DERIVATIVE INSTRUMENTS | 3 Months Ended |
Sep. 30, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Instruments | ' |
DERIVATIVE INSTRUMENTS |
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The Company is exposed to foreign currency exchange fluctuations through its global operations, with manufacturing and distribution facilities in various countries around the world. The Company may reduce its exposure to fluctuations in the cash flows associated with changes in foreign exchange rates by creating offsetting positions through the use of derivative instruments. The Company expects that through hedging, any gain or loss on the derivative instruments would generally offset the expected increase or decrease in the value of the underlying forecasted transactions. During fiscal 2014, the Company launched a program to qualify derivatives for hedge accounting treatment. The Company began entering into derivatives for which hedge accounting treatment was applied in the second quarter of fiscal 2014 which the Company began realizing in the Condensed Consolidated Statement of Operations in fiscal 2015. The Company also continued to use certain derivatives as economic hedges of foreign currency exposure on firm commitments and forecasted transactions. Although these derivatives were not designated for hedge accounting, the overall objective of mitigating foreign currency exposure is the same for all derivative instruments. The Company does not enter into derivative financial instruments for trading or speculative purposes, nor is the Company a party to leveraged derivatives. |
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For derivatives accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of specific underlying forecasted transactions, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company formally assesses both at inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures. Any ineffective portion of a financial instrument's change in fair value is immediately recognized into earnings. If it is determined that a derivative is not highly effective as a hedge, the Company will discontinue hedge accounting for the affected derivative in the related period. Additionally, all of the master agreements governing the Company’s derivative contracts contain standard provisions that could trigger early termination of the contracts in certain circumstances which would require the Company to discontinue hedge accounting, including if the Company were to merge with another entity and the creditworthiness of the surviving entity were to be “materially weaker” than that of the Company prior to the merger. As of September 30, 2014, foreign exchange forward contracts in net liability positions that contained credit-risk-related features were $3.5. |
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The Company also attempts to minimize credit exposure to counterparties by entering into derivative contracts with counterparties that are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the fair value of contracts in net asset positions, which totaled $3.0 at September 30, 2014. Accordingly, management of the Company believes risk of material loss under these hedging contracts is remote. |
Quantitative Information |
Derivatives are recognized on the balance sheet at their fair values. The following table presents the fair value of derivative instruments outstanding at September 30, 2014 and June 30, 2014: |
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| Asset | | Liability | | | | |
| Balance Sheet Classification | | Fair Value | | Balance Sheet Classification | | Fair Value | | | | |
| | | 30-Sep-14 | | 30-Jun-14 | | | | 30-Sep-14 | | 30-Jun-14 | | | | |
Derivatives designated as hedges: | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | Prepaid expenses and | | $ | 2.5 | | | $ | — | | | Accrued expenses and | | $ | 2.7 | | | $ | 10.5 | | | | | |
other current assets | other current liabilities | | | | |
Total derivatives designated as hedges | | | $ | 2.5 | | | $ | — | | | | | $ | 2.7 | | | $ | 10.5 | | | | | |
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Derivatives not designated as hedges: | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | Prepaid expenses and | | $ | 0.5 | | | $ | 2.1 | | | Accrued expenses and | | $ | 0.8 | | | $ | 1 | | | | | |
other current assets | other current liabilities | | | | |
Total derivatives not designated as hedges | | | $ | 0.5 | | | $ | 2.1 | | | | | $ | 0.8 | | | $ | 1 | | | | | |
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Total derivatives | | | $ | 3 | | | $ | 2.1 | | | | | $ | 3.5 | | | $ | 11.5 | | | | | |
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The table below presents the gross amount of foreign exchange contract hedges recorded as assets and liabilities in Prepaid expenses and other current assets and Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet, respectively, as of September 30, 2014: |
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| | | | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | |
| Gross Amounts Recognized | | Gross Amounts Offset in the Condensed Consolidated Statement of Operations | | Net Amount Presented in the Condensed Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Net Amount |
Assets | $ | 6.8 | | | $ | (3.8 | ) | | $ | 3 | | | $ | — | | | $ | — | | | $ | 3 | |
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Liabilities | $ | (4.6 | ) | | $ | 1.1 | | | $ | (3.5 | ) | | $ | — | | | $ | — | | | $ | (3.5 | ) |
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The table below presents the gross amount of foreign exchange contract hedges recorded as assets and liabilities in Prepaid expenses and other current assets and Accrued expenses and other current liabilities in the Consolidated Balance Sheet, respectively, as of June 30, 2014: |
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| | | | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | |
| Gross Amounts Recognized | | Gross Amounts Offset in the Condensed Consolidated Statement of Operations | | Net Amount Presented in the Condensed Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Net Amount |
Assets | $ | 2.2 | | | $ | (0.1 | ) | | $ | 2.1 | | | $ | — | | | $ | — | | | $ | 2.1 | |
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Liabilities | $ | (12.9 | ) | | $ | 1.4 | | | $ | (11.5 | ) | | $ | — | | | $ | — | | | $ | (11.5 | ) |
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The amount of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments during the three months ended September 30, 2014 and 2013 is presented below: |
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Condensed Consolidated Statements of Operations | Gain (Loss) Recognized | | | | | | | | | | | | | | | | |
Classification of Gain (Loss) Recognized in Operations | in Operations | | | | | | | | | | | | | | | | |
| Three Months | | | | | | | | | | | | | | | | |
| Ended September 30, | | | | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | | | | |
Interest expense, net | $ | 1.8 | | | $ | — | | | | | | | | | | | | | | | | | |
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Cost of sales | $ | — | | | $ | (1.5 | ) | | | | | | | | | | | | | | | | |
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Selling, general and administrative | $ | 0.9 | | | $ | — | | | | | | | | | | | | | | | | | |
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The Company enters into foreign exchange forward contracts to hedge anticipated transactions for periods consistent with the Company’s identified exposures to minimize the effect of foreign exchange rate movements on revenues and costs and on the cash flows that the Company receives from foreign subsidiaries and third parties where there is a high probability that anticipated exposures will materialize. The foreign exchange forward contracts entered into to hedge anticipated transactions have been designated as foreign exchange cash-flow hedges and have varying maturities through the end of June 2015. Hedge effectiveness of foreign exchange forward contracts is based on the forward-to-forward hypothetical derivative methodology and includes all changes in value. |
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The ineffective portion of foreign exchange forward contracts is recorded in current-period earnings. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses accumulated in Other comprehensive income (loss) (“OCI”) are reclassified to earnings when the underlying forecasted transaction occurs. If it is no longer probable that the forecasted transaction will occur, then any gains or losses in accumulated OCI (“AOCI”) are reclassified to current-period earnings. During the three months ended September 30, 2014, as a result of a change in forecast, the Company de-designated a portion of its hedges and reclassified a loss of $0.1 from AOCI to Cost of goods sold in the Condensed Consolidated Statement of Operations. As of September 30, 2014, all of the Company’s foreign exchange forward contracts designated as hedges were highly effective in all material respects. The accumulated loss on these derivative instruments in AOCI, net of tax, was $(2.5) and (8.9) as of September 30, 2014 and June 30, 2014, respectively. The estimated net loss related to these effective hedges that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $(2.5). During the three months ended September 30, 2014, a gain of $0.6 was reclassified from AOCI into earnings related to effective hedge contracts that have settled. |
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As of September 30, 2014, the Company had foreign exchange forward contracts designated as effective hedges with a notional value of $266.3, which mature at various dates through June 2015. The foreign currencies of the counterparties in the hedged foreign exchange forward contracts (notional value stated in U.S. dollars) are principally the British Pound ($75.2), Euro ($60.2), Australian Dollar ($32.3), Canadian Dollar ($35.5), Russian Ruble $(27.0), Polish Zloty ($20.7), and Japanese Yen ($1.8). As of June 30, 2014, the Company had $361.3 in foreign exchange forward contracts designated as effective hedges. |
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As of September 30, 2014 and June 30, 2014, the Company had foreign exchange forward contracts not designated as hedges with a notional value of $194.8 and $535.4, respectively, which mature at various dates through June 2015. |