Derivative Instruments

9 Months Ended

Mar. 31, 2013

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 due to changes in the U.S. dollar/Mexican peso exchange rate. We have contracts with Bank of Montreal that provide for two weekly Mexican peso currency option contracts for a portion of our estimated peso denominated operating costs. Current contracts with Bank of Montreal extend through June28, 2013. The two weekly option contracts are for equivalent notional amounts. The contracts that were effective in fiscal 2012 and expired on July6, 2012 provided 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 was 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 was above 12.85. Contracts that are effective during the period July6, 2012 through June28, 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. 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 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. As a result, premiums related to the contracts did not impact our earnings during the periods presented herein.

The following table quantifies the outstanding Mexican peso currency option contracts as of March31, 2013 (thousands of dollars):

			Average
		Notional	OptionContractual
	Effective Dates	Amount	Exchange Rate	FairValue
Buy MXP/Sell USD	July 6, 2012 – June 28, 2013	$2,600	12.40	$32
Buy MXP/Sell USD	July 6, 2012 – June 28, 2013	$2,600	13.40	$(3)

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

	March31,2013	July1,2012
Not Designated as Hedging Instruments:
Other Current Assets:
Mexican Peso Option Contracts	$29	$—
Other Current Liabilities:
Mexican Peso Option Contracts	$—	$(395)

The pre-tax effects of the Mexican peso option contracts on the accompanying Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended March31, 2013 and April1, 2012 consisted of the following (thousands of dollars):

	Other (Expense) Income, net
	ThreeMonthsEnded		Nine Months Ended
	March31,	April 1,	March31,	April1,
	2013	2012	2013	2012
Not Designated as Hedging Instruments:
Realized Gain	$2	$—	$2	$18
Realized (Loss)	$—	$(48)	$(34)	$(254)
Unrealized Gain (Loss)	$75	$1,174	$424	$(542)