Derivatives

Derivatives:

All derivatives are recognized in the accompanying Condensed 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 variable rate debt and 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.

U.S. GAAP, requires 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 income (loss)" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $5.0 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 other income (expense)" in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).

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 $67.6 million as of March 31, 2018 and $67.0 million as of September 30, 2017. 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 $5.0 million asset as of March 31, 2018 and a $2.0 million asset as of September 30, 2017.

The Company had additional forward currency exchange contracts outstanding as of March 31, 2018, with a notional value of $25.9 million; there were $10.6 million such contracts outstanding as of September 30, 2017. The Company did not designate these derivative instruments as hedging instruments. In accordance with U.S. GAAP, the net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term. The change in fair value is recorded as an element of "Miscellaneous other income (expense)" within the Condensed Consolidated Statements of Comprehensive Income (Loss). The total fair value of these derivatives was a $0.1 million asset as of March 31, 2018, and a $0.1 million liability as of September 30, 2017.

The tables below present information regarding the fair values of derivative instruments and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:

Fair Values of Derivative Instruments

In thousands of dollars

Asset Derivatives

Liability Derivatives

March 31,
2018

September 30,
2017

March 31,
2018

September 30,
2017

Derivatives designated as hedging instruments

Balance Sheet

Classification

Fair Value

Balance Sheet

Classification

Fair Value

Forward currency forward contracts

Prepaid expenses and other

4,952

2,024

Other accrued liabilities

—

Fair Values of Derivative Instruments

In thousands of dollars

Asset Derivatives

Liability Derivatives

March 31,
2018

September 30,
2017

March 31,
2018

September 30,
2017

Derivatives not designated as hedging instruments

Balance Sheet

Classification

Fair Value

Balance Sheet

Classification

Fair Value

Forward currency forward contracts

Prepaid expenses and other

159

Other accrued liabilities

118



Derivative Impact on Accumulated Other Comprehensive Income (Loss)
for the Three Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) ("OCI") on Derivatives (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	March 31, 2018		April 1, 2017
Forward currency forward contracts	$	3,625	$	1,175
Interest rate swaps	$	—	$	12



Derivative Impact on Gain (Loss) Recognized in Income
for the Three Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships		March 31, 2018		April 1, 2017
Forward currency forward contracts	Selling and administrative expenses	$	224	$	(193	)
Forward currency forward contracts	Cost of sales	$	2,091	$	(1,843	)
Treasury Rate Locks	Interest expense	$	81	$	92
Interest rate swaps	Interest expense	$	—	$	(28	)



Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized on Derivatives in Income	Amount of (Loss) Gain on Derivatives Recognized in Income
Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized on Derivatives in Income	March 31, 2018			April 1, 2017
Forward currency forward contracts	Miscellaneous other income (expense)	$	(416	)	$	1,786



Derivative Impact on Accumulated Other Comprehensive Income (Loss)
for the Six Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	March 31, 2018		April 1, 2017
Forward currency forward contracts	$	6,339	$	(4,043	)
Interest rate swaps	$	—	$	1



Derivative Impact on Gain (Loss) Recognized in Income
for the Six Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships		March 31, 2018		April 1, 2017
Forward currency forward contracts	Selling and administrative expenses	$	329	$	(172	)
Forward currency forward contracts	Cost of sales	$	3,082	$	(1,662	)
Treasury Rate Locks	Interest expense	$	160	$	171
Interest rate swaps	Interest expense	$	—	$	(135	)



Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized on Derivatives in Income	Amount of (Loss) Gain on Derivatives Recognized in Income
Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized on Derivatives in Income	March 31, 2018			April 1, 2017
Forward currency forward contracts	Miscellaneous other income (expense)	$	(951	)	$	1,861

There were no gains or losses recognized in income for derivatives related to ineffective portions and amounts excluded from effectiveness testing for the three or six months ended March 31, 2018 and April 1, 2017.

Fair Value Measurements:

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses quoted market prices when available or discounted cash flows to calculate fair value. The accounting guidance establishes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are:

Level 1: Quoted (observable) market prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

The following table lists the fair values of assets (liabilities) of the Company’s derivatives as of March 31, 2018 and September 30, 2017, by input level:



Fair Value Measurements Using Input Levels Asset/(Liability)
In thousands of dollars
March 31, 2018	Level 1		Level 2		Level 3		Total
Derivatives
Forward currency forward contracts	$	—	$	5,046	$	—	$	5,046

September 30, 2017
Derivatives
Forward currency forward contracts	$	—	$	1,941	$	—	$	1,941

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.