Derivative Financial Instruments

6 Months Ended

Mar. 30, 2013

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

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. At March 30, 2013, we had interest rate swaps with notional amounts totaling $120,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 1.8%, including the applicable margin of 138 basis points as of March 30, 2013. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps on January 15, 2015 and January 15, 2016.

We use foreign currency forward contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, primarily the Philippine peso, we had outstanding foreign currency forwards with notional amounts of $52,977 at March 30, 2013. These contracts mature at various times through the second quarter of 2015.

These interest rate swaps and foreign currency forwards 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 and revenue being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in the first six months of 2013 or 2012.

Activity in AOCI related to these derivatives is summarized below:

	Three Months Ended						Six Months Ended
	March 30, 2013			March 31, 2012			March 30, 2013			March 31, 2012
Balance at beginning of period	$	542		$	(379	)	$	220		$	(165	)
Net deferral in AOCI of derivatives:
Net increase (decrease) in fair value of derivatives	(511		)	426			167			195
Tax effect	166			(146		)	(70		)	(72		)
	(345		)	280			97			123
Net reclassification from AOCI into earnings:
Reclassification from AOCI into earnings	(198		)	21			(420		)	(72		)
Tax effect	73			—			175			36
	(125		)	21			(245		)	(36		)
Balance at end of period	$	72		$	(78	)	$	72		$	(78	)

Activity and classification of derivatives are as follows:

		Net deferral in AOCI of derivatives - effective portion
		Three Months Ended					Six Months Ended
	Statement of earnings classification	March 30, 2013			March 31, 2012		March 30, 2013			March 31, 2012
Interest rate swaps	Interest expense	$	(203	)	$	—	$	(203	)	$	—
Foreign currency forwards	Cost of sales	(308		)	426		370			195
Net gain (loss)		$	(511	)	$	426	$	167		$	195

		Net reclassification from AOCI into earnings - effective portion
		Three Months Ended						Six Months Ended
	Statement of earnings classification	March 30, 2013			March 31, 2012			March 30, 2013			March 31, 2012
Interest rate swaps	Interest expense	$	(43	)	$	—		$	(43	)	$	(67	)
Foreign currency forwards	Cost of sales	241			(21		)	463			139
Net gain (loss)		$	198		$	(21	)	$	420		$	72

Derivatives not designated as hedging instruments

We also have foreign currency exposure on balances, primarily intercompany, that are denominated in foreign currencies and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the consolidated condensed statements of earnings. To minimize foreign currency exposure, we had foreign currency forwards with notional amounts of $255,921 at March 30, 2013. 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				Six Months Ended
	March 30, 2013		March 31, 2012		March 30, 2013		March 31, 2012
Net gain (loss)	$	4,979	$	811	$	5,901	$	(571	)

Summary of derivatives

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

		March 30, 2013		September 29, 2012
Derivatives designated as hedging instruments:
Foreign currency forwards	Other current assets	$	612	$	467
Foreign currency forwards	Other assets	1		32
	Total assets	$	613	$	499
Foreign currency forwards	Other accrued liabilities	$	102	$	41
Foreign currency forwards	Other long-term liabilities	250		40
Interest rate swaps	Other accrued liabilities	76		—
Interest rate swaps	Other long-term liabilities	95		—
	Total liabilities	$	523	$	81
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	3,674	$	1,456
	Total assets	$	3,674	$	1,456
Foreign currency forwards	Other accrued liabilities	$	2,256	$	2,549
	Total liabilities	$	2,256	$	2,549