Derivative Instruments and Hedging

9 Months Ended

Aug. 27, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging

DERIVATIVE INSTRUMENTS AND HEDGING

The Company is exposed to various market risks that arise from transactions entered into in the normal course of business. The Company selectively uses derivative instruments to manage certain such risks, including market risks associated with changes in foreign currency exchange rates and changes in interest rates. The Company does not hold or issue derivatives for trading or speculative purposes. A description of each type of derivative utilized by the Company to manage risk is included below. In addition, refer to Note 5 for information related to the fair value measurements utilized by the Company for each derivative type.

The Company may elect to designate certain derivatives as hedging instruments under the accounting standards for derivatives and hedging. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objective and strategy for undertaking hedge transactions.

All derivatives are recognized on the balance sheet at fair value and classified based on the instrument's maturity date. The total notional amount of derivatives outstanding at August 27, 2016 and November 28, 2015 was $43,008 and $48,797 respectively, which consists of undesignated derivative instruments to manage translational foreign exchange risk related to inter-company advances, derivatives designated as cash flow hedges to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies and derivatives designated as fair value hedges to manage the risk of changes in foreign currency exchange rates on certain firm sales commitments expected to be settled at future dates.

The following table presents the fair values of derivative instruments included within the Consolidated Condensed Balance Sheets at August 27, 2016 and November 28, 2015:

	August 27, 2016		November 28, 2015
Prepaid expenses and other current assets
Designated as hedging instruments:
Foreign exchange contracts	$	67	$	263
Unrecognized firm sales commitments	643		—
Total designated	$	710	$	263
Not designated as hedging instruments:
Foreign exchange contracts	22		155
Total not designated	$	22	$	155
Total derivatives	$	732	$	418
Accrued liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	446	$	—
Unrecognized firm sales commitments	—		384
Total designated	$	446	$	384
Not designated as hedging instruments:
Foreign exchange contracts	13		40
Total not designated	$	13	$	40
Total derivatives	$	459	$	424

The following table presents the amounts of income (expense) from derivative instruments affecting the Consolidated Condensed Statements of Earnings for the nine months endedAugust 27, 2016 and August 29, 2015:

	August 27, 2016			August 29, 2015
Fair value hedges
Foreign exchange contracts - Selling and administrative expenses	$	(981	)	$	400
Unrecognized firm sales commitments - Selling and administrative expenses	1,027			(534		)
Total designated	$	46		$	(134	)
Not designated as hedges
Foreign exchange contracts - Selling and administrative expenses	$	(838	)	$	21
Foreign exchange contracts - Other, net	6,112			641
Total not designated	$	5,274		$	662

Fair Value Hedges

The Company is exposed to changes in foreign currency exchange rates on certain unrecognized firm sales commitments expected to be settled at future dates. The Company may use foreign currency forward contracts to manage certain such risks. The Company designates each such contract as a fair value hedge from the date the firm sales commitment and derivative contract are entered into through the date the related sale occurs, at which point the foreign currency forward contract is de-designated as a fair value hedging instrument. All realized and unrealized gains or losses on such foreign currency forward contracts are recognized in income as incurred. Changes in the fair value of the related unrecognized firm sales commitments that arise due to fluctuations in foreign currency exchange rates are also reflected in income and as an asset or liability on the Consolidated Condensed Balance Sheets.

The total notional amount of foreign currency contracts designated as fair value hedges outstanding at August 27, 2016 and November 28, 2015 was $4,076 and $5,326, respectively. The cash flows associated with the periodic settlement of the Company's fair value hedges are reflected as a component of Cash flows from operating activities in the Consolidated Condensed Statements of Cash Flows.

Cash Flow Hedges

The Company is exposed to changes in foreign currency exchange rates on certain foreign currency denominated sales. The Company enters into foreign exchange forward and option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies. These transactions are designated as cash flow hedges. Under hedge accounting, the derivative carrying amount is measured at fair value each period and any resulting gain or loss is recorded in a separate component of shareholders' equity. Differences between the derivative and the hedged item may cause changes in their fair values to not offset completely, which is referred to as ineffectiveness. When the hedged transaction occurs, these amounts are released from shareholders' equity, in order that the transaction will be reflected in earnings at the rate locked in by the derivative. The effect of the hedge is reported in the same financial statement line item as the earnings effects of the hedged transaction. The cash flows associated with the periodic settlement of the Company's cash flow hedges are reflected as a component of Cash flows from operating activities in the Consolidated Condensed Statements of Cash Flows.

The total notional amount of foreign currency contracts designated as cash flow hedges outstanding at August 27, 2016 and November 28, 2015 was $10,681 and $0, respectively. During the three and nine months ended August 27, 2016, the Company re-classified an immaterial gain from accumulated other comprehensive income to sales within the Consolidated Condensed Statement of Earnings. Additionally, during the three and nine months ended August 27, 2016, the Company recorded an immaterial gain on hedge ineffectiveness within the Consolidated Condensed Statement of Earnings. The Company had no cash flow hedges during any period in 2015.

Undesignated Derivative Instruments

The Company is exposed to changes in foreign currency exchange rates on certain inter-company advances. The Company may use foreign currency forward contracts to manage certain such risks. These forward contracts are not designated as hedging instruments under the accounting standards for derivatives and hedging. These undesignated instruments are recorded at fair value as an asset or liability on the Consolidated Condensed Balance Sheets and all realized and unrealized gains or losses on such foreign currency forward contracts are recognized in Other, net on the Consolidated Condensed Statements of Earnings as incurred. The Company intends to settle the underlying inter-company advances in cash, therefore gains and losses on translation of the inter-company advances are also recognized in Other, net on the Consolidated Condensed Statements of Earnings as incurred. The cash flows associated with the periodic settlement of the Company's undesignated derivative instruments are reflected as a component of Cash flows from operating activities in the Consolidated Condensed Statements of Cash Flows.

The total notional amount of such foreign currency contracts not designated as hedging instruments outstanding as of August 27, 2016 and November 28, 2015 was $25,760 and $36,259, respectively. During the nine months ended August 27, 2016, the Company recorded realized and unrealized gains of $6,341 on such forward currency contracts and losses of $5,869 on translation of the underlying inter-company advances. During the nine months ended August 29, 2015, the Company recorded realized and unrealized gains of $641 on such forward currency contracts and losses of $1,638 on translation of the underlying inter-company advances.

Additionally, the total notional amount of foreign currency contracts de-designated as fair value hedges outstanding at August 27, 2016 and November 28, 2015 was $2,491 and $7,212, respectively.

Counterparty credit risk

By using derivative instruments to manage certain of its risk exposures, the Company is subject, from time to time, to credit risk and market risk on such derivative instruments. Credit risk arises from the potential failure of the counterparty to perform under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty owes the Company, which creates credit risk for the Company. The Company mitigates this credit risk by entering into transactions with only creditworthy counterparties. Market risk arises from the potential adverse effects on the value of the derivative that result from changes in foreign currency exchange rates or interest rates, depending on the nature of the derivative. The Company mitigates this market risk by establishing and monitoring parameters that limit the types and degrees of market risk that may be undertaken.