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Derivative Instruments And Hedging Activities
 12 Months Ended
Sep. 28, 2012
Derivative Instruments And Hedging Activities [Abstract]  
Derivative Instruments And Hedging Activities

3DERIVATIVE 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 23% of the Company’s revenues for the fiscal year ended September 28, 2012 were denominated in currencies other than the U.S. dollar.  Approximately 12% were denominated in euros, with the remaining 11% 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 for a fixed amount of currency to be paid or received on 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 denominated in foreign currencies. None of the Company’s derivative financial instruments have been designated as hedging instruments. 

As of September 28, 2012, the Company held one foreign currency forward contract with a notional value of 4,400 Swiss francs.  See “Note 4 – Fair Value Measurements” for information regarding the fair value and financial statement presentation of this derivative.

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.

 

As of September 28, 2012, the Company had approximately $138 of unrealized loss in accumulated other comprehensive income (“AOCI”) related to a formerly effective interest rate swap that had subsequently become ineffective on January 2, 2009. The Company expects that the amount remaining in AOCI will be amortized into interest expense by the end of the first fiscal quarter of 2013. 

 

The Company held no interest rate swap contracts in 2012 or 2011.  As of September 28, 2012, 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 years ended September 28, 2012, September 30, 2011, and October 1, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss reclassified from AOCI into:

2012

2011

2010

 

 

 

 

 

 

 

 

 

 

Interest expense

$
789 

$
990 

$
2,045 

 

 

 

 

 

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 years ended September 28, 2012, September 30, 2011, and October 1, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Location of  loss (gain)

 

 

 

 

 

 

 

Derivatives not designated as

recognized in Statement

 

 

 

 

 

hedging instruments

of Operations

 

2012

2011

2010

 

 

 

 

 

 

 

 

 

Foreign exchange forward contract

Other (income) expense, net

 

$
306 

$
(361)

$
565