Derivatives and Fair Value Measurements

All derivatives are recognized in the accompanying Consolidated Balance Sheets at their estimated fair value. The Company uses derivatives to manage the variability of foreign currency obligations. The Company has cash flow hedges related to forecasted foreign currency obligations, in addition to non-designated hedges to manage foreign currency exposures associated with certain foreign currency denominated assets and liabilities. The Company does not enter into derivatives for speculative purposes.

Generally accepted accounting principles require companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. Accordingly, the Company designates some foreign currency exchange contracts as cash flow hedges of forecasted foreign currency expenses.

Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss" in the accompanying Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $2.0 million of unrealized gains, net of tax, related to cash flow hedges will be reclassified from other comprehensive income (loss) into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous income (expense)" in the accompanying Consolidated Statements of Comprehensive Income.

The Company enters into forward currency exchange contracts for its Malaysian operations on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $67.0 million as of September 30, 2017, and a notional value of $73.7 million as of October 1, 2016. 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 $2.0 million asset as of September 30, 2017 and a $0.5 million liability as of October 1, 2016.

The Company had additional forward currency exchange contracts outstanding as of September 30, 2017, with a notional value of $10.6 million; there were $109.6 million such contracts outstanding as of October 1, 2016. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous income (expense)." The total fair value of these derivatives was a $0.1 million liability as of September 30, 2017, and a $0.1 million asset as of October 1, 2016.

On May 5, 2017, a $75.0 million notional amount interest rate swap contract expired related to $75.0 million of borrowings outstanding under the Credit Facility. The interest rate swap paid the Company variable interest at the one month LIBOR rate, and the Company paid the counterparty a fixed interest rate. The fixed interest rate for the contract was 0.875%. The interest rate swap contract qualified as a cash flow hedge and all changes in the fair value of the interest rate swap were recorded in "Accumulated other comprehensive loss" on the accompanying Consolidated Balance Sheets until earnings were affected by the variability of cash flows. The notional amount of the Company's interest rate swap was $75.0 million as of October 1, 2016.

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 30, 2017		October 1, 2016			September 30, 2017		October 1, 2016
Derivatives designated as hedging instruments	Balance Sheet Classification	Fair Value		Fair Value		Balance Sheet Classification	Fair Value		Fair Value
Interest rate swaps	Prepaid expenses and other	$	—	$	—	Other accrued liabilities	$	—	$	132
Forward currency forward contracts	Prepaid expenses and other	$	2,024	$	—	Other accrued liabilities	$	—	$	486

Fair Values of Derivative Instruments

In thousands of dollars

Asset Derivatives

Liability Derivatives

September 30,
2017

October 1,
2016

September 30,
2017

October 1,
2016

Derivatives not designated as hedging instruments

Balance Sheet

Classification

Fair Value

Balance Sheet

Classification

Fair Value

Forward currency forward contracts

Prepaid expenses and other

182

Other accrued liabilities

118

130



Derivative Impact on Accumulated Other Comprehensive Loss ("OCL") for the Twelve Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	September 30, 2017			October 1, 2016			October 3, 2015
Interest rate swaps	$	(10	)	$	(16	)	$	(1,258	)
Forward currency forward contracts	$	(848	)	$	5,311		$	(15,660	)



Derivative Impact on Gain (Loss) Recognized in Income for the Twelve Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Classification of Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships		September 30, 2017			October 1, 2016			October 3, 2015
Interest rate swaps	Interest expense	$	(142	)	$	(381	)	$	(579	)
Forward currency forward contracts	Selling and administrative expenses	$	(317	)	$	(350	)	$	(597	)
Forward currency forward contracts	Cost of sales	$	(3,041	)	$	(3,261	)	$	(4,843	)
Treasury Rate Locks	Interest expense	$	321		$	320		$	324
Interest rate swaps	Income tax expense	$	(84	)	$	—		$	—

Derivatives Not Designated as Hedging Instruments

Location of Gain Recognized on Derivatives in Income

Amount of Gain on Derivatives Recognized in Income

September 30, 2017

October 1, 2016

October 3, 2015

Forward currency forward contracts

Miscellaneous income (expense)

2,153

121

164

There were no gains or losses recognized in income for derivatives related to ineffective portions and amounts excluded from effectiveness testing for fiscal years 2017, 2016 and 2015.

The following table lists the fair values of liabilities of the Company’s derivatives as of September 30, 2017 and October 1, 2016, 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 of dollars
Fiscal year ended September 30, 2017	Level 1		Level 2			Level 3		Total
Derivatives
Forward currency forward contracts	$	—	$	1,941		$	—	$	1,941

Fiscal year ended October 1, 2016
Derivatives
Interest rate swaps	$	—	$	(132	)	$	—	$	(132	)
Forward currency forward contracts	$	—	$	(434	)	$	—	$	(434	)

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.