Derivative Financial Instruments

12 Months Ended

Sep. 29, 2018

Derivative Instrument Detail [Abstract]

We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.

Derivatives designated as hedging instruments

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At September 29, 2018, we had interest rate swaps with notional amounts totaling $150,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 2.87%, including the applicable margin of 1.63% as of September 29, 2018. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps. These interest rate swaps mature at various times through June 23, 2020.

We use foreign currency contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, including the Philippine peso and the British pound, we had outstanding foreign currency contracts with notional amounts of $48,799 at September 29, 2018. These contracts mature at various times through May 29, 2020.

These interest rate swaps and foreign currency contracts are recorded on the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL). These deferred gains and losses are reclassified into the consolidated statements of earnings during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency contracts are not perfectly effective in offsetting the change in the value of the payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in 2018, 2017 or 2016.

We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of September 29, 2018, we had no outstanding net investment hedges.

Derivatives not designated as hedging instruments

We also have foreign currency exposure on balances, primarily intercompany, that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the consolidated statements of earnings. To minimize foreign currency exposure, we have foreign currency contracts with notional amounts of $96,267 at September 29, 2018. The foreign currency contracts are recorded in the consolidated balance sheets at fair value and resulting gains or losses are recorded in the consolidated statements of earnings. We recorded a net loss of $3,104 in 2018 and a net loss of $566 in 2017 on the foreign currency contracts. These losses are included in other expense and generally offset the gains and losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense.

Summary of derivatives

The fair value and classification of derivatives is summarized as follows:



		September 29, 2018		September 30, 2017
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	659	$	551
Foreign currency contracts	Other assets	41		50
Interest rate swaps	Other current assets	1,444		552
Interest rate swaps	Other assets	322		314
	Total asset derivatives	$	2,466	$	1,467
Foreign currency contracts	Other accrued liabilities	$	1,842	$	1,434
Foreign currency contracts	Other long-term liabilities	464		244
Interest rate swaps	Other accrued liabilities	—		10
Interest rate swaps	Other long-term liabilities	—		15
	Total liability derivatives	$	2,306	$	1,703
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	285	$	95
Foreign currency contracts	Other accrued liabilities	$	87	$	383