Derivative Financial Instruments

3 Months Ended

Jan. 02, 2021

Derivative Instruments and Hedges, Assets [Abstract]

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

Derivatives designated as hedging instruments

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, the British pound and the Czech koruna, we had outstanding foreign currency forwards with notional amounts of $28,357 at January 2, 2021. These contracts mature at various times through November 26, 2021.

We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of January 2, 2021, we had no outstanding net investment hedges.

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 January 2, 2021, we had no outstanding interest rate swaps.

These foreign currency contracts, net investment hedges and interest rate swaps are recorded in the Consolidated Condensed Balance Sheets at fair value and the related gains or losses are deferred in Shareholders’ Equity as a component of Accumulated Other Comprehensive Income (AOCIL). These deferred gains and losses are reclassified into the Consolidated Condensed Statements of Earnings, as necessary, during the periods in which the related payments or receipts affect earnings. However, to the extent the foreign currency contracts and interest rate swaps are not perfectly effective in offsetting the change in the value of the payments and revenue being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in the first three months of 2021 or 2020.

Derivatives not designated as hedging instruments

We also have foreign currency exposure on balances, primarily intercompany, that are denominated in foreign currencies and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of $141,712 at January 2, 2021. The foreign currency contracts are recorded in the Consolidated Condensed Balance Sheets at fair value and resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. We recorded the following gains or losses on foreign currency contracts which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense:

Three Months Ended

Statements of Earnings location

January 2,
2021

December 28,
2019

Net gain

Foreign currency contracts

Other

3,984

1,571

Summary of derivatives

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


	Balance Sheets location	January 2, 2021		October 3, 2020
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	2,063	$	1,818
Foreign currency contracts	Other assets	—		169



	Total asset derivatives	$	2,063	$	1,987
Foreign currency contracts	Accrued liabilities and other	$	27	$	169




	Total liability derivatives	$	27	$	169
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	1,200	$	1,044
Foreign currency contracts	Accrued liabilities and other	$	163	$	245