Derivative Financial Instruments

12 Months Ended

Sep. 29, 2013

Derivative Financial Instruments

Derivative Financial Instruments

14.         Derivative Financial Instruments

              We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. We enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. Our hedging program is not designated for trading or speculative purposes.

              We recognize derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as accounting hedges in our consolidated balance sheets as accumulated other comprehensive income.

              In fiscal 2009, we entered into an intercompany promissory note with a wholly-owned Canadian subsidiary in connection with the acquisition of Wardrop Engineering, Inc. The intercompany note receivable is denominated in CAD and has a fixed rate of interest payable in CAD. In the second quarter of fiscal 2010, we entered into a forward contract for CAD $4.2 million (equivalent to U.S. $3.9 million at the date of inception) that matured on January 28, 2013. In the third quarter of fiscal 2011, we entered into a forward contract for CAD $4.2 million (equivalent to U.S. $4.2 million at the date of inception) with a maturity date of January 27, 2014. Our objective was to eliminate variability of our cash flows on the amount of interest income we receive on the promissory note from changes in foreign currency exchange rates. These contracts were designated as cash flow hedges. Accordingly, changes in the fair value of the contracts were recorded in "Other comprehensive income". In the second quarter of fiscal 2013, we settled one of the foreign currency forward contracts for U.S. $3.9 million and terminated the remaining forward contract. As a result, we recognized immaterial gains and losses in our consolidated statements of operations for fiscal 2013, 2012 and 2011.

              In fiscal 2013, we entered into three interest rate swap agreements that we have designated as cash flow hedges to fix the variable interest rates on a portion of borrowings under our Term Loan Facility. At September 29, 2013, the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $0.9 million, of which $0.9 million is expected to be reclassified from accumulated other comprehensive income to interest expense within the next 12 months.

              As of September 29, 2013, the notional principal, fixed rates and related expiration dates of our outstanding interest rate swap agreements are as follows:

Notional Amount (in thousands)		Fixed Rate			Expiration Date
$	51,250		1.36	%		May 2018
	51,250		1.34	%		May 2018
	51,250		1.35	%		May 2018

              The fair values of our outstanding derivative instruments were as follows (in thousands):

		Fair Value of Derivative Instruments as of
	Balance Sheet Location	September 29, 2013		September 30, 2012
Derivatives designated as hedging instruments:
Foreign currency forward contracts	Other current liabilities	$	–	$	348
Interest rate swap agreements	Other current liabilities		987		–
Total		$	987	$	348

              The impact of the effective portions of derivative instruments in cash flow hedging relationships on income and other comprehensive income from our foreign currency forward contracts and interest rate swap agreements was immaterial for the fiscal years ended September 30, 2012 and September 29, 2013. Additionally, there were no ineffective portions of derivative instruments. Accordingly, no amounts were excluded from effectiveness testing for our foreign currency forward contracts and interest rate swap agreements. We had no derivative instruments that were not designated as hedging instruments for fiscal 2013, 2012 and 2011.