Derivatives and Hedging Activities

6 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company from time to time uses commodity forwards, interest rate swaps, forward interest rate swaps and foreign currency forwards to manage risks generally associated with commodity price, interest rate and foreign currency rate fluctuations. The following explains the various types of derivatives and includes a summary of the impact the derivative instruments had on the Company's financial position, results of operations and cash flows.

Cash Flow Hedging — Commodity forward contracts: The Company enters into commodity forward contracts to fix the price of a portion of anticipated future purchases of certain critical raw materials and energy to manage the risk of cash flow variability associated with volatile commodity prices. The commodity forward contracts have been designated as cash flow hedges. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive (loss) income ("AOCI") and reclassified to cost of sales in the period during which the hedged transaction affects earnings or it becomes probable that the forecasted transaction will not occur. As of December 31, 2022, the Company had forward contracts to purchase 3.9 million pounds of certain raw materials with settlement dates through May 2025.

Cash Flow Hedging — Forward interest rate swaps: Historically, the Company has entered into forward interest rate swap contracts to manage the risk of cash flow variability associated with fixed interest debt expected to be issued. The forward interest rate swaps were designated as cash flow hedges. The qualifying hedge contracts were marked-to-market at each reporting date and any unrealized gains or losses were included in AOCI and reclassified to interest expense in the period during which the hedged transaction affected earnings or it became probable that the forecasted transaction would not occur. Upon the issuance of the fixed rate debt, the forward interest rate swap contracts were terminated. The realized gains at the time the interest rate swap contracts were terminated were amortized over the term of the underlying debt. For the three months ended December 31, 2022 and 2021, net gains related to the previously terminated contracts of $0.0 million and $0.1 million, respectively, were recorded as a reduction to interest expense. For the six months ended December 31, 2022 and 2021, net gains related to the previously terminated contracts of $0.0 million and $0.2 million, respectively, were recorded as a reduction to interest expense.

Cash Flow Hedging — Foreign currency forward contracts: From time-to-time, the Company uses foreign currency forward contracts to hedge a portion of anticipated future sales denominated in foreign currencies, principally the Euro in order to offset the effect of changes in exchange rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to net sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

The Company also uses foreign currency forward contracts to protect certain short-term positions denominated in foreign currencies against the effect of changes in exchange rates. These positions do not qualify for hedge accounting and accordingly are marked-to-market at each reporting date through charges to other expense (income), net. As of December 31, 2022 and June 30, 2022, the fair value of the outstanding foreign currency forwards not designated as hedging instruments and the charges to income for changes in fair value for these contracts were not material.

The fair value and location of outstanding derivative contracts recorded in the accompanying consolidated balance sheets were as follows as of December 31, 2022 and June 30, 2022:


December 31, 2022	Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	4.5	$	15.2	$	19.7
Other assets	—		2.1		2.1
Total asset derivatives	$	4.5	$	17.3	$	21.8
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	—	$	2.8	$	2.8
Other liabilities	—		0.3		0.3
Total liability derivatives	$	—	$	3.1	$	3.1


June 30, 2022	Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	—	$	11.5	$	11.5
Other assets	2.6		2.5		5.1
Total asset derivatives	$	2.6	$	14.0	$	16.6
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	0.2	$	0.1	$	0.3
Other liabilities	—		0.1		0.1
Total liability derivatives	$	0.2	$	0.2	$	0.4

Substantially all of the derivative contracts are subject to master netting arrangements, or similar agreements with each counterparty, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company presents the outstanding derivative contracts on a net basis by counterparty in the consolidated balance sheets. If the Company had chosen to present the derivative contracts on a gross basis, the total asset derivatives would have been $22.8 million and total liability derivatives would have been $4.1 million as of December 31, 2022.

According to the provisions of the Company's derivative arrangements, in the event that the fair value of outstanding derivative positions with certain counterparties exceeds certain thresholds, the Company may be required to issue cash collateral to the counterparties. As of December 31, 2022 and June 30, 2022, the Company had no cash collateral held by counterparties.

The Company is exposed to credit loss in the event of nonperformance by counterparties on its derivative instruments as well as credit or performance risk with respect to its customer commitments to perform. Although nonperformance is possible, the Company does not anticipate nonperformance by any of the parties. In addition, various master netting arrangements are in place with counterparties to facilitate settlements of gains and losses on these contracts.

Cash Flow and Fair Value Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings or it becomes probable the forecasted transactions will not occur. The following is a summary of the gains (losses) on cash flow hedges recognized during the three and six months ended December 31, 2022 and 2021:


	Amount of Gain Recognized in AOCI on Derivatives
	Three Months Ended December 31,				Six Months Ended December 31,
($ in millions)	2022		2021		2022		2021
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	$	9.8	$	1.3	$	9.6	$	1.0

Total	$	9.8	$	1.3	$	9.6	$	1.0


($ in millions)	Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
		Three Months Ended December 31,
		2022		2021
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	1.2	$	(1.0)

Forward interest rate swaps	Interest expense, net	—		0.1
Total		$	1.2	$	(0.9)


($ in millions)	Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
		Six Months Ended December 31,
		2022		2021
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	7.9	$	(2.9)

Forward interest rate swaps	Interest expense, net	—		0.2
Total		$	7.9	$	(2.7)

The following is a summary of total amounts presented in the consolidated statements of operations in which the effects of cash flow and fair value hedges are recorded during the three and six months ended December 31, 2022 and 2021:


	Three Months Ended December 31, 2022				Three Months Ended December 31, 2021
($ in millions)	Cost of Sales		Interest Expense, Net		Cost of Sales		Interest Expense, Net
Total amounts presented in the consolidated statement of operations in which the effects of cash flow and fair value hedges are recorded	$	509.1	$	13.0	$	382.9	$	10.1

Gain (Loss) on Derivatives in Cash Flow Hedging Relationship:
Commodity contracts
Amount of gain (loss) reclassified from AOCI to income	$	1.2	$	—	$	(1.0)	$	—


Interest rate swap agreements
Amount of gain reclassified from AOCI to income	—		—		—		0.1




Total gain (loss)	$	1.2	$	—	$	(1.0)	$	0.1


	Six Months Ended December 31, 2022				Six Months Ended December 31, 2021
($ in millions)	Cost of Sales		Interest Expense, Net		Cost of Sales		Interest Expense, Net
Total amounts presented in the consolidated statement of income in which the effects of cash flow and fair value hedges are recorded	$	977.2	25.6		$	745.3	$	20.3

Gain (Loss) on Derivatives in Cash Flow Hedging Relationship:
Commodity contracts



Amount of gain (loss) reclassified from AOCI to income	$	7.9	$	—	$	(2.9)	$	—

Interest rate swap agreements
Amount of gain reclassified from AOCI to income	—		—		—		0.2





Total gain (loss)	$	7.9	$	—	$	(2.9)	$	0.2

The Company estimates that $8.3 million of net derivative gains included in AOCI as of December 31, 2022 will be reclassified into income within the next 12 months. No significant cash flow hedges were discontinued during the three and six months ended December 31, 2022.

As of December 31, 2022, and June 30, 2022, there were no amounts recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges of interest rate risk.