Derivative Financial Instruments

12 Months Ended

Oct. 03, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

We often use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. Also, we may enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings could adversely be 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, and in our consolidated statements of income for those derivatives designated as fair value hedges. The derivative contracts to hedge interest exposure are categorized within Level 2 of the fair value hierarchy.

In fiscal 2018, we entered into five interest rate swap agreements that we designated as cash flow hedges to fix the interest rates on the borrowings under our term loan facility. As of October 3, 2021, the notional principal of our outstanding interest swap agreements was $212.5 million ($42.5 million each.) The interest rate swaps have a fixed interest rate of 2.79% and expire in July 2023 for all five agreements. At October 3, 2021 and September 27, 2020, the fair value of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $(9.4) million and $(15.5) million, respectively, of which we expect to reclassify $5.4 million from accumulated other comprehensive loss to interest expense within the next 12 months.

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

		Fair Value of Derivative Instruments as of
	Balance Sheet Location	October 3, 2021		September 27, 2020
		(in thousands)
Interest rate swap agreements	Other current liabilities	$	9,394	$	15,512

Changes in the fair value of the interest rate swap agreements are presented on the consolidated statements of comprehensive income as follows:

	Fiscal Year Ended
	October 3, 2021	September 27, 2020	September 29, 2019
	(in thousands)
(Loss) gain recognized in other comprehensive income, net of tax
Interest rate swap agreements	6,117	(4,638)	(12,125)

There were no ineffective portions of derivative instruments. Accordingly, no amounts were excluded from effectiveness testing for our interest rate swap agreements. We had no other derivative instruments that were not designated as hedging instruments for fiscal 2021, 2020 and 2019.