Note L - Derivatives and Hedging |
12 Months Ended |
|---|---|
Jun. 30, 2026 | |
| Notes to Financial Statements | |
| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
L. Derivatives and Hedging
We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to forecasted product sales denominated in foreign currencies and to other transactions of NAIE, our foreign subsidiary. As part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, we may use foreign exchange contracts in the form of forward contracts. There can be no guarantee any such contracts, to the extent we enter into such contracts, will be effective hedges against our foreign currency exchange risk.
During the year ended June 30, 2026 and prior, we entered into forward contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. dollar. These contracts were all settled as of June 30, 2026. For derivative instruments that are designated and qualify as cash flow hedges, we record the effective portion of the gain or loss on the derivative in accumulated other comprehensive income (OCI) as a separate component of stockholders’ equity and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized in earnings.
For foreign currency contracts designated as cash flow hedges, hedge effectiveness is measured using the spot rate. Changes in the spot-forward differential are excluded from the test of hedge effectiveness and are recorded currently in earnings as revenue. We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item as well as ensuring the assumptions we made at hedge inception have not materially changed. Although hedging relationships were terminated as a result of ineffective hedging for the years ended June 30, 2026 and June 30, 2025, as part of our debt refinancing, Wells Fargo required us to extinguish and settle our remaining outstanding foreign currency hedge contracts (see Note F). As a result, we net settled our remaining contracts as of May 11, 2026 resulting in a net settlement loss of $0.2 million, and we terminated our hedging line of credit with Wells Fargo. We are exploring opportunities with other lenders to establish a new foreign currency hedging credit line.
We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis.
As of June 30, 2026, no foreign exchange contracts were outstanding. During the year ended June 30, 2026, a net gain of approximately $1.6 million was recorded in OCI and reclassified into earnings. As of June 30, 2026, approximately $0.4 million of deferred taxes related to derivative instruments designated as cash flow hedges was recorded in OCI. As of June 30, 2025, a net loss of approximately $1.6 million, offset by approximately $0.4 million of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI.
During the year ended June 30, 2026, we recognized $0.9 million of net gains in OCI and reclassified $0.4 million of net gains and forward point amortization from OCI to Net Sales as well a net settlement loss of $0.2 million to Foreign exchange loss when we settled our remaining contracts on May 11, 2026 (see Note F). During the year ended June 30, 2025, we recognized $1.6 million of net losses in OCI and reclassified $0.2 million of losses and forward point amortization from OCI to Net Sales.
For foreign currency contracts not designated as cash flow hedges, changes in the fair value of the hedge are recorded directly to foreign exchange gain or loss in other income in an effort to offset the change in valuation of the underlying hedged item. During the year ended June 30, 2026, we entered into forward contracts in order to hedge foreign exchange risk associated with the lease liability at NAIE, which is denominated in Swiss Francs (CHF). As of June 30, 2026, there were no foreign exchange contracts not designated as cash flow hedges outstanding. |