Note 4 Derivative Financial Instruments

9 Months Ended

Jun. 28, 2014

Derivative Instruments and Hedging Activities Disclosure [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 used to manage interest rate risk associated with borrowings under the Company's long-term debt arrangements.

Interest Rate Swaps Not Designated As Hedging Instruments

Pay Fixed Receive Variable Interest Rate Swap

The Company had interest rate swaps with an aggregate notional amount of $257 million that were entered into in 2007 to hedge LIBOR-based variable rate interest payments expected to occur through June 15, 2014. During the first quarter of 2013, the Company determined, based on its intention of redeeming $257 million of its senior floating rates notes due in 2014 ("2014 Notes"), that it was no longer probable that LIBOR-based, variable rate interest payments would occur on $257 million of debt through June 15, 2014. Accordingly, the Company dedesignated its interest rate swaps in their entirety in the first quarter of 2013 and recorded a charge of $14.9 million in other expense, net, representing the portion of the value of the interest rate swaps previously recorded in accumulated other comprehensive income (AOCI) for which it was no longer probable that LIBOR-based variable rate interest payments would occur. Under the terms of the swap agreements, the Company paid the independent swap counterparties a fixed rate of approximately 5.6% and the swap counterparties paid the Company an interest rate equal to three-month LIBOR. Beginning on the date the interest rate swaps were dedesignated, changes in the fair value of the interest rate swaps were recorded in other expense, net, in the unaudited condensed consolidated statements of income. Such amounts were not material for any period presented herein. The Company continued to make and receive payments under the swaps through June 15, 2014. Upon maturity of the swaps, AOCI of $3.3 million related entirely to an income tax effect of the swap was charged to income tax expense.

Pay Variable Receive Fixed Interest Rate Swap

In 2011, the Company issued $500 million of fixed-rate senior notes (the "2019 Notes") and entered into an interest rate swap with a single counterparty to hedge its exposure to changes in the fair value of the notes resulting from fluctuations in interest rates. The swap agreement, with a notional amount of $500 million, has an expiration date of May 15, 2019 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 Topic 815, the interest rate swap was initially accounted for as a fair value hedge and was exempt from periodic assessment of hedge effectiveness. Therefore, while the interest rate swap was designated as a hedge for accounting purposes, the change in the fair value of the 2019 Notes resulting from changes in interest rates was assumed to be equal and opposite to the change in the fair value of the interest rate swap.

During the third quarter of 2014, the Company redeemed $264.4 million of its 2019 Notes and called an additional $135.6 million of the 2019 Notes for redemption, which was completed early in the fourth quarter of 2014. Additionally, the Company terminated $400 million of the notional amount of the interest rate swap during the third quarter of 2014 and received $16.5 million of cash, representing the fair value of the terminated portion of the swap. The Company dedesignated the entire interest rate swap in May 2014 and discontinued hedge accounting at such time. The fair value hedge accounting adjustment related to the swap was $20.7 million on the date of dedesignation, $11.0 million of which was credited to other expense, net in the unaudited condensed consolidated statements of income in the third quarter and $5.5 million of which will be credited to the income statement in the fourth quarter in connection with the redemptions of the 2019 Notes. The remaining balance of $4.2 million is being amortized to interest expense over the remaining term of the 2019 Notes. The change in the fair value of the swap subsequent to the date hedge accounting was discontinued was not material and was recorded in other expense, net in the unaudited condensed consolidated statements of income.

Early in the fourth quarter of 2014, the Company redesignated the remaining $100 million interest rate swap as a fair value hedge for the remaining $100 million of 2019 Notes outstanding. As of June 28, 2014, the fair value of the interest rate swap was $4.0 million and is included in other non-current assets on the unaudited 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 non-functional currencies. The Company's primary foreign currency cash flows are in certain Asian and European countries, Israel, Brazil and Mexico.

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

	As of
	June 28, 2014		September 28, 2013
Derivatives Not Designated as Accounting Hedges:
Notional amount (in thousands)	$	198,848	$	190,226
Number of contracts	43		42
Derivatives Designated as Accounting Hedges:
Notional amount (in thousands)	$	102,967	$	100,679
Number of contracts	36		41

The Company enters into short-term foreign currency forward contracts to hedge currency exposures associated with certain monetary assets and liabilities denominated in non-functional currencies. These contracts have maturities of up to two months and are not designated as accounting hedges under ASC Topic 815. Accordingly, these contracts are marked-to-market at the end of each period with unrealized gains and losses recorded in other expense, net, in the unaudited condensed consolidated statements of income. For the three and nine months ended June 28, 2014, the Company recorded a gain of $0.2 million and a loss of $1.6 million, respectively, associated with these forward contracts. For the three and nine months ended June 29, 2013, the Company recorded losses of $2.3 million and of $4.1 million, respectively, associated with these forward contracts. From an economic perspective, the objective of the Company's hedging program is for gains and losses on forward contracts to substantially offset gains and losses on the underlying hedged items.

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, 2) forecasted non-functional currency labor and overhead expenses, 3) forecasted non-functional currency operating expenses, and 4) anticipated capital expenditures denominated in a currency other than the functional currency of the entity making the expenditures. These contracts may be up to twelve months in duration and are accounted for as cash flow hedges under ASC Topic 815.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is recorded in AOCI, a component of equity, 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. Other than ineffectiveness of $14.9 million recognized in the first quarter of 2013 in connection with a dedesignation of interest rate swaps, the amount of ineffectiveness on a quarterly basis has been immaterial. As of June 28, 2014, AOCI related to foreign currency forward contracts was not material.

The following table presents the effect of cash flow hedging relationships on the Company's unaudited condensed consolidated financial statements for the three months ended June 28, 2014 and June 29, 2013 (in thousands):

Type of Derivatives	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain (Loss) reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	June 28, 2014		June 29, 2013			June 28, 2014			June 29, 2013
Interest rate swaps	$	—	$	—	Interest expense	$	—		$	(1,013	)
					Income tax expense	(3,315		)	—
Foreign currency forward contracts	570		5		Net sales	(40		)	(183		)
					Cost of sales	524			679
					Selling, general and administrative	26			22
Total	$	570	$	5		$	(2,805	)	$	(495	)

The following table presents the effect of cash flow hedging relationships on the Company's unaudited condensed consolidated financial statements for the nine months ended June 28, 2014 and June 29, 2013 (in thousands):

Type of Derivatives	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)					Location of Gain (Loss) reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)						Location of Gain (Loss) Reclassified from AOCI into Income (Ineffective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Ineffective Portion)
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013				June 28, 2014		June 29, 2013
Interest rate swaps	$	—		$	96	Interest expense	$	(318	)	$	(5,971	)	Other expense, net	$	—	$	(14,903	)
						Income tax expense	(3,315		)	—
Foreign currency forward contracts	(241		)	267		Net Sales	(71		)	(364		)
						Cost of sales	(273		)	972
						Selling, general and administrative	(13		)	12
Total	$	(241	)	$	363		$	(3,990	)	$	(5,351	)		$	—	$	(14,903	)