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DERIVATIVES AND HEDGING ACTIVITIES | 6 Months Ended
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Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND HEDGING ACTIVITIES | DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s receivables and borrowings. Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of its functional currency, the U.S. Dollar. Accordingly, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not use derivatives for speculative or trading purposes. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the three and six months ended December 31, 2020, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate deb t. During the remaining six months of fiscal 2021, the Company estimates that an additional $159 will be reclassified as an increase to interest expense. As of December 31, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative | Number of Instruments | Notional Amount
Interest Rate Swap | 4 | $230,000
Cash Flow Hedges of Foreign Exchange Risk The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. Dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the USD-EUR exchange rates. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instr ument. The Company, at times, also uses forward contracts to manage its exposure to fluctuations in the GBP-EUR exchange rates. The Company designates these derivatives as cash flow hedges of foreign exchange risks. For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the remaining six months of fiscal 2021, the Company estimates that an additional $73 relating to cross-currency swaps will be reclassified as an increase to interest income. As of December 31, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:
Foreign Currency Derivative | Number of Instruments | Notional Sold | Notional Purchased
Cross-currency swap | 1 | €24,700 | $26,775
Net Investment Hedges The Company is exposed to fluctuations in foreign exchange rates on investments it holds in its European foreign entities and their exposure to the Euro. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in the foreign exchange rate on its foreign investment in Europe. Currency forward agreements involve fixing the USD-EUR exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency fixed-rate payments over the life of the agreement. For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCL as part of the cumulative translation adjustment. Amounts are reclassified out of AOCL into earnings when the hedged net investment is either sold or substantially liquidated. As of December 31, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:
Foreign Currency Derivative | Number of Instruments | Notional Sold | Notional Purchased
Cross-currency swap | 2 | €76,969 | $83,225
Non-Designated Hedges Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of December 31, 2020, the Company had outstanding derivatives that were not designated as hedges in qualifying hedging relationships consisting of foreign currency forward contracts with a notional amount of $37,375. The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of December 31, 2020:
| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate swaps | Prepaid expenses and other current assets |  | $ | — |  |  | Accrued expenses and other current liabilities / Other noncurrent liabilities |  | $ | 603 |
Cross-currency swaps | Prepaid expenses and other current assets |  | 602 |  |  | Other noncurrent liabilities |  | 15,481 |
Total derivatives designated as hedging instruments |  |  | 602 |  |  |  |  | 16,084 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts | Prepaid expenses and other current assets |  | — |  |  | Accrued expenses and other current liabilities |  | 524 |
Total derivative instruments |  |  | $ | 602 |  |  |  |  | $ | 16,608 |
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2020:
| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate swaps | Prepaid expenses and other current assets |  | $ | — |  |  | Accrued expenses and other current liabilities / Other noncurrent liabilities |  | $ | 856 |
Cross-currency swaps | Prepaid expenses and other current assets |  | 746 |  |  | Other noncurrent liabilities |  | 5,475 |
Foreign currency forward contracts | Prepaid expenses and other current assets |  | 75 |  |  | Other noncurrent liabilities |  | — |
Total derivatives designated as hedging instruments |  |  | 821 |  |  |  |  | 6,331 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts | Prepaid expenses and other current assets |  | 193 |  |  | Accrued expenses and other current liabilities |  | 74 |
Total derivative instruments |  |  | $ | 1,014 |  |  |  |  | $ | 6,405 |
The following table presents the pre-tax effect of cash flow hedge accounting on AOCL as of the three months ended December 31, 2020 and 2019:
Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in OCI on Derivatives | Location of Gain (Loss) Reclassified from AOCL into Income | Amount of Gain (Loss) Reclassified from AOCL into Income
| Three Months Ended December 31, |  | Three Months Ended December 31,
| 2020 |  | 2019 |  | 2020 |  | 2019
Interest rate swaps | $ | 62 |  |  | $ | — |  | Interest and other financing expense, net | $ | (72) |  |  | $ | — |
Cross-currency swaps | (1,209) |  |  | — |  | Interest and other financing expense, net / Other expense (income), net | (1,176) |  |  | — |
Foreign currency forward contracts | — |  |  | 104 |  | Cost of sales | — |  |  | (52) |
Total | $ | (1,147) |  |  | $ | 104 |  |  | $ | (1,248) |  |  | $ | (52) |
The following table presents the pre-tax effect of cash flow hedge accounting on AOCL as of the six months ended December 31, 2020 and 2019:
Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in OCI on Derivatives | Location of Gain (Loss) Reclassified from AOCL into Income | Amount of Gain (Loss) Reclassified from AOCL into Income
| Six Months Ended December 31, |  | Six Months Ended December 31,
| 2020 |  | 2019 |  | 2020 |  | 2019
Interest rate swaps | $ | 123 |  |  | $ | — |  | Interest and other financing expense, net | $ | (130) |  |  | $ | — |
Cross-currency swaps | (2,386) |  |  | — |  | Interest and other financing expense, net / Other expense (income), net | (2,359) |  |  | — |
Foreign currency forward contracts | (2) |  |  | (6) |  | Cost of sales | 73 |  |  | 26 |
Total | $ | (2,265) |  |  | $ | (6) |  |  | $ | (2,416) |  |  | $ | 26 |
The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the Consolidated Statements of Operations for the three months ended of December 31, 2020 and 2019:
|  |  |  | Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships
|  |  |  | Three Months Ended December 31, 2020 |  | Three Months Ended December 31, 2019
|  |  |  | Cost of sales |  | Interest and other financing expense, net |  | Other expense/income, net |  | Cost of sales |  | Interest and other financing expense, net |  | Other expense/income, net
The effects of cash flow hedging: |  |  |  |  |  |  |  |  |  |  |
| Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |
|  | Interest rate swaps |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of (loss) gain reclassified from AOCL into income | $ | — |  |  | $ | (72) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
|  | Cross-currency swaps |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain (loss) reclassified from AOCL into income | $ | — |  |  | $ | 40 |  |  | $ | (1,216) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
|  | Foreign currency forward contracts |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of (loss) gain reclassified from AOCL into income | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (52) |  |  | $ | — |  |  | $ | — |
The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the Consolidated Statements of Operations for the six months ended of December 31, 2020 and 2019:
|  |  |  | Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships
|  |  |  | Six Months Ended December 31, 2020 |  | Six Months Ended December 31, 2019
|  |  |  | Cost of sales |  | Interest and other financing expense, net |  | Other expense (income), net |  | Cost of sales |  | Interest and other financing expense, net |  | Other expense (income), net
The effects of cash flow hedging: |  |  |  |  |  |  |  |  |  |  |
| Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |
|  | Interest rate swaps |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of (loss) gain reclassified from AOCL into income | $ | — |  |  | $ | (130) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
|  | Cross-currency swaps |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain (loss) reclassified from AOCL into income | $ | — |  |  | $ | 81 |  |  | $ | (2,440) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
|  | Foreign currency forward contracts |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of (loss) gain reclassified from AOCL into income | $ | 73 |  |  | $ | — |  |  | $ | — |  |  | $ | 26 |  |  | $ | — |  |  | $ | — |
The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the Consolidated Statements of Operations for the three months ended December 31, 2020 and 2019:
Derivatives in Net Investment Hedging Relationships | Amount of Gain (Loss) Recognized in OCI on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing) | Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
| Three Months Ended December 31, |  | Three Months Ended December 31,
| 2020 |  | 2019 |  | 2020 |  | 2019
Cross-currency swaps | $ | (3,772) |  |  | $ | — |  | Interest and other financing expense, net | $ | 125 |  |  | $ | — |
The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the Consolidated Statements of Operations for the six months ended December 31, 2020 and 2019:
Derivatives in Net Investment Hedging Relationships | Amount of Gain (Loss) Recognized in OCI on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing) | Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
| Six Months Ended December 31, |  | Six Months Ended December 31,
| 2020 |  | 2019 |  | 2020 |  | 2019
Cross-currency swaps | $ | (7,430) |  |  | $ | — |  | Interest and other financing expense, net | $ | 254 |  |  | $ | — |
The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements Operations for the three months ended December 31, 2020 and 2019:
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | Amount of Gain (Loss) Recognized in Income on Derivatives
|  | Three Months Ended December 31,
|  | 2020 |  | 2019
Foreign currency forward contracts | Other (income) expense, net | $ | (523) |  |  | $ | (336) |
The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements Operations for the six months ended December 31, 2020 and 2019:
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | Amount of Gain (Loss) Recognized in Income on Derivatives
|  | Six Months Ended December 31,
|  | 2020 |  | 2019
Foreign currency forward contracts | Other (income) expense, net | $ | (399) |  |  | $ | (505) |
Credit-Risk-Related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision providing that upon certain defaults by the Company on any of its indebtedness, the Company could also be declared in default on its derivative obligations.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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