Derivative Instruments and Hedging Activities

6 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, hold no derivative instruments for trading purposes. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated and qualifies as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item.

The fair value of derivatives designated and not designated as hedging instruments in the condensed consolidated balance sheet are as follows:



(in thousands)	December 31, 2019			June 30, 2019
Derivatives designated as hedging instruments
Other current assets - range forward contracts	$	211		$	145
Total derivatives designated as hedging instruments	211			145
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	—			8
Other current liabilities - currency forward contracts	(200		)	(56		)
Total derivatives not designated as hedging instruments	(200		)	(48		)
Total derivatives	$	11		$	97

Certain currency forward contracts that hedge significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the condensed consolidated balance sheet, with the offset to other income, net. (Gains) losses related to derivatives not designated as hedging instruments have been recognized as follows:



	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands)	2019			2018			2019		2018
Other income, net - currency forward contracts	$	(1	)	$	(2	)	$	112	$	76

CASH FLOW HEDGES

Range forward contracts (a transaction where both a put option is purchased and a call option is sold) are designated as cash flow hedges and hedge anticipated cash flows from cross-border intercompany sales of products and services. Gains and losses realized on these contracts are recorded in accumulated other comprehensive loss and are recognized as a component of cost of goods sold and other income, net when the underlying sale of products or services is recognized into earnings. The notional amount of the contracts translated into U.S. dollars at December 31, 2019 and June 30, 2019, was $29.2 million and $61.5 million, respectively. The time value component of the fair value of range forward contracts is excluded from the assessment of hedge effectiveness. Assuming the market rates remain constant with the rates at December 31, 2019, we expect to recognize into earnings $0.1 million of expense on outstanding derivatives in the next 12 months.

The following represents gains and losses related to cash flow hedges:



	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2019		2018		2019		2018
Gains (losses) recognized in other comprehensive income (loss), net	$	461	$	170	$	856	$	(91	)
Losses reclassified from accumulated other comprehensive loss into cost of goods sold and other income, net	$	391	$	565	$	550	$	1,097

No portion of the gains or losses recognized in earnings was due to ineffectiveness and no amounts were excluded from our effectiveness testing for the six months ended December 31, 2019 and 2018.

NET INVESTMENT HEDGES

As of December 31, 2019, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of €42.5 million as net investment hedges to hedge the foreign exchange exposure of our net investment in our Euro-based subsidiaries. We recorded a loss of $1.2 million and a gain of $0.5 million as a component of foreign currency translation adjustments in other comprehensive loss for the three months ended December 31, 2019 and 2018, respectively. We recorded a loss of $0.1 million and a gain of $0.5 million as a component of foreign currency translation adjustments in other comprehensive loss for the six months ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:



Instrument	Notional (EUR in thousands)⁽²⁾		Notional (USD in thousands)⁽²⁾		Maturity
Foreign currency-denominated intercompany loan payable	€	28,527	$	32,060	June 26, 2022
Foreign currency-denominated intercompany loan payable	20,028		22,508		November 22, 2021

⁽²⁾ Includes principal and accrued interest.