Derivative Instruments and Hedging Activities

9 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, we do not hold any derivative instruments for trading purposes. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated and qualifies as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item.

The fair value of derivatives designated and not designated as hedging instruments in the condensed consolidated balance sheet are as follows:


(in thousands)	March 31, 2021		June 30, 2020
Derivatives designated as hedging instruments
Other current assets - range forward contracts	$	—	$	4

Other assets - forward starting interest rate swap contracts	—		20
Other liabilities - forward starting interest rate swap contracts	—		(2,094)
Total derivatives designated as hedging instruments	—		(2,070)
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	171		12
Other current liabilities - currency forward contracts	(216)		(45)
Total derivatives not designated as hedging instruments	(45)		(33)
Total derivatives	$	(45)	$	(2,103)

Certain currency forward contracts that hedge significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the condensed consolidated balance sheet, with the offset to other income, net. Losses related to derivatives not designated as hedging instruments have been recognized as follows:


	Three Months Ended March 31,				Nine Months Ended March 31,
(in thousands)	2021		2020		2021		2020
Other income, net - currency forward contracts	$	1,428	$	220	$	20	$	231

CASH FLOW HEDGES

Range forward contracts (a transaction where both a put option is purchased and a call option is sold) are designated as cash flow hedges and hedge anticipated cash flows from cross-border intercompany sales of products and services. Unrealized gains and losses related to these contracts are recorded in accumulated other comprehensive loss and are recognized as a component of cost of goods sold and other income, net when the underlying sale of products or services is recognized into earnings. All outstanding range forward contracts expired as of March 31, 2021. The notional amount of these contracts translated into U.S. dollars at June 30, 2020 was $2.2 million. The time value component of the fair value of range forward contracts is excluded from the assessment of hedge effectiveness.

During the three months ended March 31, 2021, upon issuance of the Senior Unsecured Notes due 2031 (see Note 10 for more information) we settled the forward starting interest rate swap contracts used to hedge a portion of the interest rate risk related to the refinancing for a gain of $10.2 million in other comprehensive income (loss). The gain will be amortized out of accumulated other comprehensive income (loss) and into interest expense (as a benefit) over the life of the Senior Unsecured Notes due 2031. The notional amount of the forward starting interest rate swap contracts at June 30, 2020 was $200.0 million. We recorded $2.1 million of liabilities as of June 30, 2020 related to these contracts.

No portion of the gains or losses recognized in earnings was due to hedge ineffectiveness and no amounts were excluded from our effectiveness testing for the nine months ended March 31, 2021 and 2020.

NET INVESTMENT HEDGES

As of March 31, 2021 and June 30, 2020, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of €60.9 million and €15.9 million, respectively, designated as net investment hedges to hedge the foreign exchange exposure of our net investment in our Euro-based subsidiaries. Gains of $1.5 million and $1.1 million were recorded as a component of foreign currency translation adjustments in other comprehensive loss for the three months ended March 31, 2021 and 2020, respectively. Gains of an immaterial amount and $1.0 million were recorded as a component of foreign currency translation adjustments in other comprehensive income (loss) for the nine months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:


Instrument	Notional (EUR in thousands)(2)	Notional (USD in thousands(2)	Maturity
Foreign currency-denominated intercompany loan payable	€45,010	$52,772	June 25, 2021
Foreign currency-denominated intercompany loan payable	16,330	19,146	June 26, 2022

(2) Includes principal and accrued interest.