Derivative Instruments and Hedging Strategies

12 Months Ended

Sep. 30, 2015

Derivative Instruments And Hedging Strategies [Abstract]

Derivative Instruments and Hedging Strategies

7 DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

RISKS AND EXPOSURE

Our operations are exposed to market risks from changes in foreign currency exchange rates and interest rates. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives.

Interest Rate Risk

The Company is exposed to interest rate risk associated with fluctuations in the interest rates on its variable interest rate debt. In order to manage this risk, the Company enters into interest rate swap agreements, when appropriate, based upon market conditions.

Foreign Currency Exposure

Although the U.S. Dollar is Sirona’s reporting currency, it conducts its business in many currencies, and its local functional currency varies depending on the country of operation, which exposes the Company to market risk associated with foreign currency exchange rate movements. The Company hedgescertain foreign currency transaction exposure through foreign exchange forward contracts.

CASH FLOW HEDGES

Interest Rate

The Company uses interest rate swaps to convert a portion of its debt's variable interest rate to a fixed interest rate. Interest rate swaps have been established for 100% of the interest for the Facility A Term Loan under the Senior Facilities Agreement until November 2016. The interest rate swaps fix the LIBOR element of interest payable on 100% of the principal amount of the Facility A Term Loan for defined three month interest periods over the entire term of the loan. The defined interest rates fixed for each three month interest period range from 1.270% to 1.285%. Settlement of the swaps is required on a quarterly basis. These swaps are designated as hedging instruments under ASC 815.These instruments were immaterial for all periods under report. The Company enters into interest rate swap contracts infrequently as they are only used to manage interest rate risk on long-term debt instruments.

Foreign Currency

The Euro is the functional currency for many of Sirona’s subsidiaries, including its primary sales and manufacturing operations in Germany. During the periods under review, exchange rates fluctuated significantly, thereby impacting Sirona’s financial results. In order to hedge portions of the transactional exposure to fluctuations in exchange rates, based on forecasted and firmly-committed cash flows, Sirona enters into foreign exchange forward contracts (currently: USD, AUD, and JPY). These forward foreign currency contracts are intended to reduce short-term effects of changes in exchange rates. The Company enters into forward contracts that are considered to be economic hedges but which are not considered hedging instruments under ASC 815. As of September 30,2015, these contracts had notional amounts totaling $35.3 million(prior year period: $31.1 million). These agreements are relatively short-term (generally not exceeding six months).

The fair value carrying amount of the Company's derivative instruments at September 30,2015 is described in Note 21 Fair Value Measurements.

The following tables summarize the impact of gains and losses from the fair value changes of the Company’s derivative instruments reported in our consolidated statements of income for theperiods under report:

Derivatives Designated as Cash Flow Hedging Instruments
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income		Year ended
		September 30,
(In millions)		2015		2014		2013
Interest rate swap contracts	$	0.4	$	0.5	$	1.0

Derivatives Not Designated as Hedging Instruments
Amount of Gain (Loss) Recognized in Income on Derivative Instruments		Year ended
		September 30,
(In millions)		2015		2014		2013	Affected Line Item in the Statement of Income
Foreign exchange contracts	$	1.7	$	(2.5)	$	0.4	Gain (loss) on derivative instruments, net