XML 69 R11.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Derivative Financial Instruments
 12 Months Ended
Jun. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure Derivative Financial Instruments
We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge or net investment hedge, then the effective portion of changes in the fair value of the derivative is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. If a derivative is deemed to be ineffective, then the ineffective portion of the change in fair value of the derivative is recognized directly in earnings. The change in the fair value of derivatives not designated as hedges is recognized directly in earnings, as a component of other income (expense), net.
Hedges of Interest Rate Risk
We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings, as a component of interest expense, net. A portion of eight of our interest rate swap contracts was deemed to be ineffective during the year ended June 30, 2019 and during the year ended June 30, 2018, a portion of six of our interest rate swap contracts was deemed to be ineffective. During the year ended June 30, 2019, we recognized $721 of losses and during the years ended June 30, 2018 and 2017, we recognized gains of $255 and $273, respectively, for the portion of the interest rate swaps that were deemed ineffective, respectively, within other income (expense), net in our consolidated statement of operations.
Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt. As of June 30, 2019, we estimate that $2,067 will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending June 30, 2020. As of June 30, 2019, we had nine outstanding interest rate swap contracts indexed to USD LIBOR. These instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through December 2025.
Interest rate swap contracts outstanding:
 
Notional Amounts
Contracts accruing interest as of June 30, 2019
 
$
500,000

Contracts with a future start date
 
—

Total
 
$
500,000


Hedges of Currency Risk
Cross-Currency Swap Contracts
From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate
payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.
Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. Dollar. As of June 30, 2019, we had two outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $124,808, both maturing during June 2024. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.
Amounts reported in accumulated other comprehensive loss will be reclassified to other income (expense), net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of June 30, 2019, we estimate that $2,988 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending June 30, 2020.
Cross-currency swap contracts designated as net investment hedges are executed to mitigate our currency exposure of net investments in subsidiaries that have reporting currencies other than the U.S. Dollar. As of June 30, 2019, we did not hold any cross-currency swaps designated as net investment hedges.
Other Currency Contracts
We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. Dollar.
As of June 30, 2019, we had nine currency forward contracts designated as net investment hedges with a total notional amount of $294,991, maturing during various dates through April 2024. We entered into these contracts to hedge the risk of changes in the U.S. Dollar equivalent value of a portion of our net investment in two consolidated subsidiaries that have Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.
We have elected to not apply hedge accounting for all other currency forward and option contracts. During the years ended June 30, 2019 and 2018, we have experienced volatility within other income (expense), net in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.
As of June 30, 2019, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. Dollar value of forecasted transactions or balances denominated in Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso and Swedish Krona:
Notional Amount
 
Effective Date
 
Maturity Date
 
Number of Instruments
 
Index
$654,721
 
November 2017 through June 2019
 
Various dates through June 2021
 
655
 
Various

Financial Instrument Presentation    
The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of June 30, 2019 and June 30, 2018. Our derivative asset and liability balances will fluctuate with interest rate and currency exchange rate volatility.
 
June 30, 2019
 
Asset Derivatives
 
Liability Derivatives
Derivatives designated as hedging instruments
Balance Sheet line item
 
Gross amounts of recognized assets
 
Gross amount offset in Consolidated Balance Sheet
 
Net amount
 
Balance Sheet line item
 
Gross amounts of recognized liabilities
 
Gross amount offset in Consolidated Balance Sheet
 
Net amount
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Other current assets / other assets
 
$
144

 
$
—

 
$
144

 
Other current liabilities / other liabilities
 
$
(12,895
)
 
$
—

 
$
(12,895
)
Cross-currency swaps
Other current assets
 
—

 
—

 
—

 
Other current liabilities
 
(915
)
 
—

 
(915
)
Derivatives in net investment hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
Other non-current assets
 
4,514

 
—

 
4,514

 
Other current liabilities / other liabilities
 
(2,397
)
 
—

 
(2,397
)
Total derivatives designated as hedging instruments

 
$
4,658

 
$
—

 
$
4,658

 

 
$
(16,207
)
 
$
—

 
$
(16,207
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
Other current assets / other assets
 
$
11,865

 
$
(1,111
)
 
$
10,754

 
Other current liabilities / other liabilities
 
$
(127
)
 
$
38

 
$
(89
)
Currency option contracts
Other current assets / other assets
 
4,793

 
(28
)
 
4,765

 
Other current liabilities / other liabilities
 
(42
)
 
—

 
(42
)
Total derivatives not designated as hedging instruments
 
 
$
16,658

 
$
(1,139
)
 
$
15,519

 

 
$
(169
)
 
$
38

 
$
(131
)

June 30, 2018

Asset Derivatives

Liability Derivatives
Derivatives designated as hedging instruments
Balance Sheet line item

Gross amounts of recognized assets

Gross amount offset in Consolidated Balance Sheet

Net amount

Balance Sheet line item

Gross amounts of recognized liabilities

Gross amount offset in Consolidated Balance Sheet

Net amount
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Other non-current assets

$
13,374


$
(4
)

$
13,370


Other current liabilities / other liabilities

$
—


$
—


$
—

Cross-currency swaps
Other non-current assets

—


—


—


Other liabilities

(10,659
)

—


(10,659
)
Derivatives in net investment hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other non-current assets

—


—


—


Other liabilities

(14,689
)

—


(14,689
)
Currency forward contracts
Other non-current assets

—


—


—


Other liabilities

(13,387
)

—


(13,387
)
Total derivatives designated as hedging instruments


$
13,374


$
(4
)

$
13,370




$
(38,735
)

$
—


$
(38,735
)
















Derivatives not designated as hedging instruments















Currency forward contracts
Other current assets / other assets

$
10,433


$
(1,231
)

$
9,202


Other current liabilities / other liabilities

$
(1,080
)

$
266


$
(814
)
Currency option contracts
Other current assets / other assets
 
1,782

 
—

 
1,782

 
Other current liabilities / other liabilities
 
(85
)
 
—

 
(85
)
Total derivatives not designated as hedging instruments


$
12,215


$
(1,231
)

$
10,984




$
(1,165
)

$
266


$
(899
)

The following table presents the effect of the effective portion of our derivative financial instruments designated as hedging instruments and their classification within comprehensive income (loss) for the years ended June 30, 2019, 2018 and 2017:
 
Amount of Gain (Loss) Recognized in Comprehensive Income (Loss) on Derivatives (Effective Portion)
 
Year Ended June 30,
 
2019
 
2018
 
2017
Derivatives in cash flow hedging relationships
 
 
 
 
 
Interest rate swaps
$
(20,400
)
 
$
8,545

 
$
2,287

Cross-currency swaps
(3,009
)
 
2,976

 
(3,584
)
Derivatives in net investment hedging relationships
 
 
 
 


Cross-currency swaps
6,557

 
(1,476
)
 
(3,721
)
Currency forward contracts
14,726

 
(3,490
)
 
(8,362
)
Total
$
(2,126
)
 
$
6,555

 
$
(13,380
)

The following table presents reclassifications out of accumulated other comprehensive loss for the years ended June 30, 2019, 2018 and 2017:
 
Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
 
Affected line item in the
Statement of Operations
 
Year Ended June 30,
 
 
 
2019
 
2018
 
2017
 
 
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
Interest rate swaps
$
144

 
$
70

 
$
(205
)
 
Interest expense, net
Cross-currency swaps
5,098

 
(1,379
)
 
(1,621
)
 
Other income (expense), net
Total before income tax
5,242

 
(1,309
)
 
(1,826
)
 
Income before income taxes
Income tax
(1,310
)
 
349

 
457

 
Income tax expense (benefit)
Total
$
3,932

 
$
(960
)
 
$
(1,369
)
 
 

The following table presents the adjustment to fair value recorded within the consolidated statements of operations for derivative instruments for which we did not elect hedge accounting, as well as the effect of the ineffective portion and de-designated derivative financial instruments that no longer qualify as hedging instruments in the period:
 
Amount of Gain (Loss) Recognized in Net Income (Loss)
 
Affected line item in the
Statement of Operations
 
Year Ended June 30,
 
 
 
2019
 
2018
 
2017
 
 
Currency contracts
$
24,215


$
(2,942
)

$
663

 
Other income (expense), net
Interest rate swaps
(721
)

255


273

 
Other income (expense), net
Total
$
23,494

 
$
(2,687
)
 
$
936