Derivative Financial Instruments

12 Months Ended

Sep. 27, 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 September 27, 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 2.0%, including the applicable margin of 138 basis points as of September 27, 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 $43,548 at September 27, 2014. These contracts mature at various times through May 27, 2016.

These interest rate swaps and foreign currency forwards are recorded on 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 2014, 2013 or 2012.

Derivatives not designated as hedging instruments

We also have foreign currency exposure on balances, primarily intercompany, 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 consolidated statements of earnings. To minimize foreign currency exposure, we have foreign currency forwards with notional amounts of $206,396 at September 27, 2014. The foreign currency forwards are recorded in the consolidated balance sheets at fair value and resulting gains or losses are recorded in the consolidated statements of earnings. We recorded net gains of $4,105 in 2014 and $2,249 in 2013 on the foreign currency forwards. These gains are included in other expense and generally offset the losses 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 27, 2014		September 28, 2013
Derivatives designated as hedging instruments:
Interest rate swaps	Other current assets	$	70	$	—
Interest rate swaps	Other assets	107		—
Foreign currency forwards	Other current assets	—		217
Foreign currency forwards	Other assets	—		100
	Total assets	$	177	$	317
Interest rate swaps	Other accrued liabilities	$	110	$	85
Interest rate swaps	Other long-term liabilities	28		42
Foreign currency forwards	Other accrued liabilities	1,521		1,342
Foreign currency forwards	Other long-term liabilities	494		636
	Total liabilities	$	2,153	$	2,105
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	821	$	68
	Total assets	$	821	$	68
Foreign currency forwards	Other accrued liabilities	$	2,991	$	956
	Total liabilities	$	2,991	$	956