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Derivative Financial Instruments | 6 Months Ended
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Mar. 31, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 10. Derivative Financial Instruments We enter into derivative transactions, specifically foreign currency forward contracts and options, to manage our exposure to foreign currency exchange risk in order to reduce earnings volatility. We do not enter into derivatives transactions for trading or speculative purposes. 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 31, 2021 |  |  | September 30, 2020 |  |  | March 31, 2021 |  |  | September 30, 2020 |
Derivative assets(1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward Contracts |  | $ | 2,470 |  |  | $ | 3 |  |  | $ | 3,414 |  |  | $ | 900 |
Options |  | $ | — |  |  | $ | — |  |  | $ | 962 |  |  | $ | — |
Derivative liabilities(2): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward Contracts |  | $ | — |  |  | $ | 306 |  |  | $ | 4,259 |  |  | $ | 767 |
(1) | As of March 31, 2021 and September 30, 2020, current derivative assets of $6.8 million and $0.9 million, respectively, are recorded in other current assets in the Consolidated Balance Sheets.
(2) | As of March 31, 2021 and September 30, 2020, current derivative liabilities of $4.3 million and $1.1 million, respectively, are recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets.
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 other expense, net. We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that they would be adversely affected by changes in Euro exchange rates. These contracts have maturities of up to approximately ten months. We do not designate these foreign currency options as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into options only as an economic hedge, any loss on the underlying Euro-denominated forecasted plan rate would be offset by the gain on the put option. Gains on put options are included in other expense, net. As of March 31, 2021 and September 30, 2020, we had outstanding forward contracts and options with notional amounts equivalent to the following:
Currency Hedged (in thousands) |  | March 31, 2021 |  |  | September 30, 2020 |
Canadian / U.S. Dollar |  | $ | 5,824 |  |  | $ | 6,847 |
Euro / U.S. Dollar(1) |  |  | 532,906 |  |  |  | 390,673 |
British Pound / U.S. Dollar |  |  | 1,459 |  |  |  | 6,328 |
Israeli Shekel / U.S. Dollar |  |  | 10,115 |  |  |  | 9,503 |
Japanese Yen / U.S. Dollar |  |  | 10,186 |  |  |  | 50,379 |
Swiss Franc / U.S. Dollar |  |  | 2,327 |  |  |  | 12,874 |
Swedish Krona / U.S. Dollar |  |  | 25,564 |  |  |  | 18,871 |
Chinese Renminbi / U.S. Dollar |  |  | 12,523 |  |  |  | 5,415 |
Taiwanese Dollar / U.S. Dollar |  |  | 7,876 |  |  |  | 1,482 |
All other |  |  | 13,506 |  |  |  | 10,090 |
Total |  | $ | 622,286 |  |  | $ | 512,462 |
(1) | As of March 31, 2021, $456.7 million of the Euro to U.S. Dollar outstanding notional amount relates to forward contracts and $76.2 million relates to options. As of September 30, 2020, all of the Euro to U.S. Dollar outstanding notional amount relates to forward contracts.
The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2021 and March 28, 2020:
(in thousands) |  |  |  | Three months ended |  |  | Six months ended |
|  | Location of Gain (Loss) |  | March 31, 2021 |  |  | March 28, 2020 |  |  | March 31, 2021 |  |  | March 28, 2020 |
Net realized and unrealized gain (loss), excluding the underlying foreign currency exposure being hedged |  | Other expense, net |  | $ | (3,033 | ) |  | $ | 1,189 |  |  | $ | (4,620 | ) |  | $ | 652 |
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 Sheets. 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 Sheets. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum duration of net investment hedge 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 31, 2021 and September 30, 2020, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:
Currency Hedged (in thousands) |  | March 31, 2021 |  |  | September 30, 2020 |
Euro / U.S. Dollar |  | $ | 165,784 |  |  | $ | 164,885 |
The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2021 and March 28, 2020:
(in thousands) |  |  |  | Three months ended |  |  | Six months ended |
|  | Location of Gain (Loss) |  | March 31, 2021 |  |  | March 28, 2020 |  |  | March 31, 2021 |  |  | March 28, 2020 |
Gain (loss) recognized in OCI |  | OCI |  | $ | 1,462 |  |  | $ | (2,140 | ) |  | $ | 2,041 |  |  | $ | (5,706 | )
Loss reclassified from OCI |  | OCI |  |  | (3,041 | ) |  |  | (6,016 | ) |  |  | (99 | ) |  |  | (6,778 | )
Gain recognized, excluded portion |  | Other expense, net |  |  | 426 |  |  |  | 962 |  |  |  | 733 |  |  |  | 2,191 |
As of March 31, 2021, 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. Offsetting Derivative Assets and Liabilities We have entered into master netting arrangements for our forward contracts 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 31, 2021:
(in thousands) |  | Gross Amounts Offset in the Consolidated Balance Sheets |  |  |  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheets |  |  |  |  |
As of March 31, 2021 |  | 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 |  | $ | 5,884 |  |  | $ | — |  |  | $ | 5,884 |  |  | $ | (4,259 | ) |  | $ | — |  |  | $ | 1,625 |
The following table sets forth the offsetting of derivative liabilities as of March 31, 2021:
(in thousands) |  | Gross Amounts Offset in the Consolidated Balance Sheets |  |  |  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheets |  |  |  |  |
As of March 31, 2021 |  | 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 |  | $ | 4,259 |  |  | $ | — |  |  | $ | 4,259 |  |  | $ | (4,259 | ) |  | $ | — |  |  | $ | — |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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