Derivatives and Fair Value Measurements

All derivatives are recognized in the accompanying Consolidated Balance Sheets at their estimated fair values. The Company currently has cash flow hedges related to variable rate debt and forecasted foreign currency payments. The Company also enters into forward currency exchange contracts from time to time to manage foreign currency exchange rate exposures associated with certain foreign currency denominated assets and liabilities. The Company does not enter into derivatives for speculative purposes. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in “Accumulated other comprehensive income” in the accompanying Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. There were no forward currency exchange contracts outstanding related to foreign currency denominated assets and liabilities at September 28, 2013.

The Company enters into forward currency exchange contracts on a rolling basis. These contracts had a total notional value of $71.0 million as of September 28, 2013. These forward currency contracts fix the exchange rates for the settlement of future foreign currency obligations that have yet to be realized. The total fair value of the forward currency exchange contracts was a $1.0 million liability as of September 28, 2013, and a $1.1 million asset as of September 29, 2012.

On June 4, 2013, the Company entered into an interest rate swap contract to replace the three interest rate swap contracts that matured on April 4, 2013, as described below. The new interest rate swap contract is related to the $75.0 million term loan under the Company's Credit Facility. This interest rate swap pays the Company variable interest at the one month LIBOR rate, and the Company pays the counterparty a fixed interest rate. The fixed interest rate for the contract is 0.875%. Based on the terms of the interest rate swap contract and the underlying debt, the interest rate contract was determined to be effective, and thus qualifies as a cash flow hedge. As such, any changes in the fair value of the interest rate swap are recorded in "Accumulated other comprehensive income" on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows. The total fair value of the interest rate swap contract was a $0.03 million asset as of September 28, 2013. As of September 28, 2013, the notional amount of the Company's interest rate swap was $75.0 million.

The Company entered into three interest rate swap contracts related to the term loans under its prior credit facility that had an initial total notional value of $150 million and matured on April 4, 2013, which resulted in a $2.0 million discrete tax benefit in fiscal 2013. The fixed interest rates for each of these contracts were 4.415%, 4.490% and 4.435%, respectively. These interest rate swap contracts were originally entered into to convert $150 million of the variable rate term loan under the prior credit facility into fixed rate debt. Based on the terms of the interest rate swap contracts and the underlying debt, these interest rate contracts were determined to be effective, and thus qualified as a cash flow hedge. As such, any changes in the fair value of these interest rate swaps were recorded in “Accumulated other comprehensive income” on the accompanying Condensed Consolidated Balance Sheets until earnings were affected by the variability of cash flows. The total fair value of these interest rate swap contracts was a $1.7 million liability as of September 29, 2012.

The tables below present information regarding the fair values of derivative instruments (as defined in Note 1, "Description of Business and Significant Accounting Policies") and the effects of derivative instruments on the Company’s Consolidated Financial Statements:

Fair Values of Derivative Instruments

In thousands of dollars

Asset Derivatives

Liability Derivatives

September 28,
2013

September 29,
2012

September 28,
2013

September 29,
2012

Derivatives designated

as hedging instruments

Balance Sheet

Location

Fair Value

Balance Sheet

Location

Fair Value

Interest rate swaps

Prepaid expenses and other

$34

$—

Current liabilities –

Other

$—

$1,715

Forward contracts

Prepaid expenses and other

$—

$1,095

Current liabilities –

Other

$999

$—



The Effect of Derivative Instruments on the Statements of Comprehensive Income for the Twelve Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Other Comprehensive Income (“OCI”) on Derivative (Effective Portion)		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative(Ineffective Portion and Amount Excluded from Effectiveness Testing)
	September 28, 2013	September 29, 2012		September 28, 2013	September 29, 2012		September 28, 2013	September 29, 2012
Interest rate swaps	$961	$(40)	Interest income (expense)	$(788)	$(3,564)	Other income (expense)	$—	$—
Forward contracts	$(1,389)	$3,021	Selling and administrative expenses	$709	$(597)	Other income (expense)	$—	$—
Treasury Rate Locks	$—	$—	Interest income (expense)	$321	$320	Other income (expense)	$—	$—
Income Tax (Benefit) Expense	$—	$—	Income Tax (Benefit) Expense	$2,031	$—	Income Tax (Benefit) Expense	$—	$—

The following table lists the fair values of assets/(liabilities) of the Company’s derivatives as of September 28, 2013, by input level as defined in Note 1, "Description of Business and Significant Accounting Policies":



	Fair Value Measurements Using Input Levels Asset/ (Liability) (in thousands):
Fiscal year ended September 28, 2013	Level 1	Level 2	Level 3	Total
Derivatives
Interest rate swaps	$—	$34	$—	$34
Forward currency forward contracts	$—	$(999)	$—	$(999)

Fiscal year ended September 29, 2012
Derivatives
Interest rate swaps	$—	$(1,715)	$—	$(1,715)
Forward currency forward contracts	$—	$1,095	$—	$1,095

The fair value of interest rate swaps and foreign currency forward contracts is determined using a market approach, which includes obtaining directly or indirectly observable values from third parties active in the relevant markets. The primary input in the fair value of the interest rate swaps is the relevant LIBOR forward curve. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves.