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Derivative Instruments and Hedging Activities
 9 Months Ended
Jul. 01, 2011
Derivative Instruments and Hedging Activities  
Derivative Instruments and Hedging Activities
13      Derivative Instruments and Hedging Activities
 
The following disclosures describe the Company's objectives in using derivative instruments, the business purpose or context for using derivative instruments, and how the Company believes the use of derivative instruments helps achieve the stated objectives.  In addition, the following disclosures describe the effects of the Company's use of derivative instruments and hedging activities on its financial statements.
 
Foreign Exchange Risk
 
The Company has significant foreign operations, for which the functional currencies are denominated primarily in euros, Swiss francs, Japanese yen and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U.S. dollar, the sales, expenses, profits, losses, assets and liabilities of the Company's foreign operations, as reported in the Company's consolidated financial statements, increase or decrease, accordingly. Approximately 24% of the Company's revenues for the nine month period ended July 1, 2011 were denominated in currencies other than the U.S. dollar. Approximately 14% were denominated in euros, with the remaining 10% denominated in various other foreign currencies.  Changes in foreign currency exchange rates can cause unexpected financial losses or cash flow needs.
 
The Company mitigates a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts.  Foreign currency forward contracts enable the Company to lock in the foreign currency exchange rate to be paid or received for a fixed amount of currency at a specified date in the future. The Company uses such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments for purchases of inventory and other assets denominated in foreign currencies. None of the Company's derivative financial instruments have been designated as hedging instruments.
 
As of July 1, 2011, the Company held foreign currency forward contracts with notional values of 5,400 Swiss francs and 2,095 U.S. dollars.  See "Note 14 – Fair Value Measurements" for information regarding the fair value and financial statement presentation of these derivatives.
 
Interest Rate Risk
 
The Company operates in a seasonal business and experiences significant fluctuations in operating cash flow as working capital needs increase in advance of the Company's primary selling and cash generation season, and decline as accounts receivable are collected and cash is accumulated or debt is repaid.  The Company's goal in managing its interest rate risk is to maintain a mix of floating rate and fixed rate debt such that permanent non-equity capital needs are largely funded with long term fixed rate debt and seasonal working capital needs are funded with short term floating rate debt.
 
When the appropriate mix of fixed rate or floating rate debt cannot be directly obtained in a cost effective manner, the Company may enter into interest rate swap contracts in order to change floating rate interest into fixed rate interest or vice versa for a specific amount of debt in order to achieve the desired proportions of floating rate and fixed rate debt.  An interest rate swap is a contract in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.  The notional amount is the equivalent amount of debt that the Company wishes to change from a fixed interest rate to a floating interest rate or vice versa and is the basis for calculating the related interest payments required under the interest rate swap contract.
 
On January 2, 2009, the Company's then effective interest rate swap contract became ineffective as a hedging instrument.  Prior to becoming ineffective, the effective portion of the Company's interest rate swap contract was recorded in accumulated other comprehensive income ("AOCI"), a component of shareholders' equity. As a result of this cash flow hedge becoming ineffective, $5,937 of unrealized loss in AOCI was frozen and all subsequent changes in the fair value of the swap were recorded directly to interest expense in the Company's statements of operations. The effective portion frozen in AOCI is amortized over the period of the originally hedged transaction.  The remaining amount held in AOCI shall be immediately recognized as interest expense if it ever becomes probable that the Company will not have interest bearing debt through December 14, 2012, the period over which the originally forecasted hedged transactions were expected to occur.  The Company expects that approximately $814 of the $1,058 remaining in AOCI at July 1, 2011 will be amortized into interest expense over the next 12 months.
 
The Company held no interest rate swap contracts in fiscal 2010 and as of July 1, 2011, the Company was unhedged with respect to interest rate risk on its floating rate debt.
 
The following discloses the location of loss reclassified from AOCI into net income related to derivative instruments during the three and nine month periods ended July 1, 2011:
             
Loss reclassified from AOCI into:
  
Three Months Ended July 1, 2011
    
Nine Months Ended July 1, 2011
  
             
Interest expense
   $ 247     $ 859  
 
The following discloses the location of loss reclassified from AOCI into net income related to derivative instruments during the three and nine month periods ended July 2, 2010:
             
Loss reclassified from AOCI into:
  
Three Months Ended July 2, 2010
    
Nine Months Ended July 2, 2010
  
             
Interest expense
   $ 407     $ 1,330  

 
The following discloses the location and amount of income or loss recognized for changes in the fair value of derivative instruments not designated as hedging instruments for the three and nine month periods ended July 1, 2011:
               
Derivatives not designated as
hedging instruments
Location of (income) or loss recognized
in statement of operations
  
Three Months Ended July 1, 2011
    
Nine Months Ended July 1, 2011
  
               
Foreign exchange forward contracts
Other expense (income), net
   $ (387 )   $ (719 )
 
The following discloses the location and amount of income or loss recognized for changes in the fair value of derivative instruments not designated as hedging instruments for the three and nine month periods ended July 2, 2010:
               
Derivatives not designated
as hedging instruments
Location of (income) or loss recognized
in statement of operations
  
Three Months Ended July 2, 2010
    
Nine Months Ended July 2, 2010
  
               
Foreign exchange forward contracts
Other expense (income), net
   $ 323     $ 1,018