Derivative Financial Instruments

6 Months Ended

Mar. 27, 2016

Derivative Financial Instruments

Derivative Financial Instruments

13.Derivative Financial Instruments

We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt.  We enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations.  Our hedging program is not designated for trading or speculative purposes.

We recognize derivative instruments as either assets or liabilities on the accompanying condensed consolidated balance sheets at fair value (Level 2 measurement, as described in “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2015).  We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as accounting hedges in our condensed consolidated balance sheets in accumulated other comprehensive loss.

In fiscal 2013, we entered into three interest rate swap agreements that we designated as cash flow hedges to fix the variable interest rates on a portion of borrowings under our term loan facility.  In the first quarter of fiscal 2014, we entered into two interest rate swap agreements that we designated as cash flow hedges to fix the variable interest rates on the borrowings under the term loan facility.  At March 27, 2016, the effective portion of our interest rate swap agreements designated as cash flow hedges before taxes was $1.8 million, all of which we expect to be reclassified from accumulated other comprehensive loss to interest expense within the next 12 months.

As of March 27, 2016, the total notional principal amount of our outstanding interest rate swap agreements that expire in May 2018 was $187.1 million and the weighted average fixed interest rate was 1.32%.

The fair values of our outstanding derivatives designated as hedging instruments were as follows:

	Balance Sheet Location	March 27, 2016		September 27, 2015
		(in thousands)
Interest rate swap agreements	Other current liabilities	$	1,950	$	2,518

The impact of the effective portions of derivative instruments in cash flow hedging relationships on income and other comprehensive income from our foreign currency forward contracts and interest rate swap agreements was immaterial for the first half of fiscal 2016 and the fiscal year ended September 27, 2015.  Additionally, there were no ineffective portions of derivative instruments.  Accordingly, no amounts were excluded from effectiveness testing for our foreign currency forward contracts and interest rate swap agreements.  We had no derivative instruments that were not designated as hedging instruments for fiscal 2015 and the first half of fiscal 2016.