Derivative Instruments and Hedging Activities

12 Months Ended

Jun. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses derivative financial instruments to hedge against the interest rate risk associated with its variable-rate debt as a result of the Company's exposure to fluctuations in interest rates associated with the Term Loans (as defined in Note 10 to the consolidated financial statements). To accomplish this hedging strategy, the Company enters into interest rate swaps designated as cash flow hedges that are designed to be highly correlated to the underlying terms of the debt instruments to which their forecasted, variable-rate payments are tied. To qualify for hedge accounting, the Company documents and assesses effectiveness at inception and in subsequent reporting periods. The fair value of interest rate swaps are recorded on the consolidated balance sheets as an asset or liability with the related gains or losses reported as a component of accumulated other comprehensive income. The changes in fair value are reclassified from accumulated other comprehensive income into earnings as an offset to interest expense, net in the same period that the hedged items affect earnings. The Company does not engage in the use of derivative instruments for speculative or trading purposes.

The Company entered into a USD floored interest rate swap agreement on May 12, 2020, with an effective date of May 29, 2020, wherein the Company exchanged a floating rate of interest of LIBOR (subject to a 1% floor) plus 6.00% on the notional amount of $325.0 million of the Company’s $425.0 million 2019 Term Loan (as defined in Note 10 to the consolidated financial statements) for a fixed rate payment of 6.00% plus 1.188%. Subsequently, on March 12, 2021, as a result of the First Amendment (as defined in Note 10 to the consolidated financial statements), the Company de-designated and simultaneously re-designated the original interest rate swap with modified terms (the "Amended Interest Rate Swap"), matching those of the 2021 Term Loan (as defined in Note 10 to the consolidated financial statements), in order to maintain a highly effective hedge relationship. The Amended Interest Rate Swap is designed as a hedge of the remaining forecasted interest payments on the notional amount of $325.0 million of the Term Loans (as defined in Note 10 to the consolidated financial statements). As the results of the modification indicate that the hedge remains highly effective, the Amended Interest Rate Swap continues to qualify for hedge accounting. As of the date of de-designation, $0.5 million was recorded directly to general and administrative expense in the consolidated statement of comprehensive income, as this represents the ineffective portion of the hedge in re-designation. The Amended Interest Rate Swap terminates on November 5, 2024.

In addition, the Company has determined that the majority of the inputs used to value its Amended Interest Rate Swap fall within Level 2 of the fair value hierarchy as they primarily include other than quoted prices that are observable. Further, this valuation uses standard calculations and models that use readily observable market data as

their basis. As a result, the Company classifies its Amended Interest Rate Swap in Level 2 of the fair value hierarchy.

The following table presents the fair value of the Company’s derivative financial instrument on a gross basis, as well as its classification on the Company’s consolidated balance sheets as of June 30:


(in thousands)	2021			2020
Derivatives Designated as Hedging Instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Cash flow hedge	Other current liabilities	$	(236)	Other current liabilities	$	(1,669)

The following table presents the unrealized gains (losses) deferred to accumulated other comprehensive income (loss) resulting from the Company’s derivative instruments designated as cash flow hedging instruments as of June 30:


(in thousands)	2021		2020
Unrealized gain (loss), before taxes	$	1,251	$	(1,723)
Income tax (expense) benefit	(310)		428
Unrealized gain (loss), net of taxes	$	941	$	(1,295)

The following table presents information about the reclassification of gains and losses from accumulated other comprehensive income (loss) into earnings resulting from the Company’s derivative instruments designated as cash flow hedging instruments as of June 30:


(in thousands)	2021		2020
Interest expense	$	721	$	54
Income tax benefit	(179)		(13)
Net reclassification into earnings	$	542	$	41

Amounts included in accumulated other comprehensive income (loss) are recorded net of the related income tax effects. The following table details the changes in accumulated other comprehensive income (loss):


(in thousands)	Derivative Instruments
Balance at June 30, 2020	$	(1,254)
Unrealized gains, net of related tax expense of $0.3 million	941
Amount reclassified into earnings, net of related taxes of $0.2 million	542
Balance at June 30, 2021	$	229

As of June 30, 2021, the Company estimates that $0.9 million will be reclassified into interest expense during the next twelve months.