Derivative Financial Instruments

9 Months Ended

Jun. 30, 2021

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 as well as variable rate equipment financings, 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, on June 30, 2021, the Company entered into an interest rate swap with an effective date of August 1, 2022 to mitigate risk associated with a variable rate equipment financing. The interest rate swap provides for a fixed rate of 5.25%, has a notional amount of $31,000 and a term of seven years. The interest rate swap has been designated as a cash flow hedge.

On May 22, 2020, the Company entered into an interest rate swap to mitigate risks associated with variable rate debt. The interest rate swap became effective on 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 LIBOR on this portion of the senior secured debt at 0.55%. The interest rate swap has been designated as a cash flow hedge.

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, 2021, the notional amount of the forward contracts held to sell foreign currencies was $7,392.

Commodity Price Risk Management

The Company is subject to changes in index pricing of platinum. To mitigate price risk of certain platinum purchase contracts, the Company has entered into a financially settled platinum swap designated as a cash flow hedge.

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 swaps are 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. The Company’s platinum swap is valued using the LBMA Platinum Price PM Index 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 Accumulated other comprehensive income (loss), net of tax (“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, 2021		September 30, 2020
Interest rate swaps	Prepaid and other current assets	$	2,443	$	—
Foreign currency forward contracts	Prepaid and other current assets	48		133

		Liability Derivatives
	Balance Sheet Location	June 30, 2021		September 30, 2020
Interest rate swaps	Accrued expenses and other current liabilities	$	376	$	4,669
Foreign currency forward contracts	Accrued expenses and other current liabilities	113		47
Commodity swaps	Accrued expenses and other current liabilities	16		—

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,
	2021		2020		2021		2020
Interest rate swaps	$	(4,157)	$	(3,258)	$	5,111	$	(3,258)
Interest rate cap	—		(20)		—		(19)
Foreign currency forward contracts	67		10		(265)		(150)
Commodity swaps	(16)		—		(16)		—
	$	(4,106)	$	(3,268)	$	4,830	$	(3,427)

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

	Three Months Ended June 30,				Nine Months Ended June 30,
Location of (Loss) Gain	2021		2020		2021		2020
Cost of product sales and services	$	9	$	(2)	$	(4)	$	(8)
General and administrative expense	—		48		(72)		$	78
Selling and marketing expense	—		—		(39)		28
Interest expense	(591)		—		(1,624)		—
	$	(582)	$	46	$	(1,739)	$	98

Based on the fair value amounts of the Company’s cash flow hedges at June 30, 2021, the Company expects that approximately $56 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, 2021		September 30, 2020
Foreign currency forward contracts	Prepaid and other current assets	$	11	$	7
		Liability Derivatives
	Balance Sheet Location	June 30, 2021		September 30, 2020
Foreign currency forward contracts	Accrued expenses and other current liabilities	$	7	$	—