Fair Value Of Financial Instruments

9 Months Ended

Jul. 03, 2011

Fair Value Of Financial Instruments

Fair Value Of Financial Instruments

8 FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC Topic 820: "Fair Value Measurements and Disclosures," ("ASC 820") establishes a framework for measuring fair value and expands related disclosures. Broadly, the ASC 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes market or observable inputs as the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The Company utilizes valuation techniques that attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. The determination of the fair values considers various factors, including closing exchange or over-the-counter market pricing quotations, time value and credit quality factors underlying options and contracts. The fair value of certain derivative financial instruments is estimated using pricing models based on contracts with similar terms and risks. Modeling techniques assume market correlation and volatility, such as using prices of one delivery point to calculate the price of the contract's different delivery point. The nominal value of interest rate transactions is discounted using applicable forward interest rate curves. In addition, by applying a credit reserve which is calculated based on credit default swaps or published default probabilities for the actual and potential asset value, the fair value of the Company's derivative financial instruments assets reflects the risk that the counterparties to these contracts may default on the obligations. Likewise, by assessing the requirements of a reserve for non-performance, which is calculated based on the probability of default by the Company, the Company adjusts its derivative contract liabilities to reflect the price at which a potential market participant would be willing to assume the Company's liabilities. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the periods presented.

The valuation techniques required by ASC 820 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the Company. These two types of inputs create the following fair value hierarchy:

Level 1	Unadjusted quoted prices for identical instruments in active markets.
Level 2	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3	Significant inputs to the valuation model are unobservable.

The Company maintains policies and procedures to value instruments using the best and most relevant data available. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls must be determined based on the lowest level input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. In addition, the Company has risk management teams that review valuation, including independent price validation for certain instruments. Further, in other instances, the Company retains independent pricing vendors to assist in valuing certain instruments.

The Company's derivatives are valued using internal models, which are based on market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities.

The Company's net derivative portfolio as of July 3, 2011, contains Level 2 instruments and represents commodity, interest rate and foreign exchange contracts.

	Level 1		Level 2			Level 3		Total
Assets:
Commodity contracts, net	$	—	$	3,316		$	—	$	3,316
Total Assets	$	—	$	3,316		$	—	$	3,316
Liabilities:
Interest rate contracts	$	—	$	(3,474	)	$	—	$	(3,474	)
Foreign exchange contracts, net		—		(52,722	)		—		(52,722	)
Total Liabilities	$	—	$	(56,196	)	$	—	$	(56,196	)

The Company's net derivative portfolio as of September 30, 2010, contains Level 2 instruments and represents commodity, interest rate and foreign exchange contracts.

	Level 1		Level 2			Level 3		Total
Assets:
Commodity contracts, net	$	—	$	3,914		$	—	$	3,914
Total Assets	$	—	$	3,914		$	—	$	3,914
Liabilities:
Interest rate contracts	$	—	$	(6,627	)	$	—	$	(6,627	)
Foreign exchange contracts, net		—		(38,111	)	$	—		(38,111	)
Total Liabilities	$	—	$	(44,738	)	$	—	$	(44,738	)

The carrying values of cash and cash equivalents, accounts and other receivables, accounts payable and short-term debt approximate fair value. The fair values of long-term debt and derivative financial instruments are generally based on quoted or observed market prices.

Goodwill, intangible assets and other long-lived assets are also tested annually, or more frequently if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3). (See also Note 2, Significant Accounting Policies—Intangible Assets, for further details on impairment testing.)

The carrying amounts and fair values of the Company's financial instruments are summarized as follows ((liability)/asset):

	July 3, 2011						September 30, 2010
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Total debt	$	(1,748,596	)	$	(1,873,943	)	$	(1,743,767	)	$	(1,868,754	)
Interest rate swap agreements		(3,474	)		(3,474	)		(6,627	)		(6,627	)
Commodity swap and option agreements		3,316			3,316			3,914			3,914
Foreign exchange forward agreements		(52,722	)		(52,722	)		(38,111	)		(38,111	)