Derivative Instruments and Hedging Activities

6 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our currency exchange contracts and interest rate swaps are designated as cash flow hedges and qualify as hedging instruments. We also have derivatives which are not designated as cash flow hedges and, therefore, are accounted for and reported under foreign currency guidance. Regardless of designation for accounting purposes, we believe all of our derivative instruments are hedges of transactional risk exposures. The fair value of our outstanding designated and undesignated derivative assets and liabilities are reported in the Consolidated Balance Sheets as follows: 

	March 31, 2018
	Prepaid Expenses and Other Current Assets		Other Accrued Liabilities
Designated hedge derivatives
Cash flow derivatives	$	94	$	1,432
Interest rate swaps	6,925		—
Total designated hedge derivatives	7,019		1,432
Undesignated hedge derivatives
Balance sheet derivatives	—		235
Total hedge derivatives	$	7,019	$	1,667

	September 30, 2017
	Prepaid Expenses and Other Current Assets		Other Accrued Liabilities
Designated hedge derivatives
Cash flow derivatives	$	73	$	551
Interest rate swaps	3,499		—
Total designated hedge derivatives	3,572		551
Undesignated hedge derivatives
Balance sheet derivatives	77		—
Total hedge derivatives	$	3,649	$	551

A reconciliation of the net fair value of designated hedge derivatives subject to master netting arrangements that are recorded in the Consolidated Balance Sheets to the net fair value that could have been reported in the Consolidated Balance Sheets are as follows: 

	Gross Recognized Amount		Gross Offset Amount		Net Amount Presented		Derivatives Subject to Offset			Cash Collateral Received		Net Amount 1
March 31, 2018
Assets	$	7,019	$	—	$	7,019	$	(94	)	$	—	$	6,925
Liabilities	1,432		—		1,432		(94		)	—		1,338
September 30, 2017
Assets	$	3,572	$	—	$	3,572	$	(210	)	$	—	$	3,362
Liabilities	551		—		551		(210		)	—		341

¹  Net fair value of designated hedge derivatives that could have been reported in the Consolidated Balance Sheets.

Cash Flow Hedging – Currency Risks

Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Qualifying gains and losses related to changes in the market value of these contracts are reported as a component of AOCI within shareholders' equity in the Consolidated Balance Sheets and reclassified into earnings in the same period during which the underlying hedged transaction affects earnings. The effective portion of the cash flow hedges represents the change in fair value of the hedge that offsets the change in the functional currency value of the hedged item. We periodically assess whether our currency exchange contracts are effective and, when a contract is determined to be no longer effective as a hedge, we discontinue hedge accounting prospectively. Subsequent changes in the market value of ineffective currency exchange contracts are recognized as an increase or decrease in revenue in the Consolidated Statements of Income as that is the same line item in which the underlying hedged transaction is reported. 

As of March 31, 2018 and September 30, 2017, we had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $47,269 and $29,136, respectively. Upon netting offsetting contracts to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding was $43,576 and $24,093 as of March 31, 2018 and September 30, 2017, respectively. As of March 31, 2018, the net market value of the foreign currency exchange contracts was a net liability of $1,338, consisting of $94 in assets and $1,432 in liabilities. As of September 30, 2017, the net market value of the foreign currency exchange contracts was a net liability of $478, consisting of $73 in assets and $551 in liabilities.

The pretax amounts recognized in AOCI on currency exchange contracts, including (gains) losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in other comprehensive income (loss) (OCI), are as follows:

	Three Months Ended						Six Months Ended
	March 31, 2018			April 1, 2017			March 31, 2018			April 1, 2017
Beginning unrealized net gain (loss) in AOCI	$	(444	)	$	1,423		$	(443	)	$	(400	)
Net (gain) loss reclassified into revenue (effective portion)	1,146			(318		)	1,304			(737		)
Net gain (loss) recognized in OCI (effective portion)	(1,794		)	(1,220		)	(1,953		)	1,022
Ending unrealized net gain (loss) in AOCI	$	(1,092	)	$	(115	)	$	(1,092	)	$	(115	)

The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was $4 and $5 in the three and six months ended March 31, 2018, respectively, and $6 and $7 in the three and six months ended April 1, 2017, respectively. As of March 31, 2018, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net loss of $1,001. The maximum remaining maturity of any forward or optional contract as of March 31, 2018 was 1.9 years.

Interest Rate Swaps

On October 20, 2016, we entered into a floating to fixed interest rate swap agreement to mitigate our exposure to interest rate increases related to a portion of our tranche B term loan facility. The total notional amount of the interest rate swap was $255,000 as of March 31, 2018. The interest rate swap agreement expires April 3, 2021. As a result of this agreement, every month we pay fixed interest at 1.256% in exchange for interest received at one month U.S. LIBOR. The market value of the interest rate swap as of March 31, 2018 was an asset of $6,925. The interest rate swap has been designated as a cash flow hedge. As a result, changes in the fair value of the interest rate swap are recorded in AOCI within shareholders' equity in the Consolidated Balance Sheets.

The pretax amounts recognized in AOCI on interest rate swaps, including (gains) losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in OCI, are as follows:

	Three Months Ended						Six Months Ended
	March 31, 2018			April 1, 2017			March 31, 2018			April 1, 2017
Beginning unrealized net gain (loss) in AOCI	$	5,027		$	4,267		$	3,499		$	—
Net (gain) loss reclassified into interest expense (effective portion)	(220		)	416			(239		)	416
Net gain (loss) recognized in OCI (effective portion)	2,118			(373		)	3,665			3,894
Ending unrealized net gain (loss) in AOCI	$	6,925		$	4,310		$	6,925		$	4,310

As of March 31, 2018, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $2,113.

Foreign Currency Balance Sheet Derivatives

We also use foreign currency derivative contracts to maintain the functional currency value of monetary assets and liabilities denominated in non-functional foreign currencies. The gains and losses related to the changes in the market value of these derivative contracts are included in other income (expense), net in the Consolidated Statements of Income. 

As of March 31, 2018 and September 30, 2017, we had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $66,223 and $52,208, respectively. Upon netting offsetting contracts by counterparty banks to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding as of March 31, 2018 and September 30, 2017 was $18,150 and $14,762, respectively. As of March 31, 2018 and September 30, 2017, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of $235 and a net asset of $77, respectively.

The net gain (loss) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts are as follows:

	Three Months Ended						Six Months Ended
	March 31, 2018			April 1, 2017			March 31, 2018			April 1, 2017
Net gain (loss) recognized in other income (expense), net	$	(848	)	$	(432	)	$	(1,027	)	$	(11	)