Financial Instruments

3 Months Ended

Dec. 31, 2014

Financial Instruments [Abstract]

Financial Instruments

8.FINANCIAL INSTRUMENTS

Currency Price Risk Management

Our earnings, cash flows, and financial position are exposed to foreign currency risk from foreign currency-denominated transactions and net investments in foreign operations. It is our policy to minimize our cash flow volatility from changes in currency exchange rates. This is accomplished by identifying and evaluating the risk that our cash flows will change in value due to changes in exchange rates and by executing the appropriate strategies necessary to manage such exposures. Our objective is to maintain economically balanced currency risk management strategies that provide adequate downside protection.

Forward Exchange Contracts

We enter into forward exchange contracts to reduce the cash flow exposure to foreign currency fluctuations associated with highly anticipated cash flows and certain firm commitments, such as the purchase of plant and equipment. We also enter into forward exchange contracts to hedge the cash flow exposure on intercompany loans. The portfolio of forward exchange contracts consists primarily of Euros and British Pound Sterling as well as Euros and U.S. dollars. The maximum remaining term of any forward exchange contract currently outstanding and designated as a cash flow hedge at 31 December 2014 is 3.7 years.

Forward exchange contracts are also used to hedge the value of investments in certain foreign subsidiaries and affiliates by creating a liability in a currency in which we have a net equity position. The primary currency pair in this portfolio of forward exchange contracts is the Euro/U.S. dollar.

In addition to the forward exchange contracts that are designated as hedges, we utilize forward exchange contracts that are not designated as hedges. These contracts are used to economically hedge foreign currency-denominated monetary assets and liabilities, primarily working capital. The primary objective of these forward exchange contracts is to protect the value of foreign currency-denominated monetary assets and liabilities from the effects of volatility in foreign exchange rates that might occur prior to their receipt or settlement. This portfolio of forward exchange contracts comprises many different foreign currency pairs, with a profile that changes from time to time depending on business activity and sourcing decisions.

The table below summarizes our outstanding currency price risk management instruments:

			31 December 2014		30 September 2014
				Years			Years
			US$	Average		US$	Average
			Notional	Maturity		Notional	Maturity
Forward Exchange Contracts:
	Cash flow hedges	$	3,243.5	.6	$	2,965.5	.7
	Net investment hedges		660.5	2.6		685.9	2.9
	Not designated		1,079.6	.5		381.5	.1
Total Forward Exchange Contracts		$	4,983.6	.8	$	4,032.9	1.0

In addition to the above, we use foreign currency-denominated debt to hedge the foreign currency exposures of our net investment in certain foreign subsidiaries. The designated foreign currency denominateddebt and related accrued interest included€900.0million ($1,089.3) and Chinese Renminbi922.7 million ($148.6)at 31 December 2014 and €879.3 million ($1,110.6) and Chinese Renminbi900.9 million ($146.8) at 30September 2014.The designated foreign currency-denominated debt is located on the balance sheet in the long-term debt and short-term borrowings line items.

Debt Portfolio Management

It is our policy to identify on a continuing basis the need for debt capital and evaluate the financial risks inherent in funding the Company with debt capital. Reflecting the result of this ongoing review, the debt portfolio and hedging program are managed with the objectives and intent to (1) reduce funding risk with respect to borrowings made by us to preserve our access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) manage the aggregate interest rate risk and the debt portfolio in accordance with certain debt management parameters.

Interest Rate Management Contracts

We enter into interest rate swaps to change the fixed/variable interest rate mix of our debt portfolio in order to maintain the percentage of fixed- and variable-rate debt within the parameters set by management. In accordance with these parameters, the agreements are used to manage interest rate risks and costs inherent in our debt portfolio. Our interest rate management portfolio generally consists of fixed-to-floating interest rate swaps (which are designated as fair value hedges), pre-issuance interest rate swaps and treasury locks (which hedge the interest rate risk associated with anticipated fixed-rate debt issuances and are designated as cash flow hedges), and floating-to-fixed interest rate swaps (which are designated as cash flow hedges). At 31 December 2014, the outstanding interest rate swaps were denominated in U.S. dollars, Euros, and Chilean Pesos. The maximum remaining term of any interest rate swap designated as a cash flow hedge is 0.2 years. The notional amount of the interest rate swap agreements is equal to or less than the designated debt being hedged. When interest rate swaps are used to hedge variable-rate debt, the indices of the swaps and the debt to which they are designated are the same. It is our policy not to enter into any interest rate management contracts that lever a move in interest rates on a greater than one-to-one basis.

Cross Currency Interest Rate Swap Contracts

We enter into cross currency interest rate swap contracts when our risk management function deems necessary. These contracts may entail both the exchange of fixed- and floating-rate interest payments periodically over the life of the agreement and the exchange of one currency for another currency at inception and at a specified future date. These contracts effectively convert the currency denomination of a debt instrument into another currency in which we have a net equity position while changing the interest rate characteristics of the instrument. The contracts are used to hedge either certain net investments in foreign operations or nonfunctional currency cash flows related to intercompany loans. The current cross currency interest rate swap portfolio consists of fixed-to-fixed swaps between U.S. dollars and Chilean Pesos, U.S. dollars and offshore Chinese Renminbi, U.S. dollars and British Pound Sterling, as well as U.S. dollars and Euros.

The following table summarizes our outstanding interest rate management contracts and cross currency interest rate swaps:

			31 December 2014							30 September 2014
						Average		Years					Average		Years
		US$		Average		Receive		Average	US$		Average		Receive		Average
		Notional		Pay %		%		Maturity	Notional		Pay %		%		Maturity
Interest rate swaps (fair value hedge)		$	600.0	LIBOR		2.77	%	4.0	$	600.0	LIBOR		2.77	%	4.3
Cross currency interest rate swaps
	(net investment hedge)	$	773.1	3.43	%	2.01	%	3.5	$	404.5	3.70	%	1.15	%	2.7
Interest rate swaps (cash flow hedge)		$	392.6	2.12	%	.43	%	.2	$	431.7	2.36	%	.71	%	.4
Cross currency interest rate swaps
	(cash flow hedge)	$	483.9	3.46	%	2.86	%	4.0	$	446.3	3.39	%	2.86	%	4.2
Cross currency interest rate swaps
	(not designated)	$	-	-	%	-	%	-	$	15.4	3.62	%	.05	%	.8

The table below summarizes the fair value and balance sheet location of our outstanding derivatives:

		Balance Sheet	31 December		30 September		Balance Sheet	31 December		30 September
		Location	2014		2014		Location	2014		2014
Derivatives Designated as
	Hedging Instruments:
Forward exchange contracts		Other receivables	$	104.5	$	78.9	Accrued liabilities	$	109.0	$	61.8
Interest rate management contracts		Other receivables		25.5		21.1	Accrued liabilities		31.2		18.8
		Other noncurrent					Other noncurrent
Forward exchange contracts		assets		31.8		10.5	liabilities		2.6		3.1
		Other noncurrent					Other noncurrent
Interest rate management contracts		assets		77.9		54.6	liabilities		-		.3
Total Derivatives Designated as
	Hedging Instruments		$	239.7	$	165.1		$	142.8	$	84.0
Derivatives Not Designated as
	Hedging Instruments:
Forward exchange contracts		Other receivables	$	3.2	$	4.0	Accrued liabilities	$	1.6	$	1.9
Interest rate management contracts		Other receivables		-		2.6	Accrued liabilities		-		-
Total Derivatives Not Designated as
	Hedging Instruments		$	3.2	$	6.6		$	1.6	$	1.9
Total Derivatives			$	242.9	$	171.7		$	144.4	$	85.9

The table below summarizes the gain or loss related to our cash flow hedges, fair value hedges, net investment hedges, and derivatives not designated as hedging instruments:

		Three Months Ended 31 December
		Forward				Foreign Currency
		Exchange Contracts				Debt				Other (A)				Total
		2014		2013		2014		2013		2014		2013		2014		2013
Cash Flow Hedges, net of tax:
Net gain (loss) recognized in OCI
	(effective portion)	$	(24.0)	$	14.3	$	-	$	-	$	.2	$	(1.2)	$	(23.8)	$	13.1
Net (gain) loss reclassified from OCI
	to sales/cost of sales (effective portion)		(.6)		.2		-		-		-		-		(.6)		.2
Net (gain) loss reclassified from OCI to other
	income (expense), net (effective portion)		18.8		(12.7)		-		-		(5.2)		1.4		13.6		(11.3)
Net (gain) loss reclassified from OCI
	to interest expense (effective portion)		(.3)		-		-		-		.3		(.2)		-		(.2)
Net (gain) loss reclassified from OCI to other
	income (expense), net (ineffective portion)		.5		(.6)		-		-		-		-		.5		(.6)
Fair Value Hedges:
Net gain (loss) recognized in interest expense (B)		$	-	$	-	$	-	$	-	$	3.5	$	(4.4)	$	3.5	$	(4.4)
Net Investment Hedges, net of tax:
Net gain (loss) recognized in OCI		$	20.1	$	(9.9)	$	31.1	$	(13.6)	$	10.1	$	5.1	$	61.3	$	(18.4)
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in other income (expense), net (C)		$	.2	$	.1	$	-	$	-	$	-	$	-	$	.2	$	.1

^(A) Other includes the impact on other comprehensive income (OCI) and earnings primarily related to interest rate and cross currency interest

rate swaps.

^(B) The impact of fair value hedges noted above was largely offset by gains and losses resulting from the impact of changes in

related interest rates on recognized outstanding debt.

^(C) The impact of the non-designated hedges noted above was largely offset by gains and losses, respectively, resulting from the

impact of changes in exchange rates on recognized assets and liabilities denominated in nonfunctional currencies.

The amount of cash flow hedges’ unrealized gains and losses at 31 December 2014 that are expected to be reclassified to earnings in the next twelve months is not material.

The cash flows related to all derivative contracts are reported in the operating activities section of the consolidated statements of cash flows.

Credit Risk-Related Contingent Features

Certain derivative instruments are executed under agreements that require us to maintain a minimum credit rating with both Standard & Poor’s and Moody’s. If our credit rating falls below this threshold, the counterparty to the derivative instruments has the right to request full collateralization on the derivatives’ net liability position. The net liability position of derivatives with credit risk-related contingent features was $11.7 as of 31 December 2014 and $2.1 as of 30 September2014. Because our current credit rating is above the various pre-established thresholds, no collateral has been posted on these liability positions.

Counterparty Credit Risk Management

We execute financial derivative transactions with counterparties that are highly rated financial institutions, all of which are investment grade at this time. Some of our underlying derivative agreements give us the right to require the institution to post collateral if its credit rating falls below the pre-established thresholds with Standard & Poor’s or Moody’s. These are the same agreements referenced in Credit Risk-Related Contingent Features above. The collateral that the counterparties would be required to post was $159.8 as of 31 December 2014 and $107.8 as of 30 September 2014. No financial institution is required to post collateral at this time, as all have credit ratings at or above the threshold.