Derivative Financial Instruments

9 Months Ended

Jul. 01, 2017

Derivative Instruments and Hedges, Assets [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.

Derivatives designated as hedging instruments

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At July 1, 2017, we had interest rate swaps with notional amounts totaling $150,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 2.62%, including the applicable margin of 1.38% as of July 1, 2017. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps. These interest rate swaps mature at various times through June 23, 2020.

We use foreign currency contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, including the Philippine peso and the British pound, we had outstanding foreign currency forwards with notional amounts of $53,438 at July 1, 2017. These contracts mature at various times through May 31, 2019.

These interest rate swaps and foreign currency contracts are recorded in the consolidated condensed balance sheets at fair value and the related gains or losses are deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL). These deferred gains and losses are reclassified into the consolidated condensed statements of earnings during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency contracts are not perfectly effective in offsetting the change in the value of the payments and revenue being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in the first nine months of 2017 or 2016.

Derivatives not designated as hedging instruments

We also have foreign currency exposure on balances, primarily intercompany, that are denominated in foreign currencies and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the consolidated condensed statements of earnings. To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of $114,827 at July 1, 2017. The foreign currency contracts are recorded in the consolidated condensed balance sheets at fair value and resulting gains or losses are recorded in the consolidated condensed statements of earnings. We recorded the following gains or losses on foreign currency contracts which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense:

	Three Months Ended					Nine Months Ended
	July 1, 2017			July 2, 2016		July 1, 2017			July 2, 2016
Net gain (loss)	$	(1,440	)	$	1,942	$	(539	)	$	5,901

Summary of derivatives

The fair value and classification of derivatives is summarized as follows:

		July 1, 2017		October 1, 2016
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	460	$	379
Foreign currency contracts	Other assets	22		56
Interest rate swaps	Other current assets	544		52
Interest rate swaps	Other assets	307		69
	Total asset derivatives	$	1,333	$	556
Foreign currency contracts	Other accrued liabilities	$	1,455	$	4,080
Foreign currency contracts	Other long-term liabilities	267		448
Interest rate swaps	Other accrued liabilities	39		201
Interest rate swaps	Other long-term liabilities	37		—
	Total liability derivatives	$	1,798	$	4,729
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	954	$	422
Foreign currency contracts	Other accrued liabilities	$	282	$	76