Derivatives and Hedging Activities

3 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

14.

DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s receivables and borrowings.

Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company

enters into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of its functional currency, the U.S. Dollar. Accordingly, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not use derivatives for speculative or trading purposes.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. 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 agreements without exchange of the underlying notional amount. During the three months ended September 30, 2024 and 2023, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. During the next 12 months, the Company estimates that an additional $3,010 will be reclassified as a decrease to interest expense.

As of September 30, 2024, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:


Interest Rate Derivative	Number of Instruments	Notional Amount
Interest rate swap	4	$	400,000

Cash Flow Hedges of Foreign Exchange Risk

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. Dollar. The Company, at times, uses forward contracts to manage its exposure to fluctuations in the GBP-EUR exchange rates. The Company designates these derivatives as cash flow hedges of foreign exchange risks.

For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified in the same period during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the next 12 months, the Company estimates that no amount relating to the foreign currency forward contracts will be reclassified to interest expense. As of September 30, 2024, the Company had no outstanding foreign currency derivatives that were used to hedge its foreign exchange risks.

Net Investment Hedges

The Company is exposed to fluctuations in foreign exchange rates on investments it holds in its European foreign entities and their exposure to the Euro. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in the foreign exchange rate on its foreign investment in Western Europe. Currency forward agreements involve fixing the USD-EUR exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency- fixed-rate payments over the life of the agreement.

For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCL as part of the cumulative translation adjustment. Amounts are reclassified out of AOCL into earnings when the hedged net investment is either sold or substantially liquidated.

As of September 30, 2024, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:


Foreign Currency Derivative	Number of Instruments	Notional Sold		Notional Purchased
Cross-currency swap	4	€	100,300	$	105,804

Fair Value Hedges

The Company is exposed to changes in the fair value of certain of its foreign denominated intercompany loans due to changes in foreign exchange spot rates. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in foreign exchange rates affecting gains and losses on intercompany loan principal and interest. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency-fixed-rate payments over the life of the agreement.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest and other financing expense, net.

Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. The earnings recognition of excluded components is presented in the same income statement line item as the earnings effect of the hedged transaction. During the next 12 months, the Company estimates that an additional $476 relating to cross currency swaps will be reclassified as a decrease to interest expense.

As of September 30, 2024, the Company had the following outstanding foreign currency derivatives that were used to hedge changes in fair value attributable to foreign exchange risk:


Foreign Currency Derivative	Number of Instruments	Notional Sold		Notional Purchased
Cross-currency swap	1	€	24,700	$	26,021

As of September 30, 2024 and June 30, 2024, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustment for fair value hedges:


	Carrying Amount of the Hedged Asset				Cumulative Amount of Fair Value Hedge Adjustment Included in the Carrying Amount of the Hedged Asset
	September 30, 2024		June 30, 2024		September 30, 2024		June 30, 2024
Intercompany loan receivable	$	27,548	$	26,465	$	1,083	$	(480	)

Designated Hedges

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheet as of September 30, 2024:


	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	Prepaid expenses and other current assets	$	3,008	Accrued expenses and other current liabilities	$	—
Interest rate swaps	Other noncurrent assets		—	Other noncurrent liabilities		104
Cross-currency swaps	Prepaid expenses and other current assets		2,389	Accrued expenses and other current liabilities		—
Cross-currency swaps	Other noncurrent assets		—	Other noncurrent liabilities		8,055
Total derivatives designated as hedging instruments		$	5,397		$	8,159

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheet as of June 30, 2024:


	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	Prepaid expenses and other current assets	$	7,455	Accrued expenses and other current liabilities	$	—
Interest rate swaps	Other noncurrent assets		5,151	Other noncurrent liabilities		—
Cross-currency swaps	Prepaid expenses and other current assets		2,376	Accrued expenses and other current liabilities		—
Cross-currency swaps	Other noncurrent assets		—	Other noncurrent liabilities		3,333
Total derivatives designated as hedging instruments		$	14,982		$	3,333

The following table presents the pre-tax effect of cash flow hedge accounting on AOCL for the three months ended September 30, 2024 and 2023:


Derivatives in Cash Flow Hedging Relationships	Amount of (Loss) Gain Recognized in AOCL on Derivatives					Location of Gain Reclassified from AOCL into Income	Amount of Gain Reclassified from AOCL into Income
	Three Months Ended September 30,						Three Months Ended September 30,
	2024			2023			2024		2023
Interest rate swaps	$	(7,366	)	$	5,478	Interest and other financing expense, net	$	2,336	$	2,281
Foreign currency forward contracts		—			41	Cost of sales		—		—
	$	(7,366	)	$	5,519		$	2,336	$	2,281

The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the consolidated statements of operations for the three months ended of September 30, 2024 and 2023:


	Location and Amount of Gain (Loss) Recognized in the Consolidated Statements of Operations on Cash Flow Hedging Relationships
	Three Months Ended September 30, 2024		Three Months Ended September 30, 2023
	Interest and other financing expense, net		Interest and other financing expense, net
The effects of cash flow hedging:
Gain on cash flow hedging relationships
Interest rate swaps
Amount of gain reclassified from AOCL into income	$	2,336	$	2,281

The following table presents the pre-tax effect of fair value hedge accounting on AOCL for the three months ended September 30, 2024 and 2023:


Derivatives in Fair value Hedging Relationships	Amount of (Loss) Gain Recognized in AOCL on Derivatives					Location of Gain Reclassified from AOCL into Income on Derivatives (Amount Excluded from Effectiveness Testing)	Amount of Gain Reclassified from AOCL into Income on Derivatives (Amount Excluded from Effectiveness Testing)
	Three Months Ended September 30,						Three Months Ended September 30,
	2024			2023			2024		2023
Cross-currency swaps	$	(809	)	$	572	Interest and other financing expense, net	$	123	$	123
	$	(809	)	$	572		$	123	$	123

The following table presents the pre-tax effect of the Company’s derivative financial instruments electing fair value hedge accounting on the consolidated statements of operations as of September 30, 2024 and 2023:


	Location and Amount of (Loss) Gain Recognized in the Consolidated Statements of Operations on Fair Value Hedging Relationships
	Three Months Ended September 30, 2024			Three Months Ended September 30, 2023
	Interest and other financing expense, net			Interest and other financing expense, net
The effects of fair value hedging:
Gain on fair value hedging relationships
Cross-currency swaps
Amount of (loss) gain reclassified from AOCL into (expense) income	$	(960	)	$	953

The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the consolidated statements of operations for the three months ended September 30, 2024 and 2023:


Derivatives in Net Investment Hedging Relationships	Amount of (Loss) Gain Recognized in AOCL on Derivatives					Location of Gain Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)	Amount of Gain Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
	Three Months Ended September 30,						Three Months Ended September 30,
	2024			2023			2024		2023
Cross-currency swaps	$	(3,282	)	$	2,316	Interest and other financing expense, net	$	495	$	495