Derivative Financial Instruments

3 Months Ended

Dec. 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 $27,537 at December 29, 2012. These contracts mature at various times through the third 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 December 29, 2012.

These foreign currency forwards and interest rate swaps are recorded in the consolidated condensed balance sheets 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 three months of 2013 or 2012.

Activity in AOCI related to these derivatives is summarized below:

	Three Months Ended
	December 29, 2012			December 31, 2011
Balance at beginning of period	$	220		$	(165	)
Net deferral in AOCI of derivatives:
Net increase (decrease) in fair value of derivatives	678			(231		)
Tax effect	(236		)	75
	442			(156		)
Net reclassification from AOCI into earnings:
Reclassification from AOCI into earnings	(222		)	(93		)
Tax effect	102			35
	(120		)	(58		)
Balance at end of period	$	542		$	(379	)

Activity and classification of derivatives are as follows:

		Net deferral in AOCI of derivatives - effective portion
		Three Months Ended
	Statement of earnings classification	December 29, 2012		December 31, 2011
Foreign currency forwards	Cost of sales	$	678	$	(231	)
Net gain (loss)		$	678	$	(231	)

		Net reclassification from AOCI into earnings - effective portion
		Three Months Ended
	Statement of earnings classification	December 29, 2012		December 31, 2011
Interest rate swaps	Interest expense	$	—	$	(67	)
Foreign currency forwards	Cost of sales	222		160
Net gain		$	222	$	93

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 $205,739 at December 29, 2012. The foreign currency forwards are recorded in the consolidated condensed balance sheets at fair value and resulting gains or losses are recorded in the consolidated condensed statements of earnings. We recorded the following gains or losses on foreign currency forwards which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense:

	Three Months Ended
	December 29, 2012		December 31, 2011
Net gain (loss)	$	922	$	(1,382	)

Summary of derivatives

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

		December 29, 2012		September 29, 2012
Derivatives designated as hedging instruments:
Foreign currency forwards	Other current assets	$	775	$	467
Foreign currency forwards	Other assets	58		32
	Total assets	$	833	$	499
Foreign currency forwards	Other accrued liabilities	$	22	$	41
Foreign currency forwards	Other long-term liabilities	6		40
	Total liabilities	$	28	$	81
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	1,318	$	1,456
	Total assets	$	1,318	$	1,456
Foreign currency forwards	Other accrued liabilities	$	1,151	$	2,549
	Total liabilities	$	1,151	$	2,549