Derivative Instruments and Hedging Activities

6 Months Ended

Dec. 31, 2023

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, we do not hold any 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 sheets are as follows:


(in thousands)	December 31, 2023		June 30, 2023
Derivatives designated as hedging instruments
Other current assets - range forward contracts	$	80	$	—
Other current liabilities - range forward contracts	(1)		—


Total derivatives designated as hedging instruments	79		—
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	$	20	$	68
Other current liabilities - currency forward contracts	(35)		(100)
Total derivatives not designated as hedging instruments	(15)		(32)
Total derivatives	$	64	$	(32)

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 sheets, with the offset to other (income) expense, 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)	2023		2022		2023		2022
Other (income) expense, net - currency forward contracts	$	(93)	$	(197)	$	29	$	(503)

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) expense, 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, 2023 was $35.4 million. There were no such contracts outstanding as of June 30, 2023. The time value component of the fair value of range forward contracts is excluded from the assessment of hedge effectiveness.

The following represents losses, net of tax, related to cash flow hedges:


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2023		2022		2023		2022
Losses recognized in other comprehensive income	$	(59)	$	—	$	(59)	$	—

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 three months ended December 31, 2023 and 2022.

NET INVESTMENT HEDGES

As of December 31, 2023, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of €10.1 million and ¥109.9 million, designated as net investment hedges to hedge the foreign exchange exposure of our net investment in our Euro-based and China-based subsidiaries. As of June 30, 2023, we had no foreign currency-denominated intercompany loans payable designated as net investment hedges. A loss of $0.3 million and $0.4 million were recorded as a component of foreign currency translation adjustments in other comprehensive income for the three months ended December 31, 2023 and 2022, respectively. A loss of $0.3 million and a gain $1.3 million were recorded as a component of foreign currency translation adjustments in other comprehensive income for the six months ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:


Instrument	Notional (EUR and CNY in thousands)(2)		Notional (USD in thousands)(2)		Maturity
Foreign currency-denominated intercompany loan payable	€	10,058	$	11,113	June 2024
Foreign currency-denominated intercompany loan payable	¥	109,878	$	15,472	November 2024

(2) Includes principal and accrued interest.