Derivative Financial Instruments

6 Months Ended

Mar. 28, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our most significant foreign currency exposures relate to Western European countries, Japan, China, Israel, India and Canada. Our foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the U.S. Dollar value of anticipated transactions and balances denominated in foreign currency resulting from changes in foreign currency exchange rates. We enter into derivative transactions, specifically foreign currency forward contracts, to manage the exposures to foreign currency exchange risk to reduce earnings volatility. We do not enter into derivatives transactions for trading or speculative purposes.

Non-Designated Hedges

We hedge our net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately seven months. Generally, we

do not designate these foreign currency forward contracts as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in other income (expense), net.

As of March 28, 2020 and September 30, 2019, we had outstanding forward contracts with notional amounts equivalent to the following:



Currency Hedged (in thousands)	March 28, 2020		September 30, 2019
Canadian / U.S. Dollar	$	5,781	$	9,408
Euro / U.S. Dollar	304,482		308,282
British Pound / U.S. Dollar	6,713		3,756
Israeli Sheqel / U.S. Dollar	8,350		10,272
Japanese Yen / U.S. Dollar	18,935		37,462
Swiss Franc / U.S. Dollar	13,986		12,001
Danish Kroner/ U.S. Dollar	3,877		—
Swedish Kronor / U.S. Dollar	6,873		20,636
Singapore Dollar / U.S. Dollar	41,190		34,585
Chinese Renminbi / U.S. Dollar	5,692		52,466
Russian Ruble / U.S. Dollar	6,876		—
All other	3,921		9,487
Total	$	426,676	$	498,355

The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the six months ended March 28, 2020 and March 30, 2019:



Derivatives Not Designated as Hedging Instruments (in thousands)	Location of Gain or (Loss) Recognized in Income	Net realized and unrealized gain or (loss) (excluding the underlying foreign currency exposure being hedged)
		Three months ended					Six months ended
		March 28, 2020		March 30, 2019			March 28, 2020		March 30, 2019
Forward Contracts	Other income (expense), net	$	2,151	$	(1,752	)	$	2,844	$	(2,739	)

In the first three and six months ended March 28, 2020 foreign currency losses, net were $2.5 million and $2.6 million, respectively. In the first three and six months ended March 30, 2019 foreign currency losses, net were $0.2 million and $0.4 million, respectively.

Net Investment Hedges

We translate balance sheet accounts of subsidiaries with foreign functional currencies into the U.S. Dollar using the exchange rate at each balance sheet date. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss on the Consolidated Balance Sheet. We designate certain foreign exchange forward contracts as net investment hedges against exposure on translation of balance sheet accounts of Euro functional subsidiaries. Net investment hedges partially offset the impact of foreign currency translation adjustment recorded in accumulated other comprehensive loss on the Consolidated Balance Sheet. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheet and the maximum duration of foreign exchange forward contracts is approximately three months.

Net investment hedge relationships are designated at inception, and effectiveness is assessed retrospectively on a quarterly basis using the net equity position of Euro functional subsidiaries. As the forward contracts are highly effective in offsetting exchange rate exposure, we record changes in these net investment hedges in accumulated other comprehensive loss and subsequently reclassify them to

foreign currency translation adjustment in accumulated other comprehensive loss at the time of forward contract maturity. Changes in the fair value of foreign exchange forward contracts due to changes in time value are excluded from the assessment of effectiveness. Our derivatives are not subject to any credit contingent features. We manage credit risk with counterparties by trading among several counterparties and we review our counterparties’ credit at least quarterly.

As of March 28, 2020 and September 30, 2019, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:



Currency Hedged (in thousands)	March 28, 2020		September 30, 2019
Euro / U.S. Dollar	$	182,095	$	183,396
Total	$	182,095	$	183,396

The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the second quarter and first six months ended March 28, 2020 and March 30, 2019 (in thousands):



Derivatives Designated as Hedging Instruments	Gain or (Loss) Recognized in OCI					Location of Gain or (Loss) Reclassified from OCI	Gain or (Loss) Reclassified from OCI						Location of Gain or (Loss) Excluded from Effectiveness Testing	Gain or (Loss) Recognized-Excluded Portion
	Three months ended						Three months ended							Three months ended
	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019				March 28, 2020		March 30, 2019
Forward Contracts	$	(2,140	)	$	1,466	Accumulated other comprehensive loss	$	(6,016	)	$	(1,813	)	Other income (expense), net	$	962	$	1,107

	Six months ended						Six months ended							Six months ended
	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019				March 28, 2020		March 30, 2019
Forward Contracts	$	(5,706	)	$	768	Accumulated other comprehensive loss	$	(6,778	)	$	(1,040	)	Other income (expense), net	$	2,191	$	1,593

As of March 28, 2020, we estimate that all amounts reported in accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.

The following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:



(in thousands)	Fair Value of Derivatives Designated As Hedging Instruments				Fair Value of Derivatives Not Designated As Hedging Instruments
	March 28, 2020		September 30, 2019		March 28, 2020		September 30, 2019
Derivative assets ⁽¹⁾:
Forward Contracts	$	—	$	1,674	$	2,708	$	1,390
Derivative liabilities ⁽²⁾:
Forward Contracts	$	1,841	$	—	$	2,233	$	2,771


(1)	As of March 28, 2020 and September 30, 2019, current derivative assets of $2.7 million and $3.1 million, respectively, are recorded in other current assets in the Consolidated Balance Sheets.


(2)	As of March 28, 2020 and September 30, 2019, current derivative liabilities of $4.1 million and $2.8 million, respectively, are recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Offsetting Derivative Assets and Liabilities

We have entered into master netting arrangements that allow net settlements under certain conditions. Although netting is permitted, it is currently our policy and practice to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.

The following table sets forth the offsetting of derivative assets as of March 28, 2020:



(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of March 28, 2020	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
Forward Contracts	$	2,708	$	—	$	2,708	$	(2,708	)	$	—	$	—

The following table sets forth the offsetting of derivative liabilities as of March 28, 2020:



(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of March 28, 2020	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
Forward Contracts	$	4,074	$	—	$	4,074	$	(2,708	)	$	—	$	1,366