DERIVATIVES AND FAIR VALUE MEASUREMENTS

We manufacture, market and sell our products globally. During the three and nine months ended December 30, 2017, 39.8% and 38.7% of our sales were generated outside the U.S., generally in foreign 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. However, 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 December 30, 2017 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 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 $73.3 million as of December 30, 2017 and $68.4 million as of April 1, 2017. At December 30, 2017, losses of $2.3 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of December 30, 2017 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 $33.4 million as of December 30, 2017 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 amount 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 the nine months ended December 30, 2017 and the three and nine months ended December 31, 2016, we recorded nominal activity in accumulated other comprehensive loss to recognize the effective portion of the fair value of interest rate swaps that qualify as cash flow hedges. No activity was recorded during the three months ended December 30, 2017 as 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 (loss) income and comprehensive income for the nine months ended December 30, 2017:



(In thousands)	Amount of (Loss) Gain Recognized in Accumulated Other Comprehensive Loss			Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings			Location in Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income	Amount of Gain (Loss) Excluded from Effectiveness Testing			Location in Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
Designated foreign currency hedge contracts, net of tax	$	(2,338	)	$	(633	)	Net revenues, COGS, and SG&A	$	862		Interest and other expense, net
Non-designated foreign currency hedge contracts	—			—				$	(1,076	)	Interest and other expense, net
Designated interest rate swaps, net of tax	$	(64	)				Interest and other expense, net

We did not have fair value hedges or net investment hedges outstanding as of December 30, 2017 or April 1, 2017. As of December 30, 2017, no deferred tax assets were recognized for designated foreign currency hedges.

ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures, by considering the estimated amount we would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities. In certain instances, we may utilize financial models to measure fair value. Generally, we use inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of December 30, 2017, we have classified our derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of our derivative instruments.

The following tables present the fair value of our derivative instruments as they appear in our consolidated balance sheets as of December 30, 2017 and April 1, 2017:



(In thousands)	Location in Balance Sheet	As of		As of
(In thousands)	Location in Balance Sheet	December 30, 2017		April 1, 2017
Derivative Assets:
Designated foreign currency hedge contracts	Other current assets	$	335	$	1,645
Non-designated foreign currency hedge contracts	Other current assets	108		218
Designated interest rate swaps	Other current assets	—		64
		$	443	$	1,927
Derivative Liabilities:
Designated foreign currency hedge contracts	Other current liabilities	$	1,315	$	894
Non-designated foreign currency hedge contracts	Other current liabilities	146		72
		$	1,461	$	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.

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 December 30, 2017 and April 1, 2017.



	As of December 30, 2017
(In thousands)	Level 1		Level 2		Total
Assets
Money market funds	$	164,409	$	—	$	164,409
Designated foreign currency hedge contracts	—		335		335
Non-designated foreign currency hedge contracts	—		108		108
	$	164,409	$	443	$	164,852
Liabilities
Designated foreign currency hedge contracts	$	—	$	1,315	$	1,315
Non-designated foreign currency hedge contracts	—		146		146
	$	—	$	1,461	$	1,461

	As of April 1, 2017
	Level 1		Level 2		Total
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.