Derivative Financial Instruments

12 Months Ended

Sep. 30, 2020

Derivative Financial Instruments

Derivative Financial Instruments

13.      Derivative Financial Instruments

Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign currency exchange rates. The Company is exposed to market risk related to changes in interest rates and selectively uses derivative financial instruments, including forward contracts and swaps, to manage these risks. In 2018, the Company entered into three interest rate swaps with a notional amount of $150 million to hedge its exposure to variability in future LIBOR-based interest payments on variable rate debt. The interest rate swaps entered into during 2018 were not designated as cash flow hedges and therefore the gain or loss on the derivative is reflected in earnings each period. The final interest rate swap was settled during September 2020; therefore there are no outstanding interest rate swaps as of September 30, 2020.

The Company’s Canadian subsidiary Morgan Schaffer enters into foreign exchange contracts to manage foreign currency risk as a portion of their revenue is denominated in U.S. dollars. The Company expects hedging gains or losses to be essentially offset by losses or gains on the related underlying exposures. The amounts ultimately recognized may differ for open positions, which remain subject to ongoing market price fluctuations until settlement. All derivative instruments are reported in either accrued expenses or other assets on the balance sheet at fair value. For derivative instruments designated as cash flow hedges, the gain or loss on the derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying hedged item.

The following is a summary of the notional transaction amounts and fair values for the Company’s outstanding derivative financial instruments as of September 30, 2020.

	Notional Amount		Fair Value
(In thousands)	(Currency)		(US$)
Forward contracts	4,250	USD	(6)

Fair Value of Financial Instruments

The Company’s forward contracts are classified within Level 2 of the valuation hierarchy in accordance with ASC 825, as presented below as of September 30, 2020:

(In thousands)	Level 1		Level 2	Level 3	Total
Asset:
Forward contracts	$	—	(6)	—	(6)

Valuation was based on third party evidence of similarly priced derivative instruments. There are no master netting arrangements with financial parties.