FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | 9 Months Ended |
Mar. 31, 2015 |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS [Abstract] | |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | NOTE 13. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
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Financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets are required to be classified and disclosed in one of the following fair value hierarchies: |
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Level 1: Quoted market prices in active markets for identical assets or liabilities. |
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Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. |
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Level 3: Unobservable inputs reflecting the reporting entity's own assumptions. |
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As of March 31, 2015 and June 30, 2014, the Company's financial assets and liabilities that were measured at fair value on a recurring basis during the period included derivative financial instruments, which were all Level 2, and trust assets to fund certain of the Company's nonqualified deferred compensation plans, which were classified as Level 1. |
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Financial Risk Management and Derivative Instruments |
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The Company is exposed to certain commodity, interest rate and foreign currency risks related to its ongoing business operations and uses derivative instruments to mitigate its exposure to these risks. |
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Commodity Price Risk Management |
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The Company may use commodity exchange traded futures and over-the-counter swap contracts to fix the price of a portion of its forecasted raw material requirements. Contract maturities, which are generally no longer than 2 years, are matched to the length of the raw material purchase contracts. Commodity purchase contracts are measured at fair value using market quotations obtained from commodity derivative dealers. |
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As of March 31, 2015, the notional amount of commodity derivatives was $56, of which $30 related to jet fuel and $26 related to soybean oil. As of June 30, 2014, the notional amount of commodity derivatives was $36, of which $19 related to jet fuel and $17 related to soybean oil. |
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Interest Rate Risk Management |
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The Company may enter into over-the-counter interest rate forward contracts to fix a portion of the benchmark interest rate prior to the anticipated issuance of fixed rate debt. These interest rate forward contracts generally have durations of less than 12 months. The interest rate contracts are measured at fair value using information quoted by U.S. government bond dealers. |
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As of March 31, 2015 and June 30, 2014, the notional amounts of interest rate forward contracts were $0 and $288, respectively. |
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In December 2014, the Company paid $25 to settle interest rate forward contracts related to the December 2014 issuance of $500 in senior notes. The settlement payments are reflected as operating cash flows in the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2015. The loss is reflected in accumulated other comprehensive net loss on the Condensed Consolidated Balance Sheet as of March 31, 2015, and will be amortized into interest expense on the Condensed Consolidated Statement of Earnings and Comprehensive Income over the 10-year term of the notes. |
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Foreign Currency Risk Management |
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The Company may also enter into certain over-the-counter foreign currency-related derivative contracts to manage a portion of the Company's forecasted foreign currency exposure associated with the purchase of inventory and certain intercompany transactions. These foreign currency contracts generally have durations of no longer than 20 months. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers. |
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The notional amounts of outstanding foreign currency forward contracts used by the Company's subsidiaries in Canada, Australia and New Zealand to hedge forecasted purchases of inventory were $83, $42 and $7, respectively, as of March 31, 2015, and $54, $28 and $5, respectively, as of June 30, 2014. |
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Counterparty Risk Management and Broker Margin Requirements |
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The Company utilizes a variety of financial institutions as counterparties for over-the counter derivative instruments. The Company enters into agreements governing the use of over-the-counter derivative instruments and sets internal limits on the aggregate over-the-counter derivative instrument positions held with each counterparty. Certain terms of these agreements require the Company or the counterparty to post collateral when the fair value of the derivative instruments exceeds contractually defined counterparty liability position limits. Of the $14 and $17 of derivative instruments reflected in a liability position as of March 31, 2015 and June 30, 2014, respectively, $6 and $11, respectively, contained such terms. As of both March 31, 2015 and June 30, 2014, neither the Company nor any counterparty was required to post any collateral. |
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Certain terms of the agreements governing the Company's over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor's and Moody's to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company's credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. |
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As of both March 31, 2015 and June 30, 2014, the Company and each of its counterparties had been assigned investment grade ratings by both Standard & Poor's and Moody's. |
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Certain of the Company's exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Company's broker for trades conducted on that exchange. As of March 31, 2015 and June 30, 2014, the Company maintained cash margin balances related to exchange-traded futures contracts of $4 and $1, respectively, which are classified as other current assets on the Condensed Consolidated Balance Sheets. |
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Fair Value of Derivative Instruments |
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Derivatives |
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The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as an accounting hedge and, if so, on the type of hedging relationship. For those derivative instruments designated and qualifying as hedging instruments, the Company must designate the hedging instrument as a fair value hedge or a cash flow hedge. The Company designates its commodity forward and future contracts for forecasted purchases of raw materials, interest rate forward contracts for forecasted interest payments, and foreign currency forward contracts for forecasted purchases of inventory as cash flow hedges. During the three and nine months ended March 31, 2015 and 2014, the Company had no hedging instruments designated as fair value hedges. |
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Trust Assets |
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The Company has held mutual funds and cash equivalents as part of trusts related to certain of its nonqualified deferred compensation plans. The trusts represent variable interest entities for which the Company is considered the primary beneficiary, and therefore, trust assets are consolidated and included in other assets in the Condensed Consolidated Balance Sheets. The mutual funds are measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments. The participants in the deferred compensation plans may select among certain mutual funds in which their compensation deferrals are invested in accordance with the terms of the plans and within the confines of the trusts which hold the marketable securities. |
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The Company's derivative instruments designated as hedging instruments and trust assets related to certain of the Company's nonqualified deferred compensation plans were recorded at fair value in the consolidated balance sheets as follows: |
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| Balance sheet | | | 3/31/2015 | | | 6/30/2014 | |
| classification | | | Level 1 | | | Level 2 | | | Level 1 | | | Level 2 | |
Assets | | | | | | | | | | | | | | | | | | | |
Foreign exchange derivative contracts | | Other current assets | | | $ | - | | | $ | 5 | | | $ | - | | | $ | - | |
Commodity purchase derivative contracts | | Other current assets | | | | - | | | | - | | | | - | | | | 1 | |
Trust assets for nonqualified deferred | | | | | | | | | | | | | | | | | | | |
compensation plans | | Other assets | | | | 37 | | | | - | | | | 31 | | | | - | |
| | | | | $ | 37 | | | $ | 5 | | | $ | 31 | | | $ | 1 | |
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Liabilities | | | | | | | | | | | | | | | | | | | |
Commodity purchase derivative contracts | | Accrued liabilities | | | $ | - | | | $ | 11 | | | $ | - | | | $ | 1 | |
Interest rate derivative contracts | | Accrued liabilities | | | | - | | | | - | | | | - | | | | 13 | |
Foreign exchange derivative contracts | | Accrued liabilities | | | | - | | | | - | | | | - | | | | 3 | |
Commodity purchase derivative contracts | | Other liabilities | | | | - | | | | 3 | | | | - | | | | - | |
| | | | | $ | - | | | $ | 14 | | | $ | - | | | $ | 17 | |
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For derivative instruments designated and qualifying as cash flow hedges, the effective portion of gains or losses is reported as a component of other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The estimated amount of the existing net loss in accumulated other comprehensive net loss as of March 31, 2015, expected to be reclassified into earnings within the next 12 months is $10. Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. During the three and nine months ended March 31, 2015 and 2014, hedge ineffectiveness was not significant. The Company de-designates cash flow hedge relationships whenever it determines that the hedge relationships are no longer highly effective or that the forecasted transaction is no longer probable. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive loss for de-designated hedges remains in accumulated other comprehensive net loss until the forecasted transaction is recognized in earnings, or is recognized in earnings immediately if the forecasted transaction is no longer probable. |
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Changes in the value of the trust assets related to certain of the Company's nonqualified deferred compensation plans were $6 versus June 30, 2014, primarily due to current quarter employees' contributions to these plans. |
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The effects of derivative instruments designated as hedging instruments on OCI and the Condensed Consolidated Statements of Earnings and Comprehensive Income were as follows: |
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| | | Gain (loss) recognized in OCI | | | |
| | | Three Months Ended | | | Nine Months Ended | | | |
| | | 3/31/2015 | | | 3/31/2014 | | | 3/31/2015 | | | 3/31/2014 | | | |
Commodity purchase derivative contracts | | | $ | - | | | $ | - | | | $ | (16 | ) | | $ | 1 | | | |
Interest rate derivative contracts | | | | - | | | | (4 | ) | | | (12 | ) | | | (4 | ) | | |
Foreign exchange derivative contracts | | | | 2 | | | | (2 | ) | | | 7 | | | | (1 | ) | | |
Total | | | $ | 2 | | | $ | (6 | ) | | $ | (21 | ) | | $ | (4 | ) | | |
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| | | Loss reclassified from accumulated other comprehensive net loss | | | |
and recognized in earnings | | |
| | | Three Months Ended | | | Nine Months Ended | | | |
| | | 3/31/2015 | | | 3/31/2014 | | | 3/31/2015 | | | 3/31/2014 | | | |
Commodity purchase derivative contracts | | | | (3 | ) | | | - | | | | (3 | ) | | | - | | | |
Interest rate derivative contracts | | | $ | - | | | $ | (1 | ) | | | (3 | ) | | $ | (3 | ) | | |
Foreign exchange derivative contracts | | | | - | | | | 1 | | | | - | | | | 3 | | | |
Total | | | $ | (3 | ) | | $ | - | | | $ | (6 | ) | | $ | - | | | |
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The gains reclassified from accumulated other comprehensive net loss and recognized in earnings during the three and nine months ended March 31, 2015 and 2014 for foreign exchange contracts were included in cost of products sold. The losses reclassified from accumulated other comprehensive net loss and recognized in earnings during the three and nine months ended March 31, 2015 and 2014 for interest rate contracts were included in interest expense. |
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Other Financial Instruments |
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The carrying values of cash and cash equivalents, accounts receivable, notes and loans payable and accounts payable approximated their estimated fair values as of March 31, 2015 and June 30, 2014, due to their generally short maturities. The estimated fair value of long-term debt, including current maturities, was $2,190 and $2,265 as of March 31, 2015 and June 30, 2014, respectively. The estimated fair value of long-term debt was determined using secondary market prices quoted by corporate bond dealers, and was classified as Level 2. |
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