Derivative Financial Instruments

9 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedges, Assets [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.

Derivatives designated as hedging instruments

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. There were no outstanding interest rate swaps at June 30, 2012.

We use foreign currency forward contracts as cash flow hedges to effectively fix the exchange rates on future payments. To mitigate exposure in movements between various currencies, primarily the Philippine peso, we had outstanding foreign currency forwards with notional amounts of $26,270 at June 30, 2012. These contracts mature at various times through the fourth quarter of 2013.

These interest rate swaps and foreign currency forwards are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCI). These deferred gains and losses are reclassified into expense during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency forwards are not perfectly effective in offsetting the change in the value of the payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in the first nine months of 2012 or 2011.

Activity in AOCI related to these derivatives is summarized below:

	Three Months Ended						Nine Months Ended
	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Balance at beginning of period	$	(78	)	$	10		$	(165	)	$	144
Net deferral in AOCI of derivatives:
Net increase in fair value of derivatives	372			72			568			118
Tax effect	(173		)	(29		)	(245		)	(45		)
	199			43			323			73
Net reclassification from AOCI into earnings:
Reclassification from AOCI into earnings	6			(49		)	(67		)	(304		)
Tax effect	3			19			39			110
	9			(30		)	(28		)	(194		)
Balance at end of period	$	130		$	23		$	130		$	23

Activity and classification of derivatives are as follows:

		Net deferral in AOCI of derivatives - effective portion
		Three Months Ended					Nine Months Ended
	Statement of earnings classification	June 30, 2012		July 2, 2011			June 30, 2012		July 2, 2011
Interest rate swaps	Interest expense	$	—	$	(25	)	$	—	$	(83	)
Foreign currency forwards	Cost of sales	372		97			568		201
Net gain		$	372	$	72		$	568	$	118

		Net reclassification from AOCI into earnings - effective portion
		Three Months Ended						Nine Months Ended
	Statement of earnings classification	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Interest rate swaps	Interest expense	$	—		$	(106	)	$	(67	)	$	(316	)
Foreign currency forwards	Cost of sales	(6		)	155			134			620
Net gain (loss)		$	(6	)	$	49		$	67		$	304

Derivatives not designated as hedging instruments

We also have foreign currency exposure on intercompany balances that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the statements of earnings. To minimize foreign currency exposure, we had foreign currency forwards with notional amounts of $163,803 at June 30, 2012. The foreign currency forwards are recorded in the consolidated balance sheet at fair value and resulting gains or losses are recorded in the statements of earnings. We recorded the following losses on foreign currency forwards which are included in other income or expense and generally offset the gains from the foreign currency adjustments on the intercompany balances:

	Three Months Ended						Nine Months Ended
	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Net loss	$	(812	)	$	(158	)	$	(1,383	)	$	(833	)

Summary of derivatives

The fair value and classification of derivatives on the consolidated balance sheets are summarized as follows:

		June 30, 2012		October 1, 2011
Derivatives designated as hedging instruments:
Foreign currency forwards	Other current assets	$	308	$	25
Foreign currency forwards	Other assets	52		—
		$	360	$	25
Foreign currency forwards	Other accrued liabilities	$	61	$	143
Foreign currency forwards	Other long-term liabilities	25		81
Interest rate swaps	Other accrued liabilities	—		102
		$	86	$	326
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	1,948	$	1,524
		$	1,948	$	1,524
Foreign currency forwards	Other accrued liabilities	$	534	$	2,640
		$	534	$	2,640