XML 34 R18.htm IDEA: XBRL DOCUMENT
v3.19.2

Derivatives | 9 Months Ended
--- | ---
Jun. 30, 2019
Derivatives [Abstract] |
Derivatives | NOTE 12 - DERIVATIVES Cash Flow Hedges Interest Rate Swaps. The Company uses interest rate swaps to manage its interest rate risk. The swaps are designated as cash flow hedges with the changes in fair value recorded in Accumulated Other Comprehensive Income (“AOCI”) and as a derivative hedge asset or liability, as applicable. The swaps settle periodically in arrears with the related amounts for the current settlement period payable to, or receivable from, the counterparties included in accrued liabilities or receivables, respectively, and recognized in earnings as an adjustment to interest from the underlying debt to which the swap is designated. Any ineffective portion of the unrealized gains or losses is immediately recorded into earnings. As of September 30, 2018, the Company had a series of U.S. dollar denominated interest rate swaps outstanding which effectively fix the interest on floating rate debt related to the 2022 Term Loan, exclusive of lender spreads, at 1.76% for a notional principal amount of $300.0 million through May 8, 2020. On January 4, 2019, the underlying debt and related hedge were settled. As a result, the Company recognized a gain of $3.6 million in the first quarter of fiscal year 2019, recognized as a component of discontinued operations as interest expense from the Term Loans allocated to discontinued operations per Note 3 – Divestitures. As of June 30, 2019, there are no outstanding interest rate swaps hedges. Commodity Swaps. The Company is exposed to risk from fluctuating prices for raw materials, specifically brass used in its manufacturing processes. The Company hedges a portion of the risk associated with the purchase of these materials using commodity swaps. The hedge contracts are designated as cash flow hedges with the fair value changes recorded in AOCI and as a hedge asset or liability, as applicable. The unrecognized changes in fair value of the hedge contracts are reclassified from AOCI into earnings when the hedged purchase of raw materials also affects earnings. The swaps effectively fix the floating price on a specified quantity of raw materials through a specified date. At June 30, 2019, the Company had a series of brass swap contracts outstanding through November 30, 2020. The derivative net loss estimated to be reclassified from AOCI into earnings over the next 12 months is $0.1 million, net of tax. The Company had the following commodity swap contracts outstanding as of June 30, 2019 and September 30, 2018.
|  | June 30, 2019 |  | September 30, 2018
(in millions, except notional) |  | Notional |  | Contract Value |  | Notional |  | Contract Value
Brass swap contracts |  |  | 1.0 Tons |  | $ | 5.1 |  |  | 1.0 Tons |  | $ | 5.6
Foreign exchange contracts. The Company periodically enters into forward foreign exchange contracts to hedge a portion of the risk from forecasted foreign currency denominated third party and intercompany sales or payments. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Euros, Pound Sterling, Canadian Dollars, Australian Dollars, or Japanese Yen. These foreign exchange contracts are cash flow hedges of fluctuating foreign exchange related to sales of product or raw material purchases. Until the sale or purchase is recognized, the fair value of the related hedge is recorded in AOCI and as a derivative hedge asset or liability, as applicable. At the time the sale or purchase is recognized, the fair value of the related hedge is reclassified as an adjustment to Net Sales or purchase price variance in Cost of Goods Sold on the Condensed Consolidated Statements of Income. At June 30, 2019, the Company had a series of foreign exchange derivative contracts outstanding through December 24, 2020. The derivative net gain estimated to be reclassified from AOCI into earnings over the next 12 months is $3.1 million, net of tax. At June 30, 2019 and September 30, 2018, the Company had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $193.5 million and $261.6 million, respectively. Net Investment Hedge On September 20, 2016, SBI issued €425 million aggregate principle amount of 4.00% Notes. See Note 11 - Debt for further detail. The 4.00% Notes are denominated in Euros and have been designated as a net investment hedge of the translation of the Company’s net investments in Euro denominated subsidiaries at the time of issuance. As a result, the translation of the Euro denominated debt is recognized as AOCI with any ineffective portion recognized as foreign currency translation gains or losses on the statement of income when the aggregate principal exceeds the net investment in its Euro denominated subsidiaries. Net gains or losses from the net investment hedge are reclassified from AOCI into earnings upon a liquidation event or deconsolidation of Euro denominated subsidiaries. As of June 30, 2019, the hedge was fully effective, and no ineffective portion was recognized in earnings. Derivative Contracts Not Designated as Hedges for Accounting Purposes Foreign exchange contracts. The Company periodically enters into forward and swap foreign exchange contracts to economically hedge a portion of the risk from third party and intercompany payments resulting from existing obligations. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Canadian Dollars, Euros, Pounds Sterling, Taiwanese Dollars, Russian Ruble, Philippine Peso, or Australian Dollars. These foreign exchange contracts are fair value hedges of a related liability or asset recorded in the accompanying Condensed Consolidated Statements of Financial Position. The gain or loss on the derivative hedge contracts is recorded in earnings as an offset to the change in value of the related liability or asset at each period end. At June 30, 2019, the Company had a series of forward exchange contracts outstanding through July 26, 2019. At June 30, 2019 and September 30, 2018, the Company had $1,089.3 million and $105.2 million, respectively, of notional value of such foreign exchange derivative contracts outstanding. ‎ NOTE 12 – DERIVATIVES (continued) Fair Value of Derivative Instruments The fair value of the Company’s outstanding derivative contracts recorded in the Condensed Consolidated Statements of Financial Position is as follows:
(in millions) |  | Line Item |  | June 30, 2019 |  | September 30, 2018
Derivative Assets |  |  |  |  |  |  |  |
Interest rate swaps - designated as hedge |  | Other receivables |  | $ | — |  | $ | 1.8
Interest rate swaps - designated as hedge |  | Deferred charges and other |  |  | — |  |  | 1.0
Foreign exchange contracts - designated as hedge |  | Other receivables |  |  | 4.5 |  |  | 5.5
Foreign exchange contracts - designated as hedge |  | Deferred charges and other |  |  | — |  |  | 0.2
Foreign exchange contracts - not designated as hedge |  | Other receivables |  |  | 0.2 |  |  | 0.4
Total Derivative Assets |  |  |  | $ | 4.7 |  | $ | 8.9
Derivative Liabilities |  |  |  |  |  |  |  |
Commodity swaps - designated as hedge |  | Accounts payable |  | $ | 0.2 |  | $ | 0.4
Interest rate swaps - designated as hedge |  | Accrued interest |  |  | — |  |  | (0.3)
Foreign exchange contracts - designated as hedge |  | Accounts payable |  |  | 0.5 |  |  | 0.3
Foreign exchange contracts - designated as hedge |  | Other long term liabilities |  |  | 0.1 |  |  | 0.2
Foreign exchange contracts - not designated as hedge |  | Accounts payable |  |  | 0.6 |  |  | 0.2
Total Derivative Liabilities |  |  |  | $ | 1.4 |  | $ | 0.8
The Company is exposed to the risk of default by the counterparties with which it transacts and generally does not require collateral or other security to support financial instruments subject to credit risk. The Company monitors counterparty credit risk on an individual basis by periodically assessing each counterparty’s credit rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives that are concentrated with certain domestic and foreign financial institution counterparties. The Company considers these exposures when measuring its credit reserve on its derivative assets, which were not significant as of June 30, 2019 and September 30, 2018. The Company’s standard contracts do not contain credit risk related contingent features whereby the Company would be required to post additional cash collateral because of a credit event. However, the Company is typically required to post collateral in the normal course of business to offset its liability positions. As of June 30, 2019, and September 30, 2018, there was no cash collateral outstanding. In addition, as of June 30, 2019 and September 30, 2018, the Company had no posted standby letters of credit related to such liability positions. ‎ NOTE 12 – DERIVATIVES (continued) The following table summarizes the impact of the effective and ineffective portions of designated hedges and the gain (loss) recognized in the Consolidated Statement of Income for the three month periods ended June 30, 2019 and 2018:
|  | Effective Portion |  |
Three Month Periods Ended |  |  |  |  |  |  |  |  |  | Reclassified to |  | Ineffective portion
June 30, 2019 |  | Gain (Loss) |  | Reclassified to Continuing Operations |  | Discontinued |  | Continuing Operations |  | Discontinued
(in millions) |  | in OCI |  | Line Item |  | Gain (Loss) |  | Operations |  | Line Item |  | Gain (Loss) |  | Operations
Commodity swaps |  |  | (0.3) |  | Cost of goods sold |  |  | (0.1) |  |  | — |  | Cost of goods sold |  |  | — |  |  | —
Net investment hedge |  |  | (6.2) |  | Other non-operating expense |  |  | — |  |  | — |  | Other non-operating expense |  |  | — |  |  | —
Foreign exchange contracts |  |  | (0.1) |  | Net sales |  |  | — |  |  | — |  | Net sales |  |  | — |  |  | —
Foreign exchange contracts |  |  | — |  | Cost of goods sold |  |  | 2.6 |  |  | — |  | Cost of goods sold |  |  | — |  |  | —
Total |  | $ | (6.6) |  |  |  | $ | 2.5 |  | $ | — |  |  |  | $ | — |  | $ | —
|  | Effective Portion |  |
Three Month Periods Ended |  |  |  |  |  |  |  |  |  | Reclassified to |  | Ineffective portion
June 30, 2018 |  | Gain (Loss) |  | Reclassified to Continuing Operations |  | Discontinued |  | Continuing Operations |  | Discontinued
(in millions) |  | in OCI |  | Line Item |  | Gain (Loss) |  | Operations |  | Line Item |  | Gain (Loss) |  | Operations
Interest rate swaps |  | $ | 0.6 |  | Interest expense |  | $ | — |  | $ | 0.3 |  | Interest expense |  | $ | — |  | $ | 0.3
Commodity swaps |  |  | (3.1) |  | Cost of goods sold |  |  | 0.1 |  |  | 0.5 |  | Cost of goods sold |  |  | — |  |  | —
Net investment hedge |  |  | 31.1 |  | Other non-operating expense |  |  | — |  |  | — |  | Other non-operating expense |  |  | — |  |  | —
Foreign exchange contracts |  |  | (0.1) |  | Net sales |  |  | — |  |  | — |  | Net sales |  |  | — |  |  | —
Foreign exchange contracts |  |  | 12.1 |  | Cost of goods sold |  |  | (1.9) |  |  | (0.3) |  | Cost of goods sold |  |  | — |  |  | —
Total |  | $ | 40.6 |  |  |  | $ | (1.8) |  | $ | 0.5 |  |  |  | $ | — |  | $ | 0.3
The following table summarizes the impact of the effective and ineffective portions of designated hedges and the gain (loss) recognized in the Consolidated Statement of Income for the nine month periods ended June 30, 2019 and 2018:
|  | Effective Portion |  |
Nine Month Periods Ended |  |  |  |  |  |  |  |  |  | Reclassified to |  | Ineffective portion
June 30, 2019 |  | Gain (Loss) |  | Reclassified to Continuing Operations |  | Discontinued |  | Continuing Operations |  | Discontinued
(in millions) |  | in OCI |  | Line Item |  | Gain (Loss) |  | Operations |  | Line Item |  | Gain (Loss) |  | Operations
Interest rate swaps |  | $ | (0.6) |  | Interest expense |  | $ | — |  | $ | 2.2 |  | Interest expense |  | $ | — |  | $ | 1.7
Commodity swaps |  |  | (1.0) |  | Cost of goods sold |  |  | (0.3) |  |  | (4.4) |  | Cost of goods sold |  |  | — |  |  | —
Net investment hedge |  |  | 11.5 |  | Other non-operating expense |  |  | — |  |  | — |  | Other non-operating expense |  |  | — |  |  | —
Foreign exchange contracts |  |  | (0.2) |  | Net sales |  |  | (0.1) |  |  | — |  | Net sales |  |  | — |  |  | —
Foreign exchange contracts |  |  | 7.2 |  | Cost of goods sold |  |  | 8.6 |  |  | 0.5 |  | Cost of goods sold |  |  | — |  |  | —
Total |  | $ | 16.9 |  |  |  | $ | 8.2 |  | $ | (1.7) |  |  |  | $ | — |  | $ | 1.7
|  | Effective Portion |  |
Nine Month Periods Ended |  |  |  |  |  |  |  |  |  | Reclassified to |  | Ineffective portion
June 30, 2018 |  | Gain (Loss) |  | Reclassified to Continuing Operations |  | Discontinued |  | Continuing Operations |  | Discontinued
(in millions) |  | in OCI |  | Line Item |  | Gain (Loss) |  | Operations |  | Line Item |  | Gain (Loss) |  | Operations
Interest rate swaps |  | $ | 4.3 |  | Interest expense |  | $ | — |  | $ | 0.6 |  | Interest expense |  | $ | — |  | $ | 1.0
Commodity swaps |  |  | (1.9) |  | Cost of goods sold |  |  | 0.8 |  |  | 3.0 |  | Cost of goods sold |  |  | — |  |  | —
Net investment hedge |  |  | 9.3 |  | Other non-operating expense |  |  | — |  |  | — |  | Other non-operating expense |  |  | — |  |  | —
Foreign exchange contracts |  |  | (0.1) |  | Net sales |  |  | 0.1 |  |  | — |  | Net sales |  |  | — |  |  | —
Foreign exchange contracts |  |  | 9.8 |  | Cost of goods sold |  |  | (4.9) |  |  | (6.6) |  | Cost of goods sold |  |  | — |  |  | —
Total |  | $ | 21.4 |  |  |  | $ | (4.0) |  | $ | (3.0) |  |  |  | $ | — |  | $ | 1.0
The following summarizes the impact of derivative instruments on the accompanying Condensed Consolidated Statements of Income for the three and nine month periods ended June 30, 2019 and 2018, pretax:
|  |  |  | Three Month Periods Ended |  | Nine Month Periods Ended
(in millions) |  | Line Item |  | June 30, 2019 |  | June 30, 2018 |  | June 30, 2019 |  | June 30, 2018
Foreign exchange contracts |  | Other non-operating (income) expense |  | $ | 15.3 |  | $ | 3.6 |  | $ | 28.5 |  | $ | 2.3
\

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration