Derivative Instruments and Hedging Activities

12 Months Ended

Sep. 27, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company measures all derivatives at fair value on the Consolidated Balance Sheets. The accounting for gains or losses resulting from changes in the fair value of those derivatives depends upon the use of the derivative and whether it qualifies for hedge accounting.

		September 27, 2019
(In millions)	Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	$	2.8
Total derivatives		$	2.8

As of September 28, 2018, the Company did not have any outstanding derivatives designated as hedging instruments. As of September 27, 2019, and September 28, 2018, the fair value of the Company's derivatives not designated as hedging instruments were not material. Also, see Note 1, "Summary of Significant Accounting Policies," for the credit risk associated with the Company’s derivative instruments.

Offsetting of Derivatives

The Company presents its derivative assets and derivative liabilities on a gross basis on the Consolidated Balance Sheets. However, under agreements containing provisions on netting with certain counterparties of foreign exchange contracts, subject to applicable requirements, the Company is allowed to net-settle transactions on the same date in the same currency, with a single net amount payable by one party to the other. As of September 27, 2019, and September 28, 2018, there were no potential effects of rights of setoff associated with derivative instruments. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.

Cash Flow Hedging Activities

The Company has many transactions denominated in foreign currencies and addresses certain of those financial exposures through a risk management program that includes the use of derivative financial instruments. The Company sells products throughout the world, often in the currency of the customer’s country, and may hedge certain of the larger foreign currency transactions when they are either not denominated in the relevant subsidiary’s functional currency or the U.S. Dollar. These foreign currency sales transactions are hedged using foreign currency forward contracts. The Company may use other derivative instruments in the future. The Company does not enter into foreign currency forward contracts for speculative or trading purposes. Foreign currency forward contracts are entered into several times a quarter and range from one to fifteen months in maturity.

The hedges of foreign currency denominated forecasted revenues are designated and accounted for as cash flow hedges. The designated cash flow hedges de-designate when the anticipated revenues associated with the transactions are recognized and the effective portion in accumulated other comprehensive loss on the Consolidated Balance Sheets is reclassified to revenues in the Consolidated Statements of Earnings. Subsequent changes in fair value of the derivative instrument are recorded in other income, net, in the Consolidated Statements of Earnings to offset changes in fair value of the resulting non-functional currency receivables. For derivative instruments that are designated and qualified as cash flow hedges, the Company formally documents for each derivative instrument at the hedge’s inception, the relationship between the hedging instrument (foreign currency forward contract) and hedged item (forecasted foreign currency revenues), the nature of the risk being hedged and its risk management objective and strategy for undertaking the hedge. The Company records the gain or loss on the derivative instruments that are designated and qualified as cash flow hedges in accumulated other comprehensive loss on the Consolidated Balance Sheets and reclassifies these amounts into revenues in the Consolidated Statements of Earnings in the period in which the hedged transaction is recognized in earnings. The Company assesses hedge effectiveness both at the onset of the hedge and

on an ongoing basis using regression analysis. The time value of the derivative and hedged item is included in the assessment of hedge effectiveness.

The Company had the following outstanding foreign currency forward contracts that were entered into to hedge forecasted revenues and designated as cash flow hedges:

	September 27, 2019
(In millions)	Notional Value Sold
Euro	$	76.5
Japanese Yen	56.7
	$	133.2

At the inception of the hedge relationship and quarterly thereafter, the Company assesses whether the likelihood of meeting the forecasted cash flow is highly probable. As of September 28, 2018, the Company did not have any foreign currency forward contracts designated as cash flow hedges.

The following table presents the amounts, before tax, recognized in accumulated other comprehensive loss on the Consolidated Balance Sheets that are related to the foreign currency forward contracts designated as cash flow hedges:

	Gain (Loss) Recognized in Other Comprehensive Earnings (Loss)
	Fiscal Years
(In millions)	2019		2018			2017
Foreign currency forward contracts	$	3.0	$	(0.9	)	$	—

As of September 27, 2019, the net unrealized gain on derivatives, before tax, of $2.8 million was included in accumulated other comprehensive loss on the Consolidated Balance Sheets and is expected to be reclassified to earnings over the next 12 months.

The effect of cash flow hedge accounting on the Consolidated Statements of Earnings was as follows:

	Location and Amount of Loss Recognized in Earnings (Loss) on Cash Flow Hedging Relationships
		Twelve Months Ended
		September 27,		September 28,			September 29,
		2019		2018			2017
(In millions)		Revenues		Revenues			Revenues
Total amounts of income and expense line items presented in the Consolidated Statement of Earnings in which the effects of fair value and cash flow hedges are recorded		$	3,225.1	$	2,919.1		$	2,619.3
Gain (loss) on cash flow hedge relationships:
Foreign exchange contracts:
Amount gain (loss) reclassified from other comprehensive earnings (loss) into earnings		$	0.2	$	(0.9	)	$	—

In fiscal year 2018, the Company adopted ASU 2017-12 and excluded the ineffective portion of the cash flow hedge from the assessment of effectiveness.

Balance Sheet Hedging Activities

The Company also hedges balance sheet exposures from its various subsidiaries and business units where the U.S. Dollar is the functional currency. The Company enters into foreign currency forward contracts to minimize the short-term impact of foreign currency fluctuations on monetary assets and liabilities denominated in currencies other than the U.S. Dollar functional currency. The foreign currency forward contracts are short term in nature, typically with a maturity of approximately one month, and are based on the net forecasted balance sheet exposure. For derivative instruments not designated as hedging instruments, changes in their fair values are recognized in other income, net in the Consolidated Statements of Earnings.

Changes in the values of these hedging instruments are offset by changes in the values of foreign-currency-denominated assets and liabilities. Variations from the forecasted foreign currency assets or liabilities, coupled with a significant currency rate movement, may result in a material gain or loss if the hedges are not effectively offsetting the change in value of the foreign currency asset or liability. Other than foreign exchange hedging activities, the Company has no other free-standing or embedded derivative instruments.

The notional amount of the Company's outstanding foreign currency forward contracts:

(In millions)	September 27, 2019		September 28, 2018
Notional value sold	$	385.0	$	398.3
Notional value purchased	$	52.3	$	70.3

The following table presents the gains (losses) recognized in the Company's Consolidated Statements of Earnings related to the foreign currency forward contracts that are not designated as hedging instruments.

Location of Gain (Loss) Recognized in Net Earnings on Derivative	Amount of Gain (Loss) Recognized in Net Earnings on Derivative
	Fiscal Years
(In millions)	2019		2018		2017
Other income, net	$	18.1	$	19.5	$	(10.9	)

The gains (losses) on these derivative instruments were significantly offset by the gains (losses) resulting from the remeasurement of monetary assets and liabilities denominated in currencies other than the U.S. Dollar functional currency.

Contingent Features

Certain of the Company’s derivative instruments are subject to master agreements which contain provisions that require the Company, in the event of a default, to settle the outstanding contracts in net liability positions by making settlement payments in cash or by setting off amounts owed to the counterparty against any credit support or collateral held by the counterparty. As of September 27, 2019, and September 28, 2018, the Company did not have any outstanding derivative instruments with credit-risk-related contingent features that were in a net liability position.