Derivative Instruments and Hedging Activities

9 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Note 12 — Derivative Instruments and Hedging Activities

The Company uses derivative instruments to mitigate certain exposures. The effects these derivative instruments and hedged items have on financial position, financial performance, and cash flows are provided below.

Foreign Currency Risks and Related Strategies

The Company has foreign currency exposures throughout Europe, Asia Pacific, Canada, Japan and Latin America. From time to time, the Company may partially hedge forecasted export sales denominated in foreign currencies using forward and option contracts, generally with one-year terms. The Company’s hedging program has been designed to mitigate exposures resulting from movements of the U.S. dollar, from the beginning of a reporting period, against other foreign currencies. The Company’s strategy is to offset the changes in the present value of future foreign currency revenue resulting from these movements with either gains or losses in the fair value of foreign currency derivative contracts. Forward contracts were used to hedge forecasted sales in fiscal year 2010. As of June 30, 2011, the Company has not entered into contracts to hedge cash flows in fiscal year 2011.

The Company designates forward contracts used to hedge these certain forecasted sales denominated in foreign currencies as cash flow hedges. Changes in the effective portion of the fair value of the Company’s forward contracts that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk) are included in Other comprehensive income (loss) until the hedged transactions are reclassified in earnings. These changes result from the maturity of derivative instruments as well as the commencement of new derivative instruments. The changes also reflect movements in the period-end foreign exchange rates against the forward rates at the time the Company enters into any given derivative instrument contract. Once the hedged revenue transaction occurs, the recognized gain or loss on the contract is reclassified from Accumulated other comprehensive income (loss) to Revenues. The Company records the premium or discount of the forward contracts, which is included in the assessment of hedge effectiveness, to Revenues.

In the event that the revenue transactions underlying a derivative instrument are no longer probable of occurring, accounting for the instrument under hedge accounting is discontinued. Gains and losses previously recognized in Other comprehensive income (loss) are reclassified into Other income (expense). If only a portion of the revenue transaction underlying a derivative instrument is no longer probable of occurring, only the portion of the derivative relating to those revenues would no longer be eligible for hedge accounting.

Transactional currency exposures that arise from entering into transactions, generally on an intercompany basis, in non-hyperinflationary countries that are denominated in currencies other than the functional currency are mitigated primarily through the use of forward contracts and currency options. Hedges of the transactional foreign exchange exposures resulting primarily from intercompany payables and receivables are undesignated hedges. As such, the gains or losses on these instruments are recognized immediately in income. The offset of these gains or losses against the gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments, are recognized in Other income (expense).

The total notional amounts of the Company’s outstanding foreign exchange contracts as of June 30, 2011 and September 30, 2010 were $1,690,611 and $1,776,046, respectively.

Interest Rate Risks and Related Strategies

The Company’s primary interest rate exposure results from changes in short-term U.S. dollar interest rates. The Company’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Company periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Company exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated as either fair value or cash flow hedges.

For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.

Changes in the fair value of the interest rate swaps designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk) are offset by amounts recorded in Other comprehensive income (loss). If interest rate derivatives designated as cash flow hedges are terminated, the balance in Accumulated other comprehensive income (loss) attributable to those derivatives is reclassified into earnings over the remaining life of the hedged debt. The amount, related to terminated interest rate swaps, expected to be reclassified and recorded in Interest expense within the next 12 months is $996, net of tax.

As of both June 30, 2011 and September 30, 2010, the total notional amount of the Company’s outstanding interest rate swaps designated as fair value hedges was $200,000. The current year’s outstanding swap represents a fixed-to-floating rate swap agreement that was entered into to convert the interest payments on $200,000 in 4.55% notes, due April 15, 2013, from the fixed rate to a floating interest rate based on LIBOR. The Company had no outstanding interest rate swaps designated as cash flow hedges as of June 30, 2011.

Risk Exposures Not Hedged

The Company purchases resins, which are oil-based components used in the manufacture of certain products. While the Company has been able to hedge certain purchases of polyethylene, the Company does not currently use any hedges to manage the risk exposures related to other resins. Significant increases in world oil prices that lead to increases in resin purchase costs could impact future operating results. From time to time, the Company has managed price risks associated with other commodity purchases. The Company had no commodity forward contracts outstanding as of June 30, 2011.

Effects on Consolidated Balance Sheets

The location and amounts of derivative instrument fair values in the consolidated balance sheet are segregated below between designated, qualifying hedging instruments and ones that are not designated for hedge accounting.

			September 30,
	June 30, 2011		2010
Asset derivatives-designated for hedge accounting Interest rate swaps	$	6,444	$	8,609
Asset derivatives-undesignated for hedge accounting Forward exchange contracts	$	12,271	$	32,392
Total asset derivatives (A)	$	18,715	$	41,001
Liability derivatives-undesignated for hedge accounting Forward exchange contracts	$	14,291	$	21,265
Total liability derivatives (B)	$	14,291	$	21,265

(A)	All asset derivatives are included in Prepaid expenses, deferred taxes and other.
(B)	All liability derivatives are included in Accrued expenses.

Effects on Consolidated Statements of Income

Cash flow hedges

The location and amount of gains and losses on designated derivative instruments recognized in the consolidated statement of income for the three months ended June 30 consisted of:

						Gain (Loss)
	Gain (Loss)					Reclassified from
	Recognized in OCI on				Location of Gain (Loss)	Accumulated OCI into
Derivatives Accounted for as	Derivatives				Reclassified from	Income
Designated Cash Flow Hedging	Three Months Ended				Accumulated OCI into	Three Months Ended
Relationships	June 30,				Income	June 30,
	2011		2010			2011			2010
Forward exchange contracts	$	—	$	11,561	Revenues	$	—		$	(1,474	)
Interest rate swaps		249		310	Interest expense		(401	)		(500	)
Total	$	249	$	11,871		$	(401	)	$	(1,974	)

The location and amount of gains and losses on designated derivative instruments recognized in the consolidated statement of income for the nine months ended June 30 consisted of:

						Gain (Loss)
	Gain (Loss)					Reclassified from
	Recognized in OCI on				Location of Gain (Loss)	Accumulated OCI into
Derivatives Accounted for as	Derivatives				Reclassified from	Income
Designated Cash Flow Hedging	Nine Months Ended				Accumulated OCI into	Nine Months Ended
Relationships	June 30,				Income	June 30,
	2011		2010			2011			2010
Forward exchange contracts	$	—	$	54,093	Revenues	$	—		$	(42,672	)
Interest rate swaps		9,396		928	Interest expense		(1,254	)		(1,496	)
Commodity forward contracts		—		22	Cost of sales		—			(35	)
Total	$	9,396	$	55,043		$	(1,254	)	$	(44,203	)

The Company’s designated derivative instruments are perfectly effective. As such, there were no gains or losses, related to hedge ineffectiveness and amounts excluded from hedge effectiveness testing, recognized immediately in income for the three-month and nine-month periods ending June 30, 2011. The gain recognized in other comprehensive income for the nine-month period ended June 30, 2011 is attributable primarily to gains realized on interest rate swaps that were entered into in the first quarter of 2011 in anticipation of issuing $700,000 of 10-year 3.25% notes and $300,000 of 30-year 5.00% notes. These swaps were designated as hedges of the variability in interest payments attributable to changes in the benchmark interest rates against which the notes were priced. These swaps were terminated in November 2010, concurrent with the pricing of the notes. Realized gains on these swaps will be amortized over the life of the notes with an offset to interest expense.

Fair value hedges

The location and amount of gains or losses on the hedged fixed rate debt attributable to changes in the market interest rates and the offsetting gain (loss) on the related interest rate swaps were as follows:

Income Statement
Classification	Gain/(Loss) on Swaps									Gain/(Loss) on Borrowings
	Three Months Ended				Nine Months Ended					Three Months Ended						Nine Months Ended
	June 30,				June 30,					June 30,						June 30,
	2011		2010		2011			2010		2011			2010			2011		2010
Other income (expense) (A)	$	607	$	3,061	$	(2,164	)	$	4,751	$	(607	)	$	(3,061	)	$	2,164	$	(4,751	)

(A) Changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates. There was no hedge ineffectiveness relating to these interest rate swaps.

Undesignated hedges

The location and amount of gains and losses recognized in income on derivatives not designated for hedge accounting were as follows:

		Amount of Gain (Loss) Recognized in Income on Derivatives
	Location of Gain (Loss)	Three Months Ended						Nine Months Ended
Derivatives Not Designated as	Recognized in Income on	June 30,						June 30,
Hedging Instruments	Derivatives	2011			2010			2011			2010
Forward exchange contracts (B)	Other income (expense)	$	(13,248	)	$	(9,788	)	$	(5,106	)	$	(35,382	)

(B) The gains and losses on forward contracts and currency options utilized to hedge the intercompany transactional foreign exchange exposures are largely offset by gains and losses on the underlying hedged items in Other income (expense).