Derivative Financial Instruments

9 Months Ended

Jun. 27, 2020

Derivative Instruments and Hedges, Assets [Abstract]

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 June 27, 2020, we had no outstanding interest rate swaps.

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, the British pound and the Czech koruna, we had outstanding foreign currency forwards with notional amounts of $47,920 at June 27, 2020. These contracts mature at various times through November 26, 2021.

We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of June 27, 2020, we had no outstanding net investment hedges.

These interest rate swaps, foreign currency contracts and net investment hedges 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 (Loss), as necessary, 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 2020 or 2019.

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 (Loss). To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of $99,305 at June 27, 2020. 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 (Loss). 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
	Statements of Earnings (Loss) location	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Net gain (loss)
Foreign currency contracts	Other	$	(423	)	$	(574	)	$	(1,194	)	$	195

Summary of derivatives

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



	Balance Sheets location	June 27, 2020		September 28, 2019
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	1,360	$	1,060
Foreign currency contracts	Other assets	162		261
Interest rate swaps	Other current assets	—		57
	Total asset derivatives	$	1,522	$	1,378
Foreign currency contracts	Accrued liabilities and other	$	550	$	736
Foreign currency contracts	Other long-term liabilities	9		152
	Total liability derivatives	$	559	$	888
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	560	$	93
Foreign currency contracts	Accrued liabilities and other	$	904	$	359