Derivative Instruments and Hedging Activities

6 Months Ended

Dec. 29, 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 as either an asset or liability measured at fair value. Additionally, changes in the derivative’s fair value are recognized 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 $464,400, $415,600 and $422,700 at December 29, 2012, June 30, 2012, and December 31, 2011, respectively. 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. Should a counterparty default, the Company's maximum exposure to loss is the asset balance of the instrument.

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, 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 senior notes consisting of $75,000, 4.27% Series 2011-A senior notes, due September 30, 2021 ("Series 2011-A Notes"); $175,000, 4.52% Series 2011-B senior notes, due December 15, 2023 ("Series 2011-B Notes"); and $100,000, 4.67% Series 2011-C senior notes, due September 30, 2026 ("Series 2011-C Notes", and together with the Series 2011-A Notes and the Series 2011-B Notes, the "Series 2011 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 after-tax loss of $762, 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 those notes. The Company expects to recognize approximately $76 in after-tax earnings as a result of the swap agreements over the next 12 months.

The Company has designated the above interest rate swaps as cash flow hedges and has formally documented the relationships between the interest rate swaps and the variable rate borrowings, 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.

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 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 15 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 15 months. The Company did not have any foreign currency put or call contracts as of December 29, 2012.

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 December 29, 2012, June 30, 2012, and December 31, 2011, and on the Company’s income and OCI for the three and six months ended December 29, 2012, and December 31, 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)

	Asset Derivatives
	Balance Sheet Presentation	Fair Value
		December 29, 2012		June 30, 2012		December 31, 2011
Hedging derivatives:
Foreign currency forward contracts	Other current assets	$	6,712	$	578	$	1,015
Total hedging derivatives		$	6,712	$	578	$	1,015
Non-hedging derivatives:
Foreign currency forward contracts	Other current assets	$	1,063	$	54	$	31
Total non-hedging derivatives		$	1,063	$	54	$	31
	Liability Derivatives
	Balance Sheet Presentation	Fair Value
		December 29, 2012		June 30, 2012		December 31, 2011
Hedging derivatives:
Foreign currency forward contracts	Accrued liabilities	$	264	$	5,585	$	6,219
Interest rate swap agreements	Other non-current liabilities	13,819		14,706		13,433
Total hedging derivatives		$	14,083	$	20,291	$	19,652
Non-hedging derivatives:
Foreign currency forward contracts	Accrued liabilities	$	19	$	614	$	784
Total non-hedging derivatives		$	19	$	614	$	784

Effects of Derivative Instruments on Income and OCI for the three months ended December 29, 2012, and December 31, 2011

Derivatives in 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)
	December 29, 2012		December 31, 2011				December 29, 2012			December 31, 2011				December 29, 2012			December 31, 2011
T-Locks	$	—	$	—		Interest, net	$	91		$	91		Interest, net	$	—		$	—
Interest rate swap agreements	1,300		940			Interest, net	(1,229		)	(1,269		)	Interest, net	—			—
Foreign currency forward contracts	7,013		(3,859		)	Net sales	(186		)	262			Net sales	—			—
						Cost of sales	(1,429		)	825			Cost of sales	(74		)	—
						Interest, net	21			24
						Other income (expense), net	1,592			(1,571		)
Total	$	8,313	$	(2,919	)		$	(1,140	)	$	(1,638	)		$	(74	)	$	—

The Company also has forward foreign currency contracts that are not designated as hedging instruments and recognizes the gain/(loss) associated with these contracts in other income (expense), net. For the three months ended December 29, 2012, and December 31, 2011, the Company recorded a gain of $612 and a loss of $1,209, respectively, related to these contracts. The net hedge result offsets the revaluation of the underlying balance sheet exposure, which is also recorded in other income (expense), net.

Effects of Derivative Instruments on Income and OCI for the six months ended December 29, 2012, and December 31, 2011

Derivatives in 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)
	December 29, 2012		December 31, 2011				December 29, 2012			December 31, 2011				December 29, 2012			December 31, 2011
T-Locks	$	—	$	—		Interest, net	$	182		$	182		Interest, net	$	—		$	—
Interest rate swap agreements	900		(5,885		)	Interest, net	(2,443		)	(2,090		)	Interest, net	—			—
Foreign currency forward contracts	6,941		(8,128		)	Net sales	(270		)	(151		)	Net sales	—			(20		)
						Cost of sales	(3,104		)	2,354			Cost of sales	(65		)	687
						Interest, net	65			34
						Other income (expense), net	1,141			(2,406		)
Total	$	7,841	$	(14,013	)		$	(4,429	)	$	(2,077	)		$	(65	)	$	667

The Company also has forward foreign currency contracts that are not designated as hedging instruments and recognizes the gain/(loss) associated with these contracts in other income (expense), net. For the six months ended December 29, 2012, and December 31, 2011, the Company recorded a gain of $366 and a loss of $2,499, respectively, related to these contracts. The net hedge result offsets the revaluation of the underlying balance sheet exposure, which is also recorded in other income (expense), net.