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Derivative Financial Instruments | 3 Months Ended
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Dec. 29, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments 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 three 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 interest income and other expense, net. As of December 29, 2018 and September 30, 2018, we had outstanding forward contracts with notional amounts equivalent to the following:
Currency Hedged | December 29, 2018 |  | September 30, 2018
| (in thousands)
Canadian / U.S. Dollar | 7,195 |  |  | 7,334 |
Euro / U.S. Dollar | 249,703 |  |  | 297,730 |
British Pound / U.S. Dollar | 7,616 |  |  | 7,074 |
Israeli Sheqel / U.S. Dollar | 7,424 |  |  | 9,778 |
Japanese Yen / U.S. Dollar | 27,810 |  |  | 37,456 |
Swiss Franc / U.S. Dollar | 12,875 |  |  | 11,944 |
Danish Kroner/ U.S. Dollar | 3,067 |  |  | 1,902 |
Swedish Kronor / U.S. Dollar | 13,562 |  |  | 18,207 |
Chinese Renminbi / U.S. Dollar | 8,981 |  |  | 9,010 |
All other | 9,282 |  |  | 5,521 |
Total | $ | 347,515 |  |  | $ | 405,956 |
The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the three months ended December 29, 2018 and December 30, 2017:
Derivatives Not Designated as Hedging Instruments |  | 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
|  |  |  | December 29, 2018 |  | December 30, 2017
|  |  |  | (in thousands)
Forward Contracts |  | Interest income and other expense, net |  | $ | (987 | ) |  | $ | 587 |
In the three months ended December 29, 2018 and December 30, 2017, foreign currency losses, net were $0.2 million and $1.5 million, respectively. Cash Flow Hedges Our foreign exchange risk management program objective is to identify foreign exchange exposures and implement appropriate hedging strategies to minimize earnings fluctuations resulting from foreign exchange rate movements. We designate certain foreign exchange forward contracts as cash flow hedges of Euro, Yen and SEK denominated intercompany forecasted revenue transactions (supported by third party sales). All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum duration of foreign exchange forward contracts is 15 months. Cash flow hedge relationships are designated at inception, and effectiveness is assessed prospectively and retrospectively using regression analysis monthly. As the forward contracts are highly effective in offsetting changes to future cash flows on the hedged transactions, we record the effective portion of changes in these cash flow hedges in accumulated other comprehensive income and subsequently reclassify it into earnings in the period during which the hedged transactions are recognized in earnings. Changes in the fair value of foreign exchange forward contracts due to changes in time value are included in 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 December 29, 2018 and September 30, 2018, we had outstanding forward contracts designated as cash flow hedges with notional amounts equivalent to the following:
Currency Hedged | December 29, 2018 |  | September 30, 2018
| (in thousands)
Euro / U.S. Dollar | $ | — |  |  | $ | 8,495 |
Japanese Yen / U.S. Dollar | — |  |  | 2,193 |
Swedish Kronor / U.S. Dollar | — |  |  | 1,708 |
Total | $ | — |  |  | $ | 12,396 |
The following table shows the effect of our derivative instruments designated as cash flow hedges in the Consolidated Statements of Operations for the three months ended December 29, 2018 and December 30, 2017 (in thousands):
Derivatives Designated as Hedging Instruments |  | Gain or (Loss) Recognized in OCI-Effective Portion |  | Location of Gain or (Loss) Reclassified from OCI into Income-Effective Portion |  | Gain or (Loss) Reclassified from OCI into Income-Effective Portion |  | Location of Gain or (Loss) Recognized-Ineffective Portion |  | Gain or (Loss) Recognized-Ineffective Portion
|  | Three months ended |  |  |  | Three months ended |  |  |  | Three months ended
|  | December 29, 2018 |  | December 30, 2017 |  |  |  | December 29, 2018 |  | December 30, 2017 |  |  |  | December 29, 2018 |  | December 30, 2017
Forward Contracts |  | $ | 187 |  |  | $ | (1,044 | ) |  | Total software revenue |  | $ | 627 |  |  | $ | (655 | ) |  | Interest income and other expense, net |  | $ | — |  |  | $ | (19 | )
As of December 29, 2018, we estimated that all amounts reported in accumulated other comprehensive income will be reclassified to income within the next twelve months. If an underlying forecast transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge would be immediately reclassified to interest income and other expense, net on the Consolidated Statements of Operations. For the three months ended December 29, 2018 and December 30, 2017, there were no such gains or losses. 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 income 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 income 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 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 income and subsequently reclassify them to foreign currency translation adjustment in accumulated other comprehensive income 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 December 29, 2018 and September 30, 2018, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:
Currency Hedged | December 29, 2018 |  | September 30, 2018
| (in thousands)
Euro / U.S. Dollar | $ | 140,492 |  |  | $ | — |
Total | $ | 140,492 |  |  | $ | — |
The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three months ended December 29, 2018 and December 30, 2017 (in thousands):
Derivatives Designated as Hedging Instruments |  | Gain or (Loss) Recognized in OCI-Effective Portion |  | Location of Gain or (Loss) Reclassified from OCI into Income-Effective Portion | Gain or (Loss) Reclassified from OCI into Income-Effective Portion |  | Location of Gain or (Loss) Excluded from Effectiveness Testing | Gain or (Loss) Recognized-Ineffective Portion
|  | Three months ended |  |  | Three months ended |  |  | Three months ended
|  | December 29, 2018 |  | December 30, 2017 |  |  | December 29, 2018 |  | December 30, 2017 |  |  | December 29, 2018 |  | December 30, 2017
Forward Contracts |  | $ | (698 | ) |  | $ | — |  |  | Accumulated other comprehensive income (loss) | $ | 773 |  |  | $ | — |  |  | Interest income and other expense, net | $ | 486 |  |  | $ | — |
As of December 29, 2018, we estimate that all amounts reported in accumulated other comprehensive income will be reclassified to income within the next three months. The following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:
| Fair Value of Derivatives Designated As Hedging Instruments |  | Fair Value of Derivatives Not Designated As Hedging Instruments
| December 29, 2018 |  | September 30, 2018 |  | December 29, 2018 |  | September 30, 2018
| (in thousands) |  | (in thousands)
Derivative assets (1): |  |  |  |  |  |  |
Forward Contracts | $ | 5 |  |  | $ | 440 |  |  | $ | 1,211 |  |  | $ | 2,449 |
Derivative liabilities (2): |  |  |  |  |  |  |
Forward Contracts | $ | 217 |  |  | $ | — |  |  | $ | 367 |  |  | $ | 3,419 |
(1) As of December 29, 2018 and September 30, 2018, $1,216 thousand and $2,889 thousand, current derivative assets, respectively, are recorded in other current assets, in the Consolidated Balance Sheets.
(2) As of December 29, 2018 and September 30, 2018 $584 thousand and $3,419 thousand current derivative liabilities, 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 December 29, 2018:
| Gross Amounts Offset in the Consolidated Balance Sheets |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheets |  |
As of December 29, 2018 | 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
| (in thousands)
Forward Contracts | $ | 1,216 |  |  | $ | — |  |  | $ | 1,216 |  |  | $ | (584 | ) |  | $ | — |  |  | $ | 632 |
The following table sets forth the offsetting of derivative liabilities as of December 29, 2018:
| Gross Amounts Offset in the Consolidated Balance Sheets |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheets |  |
As of December 29, 2018 | 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
| (in thousands)
Forward Contracts | $ | 584 |  |  | $ | — |  |  | $ | 584 |  |  | $ | (584 | ) |  | $ | — |  |  | $ | — |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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