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Derivative Instruments
 6 Months Ended
Jan. 01, 2012
Derivative Instruments [Abstract]  
Derivative Instruments

Derivative Instruments

We own and operate manufacturing operations in Mexico. As a result, a portion of our manufacturing costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate as a result of changes in the U.S. dollar / Mexican peso exchange rate. Beginning in January 2011, we entered into agreements with Bank of Montreal that provide for two weekly Mexican peso currency option contracts for a portion of our weekly estimated peso denominated operating costs. Current contracts with Bank of Montreal extend through June 28, 2013. The two weekly option contracts are for equivalent notional amounts. The contracts that are currently effective and expire July 6, 2012 provide for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange rate of 11.85 if the spot rate at the weekly expiry date is below 11.85 or for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange rate of 12.85 if the spot rate at the weekly expiry date is above 12.85. Additional contracts that are effective July 6, 2012 through June 28, 2013 provide for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of 12.40 if the spot rate at the weekly expiry date is below an average of 12.40 or for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of 13.40 if the spot rate at the weekly expiry date is above an average of 13.40. Our objective in entering into these currency option contracts is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso option contracts are not used for speculative purposes and are not designated as hedges, and as a result, all currency option contracts are recognized in our accompanying condensed consolidated financial statements at fair value and changes in the fair value of the currency option contracts are reported in current earnings as part of Other Income (Expense), net. The premiums to be paid and received under the weekly Mexican peso currency option contracts net to zero, and as a result, premiums related to the contracts did not impact our earnings.

 

The following table quantifies the outstanding Mexican peso currency option contracts as of January 1, 2012 (thousands of dollars):

 

    September 30,     September 30,       September 30,       September 30,  
   

Effective Dates

   Notional
Amount		     Average
Option Contractual
Exchange Rate		     Fair Value  

Buy MXP/Sell USD

   January 2, 2012-July 6, 2012   $ 6,700       11.85     $ 7  

Buy MXP/Sell USD

   January 2, 2012-July 6, 2012   $ 6,700       12.85     $ (607 ) 

Buy MXP/Sell USD

   July 6, 2012 – June 28, 2013   $ 10,200       12.40     $ 137  

Buy MXP/Sell USD

   July 6, 2012 – June 28, 2013   $ 10,200       13.40     $ (1,008 ) 

The fair market value of all outstanding Mexican peso option contracts in the accompanying Condensed Consolidated Balance Sheets was as follows (thousands of dollars):

 

      September 30,       September 30,  
    January 1, 2012     July 3, 2011  

Not Designated as Hedging Instruments:

                

Other Current Assets:

                

Mexican Peso Option Contracts

   $ —       $ 245  

Other Current Liabilities:

                

Mexican Peso Option Contracts

   $ 982     $ —    

Other Long-Term Liabilities

                

Mexican Peso Option Contracts

   $ 489     $ —    

The pre-tax effects of the Mexican peso option contracts on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended January 1, 2012 and December 26, 2010 consisted of the following (thousands of dollars):

 

      September 30,       September 30,       September 30,       September 30,  
    Other Income (Expense), net  
    Three Months Ended     Six Months Ended  
    January 1,
2012		     December 26,
2010		     January 1,
2012		     December 26,
2010		  

Not Designated as Hedging Instruments:

                                

Realized Gain

   $ —       $ —       $ 18     $ —    

Realized (Loss)

   $ (192 )    $ —       $ (206 )    $ —    

Unrealized Gain (Loss)

   $ 589     $ —       $ (1,716 )    $ —