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Derivatives and Hedging Activities
 12 Months Ended
Jun. 30, 2014
General Discussion of Derivative Instruments and Hedging Activities [Abstract]  
Derivatives and Hedging Activities
Derivatives and Hedging Activities

The Company’s results of operations could be materially impacted by significant changes in foreign currency exchange rates and interest rates. These risks and the management of these risks are discussed in greater detail below. In an effort to manage the exposure to these risks, the Company periodically enters into various derivative instruments. The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with U.S. GAAP. The Company records all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedging instruments or the ineffective portions of cash flow hedges are adjusted to fair value through earnings in other income and expense.

Foreign Currency – The Company conducts a portion of its business internationally in a variety of foreign currencies. The exposure to market risk for changes in foreign currency exchange rates arises from foreign currency denominated assets and liabilities, and transactions arising from non-functional currency financing or trading activities. The Company’s objective is to preserve the economic value of non-functional currency denominated cash flows. The Company attempts to hedge transaction exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through forward contracts or other hedging instruments with third parties. These contracts will periodically hedge the exchange of various currencies, including the U.S. dollar, euro, British pound, Canadian dollar, Mexican peso and Brazilian real. While the Company utilizes foreign exchange contracts to hedge foreign currency exposure, the Company's foreign exchange policy prohibits the use of derivative financial instruments for speculative purposes.

At June 30, 2014, the Company had contracts outstanding with notional amounts of $62.5 million to exchange foreign currencies. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures are as follows:
 
Fiscal Year Ended June 30,
 
2014
 
2013
 
2012
 
(in thousands)
Net foreign exchange derivative contract (gain) loss
$
3,640

 
$
(733
)
 
$
1,480

Net foreign currency transactional and re-measurement (gain) loss
(3,024
)
 
701

 
2,286

Net foreign currency (gain) loss
$
616

 
$
(32
)
 
$
3,766



Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses and are included in other income and expense. Foreign exchange gains and losses are generated as the result of fluctuations in the value of the British pound versus the euro, the U.S. dollar versus the euro, U.S. dollar versus the Brazilian real and other currencies versus the U.S. dollar.

In fiscal year 2012 the majority of the losses were associated with exposures between the U.S. dollar and the Brazilian real. The Brazilian business incurred significant losses on U.S. dollar denominated exposures in the first quarter of 2012 that were not hedged at the time. Subsequently, the Company has been including these exposures in its daily hedging activities.

Interest Rates – The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on interest expense from floating rate debt instruments. To manage the exposure to interest rates, the Company may enter into interest rate swap agreements. Currently, there are no swap agreements outstanding.

The Company has the following derivative instruments located on the Consolidated Balance Sheets and Income Statements, utilized for the risk management purposes detailed above:

 
As of June 30, 2014
 
Fair Value of  Derivatives
Designated as  Hedge
Instruments
 
Fair Value of  Derivatives
Not Designated as Hedge
Instruments
 
(in thousands)
Derivative assets:(a)
 
 
 
Foreign exchange contracts
$
—

 
$
65

Derivative liabilities:(b)
 
 
 
Foreign exchange contracts
$
—

 
$
119

(a)
All derivative assets are recorded as prepaid expense and other current assets in the Consolidated Balance Sheets.
(b)
All derivative liabilities are recorded as accrued expenses and other current liabilities in the Consolidated Balance Sheets.