |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |

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- Definition The entire disclosure for derivatives and fair value of assets and liabilities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 820 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//820/tableOfContent + Details
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