Derivative Instruments and Hedging Activities |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities | 10. Derivative Instruments and Hedging Activities During the six months ended March 31, 2024, we did not purchase or hold any derivative instruments for trading or speculative purposes. See Note 4, Fair Value Measurements, for the classification and fair value of our derivative instruments. Designated Cash Flow Hedges Foreign Currency Forwards We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on forecasted inventory purchases in U.S. dollars by our foreign subsidiaries. At March 31, 2024, we held forwards, which expire ratably through September 30, 2024, with a notional amount, based upon exchange rates at March 31, 2024, as follows (in thousands):
Quarterly, the changes in fair value related to these foreign currency forwards are recorded into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold, based on inventory turns, in our condensed consolidated statements of earnings. For the three months ended March 31, 2024 and 2023, we recognized a loss of $0.6 million and a loss of $0.2 million, respectively. For the six months ended March 31, 2024 and 2023, we recognized a loss of $2.0 million and a gain of $0.1 million, respectively. Based on March 31, 2024, valuations and exchange rates, we expect to reclassify losses of approximately $1.8 million out of AOCL and into cost of goods sold over the next 12 months. Interest Rate Swap In April 2023, we entered into a interest rate swap with an initial notional amount of $200 million (the “interest rate swap”) to mitigate the exposure to higher interest rates in connection with our Term Loan B due in 2030. The interest rate swap involves fixed monthly payments at the contract rate of 3.705%, and in return, we will receive a floating interest payment based on the 1-month Adjusted Term SOFR Rate. The interest rate swap will mature in and is designated as a cash flow hedge. Changes in the fair value of the interest rate swap are recorded quarterly, net of income tax, and included in AOCL. For the three and six months ended March 31, 2024, we recognized income of $0.8 million and $1.7 million, respectively, into interest expense on our condensed consolidated statements of earnings related to the interest rate swap. At March 31, 2024, we expect to reclassify gains of approximately $2.4 million out of AOCL and into interest expense over the next 12 months. Interest Rate Caps In July 2017, we purchased two interest rate caps with an initial aggregate notional amount of $550 million (the “interest rate caps”) to mitigate the exposure to higher interest rates in connection with our prior term loan due 2024. The interest rate caps were comprised of individual caplets and were designated as cash flow hedges. Accordingly, the changes in fair value of the interest rate caps were recorded quarterly, net of income tax, and included in AOCL. During fiscal year 2023, we early settled both interest rate caps due to the forecasted transactions being hedged no longer occurring as a result of the repayment of our prior term loan. The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three months ended March 31, 2023. For the six months ended March 31, 2023, we recognized income of $2.8 million into interest expense on our condensed consolidated statements of earnings related to the caps. Non-Designated Derivative Instruments We also use foreign exchange contracts to mitigate our exposure to exchange rate changes in connection with certain intercompany balances not permanently invested. At March 31, 2024, we held forwards, which settle on various dates in the first month of the next two fiscal quarters, with a notional amount, based upon exchange rates at March 31, 2024, as follows (in thousands):
We record changes in fair value and realized gains or losses related to these foreign currency forwards into selling, general and administrative expenses. For the three months ended March 31, 2024 and 2023, the effects of these foreign exchange contracts on our condensed consolidated financial statements were losses of $0.3 million and losses of $1.5 million, respectively. For the six months ended March 31, 2024 and 2023, the effects of these foreign exchange contracts on our condensed consolidated financial statements were losses of $1.6 million and losses of $1.1 million, respectively. |