Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments And Hedging Activities Disclosure [Abstract]

9. Derivative Financial Instruments

We enter into derivative transactions, specifically foreign currency forward contracts and options, to manage our exposure to foreign currency exchange risk in order to reduce earnings volatility. We do not enter into derivative transactions for trading or speculative purposes.

The following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:


(in thousands)	Fair Value of Derivatives Designated As Hedging Instruments				Fair Value of Derivatives Not Designated As Hedging Instruments
	March 31, 2023		September 30, 2022		March 31, 2023		September 30, 2022
Derivative assets(1):
Forward Contracts	$	44	$	1,960	$	994	$	7,098
Options	$	—	$	—	$	780	$	—
Derivative liabilities(2):
Forward Contracts	$	1,361	$	—	$	1,829	$	2,908

(1)

As of March 31, 2023 and September 30, 2022, current derivative assets of $1.8 million and $9.1 million, respectively, are recorded in Other current assets in the Consolidated Balance Sheets.

(2)

As of March 31, 2023 and September 30, 2022, current derivative liabilities of $3.2 million and $2.9 million, respectively, are recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Non-Designated Hedges

We hedge our net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately three months. Generally, we do not designate these foreign currency forward contracts as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in Other income (expense), net.

We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that they will be adversely affected by changes in Euro or Japanese Yen exchange rates. These contracts have maturities of up to approximately nine months. We do not designate these foreign currency options as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into options as an economic hedge, currency impacts on the Euro or Japanese Yen-denominated operations as compared to the forecasted plan rate may be partially offset by the gain on the put option. Gain on put options are included in Other income (expense), net.

As of March 31, 2023 and September 30, 2022, we had outstanding forward contracts and options with notional amounts equivalent to the following:


Currency Hedged (in thousands)	March 31, 2023		September 30, 2022
Canadian / U.S. Dollar	$	4,651	$	2,731
Euro / U.S. Dollar(1)		540,165		316,869
British Pound / U.S. Dollar		6,749		7,368
Israeli Shekel / U.S. Dollar		11,270		12,052
Japanese Yen / U.S. Dollar(2)		42,545		25,566
Swiss Franc / U.S. Dollar		12,895		25,559
Swedish Krona / U.S. Dollar		15,461		35,713
Singapore Dollar / U.S. Dollar		—		3,637
Chinese Renminbi / U.S. Dollar		6,233		23,965
New Taiwan Dollar / U.S. Dollar		2,087		13,906
Korean Won/ U.S. Dollar		—		4,919
Danish Krone/ U.S. Dollar		5,523		3,192
Australian Dollar/ U.S. Dollar		3,391		3,269
Hong Kong Dollar/U.S. Dollar		3,415		785
All other		3,576		3,647
Total	$	657,961	$	483,178

(1)

As of March 31, 2023, $446.7 million of the Euro to U.S. Dollar outstanding notional amount relates to forward contracts and $93.5 million relates to options. As of September 30, 2022, all the Euro to U.S. Dollar outstanding notional amount relates to forward contracts.

(2)

As of March 31, 2023, $1.5 million of the Japanese Yen to U.S. Dollar outstanding notional amount relates to forward contracts and $41.0 million relates to options. As of September 30, 2022, all the Japanese Yen to U.S. Dollar outstanding notional amount relates to forward contracts.

The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2023 and March 31, 2022:


(in thousands)		Three months ended					Six months ended
	Location of (Gain) Loss	March 31, 2023			March 31, 2022		March 31, 2023			March 31, 2022
Net realized and unrealized (gain) loss, excluding the underlying foreign currency exposure being hedged	Other income (expense), net	$	(1,422	)	$	3,797	$	(12,431	)	$	362

In the three months ended March 31, 2023 and March 31, 2022, foreign currency losses, net were $0.8 million and foreign currency gains, net were $0.4 million, respectively. In the six months ended March 31, 2023 and March 31, 2022 foreign currency losses, net were $3.9 million and $4.0 million, respectively.

Net Investment Hedges

We translate balance sheet accounts of subsidiaries with foreign functional currencies into the U.S. Dollar using the exchange rate at each balance sheet date. Resulting translation adjustments are reported as a component of Accumulated other comprehensive loss on the Consolidated Balance Sheets. We designate certain foreign exchange forward contracts as net investment hedges against exposure on translation of balance sheet accounts of Euro and Japanese Yen functional subsidiaries. Net investment hedges partially offset the impact of foreign currency translation adjustment recorded in Accumulated other comprehensive loss on the Consolidated Balance Sheets. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum duration of net investment hedge foreign exchange forward contracts is approximately three months.

Net investment hedge relationships are designated at inception, and effectiveness is assessed retrospectively on a quarterly basis using the net equity position of Euro and Japanese Yen functional subsidiaries. As the forward contracts are highly effective in offsetting exchange rate exposure, we record changes in these net investment hedges in Accumulated other comprehensive loss and subsequently reclassify them to foreign currency translation adjustment in Accumulated other comprehensive loss at the time of forward contract maturity. Changes in the fair value of foreign exchange forward contracts due to changes in time value are excluded from the assessment of effectiveness. Our derivatives are not subject to any credit contingent features. We manage credit risk with counterparties by trading among several counterparties and we review our counterparties’ credit at least quarterly.

As of March 31, 2023 and September 30, 2022, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:


Currency Hedged (in thousands)	March 31, 2023		September 30, 2022
Euro / U.S. Dollar	$	232,807	$	110,446
Japanese Yen / U.S. Dollar		11,487		—
Total	$	244,294	$	110,446

The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2023 and March 31, 2022:


(in thousands)		Three months ended						Six months ended
	Location of Gain (Loss)	March 31, 2023			March 31, 2022			March 31, 2023			March 31, 2022
Gain (loss) recognized in OCI	OCI	$	(915	)	$	81		$	(5,425	)	$	(3,075	)
Gain (loss) reclassified from OCI	OCI		(1,996	)		(1,415	)		5,034			(7,150	)
Gain recognized, excluded portion	Other income (expense), net		1,179			342			2,148			609

As of March 31, 2023, we estimate that all amounts reported in Accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.

Offsetting Derivative Assets and Liabilities

We have entered into master netting arrangements for our forward contracts that allow net settlements under certain conditions. Although netting is permitted, it is currently our policy and practice to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.

The following table sets forth the offsetting of derivative assets as of March 31, 2023:


(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of March 31, 2023	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
Forward Contracts	$	1,038	$	—	$	1,038	$	(1,038	)	$	—	$	—

The following table sets forth the offsetting of derivative liabilities as of March 31, 2023:


(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of March 31, 2023	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
Forward Contracts	$	3,190	$	—	$	3,190	$	(1,038	)	$	—	$	2,152