Derivatives

12 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative financial instruments are used by the Company principally in the management of its foreign currency exchange rate, raw material price and interest rate exposures. The Company does not hold or issue derivative financial instruments for trading purposes.

Cash Flow Hedges

Commodity Swaps. The Company is exposed to risk from fluctuating prices for raw materials, specifically zinc and brass used in its manufacturing processes of its HHI segment. 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 September 30, 2020, the Company had a series of brass and zinc swap contracts outstanding through February 28, 2022. The derivative net gain estimated to be reclassified from AOCI into earnings over the next 12 months is $0.6 million, net of tax. The Company had the following commodity swap contracts outstanding as of September 30, 2020 and 2019:


	2020				2019
(in millions, except notional)	Notional		Contract Value		Notional		Contract Value
Brass swap contracts	949.0	Metric Tons	$	4.4	904.9	Metric Tons	$	4.4
Zinc swap contracts	1,552.0	Metric Tons	3.4		—	Metric Tons	—

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 Australian Dollars, Canadian Dollars, Euros, Japanese Yen, Pound Sterling or U.S. Dollars. 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 Consolidated Statements of Income. At September 30, 2020, the Company had a series of foreign exchange derivative contracts outstanding through March 29, 2022. The derivative net loss estimated to be reclassified from AOCI into earnings over the next 12 months is $2.8 million, net of tax. At September 30, 2020 and 2019, the Company had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $273.4 million and $235.6 million, respectively.

Interest Rate Swaps. During the year ended September 30, 2019, the Company had a series of U.S. dollar denominated interest rate swaps outstanding which effectively fixed 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 following the close of GBL divestiture. As a result, the Company recognized a gain of $3.6 million during the year ended September 30, 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 September 30, 2020 and 2019, there are no outstanding interest rate swaps hedges.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the effective portion of 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 transaction affects earnings. 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 years ended September 30, 2020, 2019 and 2018:


For the year ended September 30, 2020	Effective Portion
	Gain (Loss) in OCI		Reclassified to Continuing Operations			Reclassified to Discontinued Operations		Ineffective portion
								Continuing Operations			Discontinued Operations
(in millions)			Line Item	Gain (Loss)				Line Item	Gain (Loss)
Commodity swaps	$	0.9	Cost of goods sold	$	(0.2)	$	—	Cost of goods sold	$	—	$	—
Foreign exchange contracts	0.1		Net sales	(0.1)		—		Net sales	—		—
Foreign exchange contracts	(7.2)		Cost of goods sold	5.3		—		Cost of goods sold	—		—
Total	$	(6.2)		$	5.0	$	—		$	—	$	—


	Effective Portion
For the year ended September 30, 2019	Gain (Loss) in OCI		Reclassified to Continuing Operations			Reclassified to Discontinued Operations		Ineffective portion
								Continuing Operations			Discontinued Operations
(in millions)			Line Item	Gain (Loss)				Line Item	Gain (Loss)
Interest rate swaps	$	(0.6)	Interest expense	$	—	$	2.2	Interest expense	$	—	$	1.7
Commodity swaps	(1.1)		Cost of goods sold	(0.4)		(4.4)		Cost of goods sold	—		—
Foreign exchange contracts	(0.4)		Net sales	(0.2)		—		Net sales	—		—
Foreign exchange contracts	14.7		Cost of goods sold	11.7		0.5		Cost of goods sold	—		—
Total	$	12.6		$	11.1	$	(1.7)		$	—	$	1.7


	Effective Portion
For the year ended September 30, 2018	Gain (Loss) in OCI		Reclassified to Continuing Operations			Reclassified to Discontinued Operations		Ineffective portion
								Continuing Operations			Discontinued Operations
(in millions)			Line Item	Gain (Loss)				Line Item	Gain (Loss)
Interest rate swaps	$	4.0	Interest expense	$	—	$	1.1	Interest expense	$	—	$	1.2
Commodity swaps	(4.5)		Cost of goods sold	0.7		2.4		Cost of goods sold	—		—
Foreign exchange contracts	(0.1)		Net sales	0.1		—		Net sales	—		—
Foreign exchange contracts	10.8		Cost of goods sold	(9.3)		(1.9)		Cost of goods sold	—		—
Total	$	10.2		$	(8.5)	$	1.6		$	—	$	1.2

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, among others, Australian Dollars, Canadian Dollars, Euros, Japanese Yen, Mexican Pesos, Philippine Pesos, Polish Zlotys, Pounds Sterling, Taiwanese Dollars or U.S. Dollars. These foreign exchange contracts are fair value hedges of a related liability or asset recorded in the accompanying 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 September 30, 2020, the Company had a series of forward exchange contracts outstanding through October 29, 2020. At September 30, 2020 and 2019, the Company had $802.5 million and $977.5 million, respectively, of notional value for such foreign exchange derivative contracts outstanding.

The following table summarizes the gain (loss) associated with derivative contracts not designated as hedges in the Consolidated Statements of Income for the years ended September 30, 2020, 2019 and 2018.


(in millions)	Line Item	2020		2019		2018
Foreign exchange contracts	Other non-operating (income) expense	$	(7.3)	$	47.3	$	(2.3)

Fair Value of Derivative Instruments

The fair value of the Company’s outstanding derivative instruments in the Consolidated Statements of Financial Position are as follows:


(in millions)	Line Item	2020		2019
Derivative Assets
Commodity swaps - designated as hedge	Other receivables	$	0.7	$	—
Commodity swaps - designated as hedge	Deferred charges and other	0.1		—
Foreign exchange contracts - designated as hedge	Other receivables	—		7.8
Foreign exchange contracts - designated as hedge	Deferred charges and other	—		0.5
Foreign exchange contracts - not designated as hedge	Other receivables	0.4		1.2
Total Derivative Assets		$	1.2	$	9.5
Derivative Liabilities
Commodity swaps - designated as hedge	Accounts payable	$	—	$	0.2
Foreign exchange contracts - designated as hedge	Accounts payable	3.8		0.2
Foreign exchange contracts - designated as hedge	Other long term liabilities	0.3		—
Foreign exchange contracts - not designated as hedge	Accounts payable	10.1		1.9
Total Derivative Liabilities		$	14.2	$	2.3

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 for the years ended September 30, 2020 and 2019.

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 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 September 30, 2020, and 2019, there was no cash collateral outstanding. In addition, as of September 30, 2020 and 2019, the Company had no posted standby letters of credit related to such liability positions.

Net Investment Hedge

SBI has €425.0 million aggregate principle amount of 4.00% Notes designated as a non-derivative economic hedge, or net investment hedge, of the translation of the Company’s net investments in Euro denominated subsidiaries at the time of issuance. The hedge effectiveness is measured on the beginning balance of the net investment and re-designated every three months. Any gains and losses attributable to the translation of the Euro denominated debt designated as net investment hedge are recognized as a component of foreign currency translation within AOCI, and gains and losses attributable to the translation of the undesignated portion are recognized as foreign currency translation gains or losses within Other Non-Operating Expense (Income). As of September 30, 2020 and September 30, 2019 the full principal amount was designated as a net investment hedge and considered fully effective. The following summarizes the gain (loss) from the net investment hedge recognized in Other Comprehensive Income for the year ended September 30, 2020, 2019 and 2018, pre-tax:


(Loss) gain in OCI (in millions)	2020		2019		2018
Net investment hedge	$	(33.0)	$	29.8	$	6.2

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. During the year ended September 30, 2020, the Company recognized a pre-tax loss of $1.2 million in earnings related to the translation of the undesignated portion of debt obligation.