Derivative Instruments and Hedging Activities

6 Months Ended

Mar. 28, 2015

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

9. Derivative Instruments and Hedging Activities

The Company uses foreign currency derivatives to hedge against foreign currency exchange risk. Some derivatives are designated as cash flow hedges and qualify as hedging instruments pursuant to Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging”; others are accounted for and reported under the guidance of ASC 830, “Foreign Currency Matters.” Regardless of the designation for accounting purposes, the Company believes that all of its derivative instruments are hedges of transactional risk exposures. The fair value of the Company’s outstanding designated and undesignated derivative assets and liabilities are reported in the March 28, 2015 and September 27, 2014 Consolidated Balance Sheets as follows:

	March 28, 2015
		Prepaid Expenses
		and Other		Other Accrued
		Current Assets		Liabilities
Designated hedge derivatives:		(in thousands)
Cash flow hedges	$	1,736	$	505
Total designated hedge derivatives		1,736		505
Derivatives not designated as hedges:
Balance sheet derivatives		-		394
Total hedge and other derivatives	$	1,736	$	899

	September 27, 2014
		Prepaid Expenses
		and Other		Other Accrued
		Current Assets		Liabilities
Designated hedge derivatives:		(in thousands)
Cash flow hedges	$	1,750	$	178
Total designated hedge derivatives		1,750		178
Derivatives not designated as hedges:
Balance sheet derivatives		641		-
Total hedge and other derivatives	$	2,391	$	178

A reconciliation of the net fair value of foreign exchange cash flow hedge assets and liabilities subject to master netting arrangements that are recorded in the March 28, 2015 and September 27, 2014 Consolidated Balance Sheets to the net fair value that could have been reported in the respective Consolidated Balance Sheets is as follows:

March 28, 2015

Assets

Liabilities

Gross Amounts not Offset

Gross Amounts not Offset

in the Consolidated

in the Consolidated

Balance Sheet

Balance Sheet

Net

Net

Amount of

Amount of

Gross

Assets

Gross

Liabilities

Gross

Liabilities

Presented

Assets

Presented

Amount

Offset in the

in the

Gross

Offset in the

in the

of

Consolidated

Consolidated

Derivatives

Cash

Amount of

Consolidated

Consolidated

Derivatives

Cash

Recognized

Balance

Balance

Subject to

Collateral

Net

Recognized

Balance

Balance

Subject to

Collateral

Net

Assets

Sheet

Sheet

Offset

Received

Amount (1)

Liabilities

Sheet

Sheet

Offset

Pledged

Amount (2)

(in thousands)

$

1,736

$

-

$

1,736

$

-

$

-

$

1,736

$

505

$

-

$

505

$

-

$

-

$

505

September 27, 2014

Assets

Liabilities

Gross Amounts not Offset

Gross Amounts not Offset

in the Consolidated

in the Consolidated

Balance Sheet

Balance Sheet

Net

Net

Amount of

Amount of

Gross

Assets

Gross

Liabilities

Gross

Liabilities

Presented

Assets

Presented

Amount

Offset in the

in the

Gross

Offset in the

in the

of

Consolidated

Consolidated

Derivatives

Cash

Amount of

Consolidated

Consolidated

Derivatives

Cash

Recognized

Balance

Balance

Subject to

Collateral

Net

Recognized

Balance

Balance

Subject to

Collateral

Net

Assets

Sheet

Sheet

Offset

Received

Amount (1)

Liabilities

Sheet

Sheet

Offset

Pledged

Amount (2)

(in thousands)

$

1,750

$

-

$

1,750

$

-

$

-

$

1,750

$

178

$

-

$

178

$

-

$

-

$

178

(1) Net fair value of foreign exchange cash flow hedge assets that could have been reported in the Consolidated Balance Sheets.

(2) Net fair value of foreign exchange cash flow liabilities that could have been reported in the Consolidated Balance Sheets.

Cash Flow Hedging – Currency Risks

Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Qualifying gains and losses related to changes in the market value of these contracts are reported as a component of Accumulated Other Comprehensive Income (“AOCI”) within Shareholders’ Equity on the Consolidated Balance Sheets and reclassified into earnings in the same period during which the underlying hedged transaction affects earnings. The effective portion of the cash flow hedges represents the change in fair value of the hedge that offsets the change in the functional currency value of the hedged item. Each month, the Company assesses whether its currency exchange contracts are effective and, when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively. Subsequent changes in the market value of ineffective currency exchange contracts are recognized as an increase or decrease in Revenue on the Consolidated Statements of Income, because that is the same line item upon which the underlying hedged transaction is reported.

As of March 28, 2015 and March 29, 2014, the Company had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $61.0 million and $36.5 million, respectively. Upon netting offsetting contracts to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding was $49.9 million and $32.2 million as of March 28, 2015 and March 29, 2014, respectively.

As of March 28, 2015, the net market value of the foreign currency exchange contracts was a net asset of $1.2 million, consisting of $1.7 million in assets and $0.5 million in liabilities. As of March 29, 2014, the net market value of the foreign currency exchange contracts was a net liability of $0.3 million, consisting of $0.4 million in liabilities and $0.1 million in assets.

The pretax amounts recognized in AOCI on currency exchange contracts for the three and six months ended March 28, 2015 and March 29, 2014, including gains (losses) reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in other comprehensive income (“OCI”), are as follows:

	Three Months Ended				Six Months Ended
		March 28,		March 29,		March 28,		March 29,
		2015		2014		2015		2014
	(in thousands)
Beginning unrealized net gain in AOCI	$	1,978	$	1,298	$	1,414	$	754
Net gain reclassified into Revenue (effective portion)		(1,095)		(1,163)		(2,793)		(660)
Net gain (loss) recognized in OCI (effective portion)		869		(190)		3,131		(149)
Ending unrealized net gain (loss) in AOCI	$	1,752	$	(55)	$	1,752	$	(55)

The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was less than $0.1 million in each of the three and six months ended March 28, 2015 and March 29, 2014. As of March 28, 2015 and March 29, 2014, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $1.8 million and a net loss of $0.1 million, respectively. The maximum remaining maturity of any forward or optional contract as of March 28, 2015 and March 29, 2014 was 2.2 years and1.5 years, respectively.

Foreign Currency Balance Sheet Derivatives

The Company also uses foreign currency derivative contracts to maintain the functional currency value of monetary assets and liabilities denominated in non-functional foreign currencies. The gains and losses related to the changes in the market value of these derivative contracts are included in Other expense, net in the Consolidated Statements of Income.

As of March 28, 2015 and March 29, 2014, the Company had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $99.5 million and$71.2 million, respectively. Upon netting offsetting contracts by counterparty banks to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding as of March 28, 2015 and March 29, 2014 was $30.3 million and$23.9 million, respectively. As of March 28, 2015, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of $0.4 million. As of March 29, 2014, the net market value of the foreign exchange balance sheet derivative contracts was a net asset of $0.1 million.

The net gains (losses) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the three and six months ended March 28, 2015 and March 29, 2014 were as follows:

	Three Months Ended				Six Months Ended
		March 28,		March 29,		March 28,		March 29,
		2015		2014		2015		2014
	(in thousands)
Net gain (loss) recognized in Other expense, net	$	535	$	(143)	$	873	$	(283)