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Derivative Financial Instruments
3 Months Ended
Oct. 01, 2011
Derivative Financial Instruments [Abstract] 
Derivative Financial Instruments

9. Derivative Financial Instruments

The Company has entered into foreign currency forward contracts which are accounted for as cash flow hedges in accordance with ASC 815, Derivatives and Hedging. The effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income and is reclassified into earnings in the same period in which the underlying hedged transaction affects earnings. The derivative's effectiveness represents the change in fair value of the hedge that offsets the change in fair value of the hedged item.

 

The Company transacts business in Mexico and is subject to the risk of foreign currency exchange rate fluctuations. The Company enters into foreign currency forward contracts to manage the foreign currency fluctuations for Mexican peso denominated payroll, utility, tax, and accounts payable expenses. The foreign currency forward contracts have terms that did not have any ineffectiveness to the underlying transactions being hedged.

As of October 1, 2011, the Company had outstanding foreign currency forward contracts with a total notional amount of $42.3 million. These contract maturity dates extend through March 2014. The Company entered into foreign currency forward contracts of $8.6 million and settled $4.2 million of such contracts during the three months ended October 1, 2011. During the same period of the previous year, the Company entered into foreign currency forward contracts of $3.9 million and settled $4.0 million of such contracts during the three months ended October 2, 2010. Subsequent to October 1, 2011, the Company did not enter into any additional foreign currency forward contracts.

The following table summarizes the fair value of derivative instruments in the Consolidated Balance Sheets as of October 1, 2011 and July 2, 2011 (in thousands):

 

Derivatives Designated as Hedging Instruments

   

Balance

Sheet Location

    October 1, 2011
Fair Value		     July 2, 2011
Fair Value		  

Foreign currency forward contracts

    Other current assets    $ —        $ 1,645   

Foreign currency forward contracts

    Other long-term assets    $ —        $ 1,078   

Foreign currency forward contracts

    Other current liabilities    $ (754 )    $ —     

Foreign currency forward contracts

    Other long-term liabilities    $ (3,139 )    $ (82 ) 

The following table summarizes the gain (loss) on derivative instruments on the Consolidated Statements of Income for the three months ended October 1, 2011 (in thousands):

 

Derivatives Designated as Hedging Instruments

    AOCI Balance
as  of
July 2, 2011		      Effective
Portion
Recorded In
AOCI		     Effective Portion
Reclassified From
AOCI Into
Cost of  Sales		     AOCI Balance
as of
October 1, 2011		  

Settled foreign currency forward contracts for the three months ended October 1, 2011

    $ 268       $ (47 )    $ (221 )   $ —     

Unsettled foreign currency forward contracts

      1,472         (4,045 )     —          (2,573 ) 
  

 

 

     

 

 

    

 

 

    

 

 

  

Total

    $ 1,740       $ (4,092 )   $ (221 )   $ (2,573 ) 
  

 

 

     

 

 

    

 

 

    

 

 

  

The following table summarizes the gain (loss) on derivative instruments on the Consolidated Statements of Income for the three months ended October 2, 2010 (in thousands):

 

Derivatives Designated as Hedging Instruments

    AOCI Balance
as  of
July 3, 2010		     Effective
Portion
Recorded In
AOCI		      Effective Portion
Reclassified From
AOCI Into
Cost of  Sales		     AOCI Balance
as of
October 2, 2010		  

Settled foreign currency forward contracts for the three months ended October 2, 2010

    $ 149      $ 127       $ (276 )   $ —     

Unsettled foreign currency forward contracts

      (391 )      822         —          431   
  

 

 

    

 

 

     

 

 

    

 

 

  

Total

    $ (242 )    $ 949       $ (276 )   $ 431   
  

 

 

    

 

 

     

 

 

    

 

 

  

The Company does not enter into derivative instruments for trading or speculative purposes. The Company's counterparties to the foreign currency forward contracts are major banking institutions. These institutions do not require collateral for the contracts and the Company believes that the risk of the counterparties failing to meet their contractual obligations is remote. As of October 1, 2011, the net amount of existing loss expected to be reclassified into earnings within the next 12 months is approximately $0.5 million.

 

As of October 1, 2011, the Company does not have any foreign exchange contracts with credit-risk-related contingent features.