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Derivative Financial Instruments
 9 Months Ended
Mar. 31, 2012
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 other local expenses. The foreign currency forward contracts have terms that were effective to the underlying transactions being hedged.

As of March 31, 2012, the Company had outstanding foreign currency forward contracts with a total notional amount of $41.0 million. These contract maturity dates extend through June 2014. The Company entered into foreign currency forward contracts of $5.0 million and settled $5.9 million of such contracts during the three months ended March 31, 2012. For the three months ended April 2, 2011, the Company entered into foreign currency forward contracts of $5.9 million and settled $3.7 million of such contracts.

For the nine months ended March 31, 2012, the Company entered into forward contracts of $17.2 million and settled $14.1 million of such contracts. For the nine months ended April 2, 2011, the Company entered into foreign currency forward contracts of $12.7 million and settled $11.2 million of such contracts.

Subsequent to March 31, 2012, the Company entered into $11.0 million of forward contracts that extended our hedge position through September 2014. In addition, the Company entered into $5.6 million of foreign cross currency swaps which will also be accounted for as cash flow hedges in accordance with ASC 815, Derivatives and Hedging.

The following table summarizes the fair value of derivative instruments in the Consolidated Balance Sheets as of March 31, 2012 and July 2, 2011 (in thousands):

 

Derivatives Designated as Hedging Instruments

   Balance Sheet Location   March 31, 2012
Fair Value		     July 2, 2011
Fair Value		  

Foreign currency forward contracts

   Other current assets   $ 506      $ 1,645   

Foreign currency forward contracts

   Other long-term assets   $ 307      $ 1,078   

Foreign currency forward contracts

   Other current liabilities   $ (114 )    $ —     

Foreign currency forward contracts

   Other long-term liabilities   $ (770 )    $ (82 ) 

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the three months ended March 31, 2012 and April 2, 2011, respectively (in thousands):

 

Derivatives Designated as Hedging Instruments

   AOCI Balance
as of
December 31,
2011		     Effective
Portion
Recorded In
AOCI		     Effective Portion
Reclassified From
AOCI Into
Cost of  Sales		     AOCI Balance
as of
March 31,
2012		  

Settled foreign currency forward contracts for the three months ended March 31, 2012

   $ (167 )    $ 217      $ (50 )   $ —     

Unsettled foreign currency forward contracts

     (2,184 )     2,134        —          (50 ) 
 

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ (2,351 )   $ 2,351      $ (50 )   $ (50 ) 
 

 

 

    

 

 

    

 

 

    

 

 

  

Derivatives Designated as Hedging Instruments

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

Settled foreign currency forward contracts for the three months ended April 2, 2011

   $ 217      $ 226      $ (443 )   $ —     

Unsettled foreign currency forward contracts

     624        909        —          1,533   
 

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 841      $ 1,135      $ (443 )   $ 1,533   
 

 

 

    

 

 

    

 

 

    

 

 

  

 

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the nine months ended March 31, 2012 and April 2, 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
March 31,
2012		  

Settled foreign currency forward contracts for the nine months ended March 31, 2012

    $ 800      $ (684 )    $ (116 )   $ —     

Unsettled foreign currency forward contracts

      940        (990 )     —          (50 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 1,740      $ (1,674 )   $ (116 )   $ (50 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

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 April 2,
2011		  

Settled foreign currency forward contracts for the nine months ended April 2, 2011

    $ 225      $ 740      $ (965 )   $ —     

Unsettled foreign currency forward contracts

      (467 )      2,000        —          1,533   
  

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ (242 )    $ 2,740      $ (965 )   $ 1,533   
  

 

 

    

 

 

    

 

 

    

 

 

  

The Company does not enter into derivative instruments for trading or speculative purposes. The Company's counterparties to the foreign currency forward contracts and subsequent to March 31, 2012 foreign cross currency swaps are major financial 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 March 31, 2012, the net amount of existing gain expected to be reclassified into earnings within the next 12 months is approximately $0.3 million.

As of March 31, 2012, the Company does not have any foreign exchange contracts with credit-risk-related contingent features.