Derivative Financial Instruments

3 Months Ended

Jan. 03, 2015

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 January 3, 2015, 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 January 3, 2015. 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 $41,297 at January 3, 2015. These contracts mature at various times through August 26, 2016.

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 three months of 2015 or 2014.

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 $145,420 at January 3, 2015. 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
	January 3, 2015		December 28, 2013
Net gain	$	933	$	940

Summary of derivatives

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

		January 3, 2015		September 27, 2014
Derivatives designated as hedging instruments:
Interest rate swaps	Other current assets	$	—	$	70
Interest rate swaps	Other assets	1		107
	Total assets	$	1	$	177
Foreign currency forwards	Other accrued liabilities	$	1,090	$	1,521
Foreign currency forwards	Other long-term liabilities	326		494
Interest rate swaps	Other accrued liabilities	145		110
Interest rate swaps	Other long-term liabilities	68		28
	Total liabilities	$	1,629	$	2,153
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	1,283	$	821
	Total assets	$	1,283	$	821
Foreign currency forwards	Other accrued liabilities	$	2,235	$	2,991
	Total liabilities	$	2,235	$	2,991