Derivatives

3 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

9. Derivatives

We monitor our exposure to foreign currency exchange rates and interest rates and from time-to-time use derivatives to manage certain of these risks. We designate derivatives as a hedge of a forecasted transaction or of the variability of the cash flows to be received or paid in the future related to a recognized asset or liability (cash flow hedge). All changes in the fair value of a highly effective cash flow hedge are recorded in accumulated other comprehensive income (loss).

We routinely assess whether the derivatives used to hedge transactions are effective. If we determine a derivative ceases to be an effective hedge, we discontinue hedge accounting in the period of the assessment for that derivative, and immediately recognize any unrealized gains or losses related to the fair value of that derivative in the consolidated statements of operations.

We record derivatives at fair value in the consolidated balance sheets. For additional details regarding fair value, see “—Fair Value Measurements.”

The following tables detail the Company’s outstanding derivatives that are designated and effective as cash flow hedges as of September 30, 2017:

Instrument

Hedge

Notional
Amount at
September 30,
2017

Fair value as of

Consolidated
Balance Sheet

September 30,
2017

June 30,
2017

Options

Brazilian Real calls

R$19,500

Other current assets

1,781

2,686

Swap

Interest rate swap

$ 150,000

Other assets

283

—

Instrument	Hedge	Gain (loss) recorded in OCI						Gain (loss) recognized in consolidated statements of operations							Consolidated Statement of Operations Line Item Total
Instrument	Hedge	September 30, 2017			September 30, 2016			Consolidated Statement of Operations	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Options	Brazilian Real calls		$	(905)		$	34	Cost of goods sold		$	186		$	(1,135)		$	130,030		$	126,988
Swap	Interest rate swap		$	283		$	—	Interest expense, net		$	—		$	—		$	3,118		$	3,907

The foreign currency derivatives generally have an expiration or maturity of two years or less and are intended to hedge cash flows related to the purchase of inventory. These forecasted transactions are probable of occurring. As the hedged item is sold, we recognize the gain or loss recorded in accumulated other comprehensive income (loss) to the consolidated statements of operations on the same line where the hedged item is charged when released/sold. The fair values of the foreign currency options as of September 30, 2017, are unrealized and will fluctuate based on future exchange rates until the derivative contracts mature. Accumulated other comprehensive income (loss) at September 30, 2017 included $1,781 of net unrecognized gains on derivative instruments; we estimate the entire amount will be recognized in earnings within the next twelve months. At September 30, 2017, realized gains of $1,622 related to matured contracts were recorded as a component of inventory. We anticipate these gains will be recognized as an offset to cost of goods sold within the next twelve months. At June 30, 2017, net realized gains of $966 related to matured contracts were recorded as a component of inventory. We recognized $186 of these gains in cost of goods sold during the three months September 30, 2017, and anticipate we will recognize the remaining $780 of these gains in costs of goods sold in the next six months. We recognize gains (losses) related to these derivative instruments as a component of cost of goods sold at the time the hedged item is sold.

In July 2017, we entered into an interest rate swap agreement on $150,000 of notional principal that effectively converts the floating LIBOR or base rate portion of our interest obligation on that amount of debt, to a fixed interest rate of 1.8325% plus the applicable rate. The agreement matures concurrent with the Credit Agreement. The forecasted transactions are probable of occurring, and the interest rate swap has been designated as a highly effective cash flow hedge. The fair value of the interest rate swap agreement is recorded as an asset or liability with a corresponding amount included in accumulated other comprehensive income (loss).