Derivative Financial Instruments

We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. We enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. Our hedging program is not designated for trading or speculative purposes.

We recognize derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow hedges in our consolidated balance sheets as accumulated other comprehensive income (loss), and in our consolidated statements of income for those derivatives designated as fair value hedges.

In the fourth quarter of fiscal 2018, we entered into five interest rate swap agreements that we designated as cash flow hedges to fix the interest rate on the $250.0 million term loan facility under our Second Amended and Restated Credit Agreement. The interest rate swaps total $250.0 million and have a fixed interest rate of 2.79% and expire in July 2023. At December 30, 2018 and September 30, 2018, the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $2.8 million and $(1.3) million, respectively, all of which we expect to be reclassified from accumulated other comprehensive income (loss) to interest expense through July 2023 when the agreements expire.

The fair values of our outstanding derivatives designated as hedging instruments were as follows:



		Fair Value of Derivative Instruments as of
	Balance Sheet Location	December 30, 2018			September 30, 2018
		(in thousands)
Interest rate swap agreements	Other current (liabilities) assets	$	(2,849	)	$	1,244

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on income and other comprehensive income was $(4.0) million and $0.8 million for the first three months of fiscal 2019 and the fiscal year ended September 30, 2018, respectively. Additionally, there were no ineffective portions of derivative instruments. Accordingly, no amounts were excluded from effectiveness testing for our interest rate swap agreements.