Derivative Instruments and Hedging Activities

3 Months Ended

Oct. 02, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments & Hedging Activities

The Company enters into derivative contracts designated as cash flow hedges to manage certain interest rate, foreign currency and commodity exposures. Company policy allows derivatives to be used only for identifiable exposures and, therefore, the Company does not enter into hedges for trading purposes where the sole objective is to generate profits.

The Company formally designates the financial instrument as a hedge of a specific underlying exposure and documents both the risk management objectives and strategies for undertaking the hedge. The Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the forecasted cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the forecasted cash flows of the underlying exposures being hedged. Derivative financial instruments are recorded on the Consolidated Balance Sheets as assets or liabilities, measured at fair value. The effective portion of gains or losses on the derivative designated as cash flow hedges are reported as a component of Accumulated Other Comprehensive Loss (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of a financial instrument's change in fair value is immediately recognized in earnings.

The Company entered into an interest rate swap to manage a portion of its interest rate risk from financing certain dealer and distributor inventories through a third party financing source. The swap is designated as a cash flow hedge and is used to effectively fix the interest payments to a third party financing source, exclusive of lender spreads, at 1.6% for a notional principal amount of $30.0 million through July 2017.

The Company periodically enters into forward foreign currency contracts to hedge the risk from forecasted third party and intercompany sales or payments denominated in foreign currencies. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Euros, Australian Dollars or Canadian Dollars. These contracts generally do not have a maturity of more than twenty-four months.

The Company uses raw materials that are subject to price volatility. The Company hedges a portion of its exposure to the variability of cash flows associated with commodities used in the manufacturing process by entering into forward purchase contracts or commodity swaps. Derivative contracts designated as cash flow hedges are used by the Company to reduce exposure to variability in cash flows associated with future purchases of natural gas, aluminum and steel. These contracts generally do not have a maturity of more than twenty-four months.

The Company has considered the counterparty credit risk related to all its foreign currency and commodity derivative contracts and does not deem any counterparty credit risk material at this time.

The notional amount of derivative contracts outstanding at the end of the period is indicative of the level of the Company’s derivative activity during the period. As of October 2, 2011 and July 3, 2011, the Company had the following outstanding derivative contracts (in thousands):

Contract		Notional Amount
		October 2, 2011	July 3, 2011
Interest Rate:
LIBOR Interest Rate (U.S. Dollars)	Fixed	30,000	—
Foreign Currency:
Australian Dollar	Sell	32,835	34,295
Canadian Dollar	Sell	6,500	10,700
Euro	Sell	54,500	41,500
Commodity:
Natural Gas (Therms)	Buy	9,953	11,187
Aluminum (Metric Tons)	Buy	19	8
Steel (Metric Tons)	Buy	3	1

The location and fair value of derivative instruments reported in the Consolidated Condensed Balance Sheets are as follows (in thousands):

Balance Sheet Location	Asset (Liability) Fair Value
	October 2, 2011			July 3, 2011
Interest rate contract
Other Long-Term Liabilities	(342		)	—
Foreign currency contracts
Other Current Assets	5,258			108
Accrued Liabilities	(472		)	(3,550		)
Other Long-Term Liabilities	—			(280		)
Commodity contracts
Other Current Assets	—			26
Accrued Liabilities	(6,414		)	(1,937		)
Other Long-Term Liabilities	(205		)	(91		)
	$	(2,175	)	$	(5,724	)

The effect of derivatives designated as hedging instruments on the Consolidated Condensed Statements of Operations is as follows:

	Three months ended October 2, 2011
	Recognized in Earnings
	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives, Net of Taxes (Effective Portion)			Classification of Gain (Loss)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Recognized in Earnings (Ineffective Portion)
Interest rate contract	$	(209	)	Net Sales	$	—		$	—
Foreign currency contracts - sell	2,128			Net Sales	(1,494		)	—
Foreign currency contracts - buy	—			Cost of Goods Sold	250			—
Commodity contracts	(4,172		)	Cost of Goods Sold	(337		)	(30		)
	$	(2,253	)		$	(1,581	)	$	(30	)

	Three months ended September 26, 2010
	Recognized in Earnings
	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives, Net of Taxes (Effective Portion)			Classification of Gain (Loss)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Recognized in Earnings (Ineffective Portion)
Foreign currency contracts - sell	$	3,701		Net Sales	$	1,297		$	—
Foreign currency contracts - buy	(5		)	Cost of Goods Sold	(331		)	—
Commodity contracts	(2,035		)	Cost of Goods Sold	(313		)	44
	$	1,661			$	653		$	44

During the next twelve months, the amount of the October 2, 2011 Accumulated Other Comprehensive Loss balance that is expected to be reclassified into earnings is expected to be $1.8 million.