DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

NetScout operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The exposures result from costs that are denominated in currencies other than the U.S. Dollar, primarily the Euro, British Pound, Canadian Dollar, and Indian Rupee. The Company manages its foreign cash flow risk by hedging forecasted cash flows for operating expenses denominated in foreign currencies for up to twelve months, within specified guidelines through the use of forward contracts. The Company enters into foreign currency exchange contracts to hedge cash flow exposures from costs that are denominated in currencies other than the U.S. Dollar. These hedges are designated as cash flow hedges at inception.

NetScout also periodically enters into forward contracts to manage exchange rate risk associated with certain third-party transactions and for which the Company does not elect hedge accounting treatment as there is no difference in the timing of gain or loss recognition on the hedge instrument and the hedged item.

All of the Company's foreign exchange forward contract derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes. These contracts will mature over the next twelve months and are expected to impact earnings on or before maturity.

The notional amounts and fair values of foreign exchange forward contract derivative instruments in the consolidated balance sheets at March 31, 2023 and 2022 were as follows (in thousands):

 

	Notional Amounts (a)				Prepaid Expenses and Other Current Assets				Accrued Other
	March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
Derivatives Designated as Hedging Instruments:
Foreign exchange forward contracts	$	10,265	$	5,578	$	59	$	20	$	29	$	78
Derivatives Not Designated as Hedging Instruments:
Foreign exchange forward contracts	6,031		—		—		—		20		—
					$	59	$	20	$	49	$	78

(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss), (OCI) and results of operations during the fiscal years ended March 31, 2023 and 2022 (in thousands):

	Gain (Loss) Recognized in OCI on Derivative (a)					Gain (Loss) Reclassified from Accumulated OCI into Income (b)
	March 31,		March 31,			March 31,		March 31,
	2023		2022		Location	2023		2022
Foreign exchange forward contracts	$	(477)	$	82	Research and development	$	62	$	(26)
					Sales and marketing	502		(30)
	$	(477)	$	82		$	564	$	(56)

(a)The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b)The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

The following table provides the effect foreign exchange forward contracts not designated as hedging instruments had on the Company's results of operations during the fiscal years ended March 31, 2023 and 2022 (in thousands):

		Loss Recognized in Income (a)
		March 31,		March 31,
	Location	2023		2022
Foreign exchange forward contracts	General and administrative	$	(21)	$	(107)
		$	(21)	$	(107)

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

In addition to foreign exchange forward contracts, as discussed in Note 5, during the fiscal year ended March 31, 2023, the Company entered into a forward share purchase contract to purchase approximately 6.2 million shares of Napatech's common stock for $7.5 million, which qualified as a derivative instrument under authoritative guidance. The notional amount of the derivative instrument was $7.5 million. At March 31, 2023, the fair value of the derivative instrument of $1.4 million was included as accrued other in the Company's consolidated balance sheet. During the fiscal year ended March 31, 2023, the Company recorded a $1.4 million charge related to the change in the fair value of the derivative instrument in other income (expense), net within the Company's consolidated statement of operations.