DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Apr. 01, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Risk Management

In connection with the 2013 Credit Agreement, on January 18, 2013, the Company and M&T Bank entered into the Swap Transaction.  The Swap Transaction is for a notional amount of $14.0 million with an effective date of February 1, 2013 and a termination date of February 1, 2023.  The Swap Transaction is designed to reduce the variability of future interest payments with respect to Term Loan B by effectively fixing the annual interest rate payable on outstanding principal of Term Loan B.  Pursuant to the interest rate swap, the Company’s one month LIBOR rate is swapped for a fixed rate of 1.32%.  As more fully described in Note 8—Credit Facilities, the applicable margin on Term Loan B was fixed at 3.25% until the tenth day following the date the Company delivered its quarterly covenant calculation for the first quarter of fiscal 2016.  The applicable margin on Term Loan B based on the quarterly covenant calculation for the first quarter of fiscal 2016 was 3.25%. When the swap fixed rate is added to the Term Loan B spread of 3.25%, the Company’s interest rate applicable to Term Loan B is effectively fixed at 4.57%.

The fair value of the interest rate swap agreement represented a liability of $99.9 thousand and $46.0 thousand at April 1, 2016 and September 30, 2015, respectively, and was estimated based on Level 2 valuation inputs.  The Company did not designate the swap as a cash flow hedge at inception and therefore, the gains or losses from the changes in fair value of the derivative instrument are recognized in earnings for the periods ended April 1, 2016 and September 30, 2015 within interest expense.

The fair value of the interest rate swap of $99.9 thousand and $46.0 thousand is recorded in other long-term liability in the Consolidated Balance Sheet at April 1, 2016 and September 30, 2015, respectively.