Derivative Financial Instruments

9 Months Ended

Jun. 28, 2014

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. At June 28, 2014, we had interest rate swaps with notional amounts totaling $320,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 1.8%, including the applicable margin of 113 basis points as of June 28, 2014. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps. These interest rate swaps mature at various times between January 15, 2015 and June 5, 2017.

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 $33,131 at June 28, 2014. These contracts mature at various times through December 23, 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 nine months of 2014 or 2013.

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 $220,734 at June 28, 2014. 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					Nine Months Ended
	June 28, 2014		June 29, 2013			June 28, 2014		June 29, 2013
Net gain (loss)	$	3,416	$	(2,835	)	$	5,941	$	3,066

Summary of derivatives

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

		June 28, 2014		September 28, 2013
Derivatives designated as hedging instruments:
Foreign currency forwards	Other current assets	$	85	$	217
Foreign currency forwards	Other assets	—		100
	Total assets	$	85	$	317
Foreign currency forwards	Other accrued liabilities	$	1,029	$	1,342
Foreign currency forwards	Other long-term liabilities	91		636
Interest rate swaps	Other accrued liabilities	346		85
Interest rate swaps	Other long-term liabilities	309		42
	Total liabilities	$	1,775	$	2,105
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	699	$	68
	Total assets	$	699	$	68
Foreign currency forwards	Other accrued liabilities	$	826	$	956
	Total liabilities	$	826	$	956