Derivatives and Fair Value Measurements

3 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Fair Value Measurements

Derivatives and Fair Value Measurements

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 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.

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 Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $2.4 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, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company enters into forward currency exchange contracts for its operations in certain jurisdictions in the AMER and APAC segments on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $148.7 million as of December 31, 2022, and a notional value of $143.2 million as of October 1, 2022. 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 $2.4 million asset as of December 31, 2022, and a $6.0 million liability as of October 1, 2022.

The Company had additional forward currency exchange contracts outstanding as of December 31, 2022, with a notional value of $113.5 million; there were $60.1 million such contracts outstanding as of October 1, 2022. 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 Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive Income. The total fair value of these derivatives was a $1.0 million asset as of December 31, 2022, and a $0.3 million asset as of October 1, 2022.

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 Condensed Consolidated Financial Statements:

Fair Values of Derivative Instruments (in thousands)
	Derivative Assets					Derivative Liabilities
		December 31, 2022		October 1, 2022			December 31, 2022		October 1, 2022
Derivatives designated as hedging instruments	Balance sheet classification	Fair Value		Fair Value		Balance sheet classification	Fair Value		Fair Value
Foreign currency forward contracts	Prepaid expenses and other	$	2,451	$	715	Other accrued liabilities	$	44	$	6,747

Fair Values of Derivative Instruments (in thousands)
	Derivative Assets					Derivative Liabilities
		December 31, 2022		October 1, 2022			December 31, 2022		October 1, 2022
Derivatives not designated as hedging instruments	Balance sheet classification	Fair Value		Fair Value		Balance sheet classification	Fair Value		Fair Value
Foreign currency forward contracts	Prepaid expenses and other	$	2,487	$	1,555	Other accrued liabilities	$	1,486	$	1,249

The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss ("OCL") (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationships	Amount of Gain Recognized in OCL on Derivatives
	December 31, 2022		January 1, 2022
Foreign currency forward contracts	$	6,150	$	470

Derivative Impact on Loss Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationships	Classification of Loss Reclassified from Accumulated OCL into Income	Amount of Loss Reclassified from Accumulated OCL into Income
		December 31, 2022		January 1, 2022
Foreign currency forward contracts	Cost of sales	$	(2,132)	$	(743)
Foreign currency forward contracts	Selling and administrative expenses	$	(157)	$	(59)

Derivatives not designated as hedging instruments	Location of Gain (Loss) Recognized on Derivatives in Income	Amount of Gain (Loss) on Derivatives Recognized in Income
		December 31, 2022		January 1, 2022
Foreign currency forward contracts	Miscellaneous, net	$	747	$	(43)

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 of the Company’s derivatives as of December 31, 2022 and October 1, 2022, by input level:

Fair Value Measurements Using Input Levels Asset/(Liability) (in thousands)
Fiscal period ended December 31, 2022	Level 1		Level 2		Level 3		Total
Derivatives
Foreign currency forward contracts	$	—	$	3,408	$	—	$	3,408
Fiscal period ended October 1, 2022
Derivatives
Foreign currency forward contracts	$	—	$	(5,726)	$	—	$	(5,726)

The fair value of 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. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency.