DERIVATIVES AND FAIR VALUE MEASUREMENTS

We manufacture, market and sell our products globally. For the fiscal year ended March 31, 2018, 39.3% of our sales were generated outside the U.S. in local currencies. We also incur certain manufacturing, marketing and selling costs in international markets in local currency.

Accordingly, our earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, our reporting currency. We have a program in place that is designed to mitigate our exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize for a period of time, the impact on our financial results from changes in foreign exchange rates. We utilize foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily the Japanese Yen and the Euro and to a lesser extent the Swiss Franc, Australian Dollar, Canadian Dollar and the Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation.

Designated Foreign Currency Hedge Contracts

All of our designated foreign currency hedge contracts as of March 31, 2018 and April 1, 2017 were cash flow hedges under ASC 815, Derivatives and Hedging ("ASC 815"). We record the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income (loss) until the related third-party transaction occurs. Once the related third-party transaction occurs, we reclassify the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, we would reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. We had designated foreign currency hedge contracts outstanding in the contract amount of $86.0 million as of March 31, 2018 and $68.4 million as of April 1, 2017. At March 31, 2018, losses of $2.7 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of March 31, 2018 mature within twelve months.

Non-Designated Foreign Currency Contracts

We manage our exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. We use foreign currency forward contracts as a part of our strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They are not designated as cash flow or fair value hedges under ASC 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings. We had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $36.3 million as of March 31, 2018 and $55.4 million as of April 1, 2017.

Interest Rate Swaps

On December 21, 2012, we entered into two interest rate swap agreements (the "Swaps") on a total notional value of $250.0 million of debt. We designated the Swaps as cash flow hedges of variable interest rate risk associated with $250.0 million of indebtedness. For fiscal 2018, 2017 and 2016, we recorded nominal activity in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges. The Swaps matured on August 1, 2017.

Fair Value of Derivative Instruments

The following table presents the effect of our derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in our consolidated statements of income (loss) and comprehensive income (loss) for the fiscal year ended March 31, 2018.



Derivative Instruments	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss			Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings			Location in Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)	Amount of Gain Excluded from Effectiveness Testing (*)			Location in Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(In thousands)
Designated foreign currency hedge contracts, net of tax	$	(2,732	)	$	(1,299	)	Net revenues, COGS and SG&A	$	1,118		Other expense, net
Non-designated foreign currency hedge contracts	—			—				$	(1,488	)	Other expense, net
Designated interest rate swaps, net of tax	$	(64	)	$	—		Other expense, net	$	—
^(*) We exclude the difference between the spot rate and hedge forward rate from our effectiveness testing.

We did not have fair value hedges or net investment hedges outstanding as of March 31, 2018 or April 1, 2017. As of March 31, 2018, no deferred tax assets were recognized for designated foreign currency hedges.

The following tables present the fair value of our derivative instruments as they appear in our consolidated balance sheets:



(In thousands)	Location in Balance Sheet	March 31, 2018		April 1, 2017
Derivative Assets:
Designated foreign currency hedge contracts	Other current assets	$	780	$	1,645
Non-designated foreign currency hedge contracts	Other current assets	324		218
Designated interest rate swaps	Other current assets	—		64
		$	1,104	$	1,927
Derivative Liabilities:
Designated foreign currency hedge contracts	Other current liabilities	$	1,445	$	894
Non-designated foreign currency hedge contracts	Other current liabilities	$	138	$	72
		$	1,583	$	966

Other Fair Value Measurements

Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes the following three-level hierarchy used for measuring fair value:


•	Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.


•	Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.


•	Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.

Our money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. We have classified our derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815 because these observable inputs are available for substantially the full term of our derivative instruments.

Fair Value Measured on a Recurring Basis

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following:



As of March 31, 2018	Level 1		Level 2		Total
(In thousands)
Assets
Money market funds	$	75,450	$	—	$	75,450
Designated foreign currency hedge contracts	—		780		780
Non-designated foreign currency hedge contracts	—		324		324
	$	75,450	$	1,104	$	76,554
Liabilities
Designated foreign currency hedge contracts	$	—	$	1,445	$	1,445
Non-designated foreign currency hedge contracts	—		138		138
	$	—	$	1,583	$	1,583



As of April 1, 2017	Level 1		Level 2		Total
(In thousands)
Assets
Money market funds	$	80,676	$	—	$	80,676
Designated foreign currency hedge contracts	—		1,645		1,645
Non-designated foreign currency hedge contracts	—		218		218
Designated interest rate swaps	—		64		64
	$	80,676	$	1,927	$	82,603
Liabilities
Designated foreign currency hedge contracts	$	—	$	894	$	894
Non-designated foreign currency hedge contracts	—		72		72
	$	—	$	966	$	966

Other Fair Value Disclosures

The Term Loan (which is carried at amortized cost), accounts receivable and accounts payable approximate fair value. Details pertaining to the Term Loan can be found in Note 12, Notes Payable and Long-Term Debt.