XML 28 R15.htm IDEA: XBRL DOCUMENT v3.24.2.u1
DERIVATIVES
 9 Months Ended
Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES DERIVATIVES
Derivative financial instruments are used by the Company principally in the management of its foreign currency exchange rates. The Company does not hold or issue derivative financial instruments for trading purposes.
Cash Flow Hedges
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, Mexican Pesos, Pound Sterling, or U.S. Dollars. These foreign exchange contracts are cash flow hedges of fluctuating foreign exchange related to inventory purchases or the sale of product. Until the purchase or sale is recognized, the fair value of the related hedge is recorded in Accumulated Other Comprehensive Income ("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 purchase price variance in Cost of Goods Sold or Net Sales on the Condensed Consolidated Statements of Income. At June 30, 2024, the Company had a series of foreign exchange derivative contracts outstanding through March 2026. The derivative net loss estimated to be reclassified from AOCI into earnings over the next 12 months is $1.4 million, net of tax. At June 30, 2024 and September 30, 2023, the Company had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $339.5 million and $320.2 million, respectively.
The following table summarizes the impact of designated cash flow hedges and the pre-tax gain (loss) recognized in the Condensed Consolidated Statements of Income for the three and nine month periods ended June 30, 2024 and July 2, 2023, respectively:
Unrealized Gain (Loss) in OCI Before ReclassificationReclassified Gain (Loss) to Continuing Operations
For the three month periods ended (in millions)
June 30, 2024July 2, 2023Line ItemJune 30, 2024July 2, 2023
Foreign exchange contracts$0.1 $0.2 Net sales$0.1 $0.1 
Foreign exchange contracts1.5 (7.7)Cost of goods sold(2.5)(3.7)
Total$1.6 $(7.5)$(2.4)$(3.6)
Unrealized Gain (Loss) in OCI Before ReclassificationReclassified Gain (Loss) to Continuing Operations
For the nine month periods ended (in millions)
June 30, 2024July 2, 2023Line ItemJune 30, 2024July 2, 2023
Foreign exchange contracts$0.2 $0.3 Net sales$0.2 $0.2 
Foreign exchange contracts(7.9)(40.9)Cost of goods sold(12.5)(6.2)
Total$(7.7)$(40.6)$(12.3)$(6.0)
Derivative Contracts Not Designated as Hedges for Accounting Purposes
The Company periodically enters into foreign exchange forward 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, Canadian Dollars, Colombian Peso, Euros, Czech Koruna, Japanese Yen, Mexican Peso, Pound Sterling, Singapore Dollar, Swiss Franc, Turkish Lira, or U.S. 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, 2024, the Company had a series of forward exchange contracts outstanding through July 2024. At June 30, 2024 and September 30, 2023, the Company had $289.6 million and $671.5 million, respectively, of notional value of such foreign exchange derivative contracts outstanding.
The following summarizes the gain (loss) realized from derivative instruments not designated as hedges for accounting purposes on the accompanying Condensed Consolidated Statements of Income for the three and nine month periods ended June 30, 2024 and July 2, 2023, pre-tax:
Three Month Periods EndedNine Month Periods Ended
(in millions)Line ItemJune 30, 2024July 2, 2023June 30, 2024July 2, 2023
Foreign exchange contractsOther non-operating expense, net$(6.8)$(7.8)$(14.4)$(30.2)
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 ItemJune 30, 2024September 30, 2023
Derivative Assets
Foreign exchange contracts – designated as hedgeOther receivables$1.5 $1.4 
Foreign exchange contracts – designated as hedgeDeferred charges and other0.2 0.1 
Foreign exchange contracts – not designated as hedgeOther receivables0.2 1.8 
Total Derivative Assets$1.9 $3.3 
Derivative Liabilities
Foreign exchange contracts – designated as hedgeAccounts payable$3.3 $8.1 
Foreign exchange contracts – designated as hedgeOther long term liabilities0.3 — 
Foreign exchange contracts – not designated as hedgeAccounts payable0.5 0.9 
Total Derivative Liabilities$4.1 $9.0 
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, 2024.
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, 2024 and September 30, 2023, there was no cash collateral outstanding and no posted standby letters of credit related to such liability positions.
Net Investment Hedge
SBI had €425.0 million aggregate principal amount of 4.00% Notes, due October 1, 2026 (the "2026 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 adjustment 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).
Net unrealized gains or losses from the net investment hedge are reclassified from AOCI into earnings upon a liquidation event or deconsolidation of Euro denominated subsidiaries. Effective June 20, 2024, the net investment hedge is no longer outstanding due to the full redemption of the 2026 Notes. See Note 8 – Debt for additional detail. The cumulative unrealized gain of $11.9 million related to the net investment hedge will remain in AOCI until a liquidation event or deconsolidation of the underlying Euro denominated subsidiaries. The following summarizes the unrealized gain (loss) from the net investment hedge recognized in Other Comprehensive Income for the three and nine month periods ended June 30, 2024 and July 2, 2023, pre-tax:
Three Month Periods EndedNine Month Periods Ended
Unrealized (Loss) Gain in OCI (in millions)June 30, 2024July 2, 2023June 30, 2024July 2, 2023
Net investment hedge$(3.5)$1.8 $(13.2)$(44.6)