Derivative Financial Instruments

9 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure

Derivative Financial Instruments

We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge or net investment hedge, then the change in the fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. On July 1, 2019, we adopted the new hedge accounting standard, in which we no longer recognize the ineffective portion of an effective hedge within earnings, rather any ineffectiveness associated with any effective and designated hedge is recognized within accumulated other comprehensive loss. Refer to Note 2 for additional details.

The change in the fair value of derivatives not designated as hedges is recognized directly in earnings as a component of other income (expense), net.

Hedges of Interest Rate Risk

We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings as a component of interest expense, net.

Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt. As of March 31, 2020, we estimate that $9,488 will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending March 31, 2021. As of March 31, 2020, we had ten outstanding interest rate swap contracts indexed to USD LIBOR. These instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through December 2026.

Interest rate swap contracts outstanding:	Notional Amounts
Contracts accruing interest as of March 31, 2020	$	500,000
Contracts with a future start date	50,000
Total	$	550,000

Hedges of Currency Risk

Cross-Currency Swap Contracts

From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the

contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.

Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. dollar. During the quarter ended March 31, 2020, we terminated one of our cross-currency swaps, resulting in cash proceeds of $9,177 which were recognized within cash provided by operating activities in our consolidated statement of cash flows. As of March 31, 2020, we had two outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $120,874, both maturing during June 2024. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.

Amounts reported in accumulated other comprehensive loss will be reclassified to other income (expense), net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of March 31, 2020, we estimate that $3,133 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending March 31, 2021.

Other Currency Contracts

We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar.

During the quarter ended March 31, 2020, we terminated eight forward contracts designated as net investment hedges, resulting in cash proceeds of $27,732 which continues to be recognized in accumulated other comprehensive income (loss). The cash proceeds were recognized as cash provided by investing activities within our consolidated statement of cash flow. As of March 31, 2020, we had six currency forward contracts designated as net investment hedges with a total notional amount of $180,292, maturing during various dates through April 2025. We entered into these contracts to hedge the risk of changes in the U.S. dollar equivalent value of a portion of our net investment in two consolidated subsidiaries that have the Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.

We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three and nine months ended March 31, 2020 and 2019, we have experienced volatility within other income (expense), net in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.

As of March 31, 2020, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions or balances denominated in Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso and Swedish Krona:

Notional Amount	Effective Date	Maturity Date	Number of Instruments	Index
$556,679	June 2018 through March 2020	Various dates through October 2024	526	Various

Financial Instrument Presentation    

The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of March 31, 2020 and June 30, 2019. Our derivative asset and liability balances will fluctuate with interest rate and currency exchange rate volatility.

	March 31, 2020
	Asset Derivatives								Liability Derivatives
	Balance Sheet line item	Gross amounts of recognized assets		Gross amount offset in Consolidated Balance Sheet			Net amount		Balance Sheet line item	Gross amounts of recognized liabilities			Gross amount offset in Consolidated Balance Sheet		Net amount
Derivatives designated as hedging instruments
Derivatives in cash flow hedging relationships
Interest rate swaps	Other current assets / other assets	$	—	$	—		$	—	Other liabilities	$	(37,674	)	$	—	$	(37,674	)
Cross-currency swaps	Other assets	5,895		—			5,895		Other liabilities	(3,558		)	—		(3,558		)
Derivatives in net investment hedging relationships
Currency forward contracts	Other assets	1,541		—			1,541		Other liabilities	(4,702		)	—		(4,702		)
Total derivatives designated as hedging instruments		$	7,436	$	—		$	7,436		$	(45,934	)	$	—	$	(45,934	)
Derivatives not designated as hedging instruments
Currency forward contracts	Other current assets / other assets	$	18,473	$	(2,219	)	$	16,254	Other current liabilities / other liabilities	$	(1,346	)	$	534	$	(812	)
Currency option contracts	Other current assets / other assets	4,554		(12		)	4,542		Other current liabilities / other liabilities	—			—		—
Total derivatives not designated as hedging instruments		$	23,027	$	(2,231	)	$	20,796		$	(1,346	)	$	534	$	(812	)

	June 30, 2019
	Asset Derivatives								Liability Derivatives
Derivatives designated as hedging instruments	Balance Sheet line item	Gross amounts of recognized assets		Gross amount offset in Consolidated Balance Sheet			Net amount		Balance Sheet line item	Gross amounts of recognized liabilities			Gross amount offset in Consolidated Balance Sheet		Net amount
Derivatives in cash flow hedging relationships
Interest rate swaps	Other non-current assets	$	144	$	—		$	144	Other current liabilities / other liabilities	$	(12,895	)	$	—	$	(12,895	)
Cross-currency swaps	Other non-current assets	—		—			—		Other liabilities	(915		)	—		(915		)
Derivatives in net investment hedging relationships
Currency forward contracts	Other non-current assets	4,514		—			4,514		Other liabilities	(2,397		)	—		(2,397		)
Total derivatives designated as hedging instruments		$	4,658	$	—		$	4,658		$	(16,207	)	$	—	$	(16,207	)
Derivatives not designated as hedging instruments
Currency forward contracts	Other current assets / other assets	$	11,865	$	(1,111	)	$	10,754	Other current liabilities / other liabilities	$	(127	)	$	38	$	(89	)
Currency option contracts	Other current assets / other assets	4,793		(28		)	4,765		Other current liabilities / other liabilities	(42		)	—		(42		)
Total derivatives not designated as hedging instruments		$	16,658	$	(1,139	)	$	15,519		$	(169	)	$	38	$	(131	)

The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive (loss) income for the three and nine months ended March 31, 2020 and 2019:

	Amount of Net Gain (Loss) on Derivatives Recognized in Comprehensive (Loss) Income
	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Derivatives in cash flow hedging relationships
Interest rate swaps (1)	$	(24,645	)	$	(6,102	)	$	(24,841	)	$	(10,916	)
Cross-currency swaps	3,444			(1,273		)	2,583			(2,656		)
Derivatives in net investment hedging relationships
Cross-currency swaps	—			1,542			—			6,557
Currency forward contracts	14,284			7,050			22,849			14,369
Total	$	(6,917	)	$	1,217		$	591		$	7,354

___________________

(1) Upon transitioning to the new hedge accounting standard on July 1, 2019, we reversed the cumulative effect of expense recognized for the ineffective portion of our interest rate swap contracts, which resulted in an adjustment to accumulated other comprehensive loss of $153, net of tax, which is included within the interest rate swap loss recognized for the nine months ended March 31, 2020.

The following table presents reclassifications out of accumulated other comprehensive loss for the three and nine months ended March 31, 2020 and 2019:

	Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income												Affected line item in the Statement of Operations
	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Derivatives in cash flow hedging relationships
Interest rate swaps	$	691		$	(314	)	$	1,146		$	(105	)	Interest expense, net
Cross-currency swaps	2,665			2,146			6,203			5,920			Other income (expense), net
Total before income tax	3,356			1,832			7,349			5,815			(Loss) income before income taxes
Income tax	(825		)	(458		)	(1,812		)	(1,454		)	Income tax (benefit) expense
Total	$	2,531		$	1,374		$	5,537		$	4,361

The following table presents the adjustment to fair value recorded within the consolidated statements of operations for derivative instruments for which we did not elect hedge accounting and de-designated derivative financial instruments that no longer qualify as hedging instruments in the period.

	Amount of Gain (Loss) Recognized in Net Income										Affected line item in the Statement of Operations
		Three Months Ended March 31,				Nine Months Ended March 31,
		2020		2019		2020		2019
Currency contracts		$	18,039	$	1,258	$	25,730	$	19,802		Other income (expense), net
Interest rate swaps (1)		—		29		—		(185		)	Other income (expense), net
Total		$	18,039	$	1,287	$	25,730	$	19,617

_____________________

(1) Upon our adoption of the new hedge accounting standard on July 1, 2019, we prospectively recognize any ineffectiveness associated with effective and designated hedges within accumulated other comprehensive loss, rather than in earnings.