Quarterly report pursuant to Section 13 or 15(d)

Derivatives and Hedging Instruments

v3.23.2
Derivatives and Hedging Instruments
 9 Months Ended
Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Instruments Derivatives and Hedging Instruments
The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. At June 30, 2023 and September 30, 2022, derivative instruments were reflected on a gross-basis in the consolidated balance sheets as follows:
Derivatives: June 30, 2023 September 30, 2022
Interest Rate Swaps Cross- Currency Swaps Interest Rate Swaps Cross- Currency Swaps
Current assets:    
Other current assets $ 365  $ —  $ 3,358  $ — 
Long-term assets:    
Other assets 1,369  —  7,341  3,722 
Current liabilities:    
Other current liabilities (127) —  —  — 
Long-term liabilities:    
Other liabilities (436) (4,368) —  — 
Total derivatives $ 1,171  $ (4,368) $ 10,699  $ 3,722 

The following table presents information related to interest rate swaps entered into by the Company and designated as cash flow hedges:
June 30, 2023 September 30, 2022
Notional amount $ 175,000  $ 125,000 
Weighted-average maturity period (years) 4.4 3.1
Weighted-average received rate 5.14  % 3.14  %
Weighted-average pay rate 3.83  % 1.04  %

The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. In order to transition the Company's swaps from LIBOR-based to SOFR-based rates, the LIBOR-based swaps were settled during the second quarter of fiscal 2023, resulting in cash proceeds of $10,474. Concurrently, the Company entered into new interest rate swaps with SOFR-based rates with a notional amount of $175,000. The interest rate swaps have been designated as cash flow hedges of future variable interest payments which are considered probable of occurring.  Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.
Note 8.   Derivatives and Hedging Instruments (continued)

The fair value of the interest rate swaps reflected a net unrealized gain of $1,171 ($876 after tax) at June 30, 2023 and an unrealized gain of $10,699 ($7,937 after tax) at September 30, 2022, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Unrecognized gains of $9,263 ($6,922 after tax) related to the terminated LIBOR-based swaps were also included in AOCI as of June 30, 2023. Assuming market rates remain constant with the rates at June 30, 2023, a gain (net of tax) of approximately $3,550 included in AOCI is expected to be recognized in earnings over the next twelve months.

The Company has a U.S. Dollar/Euro cross currency swap with a notional amount of $81,392, as of June 30, 2023 and September 30, 2022, which has been designated as a net investment hedge of foreign operations. The swap contract matures in September 2027. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A loss of $3,265 (net of income taxes of $1,103) and a gain of $2,782 (net of income taxes of $940), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at June 30, 2023 and September 30, 2022, respectively. Income of $284 and $866, which represented the recognized portion of the fair value of cross currency swaps excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for the three and nine months ended June 30, 2023, respectively. Income of $428 and $1,213, which represented the recognized portion of the fair value of cross currency swaps excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for the three and nine months ended June 30, 2022, respectively. At June 30, 2023 and September 30, 2022, the swaps totaled $4,368 and $3,722, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively.

Refer to Note 12, "Accumulated Other Comprehensive Income" for further details regarding amounts recorded in AOCI and the Consolidated Statements of Income (Loss) related to derivatives.