Derivative Financial Instruments

9 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In the normal course of business, our operations are exposed to market risks, including the effect of changes in interest rates. We may enter into derivative financial instruments to offset these underlying market risks.

On May 12, 2021, in connection with the Avondale Term Loan discussed in Note 13, we entered into an interest rate swap agreement with the Avondale Lender that effectively fixes the interest rate on 50% of the principal amount of the Avondale Term Loan, or approximately $15.6 million, at 3.5% for the entire loan term, or seven years (the “Avondale Swap”). On May 12, 2021, the Avondale Swap was designated as an effective cash flow hedge for accounting and tax purposes.

On April 14, 2022, in connection with the Lisle Term loan - VN discussed in Note 13, we entered into an interest rate swap agreement with the Lisle Lender that effectively fixes the interest rate on 50% of the principal amount of the Lisle Term Loan - VN at 4.69% for the entire loan term, or seven years (the “Lisle Swap”). On April 14, 2022, the Lisle Swap was designated as an effective cash flow hedge for accounting and tax purposes.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” on the condensed consolidated balance sheets. For cash flow hedges, we report the effective portion of the gain or loss as a component of “Accumulated other comprehensive income (loss)” and reclassify it to “Interest expense” in the condensed consolidated statements of operations over the corresponding period of the underlying hedged item. The ineffective portion of the change in fair value of a derivative financial instrument is recognized in “Interest expense” at the time the ineffectiveness occurs. To the extent the hedged forecasted interest payments on debt related to our interest rate swap is paid off, the remaining balance in “Accumulated other comprehensive income (loss)” is recognized in “Interest expense” in the condensed consolidated statements of operations. Of the net amount of the existing gains that are reported in “Accumulated other comprehensive income (loss)” as of June 30, 2022, we estimate that $0.3 million will be reclassified to “Interest expense” within the next twelve months. As of June 30, 2022, the notional amount of the Avondale Swap and Lisle Swap was approximately $15.1 million and $19.0 million, respectively.

Fair Value of Derivative Instruments

The following table presents the fair value of our Swaps (Level 2) which are designated as cash flow hedges and the related classification on the condensed consolidated balance sheet as of June 30, 2022:


	Interest Rate Swaps
Other current assets	$	259
Other assets	931
Total fair value of assets designated as hedging instruments	$	1,190

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting for our Swaps on “Accumulated other comprehensive income (loss)” as of June 30, 2022:


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative, net of taxes		Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
	Three Months Ended June 30, 2022
Interest Rate Swaps	$	349	Interest expense	$	(86)

	Nine Months Ended June 30, 2022
Interest Rate Swaps	$	1,277	Interest expense	$	(193)

Effect of Cash Flow Hedge Accounting on the Condensed Consolidated Statement of Operations

The table below presents the effect of cash flow hedge accounting for our Swaps on the condensed consolidated statement of operations for the nine months ended June 30, 2022:


Interest Rate Swaps	Interest Expense
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income	$	(193)