DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Jun. 30, 2012

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

9. DERIVATIVE FINANCIAL INSTRUMENTS

        The Company's primary market risk exposures in the normal course of business are changes in interest rates and foreign currency exchange rates. The Company has established policies and procedures that govern the management of these exposures through the use of a variety of strategies, including the use of derivative financial instrument contracts. By policy, the Company does not enter into such contracts for the purpose of speculation or trading. Hedging transactions are limited to an underlying exposure. The Company has established an interest rate management policy that manages the interest rate mix of its total debt portfolio and related overall cost of borrowing. The Company's foreign currency exchange rate risk management policy includes frequently monitoring market data and external factors that may influence exchange rate fluctuations in order to minimize fluctuation in earnings due to changes in exchange rates. The Company enters into arrangements with counterparties that the Company believes are creditworthy. Generally, derivative contract arrangements settle on a net basis. The Company assesses the effectiveness of its hedges on a quarterly basis using the critical terms method in accordance with guidance for accounting for derivative instruments and hedging activities.

        The Company has primarily utilized derivatives, which are designated as either cash flow or fair value hedges and qualify for hedge accounting treatment. For cash flow hedges and fair value hedges, changes in fair value are deferred in accumulated other comprehensive income (loss) within shareholders' equity until the underlying hedged item is recognized in earnings. Any hedge ineffectiveness is recognized immediately in current earnings. To the extent the changes offset, the hedge is effective. Any hedge ineffectiveness the Company has historically experienced has not been material. By policy, the Company designs its derivative instruments to be effective as hedges and aims to minimize fluctuations in earnings due to market risk exposures. If a derivative instrument is terminated prior to its contract date, the Company continues to defer the related gain or loss and recognizes it in current earnings over the remaining life of the related hedged item.

        The Company also utilizes freestanding derivative contracts, which do not qualify for hedge accounting treatment. The Company marks to market such derivatives with the resulting gains and losses recorded within current earnings in the Consolidated Statement of Operations. For purposes of the Consolidated Statement of Cash Flows, cash flows associated with all derivatives (designated as hedges or freestanding economic hedges) are classified in the same category as the related cash flows subject to the hedging relationship.

Cash Flow Hedges

        As of June 30, 2012, the Company's cash flow hedges consist of forward foreign currency contracts.

        In the past, the Company used interest rate swaps to maintain its variable to fixed rate debt ratio in accordance with its established policy. The Company repaid variable and fixed rate debt during the twelve months ended June 30, 2011. Prior to the repayments, the Company had two outstanding interest rate swaps totaling $40.0 million on $85.0 million aggregate variable rate debt with maturity dates in fiscal year 2012. The interest rate swaps were terminated prior to the maturity dates in conjunction with the repayments of debt and were settled for an aggregate loss of $0.1 million. The $0.1 million loss was recorded during the fourth quarter of fiscal year 2011 on the termination of the interest rate swaps and was recorded within interest expense in the Consolidated Statement of Operations.

        The Company uses forward foreign currency contracts to manage foreign currency rate fluctuations associated with certain forecasted intercompany transactions. The Company's primary forward foreign currency contracts hedge approximately $0.6 million of monthly payments in Canadian dollars for intercompany transactions. The Company's forward foreign currency contracts hedge transactions through September 2012.

        These cash flow hedges were designed and are effective as cash flow hedges. They were recorded at fair value within other noncurrent liabilities or other current assets in the Consolidated Balance Sheet, with corresponding offsets primarily recorded in other comprehensive income (loss), net of tax.

Net Investment Hedges

        The Company has numerous investments in foreign subsidiaries, and the net assets of these subsidiaries are exposed to exchange rate volatility. The Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies.

        During September 2006, the Company's cross-currency swap (which had a notional amount of $21.3 million and hedged a portion of the Company's net investment in its foreign operations) was settled, resulting in a cash outlay of $8.9 million. This cash outlay was recorded within investing activities within the Consolidated Statement of Cash Flows. The related cumulative tax-effected net loss of $7.9 million was recorded in accumulated other comprehensive income (AOCI) in fiscal year 2007. The amount will remain deferred within AOCI until an event which would trigger its release from AOCI and recognition in earnings being the sale or liquidation of the Company's international operations that the cross-currency swap hedged.

Freestanding Derivative Forward Contracts

        The Company uses freestanding derivative forward contracts to offset the Company's exposure to the change in fair value of certain foreign currency denominated investments and intercompany assets and liabilities. These derivatives are not designated as hedges and therefore, changes in the fair value of these forward contracts are recognized currently in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities.

        The Company had the following derivative instruments in its Consolidated Balance Sheet as of June 30, 2012 and 2011:

	Asset					Liability
		Fair Value					Fair Value
Type	Classification	June 30, 2012		June 30, 2011		Classification	June 30, 2012		June 30, 2011
		(Dollars in thousands)					(Dollars in thousands)
Designated as hedging instruments—Cash Flow Hedges:
Forward foreign currency contracts	Other current assets	$	37	$	—	Other current liabilities	$	—	$	(599	)
Freestanding derivative contracts—not designated as hedging instruments:
Forward foreign currency contracts	Other current assets	$	108	$	212	Other current liabilities	$	—	$	—
Total		$	145	$	212		$	—	$	(599	)

        The table below sets forth the gain (loss) on the Company's derivative instruments recorded within AOCI in the Consolidated Balance Sheet for the twelve months ended June 30, 2012 and 2011. The table also sets forth the gain (loss) on the Company's derivative instruments that has been reclassified from AOCI into current earnings during the twelve months ended June 30, 2012 and 2011 within the following line items in the Consolidated Statement of Operations.

	Gain (Loss) Recognized in Other Comprehensive (Loss) Income For the Years Ended June 30,								Gain (Loss) Reclassified from Accumulated OCI into (Loss) Income at June 30,
Type	2012		2011			2010			Classification	2012		2011		2010
	(Dollars in thousands)									(Dollars in thousands)
Designated as hedging instruments—Cash Flow Hedges:
Interest rate swaps	$	—	$	(636	)	$	(2,967	)		$	—	$	—	$	—
Forward foreign currency contracts		393		456			519		Cost of sales		—		48		(261	)
Treasury lock contracts		—		—			(146	)	Interest income		—		—		388
Total	$	393	$	(180	)	$	(2,594	)		$	—	$	48	$	127

        As of June 30, 2012 the Company estimates that it will reclassify into earnings during the next 12 months a gain of less than $0.1 million from the pretax amount recorded in AOCI as the anticipated cash flows occur.

        The table below sets forth the (loss) gain on the Company's derivative instruments for the years ended June 30, 2012, 2011 and 2010 recorded within interest income and other, net in the Consolidated Statement of Operations.

	Derivatives Impact on (Loss) Income at June 30,
Type	Classification	2012			2011		2010
		(Dollars in thousands)
Freestanding derivative contracts—not designated as hedging instruments:
Forward foreign currency contracts	Interest income and other, net	$	(105	)	$	613	$	(811	)