DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company measures all derivatives at fair value on the Condensed 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.

At June 29, 2018, and September 29, 2017, the Company did not have any outstanding derivatives designated as hedging instruments. Derivatives not designated as hedging instruments were not material for any of the periods presented. See Note 5, "Fair Value" for the valuation of the Company’s derivative instruments. Also, see Note 1, "Summary of Significant Accounting Policies" in the Consolidated Financial Statements in the Company’s 2017 Annual Report 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 Condensed 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 in the same currency, with a single net amount payable by one party to the other. As of June 29, 2018, and September 29, 2017, 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 up to several times a quarter and range from one to thirteen 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 change in fair value of the derivatives in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets is reclassified to revenues in the Condensed Consolidated Statements of Earnings. Subsequent changes in fair value of the derivative instrument are recorded in selling, general and administrative expenses in the Condensed 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 Condensed Consolidated Balance Sheets and reclassifies these amounts into revenues in the Condensed 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.

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 June 29, 2018 and September 29, 2017, the Company did not have any outstanding foreign currency forward contracts designated as cash flow hedges.

During the nine months ended June 29, 2018, the Company recognized an unrealized loss of $0.9 million, in other comprehensive earnings on foreign currency forward contracts designated as cash flow hedges. The Company did not have any foreign currency forward contracts designated as cash flow hedges during the three months ended June 29, 2018 and the three and nine months ended June 30, 2017.

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



	Location and Amount Recognized in Earnings on Cash Flow Hedging Relationships
		Nine Months Ended
		June 29, 2018
(In millions)		Revenues
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings in which the effects of fair value and cash flow hedges are recorded		$	2,117.5

Loss on cash flow hedge relationships:
Foreign currency forward contracts:
Amount of loss reclassified from accumulated other comprehensive loss into earnings		$	(0.9	)

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 selling, general and administrative expenses in the Condensed 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 Company had the following outstanding foreign currency forward contracts relating to balance sheet hedging activities:



	June 29, 2018
(In millions)	Notional Value Sold		Notional Value Purchased
Australian Dollar	$	26.9	$	—
Brazilian Real	11.2		—
British Pound	31.4		0.7
Danish Krone	7.8		0.6
Euro	253.5		8.3
Hungarian Forint	2.7		—
Indian Rupee	17.7		—
Japanese Yen	43.0		—
Norwegian Krone	0.5		—
Polish Zloty	12.4		—
Singapore Dollar	—		0.3
South African Rand	8.2		—
Swedish Krona	4.9		—
Swiss Franc	—		38.7
Taiwan Dollar	5.4		—
Thai Baht	6.1		—
Totals	$	431.7	$	48.6

The following table presents the gains (losses) recognized in the Condensed 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 Instruments	Amount of Gain (Loss) Recognized in Net Earnings on Derivative Instruments
	Three Months Ended					Nine Months Ended
(In millions)	June 29, 2018		June 30, 2017			June 29, 2018		June 30, 2017
Selling, general and administrative expenses	$	25.5	$	(9.9	)	$	13.3	$	(2.5	)

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

Foreign Currency Forward and Option Contracts related to Sirtex

In February 2018, the Company entered into foreign currency forward contracts and a foreign currency option contract to economically hedge its foreign currency exchange rate risk on the consideration to be paid for the anticipated Sirtex acquisition. The foreign currency forward contracts allowed the Company to purchase a notional amount of A$793.0 million for $621.0 million on May 25, 2018. On May 25, 2018, the Company purchased the off-setting foreign currency forward contracts for a notional amount of $596.8 million. Also in February 2018, the Company paid a premium of $5.5 million for a foreign currency option that allowed the Company the right to purchase a notional amount of A$792.0 million for $641.5 million, which expired on May 23, 2018. Since the Company did not acquire Sirtex, the foreign currency option was not exercised.

The foreign currency forward contracts and option contract did not qualify for hedge accounting. As such, changes in the fair value were recognized in acquisition-related expenses on the Condensed Consolidated Statements of Earnings. In the three and nine months ended June 29, 2018, the Company recorded losses of $12.8 million and $24.2 million on the foreign currency forward contracts and $0.5 million and $5.5 million on the foreign currency option contract.

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 June 29, 2018, and September 29, 2017, the Company did not have any outstanding derivative instruments with credit-risk-related contingent features that were in a net liability position in the Company’s outstanding balance sheet hedges.