XML 22 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Financial Instruments
 6 Months Ended
Dec. 31, 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 were effective to the underlying transactions being hedged.

 

As of December 31, 2011, the Company had outstanding foreign currency forward contracts with a total notional amount of $41.9 million. These contract maturity dates extend through June 2014. The Company entered into foreign currency forward contracts of $3.6 million and settled $4.0 million of such contracts during the three months ended December 31, 2011. During the same period of the previous year, the Company entered into foreign currency forward contracts of $2.9 million and settled $3.5 million of such contracts.

For the six months ended December 31, 2011, the Company entered into forward contracts of $12.2 million and settled $8.2 million of such contracts. During the same period of the previous year, the Company entered into foreign currency forward contracts of $6.8 million and settled $7.5 million of such contracts.

Subsequent to December 31, 2011, the Company entered into an additional $5.0 million foreign currency forward contracts.

The following table summarizes the fair value of derivative instruments in the Consolidated Balance Sheets as of December 31, 2011 and July 2, 2011 (in thousands):

 

Derivatives Designated as Hedging Instruments

   

Balance Sheet Location

    December 31,
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    $ (839 )    $ —     

Foreign currency forward contracts

    Other long-term liabilities    $ (2,717 )    $ (82 ) 

The following tables summarize the gain on derivative instruments, net of tax, on the Consolidated Statements of Income for the three months ended December 31, 2011 and January 1, 2011, respectively (in thousands):

 

Derivatives Designated as Hedging Instruments

    AOCI Balance
as of
October 1,
2011		     Effective
Portion
Recorded In
AOCI		      Effective Portion
Reclassified From
AOCI Into
Cost of  Sales		      AOCI Balance
as of
December 31,
2011		  

Settled foreign currency forward contracts for the three months ended December 31, 2011

    $ (170 )    $ 15       $ 155       $ —     

Unsettled foreign currency forward contracts

      (2,403 )      52         —           (2,351 ) 
  

 

 

    

 

 

     

 

 

     

 

 

  

Total

    $ (2,573 )    $ 67       $ 155       $ (2,351 ) 
  

 

 

    

 

 

     

 

 

     

 

 

  

 

Derivatives Designated as Hedging Instruments

    AOCI Balance
as of
October 2,
2010		      Effective
Portion
Recorded In
AOCI		      Effective Portion
Reclassified From
AOCI Into
Cost of  Sales		     AOCI Balance
as of
January 1,
2011		  

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

    $ 107      $ 139       $ (246 )   $ —     

Unsettled foreign currency forward contracts

      324         517         —          841   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total

    $ 431       $ 656       $ (246 )   $ 841   
  

 

 

     

 

 

     

 

 

    

 

 

  

The following tables summarize the gain on derivative instruments, net of tax, on the Consolidated Statements of Income for the six months ended December 31, 2011 and January 1, 2011, respectively (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
December 31,
2011		  

Settled foreign currency forward contracts for the six months ended December 31, 2011

    $ 534       $ (469 )    $ (65 )   $ —     

Unsettled foreign currency forward contracts

      1,206         (3,557 )     —          (2,351 ) 
  

 

 

     

 

 

    

 

 

    

 

 

  

Total

    $ 1,740       $ (4,026 )   $ (65 )   $ (2,351 ) 
  

 

 

     

 

 

    

 

 

    

 

 

  

 

 

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
January 1,
2011		  

Settled foreign currency forward contracts for the six months ended January 1, 2011

    $ 173      $ 349       $ (522 )   $ —     

Unsettled foreign currency forward contracts

      (415 )      1,256         —          841   
  

 

 

    

 

 

     

 

 

    

 

 

  

Total

    $ (242 )    $ 1,605       $ (522 )   $ 841   

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 December 31, 2011, the net amount of existing loss expected to be reclassified into earnings within the next 12 months is approximately ($0.6) million.

As of December 31, 2011, the Company does not have any foreign exchange contracts with credit-risk-related contingent features.