Derivative Financial Instruments

9 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Financial Instruments

Interest Rate Risk Management

    The Company is subject to market risk exposure arising from changes in interest rates on the senior secured credit facilities, which bear interest at rates that are indexed against LIBOR. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to mitigate its exposure to rising interest rates. To accomplish these objectives, the Company entered into an interest rate swap during the third quarter of fiscal 2020 to mitigate risks associated with variable rate debt. The interest rate swap is effective June 30, 2020, has a term of five years to hedge the variability of interest payments on the first $500,000 of the Company’s senior secured debt and provides for a fixed rate of 0.5455%. The interest rate swap has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of AOCI on the Consolidated Balance Sheets. As interest payments are made, the realized gain or loss on the payments are recorded in Interest expense on the Unaudited Consolidated Statements of Operations.

In addition, in the third quarter of fiscal 2020, the Company terminated the interest rate cap it had entered effective November 28, 2018. The LIBOR interest rate cap covered a notional amount of $600,000 of the Company’s senior secured debt, was effective for a period of three years and had a strike rate of 3.5%. The premium paid for the interest rate cap was $2,235 and was being amortized to interest expense over its term of three years. As a result of the termination, this derivative was de-designated from hedge accounting and the Company wrote off the remaining unamortized premium of $1,118 to interest expense. No additional fees were incurred. At September 30, 2019, the unamortized premium was $1,614, of which $869 was included in Other non‑current assets and the remaining $745 was included in Prepaid and other current assets. The Company recorded $124 and $187 of premium amortization to interest expense during the three months ended June 30, 2020 and 2019, respectively, and $496 and $435 of premium amortization to interest expense during the nine months ended June 30, 2020 and 2019, respectively.

Foreign Currency Risk Management

The Company’s functional currency is the U.S. dollar. By operating internationally, the Company is subject to foreign currency risk from transactions denominated in currencies other than the U.S. dollar (“foreign currencies”). To mitigate cross-currency transaction risk, the Company analyzes significant exposures where it has receipts or payments in a currency other than the functional currency of its operations, and from time to time may strategically enter into short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. The Company is also subject to currency translation risk associated with converting the foreign operations’ financial statements into U.S. dollars. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series of forward contracts designated as cash flow hedges. As of June 30, 2020, the notional amount of the forward contracts held to sell foreign currencies was $17,866.

Credit Risk Management

The counterparties to the Company’s derivative contracts are highly-rated financial institutions. The Company regularly reviews the creditworthiness of its financial counterparties and fully expects the counterparties to perform under their respective agreements. The Company is not subject to any obligations to post collateral under derivative instrument contracts. The Company records all derivative instruments on a gross basis in the Consolidated Balance Sheets. Accordingly, there are no offsetting amounts that net assets against liabilities.

Derivatives Designated as Cash Flow Hedges

The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, “Derivatives and Hedging” (Topic No. 815). As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. The Company’s interest rate cap is valued based on readily-observable market inputs, such as quotations on interest rates and LIBOR yield curves at the reporting date. The Company’s foreign currency forward contracts are valued based on quoted forward foreign exchange prices and spot rates at the reporting date. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in AOCI until the hedged item affects earnings. The Company does not use derivative financial instruments for trading or speculative purposes.

The following represents the fair value recorded for derivatives designated as cash flow hedges for the periods presented:

		Asset Derivatives
	Balance Sheet Location	June 30, 2020		September 30, 2019
Interest rate cap	Prepaid and other current assets	$	—	$	19
Foreign currency forward contracts	Prepaid and other current assets	278		269

		Liability Derivative
	Balance Sheet Location	June 30, 2020		September 30, 2019
Interest rate swap	Accrued expenses and other current liabilities	$	3,258	$	—
Foreign currency forward contracts	Accrued expenses and other current liabilities	411		154

The following represents the amount of (loss) gain recognized in AOCI (net of tax) during the periods presented:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2020			2019			2020			2019
Interest rate swap	$	(3,258	)	$	—		$	(3,258	)	$	—
Interest rate cap	(20		)	(78		)	(19		)	56
Foreign currency forward contracts	10			(173		)	(150		)	(487		)

The following represents the amount of (loss) gain on foreign currency forward contracts reclassified from AOCI into earnings during the periods presented:

	Three Months Ended June 30,						Nine Months Ended June 30,
Location of (Loss) Gain	2020			2019			2020			2019
Cost of product sales and services	$	(2	)	$	(4	)	$	(8	)	$	(130	)
General and administrative expense	48			—			78			1
Selling and marketing expense	—			—			28			—
Research and development expense	—			(86		)	—			(87		)
	$	46		$	(90	)	$	98		$	(216	)

Based on the fair value amounts of the Company’s cash flow hedges at June 30, 2020, the Company expects that approximately $187 of pre-tax net losses will be reclassified from AOCI into earnings during the next twelve months. The amount ultimately realized, however, will differ as exchange rates vary and the underlying contracts settle.

Derivatives Not Designated as Cash Flow Hedges

The following represents the fair value recorded for derivatives not designated as cash flow hedges for the periods presented:

		Asset Derivatives
	Balance Sheet Location	June 30, 2020		September 30, 2019
Foreign currency forward contracts	Prepaid and other current assets	$	27	$	9