Derivative Instruments and Hedging Activities

9 Months Ended

Mar. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities [Text Block]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company accounts for derivatives in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815), which establishes accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at fair value. Additionally, changes in the derivative’s fair value shall be recognized currently in earnings unless specific hedge accounting criteria are met. If hedge accounting criteria are met for cash flow hedges, the changes in a derivative’s fair value are recorded in shareholders’ equity as a component of other comprehensive income (OCI), net of tax. These deferred gains and losses are recognized in income in the period in which the hedged item and hedging instrument affect earnings. All of the Company’s designated hedging instruments are classified as cash flow hedges.

All derivative instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. The absolute value of the notional amounts of derivative contracts for the Company approximated $423,500 at March 31, 2012. Gains and losses related to the derivative instruments are expected to be largely offset by gains and losses on the original underlying asset or liability. The Company does not use derivative financial instruments for speculative purposes.

The Company is exposed to credit loss in the event of nonperformance by the counterparties on derivative contracts. It is the Company’s policy to manage its credit risk on these transactions by dealing only with financial institutions having a long-term credit rating of “A” or better and by distributing the contracts among several financial institutions to diversify credit concentration risk.

Interest Rate Hedging

The Company executes treasury-lock agreements (T-Locks) and interest rate swap agreements to manage its exposure to changes in interest rates related to its long-term borrowings. For derivative instruments designated as cash flow hedges, changes in the fair value, net of tax, are reported as a component of OCI.

Interest rate swap agreements are contracts to exchange floating rate for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.

In the first quarter of fiscal 2012, with the expected issuance of long-term debt, the Company entered into interest rate swap agreements with a notional value of $175,000 to hedge the exposure to the possible rise in the benchmark interest rate prior to the issuance of the Series 2011-A Notes and Series 2011-C Notes on September 30, 2011. The interest rate swaps, which the Company designated as cash flow hedges, were settled in the first quarter of fiscal 2012 upon entering into a definitive agreement for the issuance of an aggregate of $175,000 principal amount of the Series 2011 Notes for a cumulative pre-tax loss of $1,228, which was recorded in OCI and will be amortized to earnings as an accretion to interest expense over the first 10 years of the life of the Series 2011-A Notes and Series 2011-C Notes.

In the fourth quarter of fiscal 2011, the Company entered into interest rate swap agreements to reduce the impact of fluctuations in interest rates on the 2011 Term Loan Agreement and subsequent amendments, refinancing or replacements. The 2011 Term Loan Agreement has been replaced with the 2011 Credit Agreement as disclosed in Note 8. The interest rate swap agreements fix the interest rate at 2.5775% on an initial notional amount of principal of $150,000. The interest rate swap agreements will expire on May 3, 2016.

In the second quarter of fiscal 2011, the Company entered into interest rate swap agreements to reduce the impact of fluctuations in interest rates on the term loan under the 2010 Credit Agreement and subsequent amendments, refinancing or replacements. The 2010 Credit Agreement has been replaced with the 2011 Credit Agreement as disclosed in Note 8. The interest rate swap agreements fix the interest rate at 1.545% on an initial notional amount of principal of $90,000. The interest rate swap agreements will expire on October 8, 2015.

In accordance with ASC 815, the Company designated the above interest rate swaps as cash flow hedges and formally documented the relationship between the interest rate swaps and the variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of accumulated OCI and is recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value is immediately recognized in earnings.

Foreign Currency Contracts

The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company manages through the use of foreign currency put, call and forward contracts. For foreign currency contracts designated as cash flow hedges, changes in the fair value of the foreign currency contracts, net of tax, are reported as a component of OCI. For foreign currency contracts not designated as hedges, changes in fair value are recorded in current period earnings.

The Company’s foreign currency hedging program also includes cash flow hedges. The Company enters into foreign currency forward contracts in order to hedge the impact of fluctuations of foreign exchange on expected future purchases and related payables denominated in a foreign currency. These forward contracts have a maximum maturity date of fifteen months. In addition, the Company enters into foreign currency forward contracts in order to hedge the impact of fluctuations of foreign exchange on expected future sales and related receivables denominated in a foreign currency. These forward contracts also have a maximum maturity date of fifteen months. The Company did not have any foreign currency put or call contracts as of March 31, 2012.

In accordance with ASC 815, the Company has designated certain forward contracts as cash flow hedges and has formally documented the relationships between the forward contracts and the hedged items, as well as its risk management objective and strategy for undertaking the hedge transactions. This process includes linking the derivative to the specific liability or asset on the balance sheet. The Company also assesses, both at the inception of the hedge and on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of accumulated OCI and is recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value is immediately recognized in earnings.

The effects of derivative instruments on the Company’s condensed consolidated balance sheets as of March 31, 2012, June 25, 2011 and March 26, 2011 and on the Company’s income and OCI for the three and nine months ended March 31, 2012 and March 26, 2011 were as follows (amounts presented exclude any income tax effects):

Fair Values of Derivative Instruments in Condensed Consolidated Balance Sheet

(Designated as (non)hedging instruments under ASC 815)

	Asset Derivatives
	Balance Sheet Location	Fair Value
		March 31, 2012		June 25, 2011		March 26, 2011
Hedging derivatives:
Foreign currency forward contracts	Other current assets	$	1,619	$	4,178	$	4,235
Interest rate swap agreements	Other non-current assets	—		—		2,092
Total hedging derivatives		$	1,619	$	4,178	$	6,327
Non-hedging derivatives:
Foreign currency forward contracts	Other current assets	$	323	$	206	$	457
Total non-hedging derivatives		$	323	$	206	$	457
	Liability Derivatives
	Balance Sheet Location	Fair Value
		March 31, 2012		June 25, 2011		March 26, 2011
Hedging derivatives:
Foreign currency forward contracts	Accrued liabilities	$	2,630	$	952	$	1,403
Interest rate swap agreements	Other non-current liabilities	13,248		7,283		—
Total hedging derivatives		$	15,878	$	8,235	$	1,403
Non-hedging derivatives:
Foreign currency forward contracts	Accrued liabilities	$	10	$	79	$	54
Total non-hedging derivatives		$	10	$	79	$	54

Effects of Derivative Instruments on Income and OCI for the three months ended March 31, 2012 and March 26, 2011

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivative (Effective Portion)				Location and Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)							Location and Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective  Portion and Amount Excluded from Effectiveness Testing)
	March 31, 2012		March 26, 2011			March 31, 2012			March 26, 2011				March 31, 2012			March 26, 2011
T-Locks	$	—	$	—	Interest, net	$	91		$	91		Interest, net	$	—		$	—
Interest rate swap agreements	190		—		Interest, net	(1,196		)	292			Interest, net	—			—
Foreign currency forward contracts	3,009		1,911		Net sales	57			(389		)	Net sales	—			(63		)
					Cost of sales	(1,067		)	743			Cost of sales	(32		)	(1		)
					Interest, net	56			7
					Other income, net	577			529
Total	$	3,199	$	1,911		$	(1,482	)	$	1,273			$	(32	)	$	(64	)

Derivatives Not Designated as Hedging Instruments under ASC 815	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative
		Three Months Ended
		2012		2011
Foreign currency forward contracts(1)	Other (expense) income, net	$	1,145	$	(253	)

(1) The net hedge result offsets the revaluation of the underlying balance sheet exposure, which is also recorded in Other expense.

Effects of Derivative Instruments on Income and OCI for the nine months ended March 31, 2012 and March 26, 2011

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivative (Effective Portion)					Location and Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)							Location and Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective  Portion and Amount Excluded from Effectiveness Testing)
	March 31, 2012			March 26, 2011			March 31, 2012			March 26, 2011				March 31, 2012			March 26, 2011
T-Locks	$	—		$	—	Interest, net	$	273		$	273		Interest, net	$	—		$	—
Interest rate swap agreements	(5,695		)	2,150		Interest, net	(3,316		)	543			Interest, net	—			—
Foreign currency forward contracts	(5,100		)	7,403		Net sales	(93		)	(728		)	Net sales	(20		)	(87		)
						Cost of sales	1,287			(779		)	Cost of sales	655			(4		)
						Interest, net	90			33
						Other (expense) income, net	(1,830		)	2,243
Total	$	(10,795	)	$	9,553		$	(3,589	)	$	1,585			$	635		$	(91	)

Derivatives Not Designated as Hedging Instruments under ASC 815	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative
		Nine months ended
		2012			2011
Foreign currency forward contracts(1)	Other expense, net	$	(1,354	)	$	(740	)

(1) The net hedge result offsets the revaluation of the underlying balance sheet exposure, which is also recorded in Other expense.