Derivative Financial Instruments

12 Months Ended

Sep. 29, 2012

Derivative Instruments and Hedges, Assets [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

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

Derivatives designated as hedging instruments

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 $26,626 at September 29, 2012. These contracts mature at various times through the second quarter of 2014.

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 September 29, 2012.

These foreign currency forwards and interest rate swaps 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 2012, 2011 or 2010.

Activity in Accumulated Other Comprehensive Income (Loss) (AOCI) related to these derivatives is summarized below:

	September 29, 2012			October 1, 2011
Balance at beginning of period	$	(165	)	$	144
Net deferral in AOCI of derivatives:
Net increase (decrease) in fair value of derivatives	783			(122		)
Tax effect	(318		)	34
	465			(88		)
Net reclassification from AOCI into earnings:
Reclassification from AOCI into earnings	(161		)	(346		)
Tax effect	81			125
	(80		)	(221		)
Balance at end of period	$	220		$	(165	)

Activity and classification of derivatives are as follows:

	Statement of earnings classification	Net deferral in AOCI of derivatives - effective portion
		2012		2011
Foreign currency forwards	Cost of sales	$	783	$	(39	)
Interest rate swaps	Interest expense	—		(83		)
Net gain (loss)		$	783	$	(122	)

	Statement of earnings classification	Net reclassification from AOCI into earnings - effective portion
		2012			2011
Foreign currency forwards	Cost of sales	$	228		$	769
Interest rate swaps	Interest expense	(67		)	(423		)
Net gain		$	161		$	346

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 have foreign currency forwards with notional amounts of $193,325 at September 29, 2012. The foreign currency forwards are recorded in the balance sheet at fair value and resulting gains or losses are recorded in the statements of earnings. We recorded net losses of $4,192 in 2012 and $3,994 in 2011 on the foreign currency forwards. These losses are included in other expense and generally offset the gains from the foreign currency adjustments on the intercompany balances that are also included in other income or expense.

Summary of derivatives

The fair value and classification of derivatives is summarized as follows:

		September 29, 2012		October 1, 2011
Derivatives designated as hedging instruments:
Foreign currency forwards	Other current assets	$	467	$	25
Foreign currency forwards	Other assets	32		—
	Total assets	$	499	$	25
Foreign currency forwards	Other accrued liabilities	$	41	$	143
Foreign currency forwards	Other long-term liabilities	40		81
Interest rate swaps	Other accrued liabilities	—		102
	Total liabilities	$	81	$	326
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	1,456	$	1,524
	Total assets	$	1,456	$	1,524
Foreign currency forwards	Other accrued liabilities	$	2,549	$	2,640
	Total liabilities	$	2,549	$	2,640