Derivatives

Foreign Exchange Exposure Management — The Company enters into forward foreign currency exchange contracts to offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other

than the U.S. dollar, primarily the Euro; other significant exposures include the Philippine Peso and the British Pound. These foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions, generally one year or less. Hedges related to anticipated transactions are designated and documented at the inception of the respective hedges as cash flow hedges and are evaluated for effectiveness monthly. Derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. As the terms of the contract and the underlying transaction are matched at inception, forward contract effectiveness is calculated by comparing the change in fair value of the contract to the change in the forward value of the anticipated transaction, with the effective portion of the gain or loss on the derivative instrument reported as a component of accumulated other comprehensive (loss) income (OCI) in shareholders’ equity and reclassified into earnings in the same period during which the hedged transaction affects earnings. Any residual change in fair value of the instruments, or ineffectiveness, is recognized immediately in other (income) expense. Additionally, the Company enters into forward foreign currency contracts that economically hedge the gains and losses generated by the re-measurement of certain recorded assets and liabilities in a non-functional currency. Changes in the fair value of these undesignated hedges are recognized in other (income) expense immediately as an offset to the changes in the fair value of the asset or liability being hedged. As of August 4, 2012 and October 29, 2011, the total notional amount of these undesignated hedges was $28.7 million and $41.2 million, respectively. The fair value of these hedging instruments in the Company’s condensed consolidated balance sheets as of August 4, 2012 and October 29, 2011 was immaterial.

Interest Rate Exposure Management — On June 30, 2009, the Company entered into interest rate swap transactions related to its outstanding 5.0% senior unsecured notes where the Company swapped the notional amount of its $375.0 million of fixed rate debt at 5.0% into floating interest rate debt through July 1, 2014. Under the terms of the swaps, the Company would (i) receive on the $375.0 million notional amount a 5.0% annual interest payment that is paid in two installments on the 1st business day of every January and July, commencing January 1, 2010 through and ending on the maturity date; and (ii) pay on the $375.0 million notional amount an annual three months LIBOR plus 2.05% interest payment, payable in four installments on the 1st business day of every January, April, July and October, commencing on October 1, 2009 and ending on the maturity date. The LIBOR-based rate was set quarterly three months prior to the date of the interest payment. The Company designated these swaps as fair value hedges. The fair value of the swaps at inception was zero and subsequent changes in the fair value of the interest rate swaps were reflected in the carrying value of the interest rate swaps on the balance sheet. The carrying value of the debt on the balance sheet was adjusted by an equal and offsetting amount. The gain or loss on the hedged item (that is, the fixed-rate borrowings) attributable to the hedged benchmark interest rate risk and the offsetting gain or loss on the related interest rate swaps for the nine-month periods ended August 4, 2012 and July 30, 2011 were as follows:



Statement of income classification	August 4, 2012							July 30, 2011
Statement of income classification	Loss on Swaps			Gain on Note		Net Income Effect		Loss on Swaps			Gain on Note		Net Income Effect
Other income	$	(769	)	$	769	$	—	$	(4,182	)	$	4,182	$	—

The amounts earned and owed under the swap agreements were accrued each period and were reported in interest expense. There was no ineffectiveness recognized in any of the periods presented. In the second quarter of fiscal 2012, the Company terminated the interest rate swap agreement. The Company received $19.8 million in cash proceeds from the swap termination, which included $1.3 million in accrued interest. The proceeds, net of interest received, are disclosed in cash flows from financing activities in the consolidated statements of cash flows. As a result of the termination the carrying value of the 5.0% Notes was adjusted for the change in the fair value of the interest component of the debt up to the date of the termination of the swap in an amount equal to the fair value of the swap, and will be amortized to earnings as a reduction of interest expense over the remaining life of the debt. This amortization is reflected in the consolidated statements of cash flows within operating activities.

The market risk associated with the Company’s derivative instruments results from currency exchange rate or interest rate movements that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international financial institutions with high credit ratings. Based on the credit ratings of the Company’s counterparties as of August 4, 2012, nonperformance is not perceived to be a significant risk. Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the obligations of the Company to the counterparties. As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant.

The Company records the fair value of its derivative financial instruments in the condensed consolidated financial statements in other current assets, other assets or accrued liabilities, depending on their net position, regardless of the purpose or intent for holding the derivative contract. Changes in the fair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component of OCI. Changes in the fair value of cash flow hedges are recorded in OCI and reclassified into earnings when the underlying contract matures. Changes in the fair values of derivatives not qualifying for hedge accounting are reported in earnings as they occur.

The total notional amounts of derivative instruments designated as hedging instruments was $147.5 million and $153.7 million, respectively, of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of August 4, 2012 and October 29, 2011, respectively. The Company also had $375.0 million of interest rate swap agreements accounted for as fair value hedges as of October 29, 2011. The fair values of these hedging instruments in the Company’s condensed consolidated balance sheets as of August 4, 2012 and October 29, 2011 were as follows:



		Fair Value At
	Balance Sheet Location	August 4, 2012		October 29, 2011
Interest rate swap agreements	Other assets	$	—	$	22,187
Forward foreign currency exchange contracts	Prepaid expenses and other current assets	$	—	$	2,038
	Accrued liabilities	$	4,039	$	—

The effect of derivative instruments designated as cash flow hedges on the condensed consolidated statements of income for the three- and nine-month periods ended August 4, 2012 and July 30, 2011 were as follows:



	Three Months Ended
	August 4, 2012			July 30, 2011
Loss recognized in OCI on derivatives (net of tax of $862 in 2012 and $351 in 2011)	$	(5,161	)	$	(2,311	)
Loss (gain) reclassified from OCI into income (net of tax of $517 in 2012 and $432 in 2011)	$	3,099		$	(2,844	)



	Nine Months Ended
	August 4, 2012			July 30, 2011
(Loss) gain recognized in OCI on derivatives (net of tax of $1,807 in 2012 and $693 in 2011)	$	(11,805	)	$	4,344
Loss (gain) reclassified from OCI into income (net of tax of $1,049 in 2012 and $1,027 in 2011)	$	6,637		$	(6,856	)

The amounts reclassified into earnings before tax are recognized in cost of sales and operating expenses for the three- and nine-month periods ended August 4, 2012 and July 30, 2011 were as follows:



	Three Months Ended
	August 4, 2012		July 30, 2011
Cost of sales	$	1,390	$	1,535
Research and development	$	978	$	833
Selling, marketing, general and administrative	$	1,248	$	908



	Nine Months Ended
	August 4, 2012		July 30, 2011
Cost of sales	$	2,912	$	3,784
Research and development	$	2,071	$	2,029
Selling, marketing, general and administrative	$	2,703	$	2,070

All derivative gains and losses included in OCI will be reclassified into earnings within the next 12 months. There was no ineffectiveness in the three- and nine-month periods ended August 4, 2012 and July 30, 2011.