Derivative Financial Instruments

3 Months Ended

Jun. 30, 2020

Derivative Financial Instruments

Derivative Financial Instruments

(7) Derivative Financial Instruments

The Company evaluates its foreign exchange policy on an ongoing basis to assess its ability to address foreign exchange exposures on its consolidated balance sheets, consolidated statements of income and consolidated statement of cash flows from all foreign currencies, including most significantly the U.K. pound sterling and Indian rupee. The Company enters into hedging programs with highly rated financial institutions in accordance with its foreign exchange policy (as approved by the Company’s audit committee and board of directors) which permits hedging of material, known foreign currency exposures. There is no margin required, no cash collateral posted or received by us related to our foreign exchange forward contracts.

The U.S. dollar notional value of all outstanding foreign currency derivative contracts was $112,922 and $128,728 at June 30, 2020 and March 31, 2020, respectively. Unrealized net losses related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months are $1,456 at June 30, 2020. At June 30, 2020, the maximum outstanding term of any derivative instrument was 15 months.

The Company also uses interest rate swaps to mitigate the Company’s interest rate risk on the Company’s variable rate debt. The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the Credit Agreement (See Note 13 to the consolidated financial statements), by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company will recognize these transactions in accordance with ASC 815 "Derivatives and Hedging," and have designated the swaps as cash flow hedges.

The Company purchased interest rate swaps in July 2016 with an effective date of July 2017 and in November 2018.  The July 2016 interest rate swaps are at a blended weighted average of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts. The November 2018 interest rate swaps were entered into to mitigate the interest rate risk associated with the Credit Agreement executed in February 2018 and subsequent additional borrowings. The November 2018 interest rate swaps are at a fixed rate of 2.85% and are designed to maintain a 50% coverage of our LIBOR debt, therefore the notional amount changes over the life of the swap to retain the 50% coverage target. At June 30, 2020, the total notional amounts of the interest rate swaps were $174,900 with remaining maturity of approximately 3 years. The unrealized losses associated with the swap agreements was $11,153 and $11,128 at June 30, 2020 and March 31, 2020, respectively, which represents the estimated amount that the Company would pay to the counterparties in the event of an early termination.

The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets as of:

Derivatives designated as hedging instruments

	June 30, 2020		March 31, 2020
Foreign currency exchange contracts:
Other current assets	$	560	$	103
Other long-term assets	$	379	$	56
Accrued expenses and other	$	2,017	$	3,689
Long-term liabilities	$	—	$	364

	June 30, 2020		March 31, 2020
Interest rate swap contracts:
Other long-term assets	$	—	$	—
Long-term liabilities	$	11,153	$	11,128

The following tables set forth the effect of the Company’s foreign currency exchange contracts and interest rate swap contracts on the consolidated financial statements of the Company:

	Amount of Gain or (Loss)
	Recognized in AOCI on Derivatives
	Three Months Ended
Derivatives Designated as	June 30,
Cash Flow Hedging Relationships	2020		2019
Foreign currency exchange contracts	$	1,964	$	2,633
Interest rate swaps	$	(735)	$	(3,045)

	Amount of Gain or (Loss)
	Reclassified from AOCI into Income
Location of Gain or (Loss) Reclassified	Three Months Ended
from AOCI into Income (loss) (Effective	June 30,
Portion)	2020		2019
Revenue	$	—	$	(18)
Costs of revenue	$	(613)	$	405
Operating expenses	$	(240)	$	200
Interest Expenses	$	(710)	$	208

		Amount of Gain or (Loss)
		Recognized in Income
		(loss) on Derivatives
		Three Months Ended
Derivatives not Designated	Location of Gain Or (Loss)	June 30,
as Hedging Instruments	Recognized in Income (loss) on Derivatives	2020		2019
Foreign currency exchange contracts	Revenue	$	(129)	$	355
	Costs of revenue	$	145	$	(226)
	Selling, general and administrative expenses	$	14	$	(20)