Note 4 Derivative Financial Instruments

9 Months Ended

Jul. 02, 2011

Summary of Derivative Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Financial Instruments

The Company is exposed to certain risks related to its ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk and foreign exchange rate risk.

Interest Rate Risk

Interest rate swaps are entered into on occasion to manage interest rate risk associated with borrowings under the Company's long-term debt arrangements.

Cash Flow Hedges

The Company has $257.4 million of floating rate notes outstanding as of July 2, 2011 and has entered into interest rate swap agreements with two independent swap counterparties to hedge its interest rate exposure. The swap agreements, with an aggregate notional amount of $257 million and expiration dates of June 15, 2014, effectively convert the variable interest rate obligation to a fixed interest rate obligation and are accounted for as cash flow hedges under ASC Topic 815, Derivatives and Hedging. Under the terms of the swap agreements, the Company pays the independent swap counterparties a fixed rate and the swap counterparties pay the Company an interest rate equal to the three-month LIBOR. These swap agreements effectively fix the interest rate at 8.344% through maturity.

Fair Value Hedge

The Company has $500 million of fixed-rate senior notes outstanding as of July 2, 2011 and has entered into an interest rate swap to hedge its exposure to interest rates related to these notes. The swap agreement, with a notional amount of $500 million and an expiration date of May 15, 2019, was entered into contemporaneously with the 2019 Notes and effectively converts these notes from fixed-rate debt to variable-rate debt. Pursuant to the interest rate swap, the Company pays the swap counterparty a variable rate equal to the three-month LIBOR plus a spread and receives a fixed rate of 7.0% from the swap counterparty. In accordance with ASC 815, the interest rate swap is accounted for as a fair value hedge but is exempt from periodic assessment of hedge effectiveness. Therefore, the change in the fair value of the 2019 Notes resulting from changes in interest rates is assumed to be equal and opposite to the change in the fair value of the interest rate swap. As of July 2, 2011, the fair value of the interest rate swap, based on observable market data (Level 2), was $5.5 million and is included in other long-term liabilities on the Company's condensed consolidated balance sheet.

Foreign Exchange Rate Risk

Forward contracts on various foreign currencies are used to manage foreign currency risk associated with forecasted foreign currency transactions and certain monetary assets and liabilities denominated in foreign currencies. The Company's primary foreign currency cash flows are in certain Asian and European countries, Israel and Mexico.

The Company had the following outstanding foreign currency forward contracts that were entered into to hedge foreign currency exposures:

	As of
	July 2, 2011	October 2, 2010
Derivatives Designated as Accounting Hedges:
Notional amount (in thousands)	$121,386	$80,370
Number of contracts	44	26
Derivatives Not Designated as Accounting Hedges:
Notional amount (in thousands)	$356,947	$290,688
Number of contracts	29	26

The Company enters into short-term foreign currency forward contracts to hedge currency exposures associated with certain monetary assets and liabilities denominated in foreign currencies. These contracts have maturities of up to two months and are not designated as accounting hedges under ASC 815. Accordingly, these contracts are marked-to-market at the end of each period with unrealized gains and losses recorded in other income (expense), net, in the condensed consolidated statements of income. For the three and nine months ended July 2, 2011, the Company recorded losses of $1.7 million and gains of $1.7 million, respectively, associated with these forward contracts. For the three and nine months ended July 3, 2010, the Company recorded gains of $14.0 million and $27.3 million, respectively, associated with these forward contracts. Gains and losses on forward contracts substantially offset gains and losses on the underlying hedged items for all periods presented herein.

The Company also utilizes foreign currency forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. Such exposures generally result from 1) forecasted sales denominated in currencies other than those used to pay for materials and labor and 2) anticipated capital expenditures denominated in a currency other than the functional currency of the entity making the expenditures. These contracts are up to twelve months in duration and are accounted for as cash flow hedges under ASC 815.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (AOCI), an equity account, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on derivative instruments representing hedge ineffectiveness are recognized in current earnings and were not material for any period presented herein. As of July 2, 2011, AOCI related to foreign currency forward contracts was not material and AOCI related to interest rate swaps was a loss of $31.5 million, of which $13.0 million is expected to be amortized to interest expense over the next 12 months.

The following table presents the effect of cash flow hedging relationships on the Company's condensed consolidated statement of income for the three and nine months ended July 2, 2011 and July 3, 2010, respectively:

Derivative Type and Income Statement Location	Amount of Gain/(Loss) Recognized in OCI on Derivative (Effective Portion)											Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended						Nine Months Ended					Three Months Ended						Nine Months Ended
	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010		July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010
	(In thousands)
Interest rate swaps - Interest expense	$	(4,658	)	$	(8,106	)	$	(2,721	)	(11,567	)	$	(3,393	)	$	(3,416	)	$	(10,208	)	$	(10,001	)
Foreign currency forward contracts - Cost of sales	605			(867		)	1,541			(196	)	594			(861		)	1,504			(78		)
Total	$	(4,053	)	$	(8,973	)	$	(1,180	)	(11,763	)	$	(2,799	)	$	(4,277	)	$	(8,704	)	$	(10,079	)