In the ordinary course of business, the Company may enter into contractual arrangements (also referred to as derivatives) to reduce its exposure to foreign currency. The Company has master netting agreements with all of its counterparties that allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default. The Company manages counterparty risk through the utilization of investment grade commercial banks, diversification of counterparties, and its counterparty netting arrangements. The section below outlines the types of derivatives in place at December 31, 2022 and September 30, 2022, as well as the Company’s objectives and strategies for holding derivative instruments.

A significant share of the Company’s sales is tied to currencies other than the U.S. dollar, the Company’s reporting currency. As such, a weakening of currencies relative to the U.S. dollar can have a negative impact on reported earnings. Conversely, strengthening of currencies relative to the U.S. dollar can improve reported results. The primary currencies to which the Company is exposed include the euro, the Japanese yen, the British pound, the Canadian dollar, and the Australian dollar.

Additionally, the Company’s foreign subsidiaries enter into internal and external transactions that create non-functional currency balance sheet positions at the foreign subsidiary level. These exposures are generally the result of intercompany purchases, intercompany loans and, to a lesser extent, external purchases, and are revalued in the foreign subsidiary’s local currency at the end of each month. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary’s local currency results in an exchange gain or loss recorded in Other income, net. The primary currency to which the Company’s foreign subsidiaries are exposed is the U.S. dollar.

At December 31, 2022, the Company maintained a cash flow hedging program related to foreign currency risk. These derivative instruments have a high correlation to the underlying exposure being hedged and have been deemed highly effective by the Company for accounting purposes in offsetting the associated risk.

The Company has forward currency contracts to hedge cash flow uncertainty associated with currency fluctuations. These transactions are accounted for as cash flow hedges. The Company had unrealized pre-tax losses of $0.7 and gains of $11.3 at December 31, 2022 and September 30, 2022, respectively, on these forward currency contracts, which are accounted for as cash flow hedges and included in AOCI. Assuming foreign exchange rates versus the U.S. dollar remain at December 31, 2022 levels over the next 12 months, the majority of the pre-tax gain included in AOCI at December 31, 2022 is expected to be included in Other income, net. Contract maturities for these hedges extend into fiscal 2023. At December 31, 2022, there were 64 open foreign currency contracts with a total notional value of $105.4.

The Company has foreign currency derivative contracts, which are not designated as cash flow hedges for accounting purposes, to hedge balance sheet exposures. Any gains or losses on these contracts are expected to be offset by exchange gains or losses on the underlying exposures and, thus, are not expected to be subject to significant market risk. The change in the estimated fair value of the foreign currency contracts for the three months ended December 31, 2022 and 2021, resulted in a loss of $2.7 and a gain of $1.1, respectively, and was recorded in Other income, net in the Condensed Consolidated Statements of Earnings and Comprehensive Income. At December 31, 2022, there were seven open foreign currency derivative contracts not designated as cash flow hedges with a total notional value of $65.9.

The following table provides estimated fair values of derivative instruments:


	Fair Value of Assets (1)
	December 31, 2022		September 30, 2022
Derivatives designated as cash flow hedging relationships:
Foreign currency contracts	$	(0.7)	$	11.3
Derivatives not designated as cash flow hedging relationships:
Foreign currency contracts	$	(2.7)	$	2.0

The following table provides the amounts of gains and losses on derivative instruments:


	Three Months Ended December 31,
	2022		2021
Derivatives designated as cash flow hedging relationships:
Foreign currency contracts
Gain (loss) recognized in OCI (1)	$	(7.1)	$	1.8
Gain reclassified from AOCI into income (1) (2)	4.9		1.3
Derivatives not designated as cash flow hedging relationships:
Foreign currency contracts
Gain (loss) recognized in income (2)	$	(2.7)	$	1.1

(1)Each of these derivative instruments had a high correlation to the underlying exposure being hedged for the periods indicated and have been deemed highly effective by the Company in offsetting associated risk.

The following table provides financial assets and liabilities for balance sheet offsetting:


	At December 31, 2022				At September 30, 2022
	Assets (1)		Liabilities (2)		Assets (1)		Liabilities (2)
Foreign currency contracts
Gross amounts of recognized assets (liabilities)	$	2.0	$	(5.7)	$	13.4	$	(0.5)
Gross amounts offset in the balance sheet	(0.1)		0.4		—		0.4
Net amounts of assets (liabilities) presented in the balance sheet	$	1.9	$	(5.3)	$	13.4	$	(0.1)

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified in one of the following three categories:

The following table sets forth the Company’s financial assets and liabilities, which are carried at fair value and measured on a recurring basis during the period, all of which are classified as Level 2 within the fair value hierarchy:


	December 31, 2022		September 30, 2022
Liabilities at estimated fair value:
Deferred compensation	$	(22.6)	$	(21.8)
Derivatives - foreign currency contracts	(3.4)		13.3
Net liabilities at estimated fair value	$	(26.0)	$	(8.5)

The estimated fair value of the deferred compensation liability is determined based upon the quoted market prices of the investment options that are offered under the plan. At December 31, 2022 and September 30, 2022, the estimated fair value of foreign currency contracts is the amount that the Company would receive or pay to terminate the contracts, considering first the quoted market prices of comparable agreements or, in the absence of quoted market prices, factors such as interest rates, currency exchange rates, and remaining maturities.

At December 31, 2022 and September 30, 2022, the Company had no Level 1 financial assets or liabilities, other than pension plan assets, and no Level 3 financial assets or liabilities at December 31, 2022 and September 30, 2022, respectively.

At December 31, 2022 and September 30, 2022, the fair market value of fixed rate long-term debt was $1,001.0 and $945.9, respectively, compared to its carrying value of $1,250.0 in each period. The estimated fair value of the long-term debt was estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. The estimated fair value of long-term debt, excluding the U.S. revolving credit facility due 2025 between the Company and Bank of America, N.A., as administrative agent, and lenders parties thereto (“Revolving Credit Facility”), has been determined based on Level 2 inputs.

Due to the nature of cash and cash equivalents and short-term borrowings, including notes payable, carrying amounts on the balance sheets approximate fair value. Additionally, the carrying amounts of the Revolving Credit Facility, which are classified as long-term debt on the balance sheet, approximate fair value due to the revolving nature of the balances. The estimated fair value of cash and cash equivalents, short-term borrowings, and the Revolving Credit Facility have been determined based on Level 2 inputs.