FOREIGN CURRENCY DERIVATIVES

3 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

Foreign Currency Derivatives

The Company's foreign currency derivatives consist primarily of foreign currency forward exchange contracts and option contracts. The Company does not purchase derivative financial instruments for speculative trading purposes. The derivatives expose the Company to credit risk to the extent the counterparties may be unable to meet the terms of the derivative instrument. The Company's maximum exposure to loss that it would incur due to credit risk if parties to derivative contracts failed completely to perform according to the terms of the contracts was equal to the carrying value of the Company's derivative assets as of June 30, 2019. The Company seeks to mitigate such risk by limiting its counterparties to large financial institutions. In addition, the Company monitors the potential risk of loss with any one counterparty resulting from this type of credit risk on an ongoing basis.

The Company enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow each counterparty to net settle amounts owed between the Company and the counterparty as a result of multiple, separate derivative transactions. As of June 30, 2019, the Company had International Swaps and Derivatives Association ("ISDA") agreements with four applicable banks and financial institutions which contained netting provisions. Plantronics has elected to present the fair value of derivative assets and liabilities on the Company's condensed consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. For each counterparty, if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period. Derivatives not subject to master netting agreements are not eligible for net presentation. As of June 30, 2019, and March 31, 2019, no cash collateral had been received or pledged related to these derivative instruments.

The gross fair value of the Company's outstanding derivative contracts at the end of each period was as follows:



(in thousands)	June 30, 2019		March 31, 2019
Derivative Assets⁽¹⁾
Non-designated hedges	$	86	$	327
Cash flow hedges	1,189		2,856
Total derivative assets	$	1,275	$	3,183

Derivative Liabilities⁽²⁾
Non-designated hedges	$	731	$	39
Cash flow hedges	970		843
Interest rate swap	15,004		8,594
Accrued interest	9		7
Total derivative liabilities	$	16,714	$	9,483

⁽¹⁾Short-term derivative assets are recorded in "other current assets" and long-term derivative assets are recorded in "deferred tax and other assets". As of June 30, 2019, the portion of derivative assets classified as long-term was immaterial.

⁽²⁾Short-term derivative liabilities are recorded in "accrued liabilities" and long-term derivative liabilities are recorded in "other long-term liabilities". As of June 30, 2019, the portion of derivative liabilities classified as long-term was immaterial.

Non-Designated Hedges

As of June 30, 2019, the Company had foreign currency forward contracts denominated in Euros ("EUR"), British Pound Sterling ("GBP"), and Australian Dollars ("AUD"). The Company does not elect to obtain hedge accounting for these forward contracts. These forward contracts hedge against a portion of the Company’s foreign currency-denominated cash balances, receivables, and payables. The following table summarizes the notional value of the Company’s outstanding foreign exchange currency contracts and approximate U.S. Dollar ("USD") equivalent at June 30, 2019:



(in thousands)	Local Currency		USD Equivalent		Position	Maturity
EUR	€	34,000	$	38,786	Sell EUR	1 month
GBP	£	10,500	$	13,363	Sell GBP	1 month
AUD	A$	9,640	$	6,765	Sell AUD	1 month

Effect of Non-Designated Derivative Contracts on the Condensed Consolidated Statements of Operations

The effect of non-designated derivative contracts recognized in other non-operating income and (expense), net in the condensed consolidated statements of operations was as follows:



	Three Months Ended June 30,
(in thousands)	2019			2018
Gain (loss) on foreign exchange contracts	$	(289	)	$	4,152

Cash Flow Hedges

Costless Collars

The Company hedges a portion of the forecasted EUR and GBP denominated revenues with costless collars. On a monthly basis, the Company enters into option contracts with a six to eleven-month term. Collar contracts are scheduled to mature at the beginning of each fiscal quarter, at which time the instruments convert to forward contracts. The Company also enters into cash flow forwards with a three-month term. Once the hedged revenues are recognized, the forward contracts become non-designated hedges to protect the resulting foreign monetary asset position for the Company.

The notional value of the Company's outstanding EUR and GBP option and forward contracts at the end of each period was as follows:



(in millions)	June 30, 2019		March 31, 2019
	EUR	GBP	EUR	GBP
Option contracts	€82.6	£27.4	€76.8	£25.8
Forward contracts	€57.9	£20.8	€55.4	£18.0

The Company will reclassify all amounts accumulated in other comprehensive income into earnings within the next twelve months.

Cross-currency Swaps

The Company hedges a portion of the forecasted Mexican Peso (“MXN”) denominated expenditures with a cross-currency swap. As of June 30, 2019, and March 31, 2019, the Company had foreign currency swap contracts of approximately MXN 93.2 million and MXN 149.7 million, respectively.

The following table summarizes the notional value of the Company's outstanding MXN currency swaps and approximate USD Equivalent at June 30, 2019:



	Local Currency		USD Equivalent		Position	Maturity
	(in thousands)		(in thousands)
MX$	$	93,170	$	4,691	Buy MXN	Monthly over 6 months

Interest Rate Swap

On July 30, 2018, the Company entered into a 4-year amortizing interest rate swap agreement with Bank of America, NA. The swap has an initial notional amount of $831 million and matures on July 31, 2022. The swap involves the receipt of floating-rate interest payments for fixed interest rate payments at a rate of 2.78% over the life of the agreement. The Company has designated this interest rate swap as a cash flow hedge. The purpose of this swap is to hedge against changes in cash flows (interest payments) attributable to fluctuations in the Company's variable rate debt. The derivative is valued based on prevailing LIBOR rate curves on the date of measurement. The Company also evaluates counterparty credit risk when it calculates the fair value of the swap. The effective portion of changes in the fair value of the derivative is recorded to other comprehensive income (loss) on the accompanying balance sheets and reclassified into interest expense over the life of the underlying debt as interest on the Company's floating rate debt is accrued. The Company reviews the effectiveness of this instrument on a quarterly basis, recognize current period hedge ineffectiveness immediately in earnings and will discontinue hedge accounting if the Company no longer considers hedging to be highly effective. This hedge was fully effective at inception on July 30, 2018 and as of the three months ended June 30, 2019. During the three months ended June 30, 2019, the Company recorded a loss of $0.7 million on its interest rate swap derivative designated as a cash flow hedge.

Effect of Designated Derivative Contracts on AOCI and Condensed Consolidated Statements of Operations

The following table presents the pre-tax effects of derivative instruments designated as cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three months ended June 30, 2019 and 2018:



	Three Months Ended June 30,
(in thousands)	2019			2018
Gain (loss) included in AOCI as of beginning of period	$	(7,480	)	$	(1,693	)

Amount of gain (loss) recognized in other comprehensive income (“OCI”) (effective portion)	(6,704		)	3,956

Amount of (gain) loss reclassified from OCI into net revenues (effective portion)	(1,359		)	(249		)
Amount of (gain) loss reclassified from OCI into cost of revenues (effective portion)	(104		)	(79		)
Amount of (gain) loss reclassified from OCI into interest expense (effective portion)	652
Total amount of (gain) loss reclassified from AOCI to income (loss) (effective portion)	(811		)	(328		)

Gain (loss) included in AOCI as of end of period	$	(14,995	)	$	1,935

For the period presented prior to the first quarter of fiscal year 2020, the ineffective and excluded portion of the realized and unrealized gain or loss was included in other non-operating income (expense). As a result of adopting ASU 2017-12, beginning in the first quarter of fiscal year 2020, the excluded portion of such amounts is included in the same line item in which the underlying transactions affect earnings and the ineffective portion of the realized and unrealized gains or losses on derivatives is included as a component of accumulated other comprehensive income. During the three months ended June 30, 2019, the Company did not have an ineffective portion of its cash flow hedges. During the three months ended June 30, 2018, the Company recognized an immaterial loss on the ineffective portion of its cash flow hedges.