Derivative Instruments and Fair Value Measurement

9 Months Ended

Jun. 30, 2011

Derivative Instruments and Fair Value Measurement [Abstract]

Derivative Instruments and Fair Value Measurement

8. Derivative Instruments and Fair Value Measurement

We use foreign currency forward exchange contracts to manage certain foreign currency risks. We enter into these contracts to offset changes in the amount of future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies expected to occur within the next two years (cash flow hedges). Certain of our locations have assets and liabilities denominated in currencies other than their functional currencies resulting from intercompany loans and other transactions with third parties denominated in foreign currencies. We also enter into foreign currency forward exchange contracts that we do not designate as hedging instruments to offset the transaction gains or losses associated with some of these assets and liabilities.

We value our forward exchange contracts using a market approach. We use an internally developed valuation model based on inputs including forward and spot prices for currency and interest rate curves. We have not changed our valuation techniques during the nine months ended June 30, 2011. The notional values of our forward exchange contracts outstanding at June 30, 2011 were $869.7 million, of which $533.4 million were designated as cash flow hedges. Contracts with the most significant notional values relate to transactions denominated in the United States dollar, euro and Canadian dollar.

We also use foreign currency denominated debt obligations to hedge portions of our net investments in non-US subsidiaries. The currency effects of the debt obligations are reflected in accumulated other comprehensive loss within shareholders’ equity where they offset gains and losses recorded on our net investments globally. At June 30, 2011 we had $14.4 million of foreign currency denominated debt designated as net investment hedges.

U.S. GAAP defines fair value as the price that would be received for an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. U.S. GAAP also classifies the inputs used to measure fair value into the following hierarchy:

Level 1:	Quoted prices in active markets for identical assets or liabilities.
Level 2:	Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:	Unobservable inputs for the asset or liability.

Assets and liabilities measured at fair value on a recurring basis and their location in our Condensed Consolidated Balance Sheet were (in millions):

		Fair Value (Level 2)
		June 30,			September 30,
Derivatives Designated as Hedging Instruments	Balance Sheet Location	2011			2010
Forward exchange contracts	Other current assets	$	15.7		$	9.9
Forward exchange contracts	Other assets		1.6			2.7
Forward exchange contracts	Other current liabilities		(11.8	)		(8.5	)
Forward exchange contracts	Other liabilities		(1.4	)		(1.5	)
Total		$	4.1		$	2.6

		Fair Value (Level 2)
		June 30,			September 30,
Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	2011			2010
Forward exchange contracts	Other current assets	$	11.0		$	15.6
Forward exchange contracts	Other current liabilities		(4.1	)		(10.4	)
Total		$	6.9		$	5.2

The pre-tax amount of gains (losses) recorded in other comprehensive income related to hedges that would have been recorded in the Condensed Consolidated Statement of Operations had they not been so designated as cash flow hedges was (in millions):

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2011		2010		2011			2010
Forward exchange contracts	$	5.3	$	9.7	$	(3.5	)	$	18.3
Foreign currency denominated debt (net investment hedges)		—		—		(0.5	)		—
Total	$	5.3	$	9.7	$	(4.0	)	$	18.3

Approximately $3.9 million ($2.4 million net of tax) of net unrealized gains on cash flow hedges as of June 30, 2011 will be reclassified into earnings during the next 12 months. We expect that these net unrealized gains will be offset when the hedged items are recognized in earnings.

The pre-tax amount of gains (losses) reclassified from accumulated other comprehensive loss into the Condensed Consolidated Statement of Operations related to derivative forward exchange contracts designated as cash flow hedges, which offset the related losses and gains on the hedged items during the periods presented was:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Sales	$	0.2		$	(0.8	)	$	—		$	(1.5	)
Cost of sales		(2.3	)		0.7			(3.4	)		(4.4	)
Total	$	(2.1	)	$	(0.1	)	$	(3.4	)	$	(5.9	)

The amount recognized in earnings as a result of ineffective hedges was not significant.

The pre-tax amount of gains (losses) from forward exchange contracts not designated as hedging instruments recognized in the Condensed Consolidated Statement of Operations during the periods presented was:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Other (expense) income	$	6.6		$	(2.8	)	$	1.5		$	(22.6	)
Cost of sales		(0.2	)		—			(0.2	)		—
Total	$	6.4		$	(2.8	)	$	1.3		$	(22.6	)

We also hold financial instruments consisting of cash, accounts receivable, accounts payable and long-term debt. The carrying value of our cash, accounts receivable and accounts payable as reported in our Condensed Consolidated Balance Sheet approximates fair value. We base the fair value of long-term debt upon quoted market prices for the same or similar issues. The following is a summary of the carrying value and fair value of our long-term debt (in millions):

	June 30, 2011				September 30, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Long-term debt	$	905.0	$	1,043.6	$	904.9	$	1,073.8