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Derivative Financial Instruments | 9 Months Ended
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Jun. 30, 2015
Derivative Financial Instruments |
Derivative Financial Instruments | 8.Derivative Financial Instruments The Company uses certain interest rate derivative contracts to hedge interest rate exposures on the Company’s variable rate debt. The Company enters into foreign currency derivative contracts with financial institutions to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company’s hedging program is not designated for trading or speculative purposes. The Company recognizes derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value. The Company records changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as accounting hedges in the accompanying consolidated statements of income as cost of revenue, interest expense, net, or to accumulated other comprehensive loss in the accompanying consolidated balance sheets. Cash Flow Hedges The Company uses interest rate swap agreements designated as cash flow hedges to fix the variable interest rates on portions of the Company’s debt. The Company also uses foreign currency forward contracts designated as cash flow hedges to hedge forecasted transactions denominated in currencies other than the U.S. dollar. The Company initially reports any gain or loss on the effective portion of a cash flow hedge as a component of accumulated other comprehensive loss. Depending on the type of cash flow hedge, the gain or loss is subsequently reclassified to either interest expense when the interest expense on the variable rate debt is recognized, or to cost of revenue when the hedged transactions denominated in currencies other than the U.S. dollar are recorded. If the hedged transaction becomes probable of not occurring, any gain or loss related to interest rate swap agreements or foreign currency forward contracts would be recognized in other income (expense). Further, the Company excludes the change in the time value of the foreign currency forward contracts from the assessment of hedge effectiveness. The Company records the premium paid or time value of a hedge on the date of purchase as an asset. Thereafter, the Company recognizes any change to this time value in cost of revenue. The notional principal, fixed rates and related expiration dates of the Company’s outstanding interest rate swap agreements were as follows:
June 30, 2015 |
Notional Amount (in millions) |  | Fixed Rate |  | Expiration Date |
$ | 300.0 |  | 1.54 | % | September 2018(1) |
300.0 |  | 1.63 | % | June 2018 |
250.0 |  | 0.95 | % | September 2015 |
(1) Effective date of October 5, 2015.
September 30, 2014 |
Notional Amount (in millions) |  | Fixed Rate |  | Expiration Date |
$ | 300.0 |  | 1.63 | % | June 2018 |
250.0 |  | 0.95 | % | September 2015 |
200.0 |  | 0.68 | % | December 2014 |
The notional principal of foreign currency forward contracts to purchase Australian dollars (AUD) with U.S. dollars was AUD 102.6 million (or approximately $77.9 million) at June 30, 2015. Foreign Currency Forward Contracts The Company uses foreign currency forward contracts, which are not designated as accounting hedges, to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. Gains and losses on these contracts are recognized in cost of revenue for those instruments related to the provision of their respective services or in general and administrative expenses, along with the offsetting losses and gains of the related hedged items. The notional principal of foreign currency forward contracts to purchase U.S. dollars with foreign currencies was $95.6 million and $69.5 million at June 30, 2015 and September 30, 2014, respectively. The notional principal of foreign currency forward contracts to sell U.S. dollars for foreign currencies was $69.0 million and $71.5 million at June 30, 2015 and September 30, 2014, respectively. The notional principal of foreign currency forward contracts to purchase GBP with BRL was BRL 1.1 million (or approximately $0.4 million) at September 30, 2014 and there were none outstanding at June 30, 2015. The notional principal of foreign currency forward contracts to sell GBP for BRL was BRL 4.0 million (or approximately $1.3 million) at June 30, 2015 and there were none outstanding at September 30, 2014. Other Derivatives Other derivatives that are not designated as hedging instruments consist of option contracts that the Company uses to hedge anticipated transactions in currencies other than the functional currency of a subsidiary. The Company recognizes gains and losses on these contracts as well as the offsetting losses and gains of the related hedged item costs in cost of sales. The Company records the premium paid or time value of an option on the date of purchase as an asset. Thereafter, the Company recognizes any change to this time value in cost of revenue. There was no such option contract outstanding during the periods presented. The fair values of our outstanding derivative instruments were as follows (in millions):
|  |  |  | Fair Value of Derivative Instruments as of |
|  | Balance Sheet Location |  | Jun 30, 2015 |  | Sep 30, 2014 |
Derivative assets |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate swap agreements |  | Other non-current asset |  | $ | — |  | $ | 1.7 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts |  | Prepaid expenses and other current assets |  | 1.5 |  | 3.1 |
Total |  |  |  | $ | 1.5 |  | $ | 4.8 |
Derivative liabilities |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate swap agreements |  | Accrued expenses and other current liabilities |  | $ | 6.5 |  | $ | 4.8 |
Interest rate swap agreements |  | Other long-term liabilities |  | 1.0 |  | — |
Foreign currency forward contracts |  | Accrued expenses and other current liabilities |  | 1.4 |  | — |
Foreign currency forward contracts |  | Other long-term liabilities |  | 1.0 |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts |  | Accrued expenses and other current liabilities |  | 0.9 |  | 3.7 |
Total |  |  |  | $ | 10.8 |  | $ | 8.5 |
At June 30, 2015, the effective portion of the Company’s interest rate swap agreements designated as cash flow hedges before tax effect was $7.5 million, of which $6.5 million is expected to be reclassified from accumulated other comprehensive loss to interest expense within the next 12 months. At June 30, 2015, the effective portion of the Company’s foreign currency forward contracts designated as cash flow hedges before tax effect was $1.5 million, of which $0.8 million is expected to be reclassified from accumulated other comprehensive loss to cost of revenue within the next 12 months. The effect of derivative instruments in cash flow hedging relationships on income and other comprehensive income is summarized below (in millions):
|  | Decrease (Increase) in Losses Recognized in Accumulated Other Comprehensive Loss on Derivatives Before Tax Effect (Effective Portion) Three Months Ended Jun 30, |  | Increase in Losses Recognized in Accumulated Other Comprehensive Loss on Derivatives Before Tax Effect (Effective Portion) Nine Months Ended Jun 30, |
|  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Derivatives in cash flow hedging relationship: |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  | $ | 1.7 |  | $ | (2.9 | ) | $ | (8.2 | ) | $ | (3.2 | )
Foreign currency forward contracts |  | (1.0 | ) | — |  | (2.4 | ) | — |
|  |  |  | Losses Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) Three Months Ended Jun 30, |  | Losses Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) Nine Months Ended Jun 30, |
|  | Location |  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Derivatives in cash flow hedging relationship: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  | Interest expense |  | $ | (1.5 | ) | $ | (0.7 | ) | $ | (3.8 | ) | $ | (2.3 | )
Foreign currency forward contracts |  | Cost of revenue |  | (0.5 | ) | — |  | (0.9 | ) | — |
The losses recognized in income due to amounts excluded from effectiveness testing from the Company’s interest rate swap agreements were immaterial during the three and nine months ended June 30, 2015 and 2014. The losses recognized in income due to amounts excluded from effectiveness testing from the Company’s foreign currrency forward contracts were $0.3 million for both the three and nine months ended June 30, 2015 and immaterial for the three and nine months ended June 30, 2014. The effect of derivative instruments not designated as hedging instruments on income is summarized below (in millions):
|  |  |  | Gains / (Losses) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing and Ineffective Portion)(1) Three Months Ended Jun 30, |  | Gains / (Losses) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing and Ineffective Portion)(1) Nine Months Ended Jun 30, |
|  | Location |  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | General and administrative expenses |  | $ | 2.4 |  | $ | 0.6 |  | $ | 2.4 |  | $ | — |
|  |  |  | $ | 2.4 |  | $ | 0.6 |  | $ | 2.4 |  | $ | — |
Losses related to the ineffective portion of the hedges were not material in all periods presented.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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