DERIVATIVES

9 Months Ended

Jul. 04, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 July 4, 2021, the Company had a series of brass and zinc swap contracts outstanding through November 30, 2022. The derivative net gain estimated to be reclassified from AOCI into earnings over the next 12 months is $0.8 million, net of tax.

The Company had the following commodity swap contracts outstanding as of July 4, 2021 and September 30, 2020:


	July 4, 2021				September 30, 2020
(in millions, except Notional)	Notional		Contract Value		Notional		Contract Value
Brass swap contracts	795.4	Metric Tons	$	5.1	949.0	Metric Tons	$	4.4
Zinc swap contracts	2,947.5	Metric Tons	$	8.2	1,552.0	Metric Tons	$	3.4

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 inventory 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 July 4, 2021, the Company had a series of foreign exchange derivative contracts outstanding through December 29, 2022. The derivative net loss estimated to be reclassified from AOCI into earnings over the next 12 months is $3.0 million, net of tax. At July 4, 2021 and September 30, 2020, the Company had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $322.2 million and $273.4 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 July 4, 2021 and June 28, 2020, respectively:


For the three month period ended July 4, 2021 (in millions)	Gain (Loss) in OCI		Reclassified to Continuing Operations
			Line Item	Gain (Loss)
Commodity swaps	$	0.5	Cost of goods sold	$	0.7
Foreign exchange contracts	—		Net sales	0.1
Foreign exchange contracts	(1.5)		Cost of goods sold	(3.6)
Total	$	(1.0)		$	(2.8)


For the three month period ended June 28, 2020 (in millions)	Gain (Loss) in OCI		Reclassified to Continuing Operations
			Line Item	Gain (Loss)
Commodity swaps	$	0.7	Cost of goods sold	$	(0.2)
Foreign exchange contracts	—		Net sales	(0.1)
Foreign exchange contracts	(2.8)		Cost of goods sold	2.3
Total	$	(2.1)		$	2.0


For the nine month period ended July 4, 2021 (in millions)	Gain (Loss) in OCI		Reclassified to Continuing Operations
			Line Item	Gain (Loss)
Commodity swaps	$	1.9	Cost of goods sold	$	1.8
Foreign exchange contracts	0.1		Net sales	0.1
Foreign exchange contracts	(9.6)		Cost of goods sold	(10.3)
Total	$	(7.6)		$	(8.4)


For the nine month period ended June 28, 2020 (in millions)	Gain (Loss) in OCI		Reclassified to Continuing Operations
			Line Item	Gain (Loss)

Commodity swaps	$	—	Cost of goods sold	$	(0.3)
Foreign exchange contracts	(0.1)		Net sales	(0.1)
Foreign exchange contracts	(0.4)		Cost of goods sold	6.7
Total	$	(0.5)		$	6.3

Derivative Contracts Not Designated as Hedges for Accounting Purposes

Foreign exchange contracts. 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 U.S. Dollars, Canadian Dollars, Euros, Pounds Sterling, Taiwanese Dollars, Philippine Pesos, Australian Dollars, Polish Zlotys, Mexican Pesos, or Japanese Yen, among others. 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 July 4, 2021, the Company had a series of forward exchange contracts outstanding through September 30, 2021. At July 4, 2021 and September 30, 2020, the Company had $314.5 million and $802.5 million, respectively, of notional value of such foreign exchange derivative contracts outstanding.

The following summarizes the impact of derivative instruments on the accompanying Condensed Consolidated Statements of Income for the three and nine month periods ended July 4, 2021 and June 28, 2020, pre-tax:


		Three Month Periods Ended				Nine Month Periods Ended
(in millions)	Line Item	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Foreign exchange contracts	Other non-operating expense (income)	$	1.8	$	1.2	$	(5.5)	$	(1.0)

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	July 4, 2021		September 30, 2020
Derivative Assets
Commodity swaps - designated as hedge	Other receivables	$	1.3	$	0.7
Commodity swaps - designated as hedge	Deferred charges and other	—		0.1
Foreign exchange contracts - designated as hedge	Other receivables	1.3		—
Foreign exchange contracts - designated as hedge	Deferred charges and other	0.7		—
Foreign exchange contracts - not designated as hedge	Other receivables	0.5		0.4
Total Derivative Assets		$	3.8	$	1.2
Derivative Liabilities
Commodity swaps - designated as hedge	Accounts payable	$	0.2	$	—
Commodity swaps - designated as hedge	Other long term liabilities	0.1		—
Foreign exchange contracts - designated as hedge	Accounts payable	5.2		3.8
Foreign exchange contracts - designated as hedge	Other long term liabilities	0.1		0.3
Foreign exchange contracts - not designated as hedge	Accounts payable	0.3		10.1
Total Derivative Liabilities		$	5.9	$	14.2

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 July 4, 2021.

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 July 4, 2021, and September 30, 2020, there was no cash collateral outstanding and 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 July 4, 2021, 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 three and nine month periods ended July 4, 2021 and June 28, 2020, pre-tax:


	Three Month Periods Ended				Nine Month Periods Ended
Gain (loss) in OCI (in millions)	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Net investment hedge	$	(3.4)	$	(7.9)	$	(4.8)	$	(10.6)

During the three and nine month periods ended July 4, 2021, the Company did not recognize any pre-tax gain (loss) in earnings related to the translation of the undesignated portion of debt obligation. During the three month period ended June 28, 2020, the Company did not recognize any pre-tax gain (loss) in earnings related to the translation of the undesignated portion of debt obligation. The pre-tax loss related to the translation of the undesignated portion of the debt obligation recognized in earnings was $1.2 million for the nine month period ended June 28, 2020. 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.