Derivative Instruments and Hedging Activities

3 Months Ended

Jan. 02, 2016

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

NOTE 9 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our currency exchange contracts are designated as cash flow hedges and qualify as hedging instruments. We also have derivatives that are not designated as cash flow hedges and, therefore, are accounted for and reported under foreign currency guidance. Regardless of designation for accounting purposes, we believe all of our derivative instruments are hedges of transactional risk exposures. The fair value of our outstanding designated and undesignated derivative assets and liabilities are reported in the Consolidated Balance Sheets as follows:

	January 2, 2016
		Prepaid Expenses
		and Other		Other Accrued
(in thousands)		Current Assets		Liabilities
Designated hedge derivatives
Foreign exchange cash flow hedges	$	725	$	135
Derivatives not designated as hedges
Foreign exchange balance sheet derivatives		-		17
Total hedge and other derivatives	$	725	$	152
	October 3, 2015
		Prepaid Expenses
		and Other		Other Accrued
(in thousands)		Current Assets		Liabilities
Designated hedge derivatives
Foreign exchange cash flow hedges	$	841	$	353
Derivatives not designated as hedges
Foreign exchange balance sheet derivatives		-		286
Total hedge and other derivatives	$	841	$	639

A  reconciliation of the net fair value of foreign exchange cash flow hedge assets and liabilities subject to master netting arrangements recorded in the January 2, 2016 and October 3, 2015 Consolidated Balance Sheets to the net fair value that could have been reported in the respective Consolidated Balance Sheets is as follows:

	Gross		Gross		Net		Derivatives		Cash
	Recognized		Offset		Amount		Subject to		Collateral		Net
(in thousands)	Amount		Amount		Presented		Offset		Received		Amount1
January 2, 2016
Assets	$	725	$	-	$	725	$	-	$	-	$	725
Liabilities		135		-		135		-		-		135
October 3, 2015
Assets	$	841	$	-	$	841	$	-	$	-	$	841
Liabilities		353		-		353		-		-		353

1         Net fair value of foreign exchange cash flow hedge assets / liabilities that could have been reported in the Consolidated Balance Sheet.

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 (loss) (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. We periodically assess whether our currency exchange contracts are effective and, when a contract is determined to be no longer effective as a hedge, we discontinue 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 as that is the same line item in which the underlying hedged transaction is reported.

As ofJanuary 2, 2016 and December 27, 2014, we had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $39,441 and $40,920, 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 $36,258and $37,162  as ofJanuary 2, 2016 and December 27, 2014, respectively. As of January 2, 2016, the net market value of the foreign currency exchange contracts was a net asset of $590, consisting of $725 in assets and $135 in liabilities.  As ofDecember 27, 2014, the net market value of the foreign currency exchange contracts was a net asset of $2,124, consisting of $2,362 in assets and $238 in liabilities.

The pretax amounts recognized in AOCI on currency exchange contracts for the three months endedJanuary 2, 2016 and December 27, 2014, including (gains) losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in other comprehensive income (loss) (OCI), are as follows:

	Three Months Ended
		January 2,		December 27,
(in thousands)		2016		2014
Beginning unrealized net gain (loss) in AOCI	$	608	$	1,414
Net (gain) loss reclassified into revenue (effective portion)		(150)		(1,698)
Net gain (loss) recognized in OCI (effective portion)		211		2,262
Ending unrealized net gain (loss) in AOCI	$	669	$	1,978

The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was less than $1 in both of the three months ended January2, 2016 and December  27, 2014. As of January 2, 2016 and December  27, 2014, the amount projected to be reclassified from AOCI into earnings in the next twelve months was a net gainof $624 and $1,966, respectively. The maximum remaining maturity of any forward or optional contract as of January 2, 2016 and December  27, 2014 was 1.5and 2.5 years, respectively.

Foreign Currency Balance Sheet Derivatives

We also use 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 income (expense), net on the Consolidated Statements of Income.

As of January2, 2016 and December  27, 2014,  we had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $63,777 and $88,337, 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 January2, 2016 and December  27, 2014was $16,233 and $26,948, respectively. As of January 2, 2016 and December 27, 2014, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of $17 and a net asset of $63, respectively.

The net gain (loss) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the three months ended January2, 2016 and December  27, 2014 was as follows:

	Three Months Ended
		January 2,		December 27,
(in thousands)		2016		2014
Net (loss) gain recognized in other (expense) income, net	$	(91)	$	338