Financial Instruments and Fair Value Measurements

9 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Financial Instruments and Fair Value Measurements

Note 13 – Financial Instruments and Fair Value Measurements

The fair values of financial instruments, including those not recognized on the statement of financial position at fair value, carried at June 30, 2015 and September 30, 2014 are classified in accordance with the fair value hierarchy in the following tables:

			Basis of Fair Value Measurement
(Millions of dollars)	June 30, 2015 Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Institutional money market investments	$	217	$	217	$	—	$	—
Interest rate swaps		9		—		9		—
Forward exchange contracts		8		—		8		—
Total Assets	$	234	$	217	$	17	$	—
Liabilities
Forward exchange contracts	$	13	$	—	$	13	$	—
Commodity forward contracts		6		—		6		—
Contingent consideration liabilities		50		—		—		50
Total Liabilities	$	69	$	—	$	19	$	50

			Basis of Fair Value Measurement
(Millions of dollars)	September 30, 2014 Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Institutional money market investments	$	1,040	$	1,040	$	—	$	—
Interest rate swaps		3		—		3		—
Forward exchange contracts		20		—		20		—
Total Assets	$	1,063	$	1,040	$	23	$	—
Liabilities
Forward exchange contracts	$	14	$	—	$	14	$	—
Contingent consideration liabilities		14		—		—		14
Total Liabilities	$	29	$	—	$	14	$	14

The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions. The Company’s remaining cash equivalents were $1.342 billion and $821 million at June 30, 2015 and September 30, 2014, respectively. Short-term investments are held to their maturities and are carried at cost, which approximates fair value. The cash equivalents consist of liquid investments with a maturity of three months or less and the short-term investments consist of instruments with maturities greater than three months and less than one year.

The Company measures the fair value of forward exchange contracts and interest rate swaps based upon the present value of expected future cash flows using market-based observable inputs including credit risk, interest rate yield curves, foreign currency spot prices and forward prices.

Long-term debt is recorded at amortized cost. The fair value of long-term debt is measured based upon quoted prices in active markets for similar instruments, which are considered Level 2 inputs in the fair value hierarchy. The fair value of long-term debt was $11.509 billion and $4.1 billion at June 30, 2015 and September 30, 2014, respectively. The fair value of $750 million of floating rates due on June 15, 2016, that were reclassified from long-term debt to short-term debt during the third quarter of fiscal year 2015, was $749 million at June 30, 2015.

The contingent consideration liabilities were recognized as part of the consideration transferred by the Company for certain acquisitions. The fair values of the contingent consideration liabilities were estimated using probability-weighted discounted cash flow models that were based upon the probabilities assigned to the contingent events. The estimated fair values of the contingent consideration liabilities are remeasured at each reporting period based upon increases or decreases in the probability of the contingent payments. The increase to the total contingent consideration liability in the nine months ended June 30, 2015 was mostly attributable to a contingent consideration liability of $36 million recognized in connection with the Company’s acquisition of GenCell in the first quarter of fiscal year 2015.

The Company’s policy is to recognize any transfers into fair value measurement hierarchy levels and transfers out of levels at the beginning of each reporting period. There were no transfers in and out of Level 1, Level 2 or Level 3 measurements for the three and nine months ended June 30, 2015 and 2014.