Derivative Financial Instruments

9 Months Ended

Jun. 30, 2023

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 at 3.50% 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. As discussed in Note 13, on March 31, 2023, we terminated our existing interest rate swap and entered into a new interest rate swap agreement, effective April 3, 2023, with the Avondale Lender that effectively fixes the interest rate we pay on 50% of the principal amount of the Avondale Term Loan at 3.45% for the entire loan term. Further, the floating rate we receive under this new swap has been converted to one month Term SOFR, versus one month LIBOR under the previous swap. In executing the amendment, we adopted several

of the practical expedients allowed under ASU 2020-04, including updating the designated hedged risk in our outstanding cash flow hedging relationship to match the risk presented in the modified interest payments and to continue our hedging relationship that falls within the scope of ASU 2020-04. The adoption of the new guidance in ASU 2020-04 did not have a material impact on our condensed consolidated financial statements and the Avondale Swap is still designated as an effective cash flow hedge for accounting and tax purposes.

On April 14, 2022, in connection with the Lisle Term loan 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 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” 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” 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” 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” as of June 30, 2023, we estimate that $1.0 million will be reclassified to “Interest expense” within the next twelve months. As of June 30, 2023, the notional amount of the Avondale Swap and Lisle Swap was approximately $14.7 million and $19.0 million, respectively.

Fair Value of Derivative Instruments

The following table presents the fair value of our Avondale Swap and Lisle Swap (Level 2) which are designated as cash flow hedges and the related classification on the condensed consolidated balance sheets as of June 30, 2023 and September 30, 2022:


Interest Rate Swaps	June 30, 2023		September 30, 2022
Other current assets	$	943	$	632
Other assets	1,555		2,067
Total fair value of assets designated as hedging instruments	$	2,498	$	2,699

Effect of Cash Flow Hedge Accounting on the Consolidated Statements of Operations and Accumulated Other Comprehensive Income

The table below presents the effect of cash flow hedge accounting for our Avondale Swap and Lisle Swap on the condensed consolidated statement of operations and “Accumulated other comprehensive income” for the three and nine months ended June 30, 2023 and 2022:


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative, net of taxes		Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income



	Three Months Ended June 30, 2023
Avondale Swap and Lisle Swap	$	(926)	$	(242)

	Nine Months Ended June 30, 2023
Avondale Swap and Lisle Swap	$	(368)	$	(569)

	Three Months Ended June 30, 2022
Avondale Swap	$	349	$	(86)

	Nine Months Ended June 30, 2022
Avondale Swap	$	1,277	$	(193)