Derivative Instruments

3 Months Ended

Oct. 02, 2011

Derivative Instruments [Abstract]

Derivative Instruments

Derivative Instruments

We own and operate manufacturing operations in Mexico. As a result, a portion of our manufacturing costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate as a result of changes in the U.S. dollar / Mexican peso exchange rate. Beginning in January 2011, we entered into agreements with Bank of Montreal that provide for two weekly Mexican peso currency option contracts for a portion of our weekly estimated peso denominated operating costs. Current contracts with Bank of Montreal extend through June 28, 2013. The two weekly option contracts are for equivalent notional amounts. The contracts that are currently effective and expire July 6, 2012 provide for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange rate of 11.85 if the spot rate at the weekly expiry date is below 11.85 or for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange rate of 12.85 if the spot rate at the weekly expiry date is above 12.85. Additional contracts that are effective July 6, 2012 through June 28, 2013 provide for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of 12.40 if the spot rate at the weekly expiry date is below an average of 12.40 or for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of 13.40 if the spot rate at the weekly expiry date is above an average of 13.40. Our objective in entering into these currency option contracts is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso option contracts are not used for speculative purposes and are not designated as hedges, and as a result, all currency option contracts are recognized in our accompanying condensed consolidated financial statements at fair value and changes in the fair value of the currency option contracts are reported in current earnings as part of Other (Expense) Income, net. The premiums to be paid and received under the weekly Mexican peso currency option contracts net to zero, and as a result, premiums related to the contracts did not impact our earnings.

The following table quantifies the outstanding Mexican peso currency option contracts as of October 2, 2011 (thousands of dollars):

				Average
		Notional		Option Contractual
	Effective Dates	Amount		Exchange Rate		Fair Value
Buy MXP/Sell USD	October 2, 2011-July 6, 2012	$	10,592		11.85	$	47
Buy MXP/Sell USD	October 2, 2011-July 6, 2012	$	10,592		12.85	$	(1,074	)
Buy MXP/Sell USD	July 6, 2012 – June 28, 2013	$	10,200		12.40	$	328
Buy MXP/Sell USD	July 6, 2012 – June 28, 2013	$	10,200		13.40	$	(1,361	)

The fair market value of all outstanding Mexican peso option contracts in the accompanying Condensed Consolidated Balance Sheets was as follows (thousands of dollars):

	October 2, 2011		September 26, 2010
Not Designated as Hedging Instruments:
Other Current Liabilities:
Mexican Peso Option Contracts	$	1,256	$	—
Other Long-Term Liabilities
Mexican Peso Option Contracts	$	804	$	—

The pre-tax effects of the Mexican peso option contracts on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended October 2, 2011 and September 26, 2010 consisted of the following (thousands of dollars):

	Other (Expense) Income, net
	October 2, 2011			September 26, 2010
Not Designated as Hedging Instruments:
Mexican Peso Option Contracts — Realized Gain	$	18		$	—
Mexican Peso Option Contracts — Realized Loss	$	(14	)	$	—
Mexican Peso Option Contracts — Unrealized Loss	$	(2,305	)	$	—