Derivative Financial Instruments and Hedging Activities

12 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Hedging Activities

Derivative Financial Instruments and Hedging Activities

The Company has used forward foreign currency exchange contracts (derivatives) to reduce the exchange rate risk of specific foreign currency denominated transactions. These derivatives typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date. At times, the Company has designated these hedges as either cash flow hedges or fair value hedges under FASB ASC Topic 815, Derivatives and Hedging as follows:

Fair Value Hedging Strategy - The Company enters into forward foreign exchange contracts to hedge certain firm commitments denominated in foreign currencies. The purpose of the Company’s foreign currency hedging activities is to protect the Company from risk that the eventual U.S. dollar-equivalent cash flows from the sale of products to international customers will be adversely affected by changes in the exchange rates.

Cash Flow Hedging Strategy - To protect against the impact of movements in foreign exchange rates on forecasted purchases or sales transactions denominated in foreign currency, the Company has a foreign currency cash flow hedging program. The Company hedges portions of its forecasted transactions denominated in foreign currency with forward contracts.

At September 30, 2016, the total notional U.S. dollar equivalent of outstanding forward foreign exchange contracts designated as hedges in accordance with ASC Topic 815 was $1.1 million. Net gains or losses related to hedge ineffectiveness were insignificant for all periods. Ineffectiveness is included in “Miscellaneous, net” in the Consolidated Statements of Income along with mark-to-market adjustments on outstanding non-designated derivatives. The maximum length of time the Company is hedging its exposure to the variability in future cash flows is under twelve months.

The Company has entered into forward foreign currency exchange contracts to create an economic hedge to manage foreign exchange risk exposure associated with non-functional currency denominated payables resulting from global sourcing activities. The Company has not designated these derivative contracts as hedge transactions under FASB ASC Topic 815, and accordingly, the mark-to-market impact of these derivatives is recorded each period in current earnings. The fair value of foreign currency related derivatives is included in the Consolidated Balance Sheets in “Other current assets” and “Other current liabilities.” At September 30, 2016, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $110.5 million in notional amounts covering a variety of foreign currency exposures.

The Company has entered into interest rate contracts to create an economic hedge to manage changes in interest rates on an executory sales contract that exposes the Company to interest rate risk based on changes in market interest rates. The Company has not designated these derivative contracts as hedge transactions under FASB ASC Topic 815, and accordingly, the mark-to-market impact of these derivatives is recorded each period in current earnings. The fair value of the interest rate related derivatives is included in the Consolidated Balance Sheets in “Other current assets” and “Other current liabilities.” At September 30, 2016, the U.S. dollar equivalent notional amount of these outstanding interest rate contracts totaled $6.7 million.

Fair Market Value of Financial Instruments — The fair values of all open derivative instruments were as follows (in millions):

	September 30, 2016				September 30, 2015
	Other Current Assets		Other Current Liabilities		Other Current Assets		Other Current Liabilities
Cash flow hedges:
Foreign exchange contracts	$	—	$	—	$	0.4	$	—
Not designated as hedging instruments:
Foreign exchange contracts	0.1		0.4		0.3		0.4
Interest rate contracts	—		0.4		—		0.7
	$	0.1	$	0.8	$	0.7	$	1.1

The pre-tax effects of derivative instruments consisted of the following (in millions):

	Classification of Gains (Losses)	Fiscal Year Ended September 30,
		2016			2015		2014
Cash flow hedges:
Foreign exchange contracts	Miscellaneous, net	$	(0.2	)	$	0.1	$	—
Foreign exchange contracts	Cost of sales	—			0.2		—
Not designated as hedging instruments:
Foreign exchange contracts	Miscellaneous, net	(7.6		)	12.7		3.3
Interest rate contracts	Miscellaneous, net	(0.2		)	—		—
		$	(8.0	)	$	13.0	$	3.3