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Derivatives and Hedging Activities | 9 Months Ended
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Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Derivatives and Hedging Activities The Company uses commodity forwards, interest rate swaps, forward 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 summary of 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 (loss) income (“AOCI”) 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. As of March 31, 2021, the Company had forward contracts to purchase 7.9 million pounds of certain raw materials with settlement dates through December 2023. Cash Flow Hedging — Forward interest rate swaps: Historically, the Company has entered into forward interest rate swap contracts to manage the risk of cash flow variability associated with fixed interest debt expected to be issued. The forward interest rate swaps were designated as cash flow hedges. The qualifying hedge contracts were marked-to-market at each reporting date and any unrealized gains or losses were included in AOCI and reclassified to interest expense in the period during which the hedged transaction affected earnings or it became probable that the forecasted transaction would not occur. Upon the issuance of the fixed rate debt, the forward interest rate swap contracts were terminated. The realized gains at the time the interest rate swap contracts were terminated are being amortized over the term of the underlying debt. For the three months ended March 31, 2021 and 2020, net gains related to the previously terminated contracts of $0.1 million and $0.1 million, respectively, were recorded as a reduction to interest expense. For the nine months ended March 31, 2021 and 2020, net gains related to the previously terminated contracts of $0.3 million and $0.3 million, respectively, were recorded as a reduction to interest expense. 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 AOCI 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 positions denominated in foreign currencies 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, 2021 and June 30, 2020, 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 operations. As of the quarter ended September 30, 2020, all interest rate swaps were terminated in connection with the prepayment of Notes due July 2021. At March 31, 2021 and June 30, 2020, the total notional amount of floating interest rate contracts was $0.0 million and $150.0 million, respectively. For the three months ended March 31, 2021, there were no gains or losses and for the three months ended March 31, 2020 net gains of $0.6 million, were recorded as a decrease to interest expense. For the nine months ended March 31, 2021 and 2020, net gains of $0.4 million and $0.7 million, respectively, were recorded as a decrease to interest expense. The fair value and location of outstanding derivative contracts recorded in the accompanying consolidated balance sheets were as follows as of March 31, 2021 and June 30, 2020:
March 31, 2021 |  | Interest Rate Swaps |  | Foreign Currency Contracts |  | Commodity Contracts |  | Total Derivatives
($ in millions) |  |  |  |
Asset Derivatives: |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Other current assets |  | $ | — |  |  | $ | 0.1 |  |  | $ | 6.4 |  |  | $ | 6.5 |
Other assets |  | — |  |  | — |  |  | 5.2 |  |  | 5.2 |
Total asset derivatives |  | $ | — |  |  | $ | 0.1 |  |  | $ | 11.6 |  |  | $ | 11.7 |
Liability Derivatives: |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Accrued liabilities |  | $ | — |  |  | $ | 2.6 |  |  | $ | 0.4 |  |  | $ | 3.0 |
Other liabilities |  | — |  |  | — |  |  | 1.6 |  |  | 1.6 |
Total liability derivatives |  | $ | — |  |  | $ | 2.6 |  |  | $ | 2.0 |  |  | $ | 4.6 |
June 30, 2020 |  | Interest Rate Swaps |  | Foreign Currency Contracts |  | Commodity Contracts |  | Total Derivatives
($ in millions) |  |  |  |
Asset Derivatives: |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Other current assets |  | $ | 1.2 |  |  | $ | 0.2 |  |  | $ | 2.2 |  |  | $ | 3.6 |
Other assets |  | 2.8 |  |  | 0.6 |  |  | 3.1 |  |  | 6.5 |
Total asset derivatives |  | $ | 4.0 |  |  | $ | 0.8 |  |  | $ | 5.3 |  |  | $ | 10.1 |
Liability Derivatives: |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Accrued liabilities |  | $ | — |  |  | $ | — |  |  | $ | 11.1 |  |  | $ | 11.1 |
Other liabilities |  | — |  |  | — |  |  | 6.8 |  |  | 6.8 |
Total liability derivatives |  | $ | — |  |  | $ | — |  |  | $ | 17.9 |  |  | $ | 17.9 |
Substantially all of the derivative contracts are subject to master netting arrangements, or similar agreements with each counterparty, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company presents the outstanding derivative contracts on a net basis by counterparty in the consolidated balance sheets. If the Company had chosen to present the derivative contracts on a gross basis, the total asset derivatives would have been $15.6 million and total liability derivatives would have been $8.5 million as of March 31, 2021. According to the provisions of the Company’s derivative arrangements, in the event that the fair value of outstanding derivative positions with certain counterparties exceeds certain thresholds, the Company may be required to issue cash collateral to the counterparties. As of March 31, 2021 and June 30, 2020, the Company had no cash collateral held by counterparties. The Company is exposed to credit loss in the event of nonperformance by counterparties on its derivative instruments as well as credit or performance risk with respect to its customer commitments to perform. Although nonperformance is possible, the Company does not anticipate nonperformance by any of the parties. In addition, various master netting arrangements are in place with counterparties to facilitate settlements of gains and losses on these contracts. Cash Flow and Fair Value Hedges For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings or it becomes probable the forecasted transactions will not occur. The following is a summary of the gains (losses) related to cash flow hedges recognized during the three and nine months ended March 31, 2021 and 2020:
|  | Amount of Gain (Loss) Recognized in AOCI on Derivatives
|  | Three Months Ended March 31, |  | Nine Months Ended March 31, |  |
($ in millions) |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  |  |  |
Derivatives in Cash Flow Hedging Relationship: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 3.4 |  |  | $ | (9.6) |  |  | $ | 26.5 |  |  | $ | (8.3) |  |  |  |  |
Foreign exchange contracts |  | 0.1 |  |  | 0.3 |  |  | — |  |  | (0.7) |  |  |  |  |
Total |  | $ | 3.5 |  |  | $ | (9.3) |  |  | $ | 26.5 |  |  | $ | (9.0) |  |  |  |  |
($ in millions) |  | Location of Gain Reclassified from AOCI into Income |  | Amount of Gain Reclassified from AOCI into Income
|  | Three Months Ended March 31,
|  | 2021 |  | 2020
Derivatives in Cash Flow Hedging Relationship: |  |  |  |  |  |
Commodity contracts |  | Cost of sales |  | $ | 1.4 |  |  | $ | 2.2 |
Foreign exchange contracts |  | Net sales |  | — |  |  | 0.1 |
Forward interest rate swaps |  | Interest expense |  | 0.1 |  |  | 0.1 |
Total |  |  |  | $ | 1.5 |  |  | $ | 2.4 |
($ in millions) |  | Location of Gain Reclassified from AOCI into Income |  | Amount of Gain Reclassified from AOCI into Income
|  | Nine Months Ended March 31,
|  | 2021 |  | 2020
Derivatives in Cash Flow Hedging Relationship: |  |  |  |  |  |
Commodity contracts |  | Cost of sales |  | $ | 6.6 |  |  | $ | 9.7 |
Foreign exchange contracts |  | Net sales |  | — |  |  | 0.7 |
Forward interest rate swaps |  | Interest expense |  | 0.3 |  |  | 0.3 |
Total |  |  |  | $ | 6.9 |  |  | $ | 10.7 |
The following is a summary of total amounts presented in the consolidated statements of income in which the effects of cash flow and fair value hedges are recorded during the three and nine months ended March 31, 2021 and 2020:
|  | Three Months Ended March 31, 2021 |  | Three Months Ended March 31, 2020
($ in millions) |  | Net Sales |  | Cost of Sales |  | Interest Expense |  | Net Sales |  | Cost of Sales |  | Interest Expense
Total amounts presented in the consolidated statement of operations in which the effects of cash flow and fair value hedges are recorded |  | $ | 351.9 |  |  | $ | 336.5 |  |  | $ | 8.9 |  |  | $ | 585.4 |  |  | $ | 475.9 |  |  | $ | 4.9 |
Gain on Derivatives in Cash Flow Hedging Relationship: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from AOCI to income |  | $ | — |  |  | $ | 1.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 2.2 |  |  | $ | — |
Foreign currency forward contracts |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from AOCI to income |  | — |  |  | — |  |  | — |  |  | 0.1 |  |  | — |  |  | — |
Interest rate swap agreements |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from AOCI to income |  | — |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
(Loss) gain on Derivatives in Fair Value Hedging Relationship: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  |  |  |  |  |  |  |  |  |  |  |
Hedged Item |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (0.6) |
Derivatives designated as hedging instruments |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 0.6 |
Total gain |  | $ | — |  |  | $ | 1.4 |  |  | $ | 0.1 |  |  | $ | 0.1 |  |  | $ | 2.2 |  |  | $ | 0.1 |
|  | Nine Months Ended March 31, 2021 |  | Nine Months Ended March 31, 2020 |  |
($ in millions) |  | Net Sales |  | Cost of Sales |  | Interest Expense* |  | Net Sales |  | Cost of Sales |  | Interest Expense |  |
Total amounts presented in the consolidated statement of operations in which the effects of cash flow and fair value hedges are recorded |  | $ | 1,054 |  |  | $ | 1,029.1 |  |  | $ | 23.5 |  |  | $ | 1,743.8 |  |  | $ | 1,409.0 |  |  | $ | 15.6 |  |  |
Gain on Derivatives in Cash Flow Hedging Relationship: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from AOCI to income |  | $ | — |  |  | $ | 6.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 9.7 |  |  | $ | — |  |  |
Foreign currency forward contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from AOCI to income |  | — |  |  | — |  |  | — |  |  | 0.7 |  |  | — |  |  | — |  |  |
Interest rate swap agreements |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from AOCI to income |  | — |  |  | — |  |  | 0.3 |  |  | — |  |  | — |  |  | 0.3 |  |  |
(Loss) gain on Derivatives in Fair Value Hedging Relationship: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hedged Item |  | — |  |  | — |  |  | (2.7) |  |  | — |  |  | — |  |  | (0.7) |  |  |
Derivatives designated as hedging instruments |  | — |  |  | — |  |  | 2.7 |  |  | — |  |  | — |  |  | 0.7 |  |  |
Total gain |  | $ | — |  |  | $ | 6.6 |  |  | $ | 0.3 |  |  | $ | 0.7 |  |  | $ | 9.7 |  |  | $ | 0.3 |  |  |
* $2.3 million of gains related to the interest rate swap agreements were recorded as a decrease to debt extinguishment losses. The Company estimates that $3.8 million of net derivative gains included in AOCI as of March 31, 2021 will be reclassified into income within the next 12 months. No significant cash flow hedges were discontinued during the three and nine months ended March 31, 2021. As of March 31, 2021, and June 30, 2020, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges of interest rate risk:
|  | Carrying amount of the hedged liabilities |  | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities
($ in millions) |  | March 31, 2021 |  | June 30, 2020 |  | March 31, 2021 |  | June 30, 2020
Line item in the consolidated balance sheets in which the hedged item is included |  |  |  |  |  |  |  |
Long-term debt |  | $ | — |  |  | $ | 152.8 |  |  | $ | — |  |  | $ | 2.8 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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