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DERIVATIVES AND HEDGING ACTIVITIES
6 Months Ended
Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES AND HEDGING ACTIVITIES DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s receivables and borrowings.

Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of its functional currency, the U.S. Dollar.

Accordingly, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not use derivatives for speculative or trading purposes.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the three and six months ended December 31, 2021, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. During the remaining six months of fiscal 2022, the Company estimates that an additional $35 will be reclassified as an increase to interest expense.

As of December 31, 2021, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate DerivativeNumber of InstrumentsNotional Amount
Interest Rate Swap4$230,000

Cash Flow Hedges of Foreign Exchange Risk

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. Dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the USD-EUR exchange rates. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company, at times, also uses forward contracts to manage its exposure to fluctuations in the GBP-EUR exchange rates. The Company designates these derivatives as cash flow hedges of foreign exchange risks.
For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the remaining six months of fiscal 2022, the Company estimates that an additional $88 relating to cross-currency swaps will be reclassified as an increase to interest income.

As of December 31, 2021, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:

Foreign Currency DerivativeNumber of InstrumentsNotional SoldNotional Purchased
Cross-currency swap1€24,700$26,775
Foreign currency forward contract3£2,574€3,000

Net Investment Hedges

The Company is exposed to fluctuations in foreign exchange rates on investments it holds in its European foreign entities and their exposure to the Euro. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in the foreign exchange rate on its foreign investment in Europe. Currency forward agreements involve fixing the USD-EUR exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency fixed-rate payments over the life of the agreement.

For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCL as part of the cumulative translation adjustment. Amounts are reclassified out of AOCL into earnings when the hedged net investment is either sold or substantially liquidated.

As of December 31, 2021, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:

Foreign Currency DerivativeNumber of InstrumentsNotional SoldNotional Purchased
Cross-currency swap2€76,969$83,225

Non-Designated Hedges

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.

As of December 31, 2021, the Company had no outstanding derivatives that were not designated as hedges in qualifying hedging relationships.
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of December 31, 2021:

Asset DerivativesLiability Derivatives
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments:
Interest rate swapsPrepaid expenses and other current assets$596 Accrued expenses and other current liabilities / Other noncurrent liabilities$— 
Cross-currency swapsPrepaid expenses and other current assets728 Other noncurrent liabilities6,452 
Foreign currency forward contractsPrepaid expenses and other current assets— Other noncurrent liabilities77 
Total derivatives designated as hedging instruments$1,324 $6,529 


The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2021:

Asset DerivativesLiability Derivatives
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments:
Interest rate swapsPrepaid expenses and other current assets$43 Accrued expenses and other current liabilities / Other noncurrent liabilities$312 
Cross-currency swapsPrepaid expenses and other current assets656 Other noncurrent liabilities11,656 
Total derivatives designated as hedging instruments$699 $11,968 
The following table presents the pre-tax effect of cash flow hedge accounting on AOCL and Consolidated Statements of Operations as of the three months ended December 31, 2021 and 2020:

Derivatives in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Reclassified from AOCL into IncomeAmount of Gain (Loss) Reclassified from AOCL into Income
Three Months Ended December 31,Three Months Ended December 31,
2021202020212020
Interest rate swaps$772 $62 Interest and other financing expense, net$(105)$(72)
Cross-currency swaps593 (1,209)Interest and other financing expense, net / Other expense (income), net664 (1,176)
Foreign currency forward contracts(98)— Cost of sales26 — 
Total$1,267 $(1,147)$585 $(1,248)

The following table presents the pre-tax effect of cash flow hedge accounting on AOCL and Consolidated Statements of Operations as of the six months ended December 31, 2021 and 2020:

Derivatives in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Reclassified from AOCL into IncomeAmount of Gain (Loss) Reclassified from AOCL into Income
Six Months Ended December 31,
Six Months Ended December 31,
2021202020212020
Interest rate swaps$655 $123 Interest and other financing expense, net$(209)$(130)
Cross-currency swaps1,369 (2,386)Interest and other financing expense, net / Other expense (income), net1,402 (2,359)
Foreign currency forward contracts(79)(2)Cost of sales26 73 
Total$1,945 $(2,265)$1,219 $(2,416)
The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the Consolidated Statements of Operations for the three months ended of December 31, 2021 and 2020:

Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships
Three Months Ended December 31, 2021Three Months Ended December 31, 2020
Cost of salesInterest and other financing expense, netOther expense/income, netCost of salesInterest and other financing expense, netOther expense/income, net
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Interest rate swaps
Amount of (loss) gain reclassified from AOCL into income$— $(105)$— $— $(72)$— 
Cross-currency swaps
Amount of gain (loss) reclassified from AOCL into income$— $44 $620 $— $40 $(1,216)
Foreign currency forward contracts
Amount of (loss) gain reclassified from AOCL into income$26 $— $— $— $— $— 

The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the Consolidated Statements of Operations for the six months ended of December 31, 2021 and 2020:

Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships
Six Months Ended December 31, 2021
Six Months Ended December 31, 2020
Cost of salesInterest and other financing expense, netOther expense (income), netCost of salesInterest and other financing expense, netOther expense (income), net
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Interest rate swaps
Amount of (loss) gain reclassified from AOCL into income$— $(209)$— $— $(130)$— 
Cross-currency swaps
Amount of gain (loss) reclassified from AOCL into income$— $85 $1,317 $— $81 $(2,440)
Foreign currency forward contracts
Amount of (loss) gain reclassified from AOCL into income$26 $— $— $73 $— $— 
The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the Consolidated Statements of Operations for the three months ended December 31, 2021 and 2020:

Derivatives in Net Investment Hedging RelationshipsAmount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
Three Months Ended December 31,Three Months Ended December 31,
2021202020212020
Cross-currency swaps$1,849 $(3,772)Interest and other financing expense, net$140 $125 

The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the Consolidated Statements of Operations for the six months ended December 31, 2021 and 2020:

Derivatives in Net Investment Hedging RelationshipsAmount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
Six Months Ended December 31,Six Months Ended December 31,
2021202020212020
Cross-currency swaps$4,267 $(7,430)Interest and other financing expense, net$270 $254 

The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements Operations for the three months ended December 31, 2021 and 2020:

Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativeAmount of Gain (Loss) Recognized in Income on Derivatives
Three Months Ended December 31,
20212020
Foreign currency forward contractsOther (income) expense, net$— $(523)

The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements Operations for the six months ended December 31, 2021 and 2020:

Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativeAmount of Gain (Loss) Recognized in Income on Derivatives
Six Months Ended December 31,
20212020
Foreign currency forward contractsOther (income) expense, net$— $(399)

Credit-Risk-Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision providing that upon certain defaults by the Company on any of its indebtedness, the Company could also be declared in default on its derivative obligations.