DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are exposed to various market risks, including risks associated with interest rates and foreign currency exchange rates. We enter into certain derivative transactions to mitigate the volatility associated with these exposures. We have policies in place that define acceptable instrument types we may enter into and we have established controls to limit our market risk exposure. We do not use derivative financial instruments for trading or speculative purposes. In addition, all derivatives, whether designated in hedging relationships or not, are required to be recorded on the Consolidated Balance Sheets at fair value on a gross basis.

Cash Flow Hedges - Interest Rate Swap Contract

During the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap contract to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. As of June 30, 2020, the notional value of the interest rate swap was $652,000. This value is scheduled to decrease bi-annually and will expire on January 31, 2024.

We have designated this swap contract as a cash flow hedge. Based on certain quantitative and qualitative assessments, we have determined that the hedge is highly effective and qualifies for hedge accounting. Accordingly, unrealized gains and losses on the hedge are recorded in other comprehensive income. Realized gains and losses are recorded on the same financial statement line as the hedged item, which is Interest expense.

Foreign Currency Contracts Not Designated as Hedges

On a regular basis, we enter into forward foreign exchange contracts in an effort to mitigate the risks associated with currency fluctuations on certain foreign currency balance sheet exposures. These foreign exchange contracts do not qualify for hedge accounting; therefore, the gains and losses resulting from the impact of currency exchange rate movements on our forward foreign exchange contracts are recognized as Other income (expense), net in the accompanying Consolidated Statements of Income in the period in which the exchange rates change. As of June 30, 2020 and September 30, 2019, the notional amounts of the forward contracts we held to purchase U.S. dollars in exchange for foreign currencies were $6,419 and $6,239, respectively, and the notional amounts of forward contracts we held to sell U.S. dollars in exchange for foreign currencies were $26,800 and $24,270, respectively.

The fair value of our derivative instruments included in the Consolidated Balance Sheets was as follows:


		Derivative Assets						Derivative Liabilities
	Consolidated Balance Sheet Location	June 30, 2020		September 30, 2019		June 30, 2020		September 30, 2019
Derivatives designated as hedging instruments
Interest rate swap contract	Accrued expenses, income taxes payable and other current liabilities	$	—	$	—	$	12,595	$	5,351
	Other long-term liabilities	$	—	$	—	$	28,832	$	18,841
Derivatives not designated as hedging instruments

Foreign exchange contracts	Accrued expenses, income taxes payable and other current liabilities	$	—	$	—	$	265	$	52

The following table summarizes the effect of our derivative instruments on our Consolidated Statements of Income for the three and nine months ended June 30, 2020 and 2019:


		Gain (Loss) Recognized in Statement of Income
		Three Months Ended June 30,						Nine Months Ended June 30,
	Consolidated Statement of Income Location	2020		2019		2020		2019
Derivatives designated as hedging instruments
Interest rate swap contract	Interest expense	$	(3,262)	$	39	$	(5,799)	$	40
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other income (expense), net	$	(128)	$	(29)	$	(390)	$	(67)

We recorded an unrealized loss of $2,868 and $17,885, net of tax, in Accumulated other comprehensive income during the three and nine months ended June 30, 2020, respectively, for the interest rate swap. As of June 30, 2020, during the next twelve months, we expect approximately $12,595 to be reclassified from Accumulated other comprehensive income (loss) into Interest expense related to our interest rate swap based on projected rates of the LIBOR forward curve as of June 30, 2020.