Derivative Financial Instruments

3 Months Ended

Jul. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Interest Rate Swap Contracts

The Company enters into interest rate swap contracts to manage variability in the amount of known or expected cash payments related to portions of its variable rate debt. On May 28, 2021, the Company entered into four interest rate swaps with an aggregate notional amount of $200 million to hedge part of the variable rate interest payments under the Term Loan Facility. The interest rate swaps became effective on May 28, 2021 and will terminate on May 30, 2025. The interest rate swaps economically convert a portion of the variable rate debt to fixed rate debt. The Company receives floating interest payments monthly based on one-month SOFR and pays a fixed rate of 0.53% to the counterparty.

The interest rate swaps are designated as cash flow hedges. Changes in fair value are recorded to other comprehensive income. The risk management objective in using interest rate swaps is to add stability to interest expense and to manage the Company's exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses in connection with required interest payments on interest rate swaps are recorded in earnings, as a component of interest expense, net to offset variability in interest expense associated with the underlying debt's cash flows.

For the three-month periods ended July 31, 2023 and 2022, unrealized gains (losses), net of deferred taxes, of $2.7 million and $(1.1) million, respectively, were recorded in other comprehensive income, and $1.8 million and $0.2 million, respectively, of realized gains (losses) were reclassified out of accumulated other comprehensive income (loss) to interest expense, net due to interest received from and payments made to the swap counterparties. As of July 31, 2023, the Company anticipates reclassifying approximately $9.3 million of net hedging gains from accumulated other comprehensive income into earnings during the next 12 months to offset the variability of the hedged items during this period.

The fair value of the derivative instruments are included in other assets on the condensed consolidated balance sheets.

Foreign Exchange Forward Contracts

At July 31, 2023, the Company held forward contracts maturing from August 2023 to April 2024 to purchase 334.0 million Mexican pesos at an exchange rate of 18.91 Mexican pesos to one U.S. dollar. Additionally, the Company entered into a contingent forward contract with maturities from May 2024 to April 2025 to purchase 660.0 million Mexican pesos at an exchange rate of 18.91 Mexican pesos to one U.S. dollar. This contingent forward contract gives the bank the option to cancel these forward contracts in April 2024. An asset of $1.0 million is recorded in prepaid expense and other on the condensed consolidated balance sheet.