Derivatives

6 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Instruments and Hedging Activity

We are exposed to various market risks, including fluctuations in interest rates and variability in foreign currency exchange rates. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks. We employ cash flow hedges, net investment hedges, and other derivative instruments not designated for hedge accounting to manage these risks.

Cash Flow Hedges

To manage our exposure to market risk from fluctuations in interest rates, we enter into interest rate swaps that are designated as cash flow hedges. As of March 31, 2020, we had interest rate swap agreements with an aggregate notional amount of $750.0 million to hedge the variability of cash flows through August 2024 associated with a portion of the variable interest rate payments on outstanding borrowings under our Senior Credit Agreement. As of March 31, 2020, these swaps were in a net liability position with an aggregate fair value of $45.2 million and were classified as Other current liabilities. As of September 30, 2019, we had interest rate swap agreements, with an aggregate notional amount of $750.0 million to hedge the variability of cash flows associated with a portion of the variable interest rate payments on outstanding borrowings under our Senior Credit Agreement through September 2021. As of September 30, 2019, these swaps were in a net liability position with an aggregate fair value of $6.8 million, of which $0.9 million were classified as Other assets and $7.7 million were classified as Other current liabilities. We classify fair value measurements on our interest rate swaps as Level 2.

We are subject to variability in foreign currency exchange rates due to our international operations. We enter into currency exchange agreements that are designated as cash flow hedges to manage our exposure arising from fluctuating exchange rates related to specific and projected transactions. We operate this program pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currencies. Our currency risk consists primarily of foreign currency denominated firm commitments and projected foreign currency denominated intercompany and third-party transactions. As of March 31, 2020, there were no foreign exchange contracts outstanding. As of September 30, 2019, the notional amount of outstanding foreign exchange contracts was $6.7 million and they were in a net asset position reported in Other current assets with an aggregate fair value of $0.2 million. The maximum length of time over which we hedge transaction exposures is generally 15 months. Derivative gains and losses, initially reported as a component of Accumulated other comprehensive income (loss), are reclassified to earnings in the period when the transaction affects earnings.

Net Investment Hedges

As of March 31, 2020, we had cross-currency swap agreements, with an aggregate notional amount of $198.3 million, to hedge the variability of net assets due to changes in the U.S. dollar-Euro spot exchange rates through July 2023. These cross-currency swaps are designated as net investment hedges of subsidiaries using the Euro as their functional currency. As of March 31, 2020 and September 30, 2019, these swaps were in a net asset position with aggregate fair values of $22.3 million and $16.9 million, respectively, and were classified as Other assets.

We classify fair value measurements on our cross-currency swaps as Level 2. We assess hedge effectiveness under the spot-to-spot method and record changes in fair value attributable to the translation of foreign currencies through Accumulated other comprehensive income (loss). We amortize the impact of all other changes in fair value of the derivatives through Interest expense, which was income of $1.3 million and $2.6 million for the three and six months ended March 31, 2020 compared to income of $1.2 million and expense of $0.1 million for the three and six months ended March 31, 2019.

Undesignated Derivative Instruments

We use forward contracts to mitigate the foreign exchange revaluation risk associated with recorded monetary assets and liabilities that are denominated in a non-functional currency. These derivative instruments are not formally designated as hedges and the terms of these instruments generally do not exceed one month. As of March 31, 2020, we had forward contracts not designated as hedges with aggregate notional amounts of $76.0 million. As of September 30, 2019, we had forward contracts not designated as hedges with aggregate notional amounts of $76.7 million. For the three months ended March 31, 2020, we recognized unrealized gains of $0.1 million and realized gains of $0.6 million. For the six months ended March 31, 2020, we recognized unrealized gains of $0.1 million and realized gains of $1.1 million. We recognized unrealized losses of $0.5 million and realized losses of $0.3 million for both the three and six months ended March 31, 2019. The unrealized and realized gains and losses for forward contracts not designated as hedges are recorded in Investment income (expense) and other, net.