Fair Value Measurements

9 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

15. Fair Value Measurements

ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of June 30, 2011, September 30, 2010 and June 30, 2010 (in millions):

	Fair Value Measurements Using:
					Significant
			Quoted Prices		Other		Significant
			in Active		Observable		Unobservable
	Total as of		Markets		Inputs		Inputs
	June 30, 2011		(Level 1)		(Level 2)		(Level 3)
Other current assets
Foreign currency exchange derivatives	$	8	$	8	$	—	$	—
Commodity derivatives		8		—		8		—
Other noncurrent assets
Interest rate swaps		15		—		15		—
Investments in marketable common stock		38		38		—		—
Equity swap		177		177		—		—
Foreign currency exchange derivatives		2		2		—		—
Total assets	$	248	$	225	$	23	$	—
Other current liabilities
Foreign currency exchange derivatives	$	8	$	8	$	—	$	—
Cross-currency interest rate swaps		8		—		8		—
Commodity derivatives		1		—		1		—
Long-term debt
Fixed rate debt swapped to floating		865		—		865		—
Other noncurrent liabilities
Foreign currency exchange derivatives		1		1		—		—
Total liabilities	$	883	$	9	$	874	$	—

	Fair Value Measurements Using:
					Significant
			Quoted Prices		Other		Significant
			in Active		Observable		Unobservable
	Total as of		Markets		Inputs		Inputs
	September 30, 2010		(Level 1)		(Level 2)		(Level 3)
Other current assets
Foreign currency exchange derivatives	$	27	$	27	$	—	$	—
Commodity derivatives		14		—		14		—
Other noncurrent assets
Investments in marketable common stock		31		31		—		—
Equity swap		104		104		—		—
Foreign currency exchange derivatives		2		2		—		—
Total assets	$	178	$	164	$	14	$	—
Other current liabilities
Foreign currency exchange derivatives	$	27	$	27	$	—	$	—
Cross-currency interest rate swaps		17		—		17		—
Other noncurrent liabilities
Foreign currency exchange derivatives		2		2		—		—
Total liabilities	$	46	$	29	$	17	$	—

	Fair Value Measurements Using:
					Significant
			Quoted Prices		Other		Significant
			in Active		Observable		Unobservable
	Total as of		Markets		Inputs		Inputs
	June 30, 2010		(Level 1)		(Level 2)		(Level 3)
Other current assets
Foreign currency exchange derivatives	$	23	$	23	$	—	$	—
Commodity derivatives		2		—		2		—
Other noncurrent assets
Interest rate swaps		9		—		9		—
Investments in marketable common stock		24		24		—		—
Equity swap		91		91		—		—
Foreign currency exchange derivatives		2		2		—		—
Total assets	$	151	$	140	$	11	$	—
Current portion of long-term debt
Fixed rate debt swapped to floating	$	594	$	—	$	594	$	—
Other current liabilities
Foreign currency exchange derivatives		23		23		—		—
Cross-currency interest rate swaps		7		—		7		—
Commodity derivatives		8		—		8		—
Long-term debt
Fixed rate debt swapped to floating		404		—		404		—
Other noncurrent liabilities
Foreign currency exchange derivatives		3		3		—		—
Total liabilities	$	1,039	$	26	$	1,013	$	—

Valuation Methods

Foreign currency exchange derivatives — The Company selectively hedges anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices. As cash flow hedges, the effective portion of the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. Any ineffective portion of the hedge is reflected in the consolidated statement of income. These contracts are highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at June 30, 2011, September 30, 2010 and June 30, 2010. The fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated statement of income.

Commodity derivatives — The Company selectively hedges anticipated transactions that are subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall price risk associated with the Company’s purchases of lead, copper and aluminum. The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes. As cash flow hedges, the effective portion of the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income and are subsequently reclassified into earnings when the hedged transactions, typically sales or cost related to sales, occur and affect earnings. Any ineffective portion of the hedge is reflected in the consolidated statement of income. These contracts are highly effective in hedging the variability in future cash flows attributable to commodity price changes at June 30, 2011, September 30, 2010 and June 30, 2010.

Interest rate swaps and related debt — The Company selectively uses interest rate swaps to reduce market risk associated with changes in interest rates for its fixed-rate notes. As fair value hedges, the interest rate swaps and related debt balances are valued under a market approach using publicized swap curves. Changes in the fair value of the swap and hedged portion of the debt are recorded in the consolidated statement of income. During the second quarter of fiscal 2010, the Company entered into a fixed to floating interest rate swap totaling $100 million to hedge the coupons of its 5.80% notes maturing November 15, 2012 and two fixed to floating interest rate swaps totaling $300 million to hedge the coupons of its 4.875% notes maturing September 15, 2013. In the fourth quarter of fiscal 2010, the Company terminated all of its interest rate swaps. In the second quarter of fiscal 2011 the Company entered into a fixed to floating interest rate swap totaling $100 million to hedge the coupon of its 5.80% notes maturing November 15, 2012, two fixed to floating interest rate swaps totaling $300 million to hedge the coupon of its 4.875% notes maturing September 15, 2013 and five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its 1.75% notes maturing March 1, 2014.

Investments in marketable common stock — The Company invested in certain marketable common stock during the third quarter of fiscal 2010. The securities are valued under a market approach using publicized share prices. As of June 30, 2011 and September 30, 2010, the Company recorded unrealized gains of $10 million and $3 million, respectively, in other comprehensive income on these investments. As of June 30, 2010, the Company recorded unrealized losses of $2 million in other comprehensive income on these investments.

Equity swaps — The Company selectively uses equity swaps to reduce market risk associated with certain of its stock-based compensation plans, such as its deferred compensation plans. The equity swaps are valued under a market approach as the fair value of the swaps is equal to the Company’s stock price at the reporting period date. Changes in fair value on the equity swaps are reflected in the consolidated statement of income within selling, general and administrative expenses.

Cross-currency interest rate swaps — The Company selectively uses cross-currency interest rate swaps to hedge the foreign currency rate risk associated with certain of its investments in Japan. The cross-currency interest rate swaps are valued using market assumptions. Changes in the market value of the swaps are reflected in the foreign currency translation adjustments component of accumulated other comprehensive income where they offset gains and losses recorded on the Company’s net investment in Japan. The Company entered into three cross-currency swaps totaling 20 billion yen during the second quarter of fiscal 2010. In the fourth quarter of fiscal 2010, a 5 billion yen cross-currency swap matured. In the first quarter of fiscal 2011, another 5 billion yen cross-currency swap matured. In the second quarter of fiscal 2011, a 10 billion yen cross-currency swap matured. All three of these cross-currency swaps were renewed for one year in their respective periods. These swaps are designated as hedges of the Company’s net investment in Japan.

The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The fair value of long-term debt, which was $4.9 billion, $3.7 billion and $3.6 billion at June 30, 2011, September 30, 2010 and June 30, 2010, respectively, was determined using market quotes.