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Derivatives and Hedging Activities | 3 Months Ended
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Sep. 30, 2023
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. 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 Condensed Consolidated 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 Derivatives – The Company conducts a portion of its business internationally in a variety of foreign currencies and is exposed to market risk for changes in foreign currency exchange rates. The Company attempts to hedge transaction exposures with natural offsets to the fullest extent possible and once these opportunities have been exhausted the Company uses currency options and forward contracts or other hedging instruments with third parties. These contracts will periodically hedge the exchange of various currencies, including the U.S. dollar, Brazilian real, euro, British pound and Canadian dollar. The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $34.4 million and $34.3 million for the exchange of foreign currencies at September 30, 2023 and June 30, 2023, respectively. 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 included in the Condensed Consolidated Income Statements for the quarter ended September 30, 2023 and 2022 are as follows:
| Quarter ended |  |
| September 30, |  |
| 2023 |  | 2022 |  |  |  |
| (in thousands)
Net foreign exchange derivative contract (gains) losses | $ | (368) |  |  | $ | 438 |  |  |  |  |
Net foreign currency transactional and re-measurement losses | 1,064 |  |  | 484 |  |  |  |  |
Net foreign currency exchange losses | $ | 696 |  |  | $ | 922 |  |  |  |  |
Net foreign currency 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 U.S. dollar versus the Brazilian real, the U.S. dollar versus the euro, the British pound versus the euro, and the Canadian dollar versus the U.S. dollar. 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. The Company manages its exposure to changes in interest rates by using interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating rate debt. On April 30, 2019, the Company entered into an interest rate swap agreement to lock into a fixed LIBOR interest rate, which was amended on September 28, 2022, to change the reference rate from LIBOR to SOFR. The swap agreement has a notional amount of $100.0 million, with a $50.0 million tranche scheduled to mature on April 30, 2024 and a $50.0 million tranche scheduled to mature April 30, 2026. On March 31, 2023, the Company entered into an interest rate swap agreement to lock into a fixed SOFR interest rate with a notional amount of $25 million and a maturity date of March 31, 2028. These interest rate swap agreements are designated as cash flow hedges to hedge the variable rate interest payments on the revolving credit facility. Interest rate differentials paid or received under the swap agreements are recognized as adjustments to interest expense. To the extent the swaps are effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swaps are not included in current earnings but are reported as other comprehensive income (loss). There was no ineffective portion to be recorded as an adjustment to earnings for the quarter ended September 30, 2023 and 2022. The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarter ended September 30, 2023 and 2022, are as follows:
| Quarter ended |  |
| September 30, |  |
| 2023 |  | 2022 |  |  |  |
| (in thousands)
Net interest (income) expense recognized as a result of interest rate swap | $ | (759) |  |  | $ | 32 |  |  |  |  |
Unrealized gain in fair value of interest rate swap | 974 |  |  | 2,500 |  |  |  |  |
Net increase in accumulated other comprehensive income | 215 |  |  | 2,532 |  |  |  |  |
Income tax effect | 62 |  |  | 653 |  |  |  |  |
Net increase in accumulated other comprehensive income, net of tax | $ | 153 |  |  | $ | 1,879 |  |  |  |  |
The Company used the following derivative instruments at September 30, 2023 and June 30, 2023, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:
|  |  | September 30, 2023 |  | June 30, 2023
| Balance Sheet Location |  | Fair Value of Derivatives Designated as Hedge Instruments |  | Fair Value of Derivatives Not Designated as Hedge Instruments |  | Fair Value of Derivatives Designated as Hedge Instruments |  | Fair Value of Derivatives Not Designated as Hedge Instruments
|  |  | (in thousands)
Derivative assets: |  |  |  |  |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | — |  |  | $27 |  | — |  |  | $1
Foreign currency hedge | Prepaid expenses and other current assets |  | — |  |  | — |  |  | $100 |  | — |
Interest rate swap agreement | Other non-current assets |  | $4,902 |  | — |  |  | $4,687 |  | — |
Derivative liabilities: |  |  |  |  |  |  |  |  |
Foreign currency hedge | Accrued expenses and other current liabilities |  | $108 |  | — |  |  | — |  |  | — |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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