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Derivatives And Hedging Activities | 9 Months Ended
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Mar. 31, 2012
Derivatives And Hedging Activities [Abstract] |
Derivatives And Hedging Activities |
12. | Derivatives and Hedging Activities
The Company uses commodity swaps and forwards, interest rate swaps and foreign currency forwards to manage risks generally associated with commodity price, interest rate and foreign currency rate fluctuations. The following explains the various types of derivatives and includes a recap about the impact the derivative instruments had on the Company's financial position, results of operations, and cash flows. Cash Flow Hedging – Commodity forward contracts: The Company enters into commodity forward contracts to fix the price of a portion of anticipated future purchases of certain critical raw materials and energy to manage the risk of cash flow variability associated with volatile commodity prices. The commodity forward contracts have been designated as cash flow hedges. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income to the extent effective, and reclassified to cost of sales in the period during which the hedged transaction affects earnings or it becomes probable that the forecasted transaction will not occur. Cash Flow Hedging – Forward interest rate swaps: Historically, the Company has entered into forward swap contracts to manage the risk of cash flow variability associated with fixed interest debt expected to be issued. The forward interest rate swaps have been designated as cash flow hedges. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income to the extent effective, and reclassified to interest expense in the period during which the hedged transaction affects earnings or it becomes probable that the forecasted transaction will not occur. Cash Flow Hedging – Foreign currency forward contracts: The Company uses foreign currency forward contracts to hedge a portion of anticipated future sales denominated in foreign currencies, principally the Euro and Pound Sterling, in order to offset the effect of changes in exchange rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income to the extent effective, and reclassified to net sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur. The Company also uses foreign currency forward contracts to protect certain short-term asset positions denominated in foreign currency against the effect of changes in exchange rates. These positions do not qualify for hedge accounting and accordingly, are marked-to-market at each reporting date through charges to other income and expense. As of March 31, 2012 and June 30, 2011, the fair value of the outstanding foreign currency forwards not designated as hedging instruments and the charges to income for changes in fair value for these contracts were not material. Fair Value Hedging - Interest rate swaps: The Company uses interest rate swaps to achieve a level of floating rate debt relative to fixed rate debt where appropriate. The Company has designated fixed to floating interest rate swaps as fair value hedges. Accordingly, the changes in the fair value of these instruments are immediately recorded in earnings. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations are recorded as equal and offsetting gains and losses in interest expense in the Consolidated Statements of Income. As of March 31, 2012 and June 30, 2011, the total notional amount of floating interest rate contracts was $45.0 million and $65.0 million, respectively. For the three months ended March 31, 2012 and 2011, net gains of $0.4 million and $0.6 million, respectively, were recorded as a reduction to interest expense. For the nine months ended March 31, 2012 and 2011, net gains of $1.0 million and $1.9 million, respectively, were recorded as a reduction to interest expense. These amounts include the impact of previously terminated swaps which are being amortized over the remaining term of the underlying debt. The fair value and location of outstanding derivative contracts recorded in the accompanying consolidated balance sheets were as follows as of March 31, 2012 and June 30, 2011:
March 31, 2012 ($ in millions) |  | Interest Rate Swaps |  |  | Foreign Currency Contracts |  |  | Commodity Contracts |  |  | Total Derivatives |
Asset Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  | $ | 0.8 |  |  | $ | 0.7 |  |  | $ | — |  |  | $ | 1.5 |
Other assets |  |  | 1.5 |  |  |  | — |  |  |  | — |  |  |  | 1.5 |
Total asset derivatives |  | $ | 2.3 |  |  | $ | 0.7 |  |  | $ | — |  |  | $ | 3.0 |
Liability Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accrued liabilities |  | $ | — |  |  | $ | 0.8 |  |  | $ | 23.5 |  |  | $ | 24.3 |
Other liabilities |  |  | — |  |  |  | 0.3 |  |  |  | 21.9 |  |  |  | 22.2 |
Total liability derivatives |  | $ | — |  |  | $ | 1.1 |  |  | $ | 45.4 |  |  | $ | 46.5 |
June 30, 2011 ($ in millions) |  | Interest Rate Swaps |  |  | Foreign Currency Contracts |  |  | Commodity Contracts |  |  | Total Derivatives |
Asset Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  | $ | 0.8 |  |  | $ | — |  |  | $ | 5.4 |  |  | $ | 6.2 |
Other assets |  |  | 2.0 |  |  |  | — |  |  |  | 11.8 |  |  |  | 13.8 |
Total asset derivatives |  | $ | 2.8 |  |  | $ | — |  |  | $ | 17.2 |  |  | $ | 20.0 |
Liability Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accrued liabilities |  | $ | — |  |  | $ | 0.9 |  |  | $ | 6.8 |  |  | $ | 7.7 |
Other liabilities |  |  | — |  |  |  | — |  |  |  | 6.4 |  |  |  | 6.4 |
Total liability derivatives |  | $ | — |  |  | $ | 0.9 |  |  | $ | 13.2 |  |  | $ | 14.1 |
Cash Flow Hedges For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income ("AOCI") and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The following is a summary of the (losses) gains related to cash flow hedges recognized during the three and nine months ended March 31, 2012 and 2011:
|  | Amount of (Loss) Gain Recognized in AOCI on Derivatives (Effective Portion) |
($ in millions) |  | Three Months Ended March 31, |  |  | Nine Months Ended March 31, |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Derivatives in Cash Flow Hedging Relationship: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | (14.5) |  |  | $ | 2.1 |  |  | $ | (63.0 | ) |  | $ | 23.6 |
Foreign exchange contracts |  |  | (0.1 | ) |  |  | (0.5 | ) |  |  | 0.5 |  |  |  | (1.3 | )
Forward interest rate swaps |  |  | — |  |  |  | 0.5 |  |  |  | — |  |  |  | 6.4 |
Total |  | $ | (14.6) |  |  | $ | 2.1 |  |  | $ | (62.5 | ) |  | $ | 28.7 |
($ in millions) |  |  |  | Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) |
|  | Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) |  | Three Months Ended March 31, |  |  | Nine Months Ended March 31, |
Derivatives in Cash Flow Hedging Relationship: |  |  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Commodity contracts |  | Cost of sales |  | $ | (7.0 | ) |  | $ | 3.7 |  |  | $ | (15.2 | ) |  | $ | 5.1 |
Foreign exchange contracts |  | Net sales |  |  | 0.4 |  |  |  | (0.4 | ) |  |  | 0.8 |  |  |  | (0.6 | )
Total |  |  |  | $ | (6.6 | ) |  | $ | 3.3 |  |  | $ | (14.4 | ) |  | $ | 4.5 |
The Company estimates that $22.8 million of net derivative losses included in AOCI as of March 31, 2012 will be reclassified into earnings within the next 12 months. No significant cash flow hedges were discontinued during the quarter ended March 31, 2012. There was no ineffectiveness during the three months and nine months ended March 31, 2012 and 2011. The changes in AOCI associated with derivative hedging activities during the three months and nine months ended March 31, 2012 and 2011 were as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | March 31, |  |  | March 31, |
($ in millions) |  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Balance at beginning |  | $ | (22.4 | ) |  | $ | 14.2 |  |  | $ | 2.6 |  |  | $ | (2.4 | )
Current period changes in fair value, net of tax |  |  | (9.0 | ) |  |  | 2.2 |  |  |  | (38.8 | ) |  |  | 19.5 |
Reclassification to earnings, net of tax |  |  | 4.1 |  |  |  | (1.0 | ) |  |  | 8.9 |  |  |  | (1.7 | )
Balance at ending |  | $ | (27.3 | ) |  | $ | 15.4 |  |  | $ | (27.3 | ) |  | $ | 15.4 |
According to the provisions of the Company's derivative arrangements, in the event that the fair value of outstanding derivative positions with certain counterparties exceeds certain thresholds, the Company may be required to issue cash collateral to the counterparties. The Company's contracts with these counterparties allow for netting of derivative instrument positions executed under each contract. As of March 31, 2012 and June 30, 2011, the Company had no cash collateral held by counterparties. The Company is exposed to credit loss in the event of nonperformance by counterparties on its derivative instruments as well as credit or performance risk with respect to its customer commitments to perform. Although nonperformance is possible, the Company does not anticipate nonperformance by any of the parties. In addition, various master netting arrangements are in place with counterparties to facilitate settlement of gains and losses on these contracts.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: 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=6935481&loc=SL5580258-113959 Reference 3: 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=6881521&loc=d3e23780-122690 Reference 4: 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=6935481&loc=SL5618551-113959 Reference 5: 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=6935481&loc=SL5624163-113959 Reference 6: 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=6935481&loc=SL5708773-113959 Reference 7: 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=6935481&loc=d3e41638-113959 Reference 8: 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=6935481&loc=SL5624171-113959 Reference 9: 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=6935481&loc=d3e41620-113959 Reference 10: 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=6935481&loc=d3e41641-113959 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=6887037&loc=d3e80748-113994 Reference 12: 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 13: 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=6887037&loc=d3e80784-113994 Reference 14: 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=6935481&loc=SL5579240-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6935481&loc=d3e41635-113959 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=6935481&loc=SL5624181-113959 Reference 17: 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=6935481&loc=SL5624258-113959 Reference 18: 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=6935481&loc=SL5579245-113959 Reference 19: 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 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 45 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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