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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 3 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The authoritative guidance requires companies to recognize all derivative instruments, including foreign exchange contracts and rate lock agreements (collectively “derivatives”), as either assets or liabilities at fair value on the Condensed Consolidated Balance Sheets. In accordance with the accounting guidance, we designate foreign currency forward transactions and options contracts and interest rate forward transactions as cash flow hedges. In accordance with the accounting guidance, we also designate certain foreign currency exchange contracts as net investment hedge transactions intended to mitigate the variability of the value of certain investments in foreign subsidiaries. Our foreign subsidiaries operate and sell our products in various global markets. As a result, we are exposed to risks relating to changes in foreign currency exchange rates. We utilize foreign exchange contracts to hedge against future movements in foreign currency exchange rates that affect certain existing and forecasted foreign currency denominated sales and purchase transactions, such as the Japanese yen, the euro, the pound sterling and the new Israeli shekel. We routinely hedge our exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. These foreign exchange contracts, designated as cash flow hedges, generally have maturities of less than 18 months. Cash flow hedges are evaluated for effectiveness monthly, based on changes in total fair value of the derivatives. If a financial counterparty to any of our hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may experience material losses. Since fiscal 2015, we have entered into four sets of forward contracts to hedge the benchmark interest rate on portions of our Senior Notes prior to issuance (“Rate Lock Agreements”). Upon issuance of the associated debt, the Rate Lock Agreements were settled and their fair values were recorded within AOCI. The resulting gains and losses from these transactions are amortized to interest expense over the lives of the associated debt. We recognized net gains of $0.9 million in the three months ended September 30, 2023, for the amortization of the net of the Rate Lock Agreements that had been recognized in AOCI, which decreased the interest expense on a net basis. We recognized a net gain of $0.9 million in the three months ended September 30, 2022, for the amortization of the net of the Rate Lock Agreements that had been recognized in AOCI, which increased the interest expense on a net basis. As of September 30, 2023, the aggregate unamortized portion of the fair value of the forward contracts for the Rate Lock Agreements was a $50.1 million net gain. For derivatives that are designated and qualify as cash flow hedges, the effective portion of the gains or losses is reported in AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative contracts executed after adopting the new accounting guidance in fiscal 2019, the election to include time value for the assessment of effectiveness is made on all forward contracts designated as cash flow hedges. The change in fair value of the derivative is recorded in AOCI until the hedged item is recognized in earnings. The assessment of effectiveness of options contracts designated as cash flow hedges exclude time value. The initial value of the component excluded from the assessment of effectiveness is recognized in earnings over the life of the derivative contract. Any differences between changes in the fair value of the excluded components and the amounts recognized in earnings are recorded in AOCI. For derivatives that are designated and qualify as a net investment hedge in a foreign operation and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within AOCI. The remainder of the change in value of such instruments is recorded in earnings using the mark-to-market approach. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation or sale of the net investment in the hedged foreign operations. For derivatives that are not designated as hedges, gains and losses are recognized in other expense (income), net. We use foreign exchange contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivative instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged. Derivatives in Hedging Relationships: Foreign Exchange Contracts and Rate Lock Agreements The gains (losses) on derivatives in cash flow and net investment hedging relationships recognized in other comprehensive income for the indicated periods were as follows:
| Three Months Ended September 30, |  |
(In thousands) | 2023 |  | 2022 |  |  |  |
Derivatives Designated as Cash Flow Hedging Instruments: |  |  |  |  |  |  |
Rate lock agreements: |  |  |  |  |  |  |
Amounts included in the assessment of effectiveness | $ | — |  |  | $ | 937 |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |
Amounts included in the assessment of effectiveness | $ | (1,533) |  |  | $ | 816 |  |  |  |  |
Amounts excluded from the assessment of effectiveness | $ | 52 |  |  | $ | 15 |  |  |  |  |
Derivatives Designated as Net Investment Hedging Instruments:
Foreign exchange contracts(1): | $ | 2,536 |  |  | $ | 3,679 |  |  |  |  |
__________________ (1)No amounts were reclassified from AOCI into earnings related to the sale of a subsidiary, as there were no such sales during the periods presented. The locations and amounts of designated and non-designated derivatives’ gains and losses reported in the Condensed Consolidated Statements of Operations for the indicated periods were as follows:
| Three Months Ended September 30, |  | Three Months Ended September 30,
| 2023 |  | 2022
(In thousands) | Revenues |  | Costs of Revenues and Operating Expenses |  | Interest Expense |  | Other Expense (Income), Net |  | Revenues |  | Costs of Revenues and Operating Expenses |  | Interest Expense |  | Other Expense (Income), Net
Total amounts presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | $ | 2,396,956 |  |  | $ | 1,497,750 |  |  | $ | 74,234 |  |  | $ | (26,739) |  |  | $ | 2,724,424 |  |  | $ | 1,613,721 |  |  | $ | 74,395 |  |  | $ | (47,006) |
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gains (losses) reclassified from AOCI to earnings | $ | — |  |  | $ | — |  |  | $ | 937 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 937 |  |  | $ | — |
Foreign exchange contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gains (losses) reclassified from AOCI to earnings | $ | 3,649 |  |  | $ | 2,775 |  |  | $ | — |  |  | $ | — |  |  | $ | 14,915 |  |  | $ | (5,367) |  |  | $ | — |  |  | $ | — |
Amount excluded from the assessment of effectiveness recognized in earnings | $ | (253) |  |  | $ | — |  |  | $ | — |  |  | $ | 52 |  |  | $ | (310) |  |  | $ | — |  |  | $ | — |  |  | $ | 455 |
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (11,397) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 14,374 |
The U.S. dollar equivalent of all outstanding notional amounts of foreign currency hedge contracts with maximum remaining maturities of approximately 12 months as of the dates indicated below, were as follows:
| As of |  | As of
(In thousands) | September 30, 2023 |  | June 30, 2023
Cash flow hedge contracts - foreign currency |  |  |
Purchase | $ | 292,336 |  |  | $ | 218,315 |
Sell | $ | 149,964 |  |  | $ | 123,951 |
Net investment hedge contracts - foreign currency |  |  |
Sell | $ | 87,157 |  |  | $ | 87,157 |
Other foreign currency hedge contracts |  |  |
Purchase | $ | 610,168 |  |  | $ | 527,349 |
Sell | $ | 273,171 |  |  | $ | 204,902 |
The locations and fair value of our derivatives reported in our Condensed Consolidated Balance Sheets as of the dates indicated below were as follows:
| Asset Derivatives |  | Liability Derivatives
| Balance Sheet |  | As of |  | As of |  | Balance Sheet |  | As of |  | As of
| Location |  | September 30, 2023 |  | June 30, 2023 |  | Location |  | September 30, 2023 |  | June 30, 2023
(In thousands) |  | Fair Value |  |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | Other current assets |  | $ | 16,982 |  |  | $ | 24,498 |  |  | Other current liabilities |  | $ | (6,141) |  |  | $ | (442) |
Total derivatives designated as hedging instruments |  |  | 16,982 |  |  | 24,498 |  |  |  |  | (6,141) |  |  | (442) |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | Other current assets |  | 20,826 |  |  | 11,214 |  |  | Other current liabilities |  | (21,541) |  |  | (11,664) |
Total derivatives not designated as hedging instruments |  |  | 20,826 |  |  | 11,214 |  |  |  |  | (21,541) |  |  | (11,664) |
Total derivatives |  |  | $ | 37,808 |  |  | $ | 35,712 |  |  |  |  | $ | (27,682) |  |  | $ | (12,106) |
The changes in AOCI, before taxes, related to derivatives for the indicated periods were as follows:
| Three Months Ended September 30, |  |
(In thousands) | 2023 |  | 2022 |  |  |  |
Beginning AOCI | $ | 81,611 |  |  | $ | 77,018 |  |  |  |  |
Amount reclassified to earnings as net gains | (7,108) |  |  | (10,175) |  |  |  |  |
Net change in unrealized gains | 1,055 |  |  | 5,447 |  |  |  |  |
Ending AOCI | $ | 75,558 |  |  | $ | 72,290 |  |  |  |  |
Offsetting of Derivative Assets and Liabilities We present derivatives at gross fair values in the Condensed Consolidated Balance Sheets. We have entered into arrangements with each of our counterparties, which reduce credit risk by permitting net settlement of transactions with the same counterparty under certain conditions. The information related to the offsetting arrangements for the periods indicated was as follows:
As of September 30, 2023 |  |  |  |  |  | Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets |  |
(In thousands) |  | Gross Amounts of Derivatives |  | Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets |  | Net Amount of Derivatives Presented in the Condensed Consolidated Balance Sheets |  | Financial Instruments |  | Cash Collateral Received |  | Net Amount
Derivatives - assets |  | $ | 37,808 |  |  | $ | — |  |  | $ | 37,808 |  |  | $ | (18,749) |  |  | $ | — |  |  | $ | 19,059 |
Derivatives - liabilities |  | $ | (27,682) |  |  | $ | — |  |  | $ | (27,682) |  |  | $ | 18,749 |  |  | $ | — |  |  | $ | (8,933) |
As of June 30, 2023 |  |  |  |  |  | Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets |  |
(In thousands) |  | Gross Amounts of Derivatives |  | Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets |  | Net Amount of Derivatives Presented in the Condensed Consolidated Balance Sheets |  | Financial Instruments |  | Cash Collateral Received |  | Net Amount
Derivatives - assets |  | $ | 35,712 |  |  | $ | — |  |  | $ | 35,712 |  |  | $ | (8,968) |  |  | $ | — |  |  | $ | 26,744 |
Derivatives - liabilities |  | $ | (12,106) |  |  | $ | — |  |  | $ | (12,106) |  |  | $ | 8,968 |  |  | $ | — |  |  | $ | (3,138) |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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