Derivative Financial Instruments

12 Months Ended

Sep. 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 its 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 fixes the LIBOR rate on this portion of the senior secured debt at 0.55%. 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 Accumulated other comprehensive loss 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 Consolidated Statements of Operations.

In addition, the Company entered into an interest rate cap, designated as a cash flow hedge, to mitigate risks associated with variable rate debt effective November 28, 2018. The Company terminated the interest rate cap during the third quarter of 2020. 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%. Interest rate caps designated as cash flow hedges involve the receipt of stipulated amounts from a counterparty if interest rates rise above the strike rate defined in the contract. The premium paid for the interest rate cap was $2,235 and was being amortized to interest expense over its three-year term

using the caplet method. As a result of the termination, the 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. The unamortized premium was $1,614 at September 30, 2019, of which $745 was included in Prepaid and other current assets and the remaining $869 was included in Other non‑current assets. The Company recorded $496 and $621 of premium amortization to interest expense during the years ended September 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 results 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 September 30, 2020, the notional amount of the forward contracts held to sell foreign currencies was $5,542.

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 does not expect to incur a significant failure of any counterparties to perform under any 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 to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in the Consolidated Statements of Operations. The Company recorded no hedge ineffectiveness during the year ended September 30, 2020. 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	September 30, 2020		September 30, 2019
Interest rate cap	Prepaid and other current assets	$	—	$	19
Foreign currency forward contracts	Prepaid and other current assets	$	133	$	269

		Liability Derivative
	Balance Sheet Location	September 30, 2020		September 30, 2019
Interest rate swap	Accrued expenses and other current liabilities	$	4,669	$	—
Foreign currency forward contracts	Accrued expenses and other current liabilities	$	47	$	154

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

	Year Ended September 30,
	2020			2019			2018
Interest rate swap	$	(5,155	)	$	—		$	—
Interest rate cap	(19		)	19			—
Foreign currency forward contracts	(201		)	(443		)	(118		)
	$	(5,375	)	$	(424	)	$	(118	)

The following represents the amount of (loss) gain reclassified from AOCI into earnings (effective portion) during the periods presented:

		Year Ended September 30,
	Location of (Loss) Gain	2020			2019			2018
Foreign currency forward contracts	Cost of product sales and services	$	(8	)	$	(309	)	$	(76	)
Foreign currency forward contracts	General and administrative expense	(192		)	82			18
Foreign currency forward contracts	Selling and marketing expense	28			—			—
Foreign currency forward contracts	Research and development expense	—			(271		)	(39		)
Interest rate swap	Interest expense	(486		)	—			—
		$	(658	)	$	(498	)	$	(97	)

Based on the fair value amounts of the Company’s cash flow hedges at September 30, 2020, the Company expects that approximately $97 of pre-tax net gains 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 Derivative
	Balance Sheet Location	September 30, 2020		September 30, 2019
Foreign currency forward contracts	Prepaid and other current assets	$	7	$	9