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Derivative Instruments
 12 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
We use foreign currency forward exchange contracts and foreign currency denominated debt obligations to manage certain foreign currency risks. We also use interest rate swap contracts and treasury locks to manage risks associated with interest rate fluctuations. The following information explains how we use and value these types of derivative instruments and how they impact our consolidated financial statements.
Additional information related to the impacts of cash flow hedges on other comprehensive income (loss) is included in Note 12.
Types of Derivative Instruments and Hedging Activities
Cash Flow Hedges
We enter into foreign currency forward exchange contracts to hedge our exposure to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies forecasted to occur within the next two years (cash flow hedges). We report in other comprehensive income (loss) the effective portion of the gain or loss on derivative financial instruments that we designate and that qualify as cash flow hedges. We reclassify these gains or losses into earnings in the same periods when the hedged transactions affect earnings. To the extent forward exchange contracts designated as cash flow hedges are ineffective, changes in value are recorded in earnings through the maturity date. There was no impact on earnings due to ineffective cash flow hedges. At September 30, 2020, we had a U.S. dollar-equivalent gross notional amount of $855.7 million of foreign currency forward exchange contracts designated as cash flow hedges. We entered into treasury locks to manage the potential change in interest rates in anticipation of the issuance of $1.0 billion of fixed rate debt in March 2019. Treasury locks are accounted for as cash flow hedges since they hedge the risk of an increase in treasury rates for the forecasted interest payments of an anticipated fixed-rate debt issuance.
The pre-tax amount of gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges that would have been recorded in the Consolidated Statement of Operations had they not been so designated was (in millions):
 
 
2020
 
2019
 
2018
Forward exchange contracts
 
$
(9.7
)
 
$
29.5

 
$
11.8

Treasury locks
 
—

 
(35.7
)
 
—


The pre-tax amount of gains (losses) reclassified from accumulated other comprehensive loss into the Consolidated Statement of Operations related to derivative forward exchange contracts designated as cash flow hedges, which offset the related gains and losses on the hedged items during the periods presented, was (in millions):
 
 
2020
 
2019
 
2018
Sales
 
$
(0.7
)
 
$
1.0

 
$
2.4

Cost of sales
 
19.6

 
18.2

 
(17.2
)
Selling, general and administrative expenses
 
(1.4
)
 
(1.3
)
 
1.2

Interest expense
 
(2.1
)
 
(1.2
)
 
—

Total
 
$
15.4

 
$
16.7

 
$
(13.6
)

Approximately $7.6 million of pre-tax net unrealized losses on cash flow hedges as of September 30, 2020 will be reclassified into earnings during the next twelve months. We expect that these net unrealized losses will be offset when the hedged items are recognized in earnings.
Net Investment Hedges
We use foreign currency forward exchange contracts and foreign currency denominated debt obligations to hedge portions of our net investments in non-U.S. subsidiaries (net investment hedges) against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For all instruments that are designated as net investment hedges and meet effectiveness requirements, the net changes in value of the designated hedging instruments are recorded in accumulated other comprehensive loss within shareowners’ equity where they offset gains and losses recorded on our net investments globally. To the extent forward exchange contracts or foreign currency denominated debt designated as net investment hedges are ineffective, changes in value are recorded in earnings through the maturity date. There was no impact on earnings due to ineffective net investment hedges. At September 30, 2020, we had a gross notional amount of $141.1 million of foreign currency forward exchange contracts designated as net investment hedges.
The pre-tax amount of (losses) gains recorded in other comprehensive income (loss) related to net investment hedges that would have been recorded in the Consolidated Statement of Operations had they not been so designated was (in millions):
 
 
2020
 
2019
 
2018
Forward exchange contracts
 
$
(1.3
)
 
$
(4.9
)
 
$
1.1


Fair Value Hedges
We used interest rate swap contracts to manage the borrowing costs of certain long-term debt. In February 2015, we issued $600.0 million aggregate principal amount of fixed rate notes. Upon issuance of these notes, we entered into fixed-to-floating interest rate swap contracts that effectively converted these notes from fixed rate debt to floating rate debt. We designated these contracts as fair value hedges because they hedged the changes in fair value of the fixed rate notes resulting from changes in interest rates. The changes in value of these fair value hedges were recorded as gains or losses in interest expense and are offset by the losses or gains on the underlying debt instruments, which are also recorded in interest expense. In May 2020, we settled all outstanding interest rate swaps. Refer to Note 7 for further information regarding the settlement of the interest rate swaps.
The pre-tax amount of net gains (losses) recognized within the Consolidated Statement of Operations related to derivative instruments designated as fair value hedges, which fully offset the related net gains and losses on the hedged debt instruments during the periods presented, was (in millions):
 
 
2020
 
2019
 
2018
Interest income (expense)
 
$
15.1

 
$
30.9

 
$
(19.3
)

Derivatives Not Designated as Hedging Instruments
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 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. Gains and losses on derivative financial instruments for which we do not elect hedge accounting are recognized in the Consolidated Statement of Operations in each period, based on the change in the fair value of the derivative financial instruments. At September 30, 2020, we had a U.S. dollar-equivalent gross notional amount of $758.3 million of foreign currency forward exchange contracts not designated as hedging instruments.
The pre-tax amount of gains (losses) from forward exchange contracts not designated as hedging instruments recognized in the Consolidated Statement of Operations was (in millions):
 
 
2020
 
2019
 
2018
Cost of sales
 
$
6.1

 
$
(0.4
)
 
$
1.0

Other (expense) income
 
(11.8
)
 
1.6

 
(0.1
)
Total
 
$
(5.7
)
 
$
1.2

 
$
0.9


Fair Value of Derivative Instruments
We recognize all derivative financial instruments as either assets or liabilities at fair value in the Consolidated Balance Sheet. We value our forward exchange contracts using a market approach. We use a valuation model based on inputs including forward and spot prices for currency and interest rate curves. We did not change our valuation techniques during fiscal 2020, 2019 or 2018. It is our policy to execute such instruments with major financial institutions that we believe to be creditworthy and not to enter into derivative financial instruments for speculative purposes. We diversify our foreign currency forward exchange contracts among counterparties to minimize exposure to any one of these entities. Our foreign currency forward exchange contracts are usually denominated in currencies of major industrial countries. The U.S. dollar-equivalent gross notional amount of our forward exchange contracts totaled $1,755.1 million at September 30, 2020. Currency pairs (buy/sell) comprising the most significant contract notional values were Euro/United States dollar (USD), USD/Mexican peso, USD/Canadian dollar, British pound/USD, and USD/Swiss franc. Refer to Note 1 for further information regarding levels in the fair value hierarchy.
We value interest rate swap contracts using a market approach based on observable market inputs including publicized swap curves.
The fair value of our derivatives and their location in our Consolidated Balance Sheet were (in millions):
 
 
 
 
Fair Value (Level 2)
Derivatives Designated as Hedging Instruments
 
Balance Sheet Location
 
September 30, 2020
 
September 30, 2019
Forward exchange contracts
 
Other current assets
 
$
6.9

 
$
20.3

Forward exchange contracts
 
Other assets
 
1.0

 
3.0

Forward exchange contracts
 
Other current liabilities
 
(13.4
)
 
(4.5
)
Forward exchange contracts
 
Other liabilities
 
(3.2
)
 
(0.4
)
Interest rate swap contracts
 
Other assets
 
—

 
7.6

Interest rate swap contracts
 
Other current liabilities
 
—

 
(0.6
)
Total
 
 
 
$
(8.7
)
 
$
25.4

 
 
 
 
Fair Value (Level 2)
Derivatives Not Designated as Hedging Instruments
 
Balance Sheet Location
 
September 30, 2020
 
September 30, 2019
Forward exchange contracts
 
Other current assets
 
$
6.1

 
$
4.8

Forward exchange contracts
 
Other current liabilities
 
(10.9
)
 
(0.9
)
Total
 
 
 
$
(4.8
)
 
$
3.9