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Derivative Instruments and Hedging Activities
 6 Months Ended
Dec. 29, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Derivative Instruments & Hedging Activities

The Company enters into derivative contracts designated as cash flow hedges to manage certain interest rate, foreign currency and commodity exposures. Company policy allows derivatives to be used only for identifiable exposures and, therefore, the Company does not enter into derivative instruments for trading purposes where the sole objective is to generate profits.

The Company formally designates the financial instrument as a hedge of a specific underlying exposure and documents both the risk management objectives and strategies for undertaking the hedge. The Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the forecasted cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the forecasted cash flows of the underlying exposures being hedged. Derivative financial instruments are recorded within the Condensed Consolidated Balance Sheets as assets or liabilities, measured at fair value. The effective portion of gains or losses on derivatives designated as cash flow hedges are reported as a component of Accumulated Other Comprehensive Income (Loss) (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of a financial instrument's change in fair value is immediately recognized in earnings.

The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer
effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is dedesignated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge.

In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and recognizes immediately in earnings gains and losses that were accumulated in other comprehensive income related to the hedging relationship.
    
The Company enters into interest rate swaps to manage a portion of its interest rate risk from financing certain dealer and distributor inventories through a third party financing source. The swaps are designated as cash flow hedges and are used to effectively fix the interest payments to third party financing sources, exclusive of lender spreads, ranging from 0.98% to 2.83% for a notional principal amount of $110.0 million with expiration dates ranging from July 2021 through June 2024.

In the second quarter of fiscal year 2019, the Company entered into interest rate swaps to manage a portion of its interest rate risk from anticipated floating rate, LIBOR based indebtedness, exclusive of lender spreads, ranging from 2.47% to 3.13%. The swaps are designated as cash flow hedges, in an aggregate amount of $120 million, with forward starting dates between June and December 2019 and termination dates between June 2023 and December 2029.

The Company periodically enters into foreign currency contracts to hedge the risk from forecasted third party and intercompany sales or payments denominated in foreign currencies. The Company's primary foreign currency exposures are the Australian Dollar, the Brazilian Real, the Canadian Dollar, the Chinese Renminbi, the Euro, and the Japanese Yen against the U.S. Dollar. These contracts generally do not have a maturity of more than twenty-four months.
    
The Company uses raw materials that are subject to price volatility. The Company hedges a portion of its exposure to the variability of cash flows associated with commodities used in the manufacturing process by entering into forward purchase contracts or commodity swaps. Derivative contracts designated as cash flow hedges are used by the Company to reduce exposure to variability in cash flows associated with future purchases of natural gas. These contracts generally do not have a maturity of more than thirty-six months.
    
The Company has considered the counterparty credit risk related to all of its interest rate, foreign currency, and commodity derivative contracts and does not deem any counterparty credit risk material at this time.
    
As of December 29, 2019 and June 30, 2019, the Company had the following outstanding derivative contracts (in thousands):
Contract
 
Notional Amount
 
 
 
 
December 29,
2019
 
June 30,
2019
Interest Rate:
 
 
 
 
 
 
LIBOR Interest Rate (U.S. Dollars)
 
Fixed
 
230,000

 
230,000

Foreign Currency:
 
 
 
 
 
 
Australian Dollar
 
Sell
 
14,243

 
17,611

Brazilian Real
 
Sell
 
26,897

 
13,436

Canadian Dollar
 
Sell
 
20,615

 
14,610

Chinese Renminbi
 
Buy
 
100,050

 
70,555

Euro
 
Sell
 
10,090

 
2,750

Commodity:
 
 
 
 
 
 
Natural Gas (Therms)
 
Buy
 
4,074

 
7,627


The location and fair value of derivative instruments reported in the Condensed Consolidated Balance Sheets are as follows (in thousands):
Balance Sheet Location
 
Asset (Liability) Fair Value
 
 
December 29,
2019
 
June 30,
2019
Interest rate contracts
 
 
 
 
Other Long-Term Assets
 
511

 
876

Other Long-Term Liabilities
 
(12,728
)
 
(11,634
)
Foreign currency contracts
 
 
 
 
Other Current Assets
 
193

 
672

Other Long-Term Assets
 
38

 
16

Accrued Liabilities
 
(474
)
 
(179
)
Other Long-Term Liabilities
 
(13
)
 
(11
)
Commodity contracts
 
 
 
 
Other Current Assets
 
2

 
—

Accrued Liabilities
 
(197
)
 
(176
)
Other Long-Term Liabilities
 
—

 
(15
)
 
 
$
(12,668
)
 
$
(10,451
)

The effect of derivative instruments on the Condensed Consolidated Statements of Operations and Comprehensive Loss is as follows (in thousands):
 
 
Three Months Ended December 29, 2019
 
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive Income
(Loss) on Derivatives, Net of
Taxes (Effective
Portion)
 
Classification of
Gain (Loss)
 
Amount of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Recognized in
Earnings
(Ineffective Portion)
Interest rate contracts
 
$
203

 
Net Sales
 
$
(136
)
 
$
—

Foreign currency contracts - sell
 
(657
)
 
Net Sales
 
345

 
—

Foreign currency contracts - buy
 
151

 
Cost of Goods Sold
 
(54
)
 
—

Commodity contracts
 
(27
)
 
Cost of Goods Sold
 
(64
)
 
—

Interest rate contracts
 
1,780

 
Interest Expense
 
—

 
—

 
 
$
1,450

 
 
 
$
91

 
$
—


 
 
Three Months Ended December 30, 2018
 
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive Income
(Loss) on Derivatives, Net of
Taxes (Effective
Portion)
 
Classification of
Gain (Loss)
 
Amount of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Recognized in
Earnings
(Ineffective Portion)
Interest rate contracts
 
$
(58
)
 
Net Sales
 
$
216

 
$
—

Foreign currency contracts - sell
 
(1,509
)
 
Net Sales
 
1,520

 
—

Foreign currency contracts - buy
 
(2,211
)
 
Cost of Goods Sold
 
237

 
—

Commodity contracts
 
(2
)
 
Cost of Goods Sold
 
4

 
—

 
 
$
(3,780
)
 
 
 
$
1,977

 
$
—



 
 
Six Months Ended December 29, 2019
 
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive Income
(Loss) on Derivatives, Net of
Taxes (Effective
Portion)
 
Classification of
Gain (Loss)
 
Amount of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Recognized in
Earnings
(Ineffective Portion)
Interest rate contracts
 
$
(309
)
 
Net Sales
 
$
(384
)
 
$
—

Foreign currency contracts - sell
 
(228
)
 
Net Sales
 
980

 
—

Foreign currency contracts - buy
 
(25
)
 
Cost of Goods Sold
 
(119
)
 
—

Commodity contracts
 
(2
)
 
Cost of Goods Sold
 
(145
)
 
—

Interest rate contracts
 
$
(824
)
 
Interest Expense
 
$
—

 
$
—

 
 
$
(1,388
)
 
 
 
$
332

 
$
—


 
 
Six Months Ended December 30, 2018
 
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive Income
(Loss) on Derivatives, Net of
Taxes (Effective
Portion)
 
Classification of
Gain (Loss)
 
Amount of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Recognized in
Earnings
(Ineffective Portion)
Interest rate contracts
 
$
48

 
Net Sales
 
$
216

 
$
—

Foreign currency contracts - sell
 
(1,840
)
 
Net Sales
 
2,636

 
—

Foreign currency contracts - buy
 
(2,668
)
 
Cost of Goods Sold
 
72

 
—

Commodity contracts
 
(18
)
 
Cost of Goods Sold
 
4

 
—

 
 
$
(4,478
)
 
 
 
$
2,928

 
$
—



During the next twelve months, the estimated net amount of gain on cash flow hedges as of December 29, 2019 expected to be reclassified out of AOCI into earnings is $0.4 million.