Derivative Financial Instruments

3 Months Ended

Jan. 01, 2017

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.  We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow hedges in our condensed consolidated balance sheets as accumulated other comprehensive income (loss), and in our condensed consolidated statements of income for those derivatives designated as fair value hedges.

In fiscal 2013, we entered into three interest rate swap agreements that we have 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 our term loan facility.  At January 1, 2017, the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $0.6 million, all of which we expect to be reclassified from accumulated other comprehensive income (loss) to interest expense within the next 12 months.

As of January 1, 2017, the notional principal, fixed rates and related expiration dates of our outstanding interest rate swap agreements are as follows:

Notional Amount (in thousands)		Fixed Rate	Expiration Date
$	43,242	1.36%	May 2018
43,242		1.34%	May 2018
43,242		1.35%	May 2018
21,621		1.23%	May 2018
21,621		1.24%	May 2018

In December 2016, we entered into a forward contract with a notional amount of AUD$10.0 million to reduce the impact of changes in foreign exchange rates related to an Australian dollar receivable maturing January 2017.

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

		Fair Value of Derivative Instruments as of
	Balance Sheet Location	January 1, 2017		October 2, 2016
		(in thousands)
Foreign exchange forward contract	Other current assets	$	81	$	–
Interest rate swap agreements	Other current liabilities	$	567	$	1,572

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on income and other comprehensive income was immaterial for the first three months of fiscal 2017 and the fiscal year ended October 2, 2016.  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.