DERIVATIVES AND FAIR VALUE MEASUREMENTS

All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at their estimated fair value. On the date a derivative contract is entered into, the Company designates the derivative as a hedge of a recognized asset or liability (a “fair value” hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (a “cash flow” hedge), or a hedge of the net investment in a foreign operation. The Company currently has cash flow hedges related to variable rate debt and foreign currency obligations. The Company does not enter into derivatives for speculative purposes. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows.

The Company’s Mexican operations were parties to forward exchange contracts all of which were settled as of June 30, 2012. The total fair value of these forward contracts was a $1.0 million liability as of October 1, 2011.

During the second quarter of fiscal 2011, the Company entered into forward exchange contracts to fix the exchange rates on foreign currency cash used to pay for capital expenditures related to the construction of the Company’s fourth facility in Malaysia; these contracts were settled as of the end of the first quarter of fiscal 2012. The total fair value of these forward contracts was a $0.1 million liability as of October 1, 2011.

The Company’s Malaysian operations have also entered into forward exchange contracts on a rolling basis with a total notional value of $54.1 million as of June 30, 2012. These forward contracts will fix the exchange rates on foreign currency cash used to pay a portion of local currency expenses. The total fair value of these forward contracts was a $1.4 million liability as of June 30, 2012 and a $1.5 million liability as of October 1, 2011.

During fiscal 2011, the Company entered into treasury rate lock hedge contracts to hedge the variability of the fixed interest rate on the then-forecasted issuance of $175 million of fixed rate debt using a treasury lock transaction. During the third quarter of fiscal 2011, when the fixed interest rate for the debt issuance was determined, all three treasury rate lock contracts were settled and the Company received proceeds of $2.3 million, which is being amortized over the seven year term of the related debt.

The Company entered into three interest rate swap contracts related to the $150 million in term loans under its Prior Credit Facility that had an initial total notional value of $150 million and mature on April 4, 2013. These interest rate swap contracts continued into the New Credit Facility and pay the Company variable interest at the three month LIBOR rate, and the Company pays the counterparties a fixed interest rate. The fixed interest rates for each of these contracts are 4.415%, 4.490% and 4.435%, respectively. These interest rate swap contracts were originally entered into to convert $150 million of the variable rate term loan under the Prior Credit Facility into fixed rate debt. Based on the terms of the interest rate swap contracts and the underlying debt, these interest rate contracts were determined to be effective, and thus qualify as a cash flow hedge. As such, any changes in the fair value of these interest rate swaps are recorded in “Accumulated other comprehensive income” on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows. The total fair value of these interest rate swap contracts was a $2.5 million liability as of June 30, 2012 and a $5.2 million liability as of October 1, 2011. As of June 30, 2012, the total remaining combined notional amount of the Company’s three interest rate swaps was $86.3 million.

The tables below present information regarding the fair values of derivative instruments (as defined in Note 1 – Basis of Presentation and Accounting Policies) and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:



Fair Values of Derivative Instruments
In thousands of dollars
	Asset Derivatives					Liability Derivatives
		June 30, 2012		October 1, 2011			June 30, 2012		October 1, 2011
Derivatives designated as hedging instruments	Balance Sheet Location	Fair Value		Fair Value		Balance Sheet Location	Fair Value		Fair Value
Interest rate swaps		$	—	$	—	Current liabilities – Other	$	2,515	$	3,493
Interest rate swaps		$	—	$	—	Other liabilities	$	—	$	1,746
Forward contracts		$	—	$	—	Current liabilities –Other	$	1,407	$	2,544



The Effect of Derivative Instruments on the Condensed Statements of Operations
for the Three Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Other Comprehensive Income (“OCI”) on Derivative (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	June 30, 2012			July 2, 2011				June 30, 2012			July 2, 2011				June 30, 2012		July 2, 2011
Interest rate swaps	$	23		$	(676	)	Interest income (expense)	$	(868	)	$	(1,085	)	Other income (expense)	$	—	$	—
Forward contracts	$	(1,631	)	$	695		Selling and administrative expenses	$	(52	)	$	953		Other income (expense)	$	—	$	—
Treasury Rate Locks	$	—		$	869		Interest income (expense)	$	79		$	43		Other income (expense)	$	—	$	—



The Effect of Derivative Instruments on the Condensed Statements of Operations
for the Nine Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Other Comprehensive Income (“OCI”) on Derivative (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	June 30, 2012		July 2, 2011				June 30, 2012			July 2, 2011				June 30, 2012		July 2, 2011
Interest rate swaps	$	38	$	(420	)	Interest income (expense)	$	(2,686	)	$	(3,306	)	Other income (expense)	$	—	$	—
Forward contracts	$	761	$	2,108		Selling and administrative expenses	$	(356	)	$	2,848		Other income (expense)	$	—	$	—
Treasury Rate Locks	$	—	$	2,281		Interest income (expense)	$	239		$	43		Other income (expense)	$	—	$	—

The following table lists the fair values of assets/(liabilities) of the Company’s derivatives as of June 30, 2012, by input level as defined above (in thousands):



Derivatives	Level 1		Level 2			Level 3		Total
Interest rate swaps	$	—	$	(2,515	)	$	—	$	(2,515	)
Foreign currency forward contracts	$	—	$	(1,407	)	$	—	$	(1,407	)

The fair value of interest rate swaps and foreign currency forward contracts is determined using a market approach which includes obtaining directly or indirectly observable values from third parties active in the relevant markets. The primary input in the fair value of the interest rate swaps is the relevant LIBOR forward curve. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves.