Derivative Financial Instruments

12 Months Ended

Oct. 01, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 8 - 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 October 1, 2011, we had interest rate swaps with notional amounts totaling $50,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 2.6%, including the applicable margin of 150 basis points as of October 1, 2011. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps in 2012.

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 $14,174 at October 1, 2011. These contracts mature at various times through the first quarter of 2013.

These interest rate swaps and foreign currency forwards are recorded in 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 2011, 2010 or 2009.

Activity in Accumulated Other Comprehensive Income (Loss) (AOCI) related to these derivatives is summarized below:

		000000000000			000000000000
	October 1, 2011			October 2, 2010
Balance at beginning of period	$	144		$	(189	)
Net deferral in AOCI of derivatives:
Net (decrease) increase in fair value of derivatives		(122	)		193
Tax effect		34			(82	)
		(88	)		111
Net reclassification from AOCI into earnings:
Reclassification from AOCI into earnings		(346	)		292
Tax effect		125			(70	)
		(221	)		222
Balance at end of period	$	(165	)	$	144

Activity and classification of derivatives are as follows:

	00000000		00000000			00000000
	Statement of earnings classification	Net deferral in AOCI of derivatives (effective portion)
		2011			2010
Interest rate swaps	Interest expense	$	(83	)	$	(768	)
Foreign currency forwards	Cost of sales		(39	)		961
Net gain (loss)		$	(122	)	$	193

	00000000		00000000			00000000
	Statement of earnings classification	Net reclassification from AOCI into earnings (effective portion)
		2011			2010
Interest rate swaps	Interest expense	$	(423	)	$	(615	)
Foreign currency forwards	Cost of sales		769			323
Net gain (loss)		$	346		$	(292	)

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 have foreign currency forwards with notional amounts of $167,285 at October 1, 2011. The foreign currency forwards are recorded in the balance sheet at fair value and resulting gains or losses are recorded in the statements of earnings. We recorded a net loss of $3,994 in 2011 and a net gain of $310 in 2010 on the foreign currency forwards. These gains and losses are included in other income or expense and generally offset the gains and losses from the foreign currency adjustments on the intercompany balances.

Summary of derivatives

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

	00000000		00000000		00000000
		October 1, 2011		October 2, 2010
Derivatives designated as hedging instruments:
Foreign currency forwards	Other current assets	$	25	$	498
Foreign currency forwards	Other assets		-		92
		$	25	$	590
Foreign currency forwards	Other accrued liabilities	$	143	$	-
Foreign currency forwards	Other long-term liabilities		81		-
Interest rate swaps	Other accrued liabilities		102		381
Interest rate swaps	Other long-term liabilities		-		63
		$	326	$	444
Derivatives not designated as hedging instruments:
Foreign currency forwards	Other current assets	$	1,524	$	3,101
Foreign currency forwards	Other assets		-		74
		$	1,524	$	3,175
Foreign currency forwards	Other accrued liabilities	$	2,640	$	2,346
Foreign currency forwards	Other long-term liabilities		-		61
		$	2,640	$	2,407