Financial Instruments

3 Months Ended

Jul. 02, 2011

Financial Instruments [Abstract]

Financial Instruments

12.   Financial Instruments

Derivative Financial Instruments

The Company is primarily exposed to changes in foreign currency exchange rates relating to certain anticipated cash flows from its international operations and potential declines in the value of reported net assets of certain of its foreign operations, as well as changes in the fair value of its fixed-rate debt relating to changes in interest rates. Consequently, the Company periodically uses derivative financial instruments to manage such risks. The Company does not enter into derivative transactions for speculative or trading purposes.

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as recorded on its consolidated balance sheets as of July 2, 2011 and April 2, 2011:

	Notional Amounts				Derivative Assets						Derivative Liabilities
					Balance			Balance			Balance				Balance
					Sheet	Fair		Sheet	Fair		Sheet	Fair			Sheet	Fair
					Line(b)	Value		Line(b)	Value		Line(b)	Value			Line(b)	Value
Derivative Instrument(a)	July 2, 2011		April 2, 2011		July 2, 2011			April 2, 2011			July 2, 2011				April 2, 2011
	(millions)
Designated Hedges:
FC — Inventory purchases	$	676.4	$	342.4	(c)	$	4.0	PP	$	1.1	(d)	$	(15.6	)	AE	$	(9.4	)
FC — I/C royalty payments		20.9		46.8	—		—	—		—	AE		(2.1	)	AE		(3.6	)
FC — Interest payments		13.4		9.3	PP		0.2	PP		0.4	—		—		—		—
FC — Other		36.4		29.6	—		—	PP		0.5	AE		(0.1	)	AE		(0.1	)
IRS — Euro Debt		—		295.5	—		—	—		—	—		—		ONCL		(3.3	)
NI — Euro Debt		296.7		291.9	—		—	—		—	LTD		(313.6	)(e)	LTD		(305.0	)(e)
Total Designated Hedges	$	1,043.8	$	1,015.5		$	4.2		$	2.0		$	(331.4	)		$	(321.4	)
Undesignated Hedges:
FC — Other	$	56.9	$	40.0	PP	$	0.4	—	$	—	(f)	$	(1.3	)	(g)	$	(1.4	)
Total Hedges	$	1,100.7	$	1,055.5		$	4.6		$	2.0		$	(332.7	)		$	(322.8	)

(a)	FC = Forward exchange contracts for the sale or purchase of foreign currencies; IRS = Interest Rate Swap; NI = Net Investment; Euro Debt = Euro-denominated 4.5% notes due October 4, 2013.
(b)	PP = Prepaid expenses and other; OA = Other assets; AE = Accrued expenses and other; ONCL = Other non-current liabilities; LTD = Long-term debt.
(c)	$1.6 million included within PP and $2.4 million included within OA.
(d)	$14.6 million included within AE and $1.0 million included within ONCL.
(e)	The Company’s Euro Debt is reported at carrying value in the Company’s consolidated balance sheets. The carrying value of the Euro Debt was $296.7 million as of July 2, 2011 and $291.9 million as of April 2, 2011.
(f)	$1.2 million included within AE and $0.1 million included within ONCL.
(g)	$0.4 million included within AE and $1.0 million included within ONCL.

The following tables summarize the impact of the Company’s derivative instruments on its consolidated financial statements for the three-month periods ended July 2, 2011 and July 3, 2010:

	Gains (Losses)						Gains (Losses) Reclassified
	Recognized in OCI(b)						from AOCI(b) to Earnings
	Three Months Ended						Three Months Ended						Location of Gains (Losses)
Derivative Instrument(a)	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010			Reclassified from AOCI(b)to Earnings
	(millions)
Designated Cash Flow Hedges:
FC — Inventory purchases	$	(8.7	)	$	12.7		$	3.2		$	0.3		Cost of goods sold
FC — I/C royalty payments		0.9			(1.9	)		(2.5	)		0.6		Foreign currency gains (losses)
FC — Interest payments		(0.4	)		(0.8	)		0.6			—		Foreign currency gains (losses)
FC — Other		(0.4	)		0.1			0.3			(0.2	)	(c)
	$	(8.6	)	$	10.1		$	1.6		$	0.7
Designated Hedge of Net Investment:
Euro Debt	$	(8.3	)	$	20.4		$	—		$	—		(d)
Total Designated Hedges	$	(16.9	)	$	30.5		$	1.6		$	0.7

	Gains (Losses)
	Recognized in Earnings
	Three Months Ended					Location of Gains (Losses)
Derivative Instrument(a)	July 2, 2011			July 3, 2010		Recognized in Earnings
	(millions)
Undesignated Hedges:
FC — Other	$	(0.1	)	$	1.0	Foreign currency gains (losses)

^(a) FC = Forward exchange contracts for the sale or purchase of foreign currencies; Euro Debt = Euro-denominated 4.5% notes due October 4, 2013.

(b)	AOCI, including the respective fiscal period’s OCI, is classified as a component of total equity.
(c)	Principally recorded within foreign currency gains (losses).
(d)	To the extent applicable, to be recognized as a gain (loss) on the sale or liquidation of the hedged net investment.

Over the next twelve months, it is expected that approximately $15 million of net losses deferred in AOCI related to derivative financial instruments outstanding as of July 2, 2011 will be recognized in earnings. No material gains or losses relating to ineffective hedges were recognized during any of the fiscal periods presented.

The following is a summary of the Company’s risk management strategies and the effect of those strategies on the consolidated financial statements.

Foreign Currency Risk Management

Forward Foreign Currency Exchange Contracts

The Company primarily enters into forward foreign currency exchange contracts as hedges to reduce its risk from exchange rate fluctuations on inventory purchases, intercompany royalty payments made by certain of its international operations, intercompany contributions to fund certain marketing efforts of its international operations, interest payments made in connection with outstanding debt and other foreign currency-denominated operational cash flows. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the Hong Kong Dollar, the Swiss Franc, and the British Pound Sterling, the Company hedges a portion of its foreign currency exposures anticipated over the ensuing twelve-month to two-year periods. In doing so, the Company uses foreign currency exchange forward contracts that generally have maturities of three months to two years to provide continuing coverage throughout the hedging period.

Hedge of a Net Investment in Certain European Subsidiaries

The Company designated the entire principal amount of its outstanding Euro Debt as a hedge of its net investment in certain of its European subsidiaries. To the extent this hedge remains effective, changes in the value of the Euro Debt resulting from fluctuations in the Euro exchange rate will continue to be reported in equity as a component of AOCI.

Interest Rate Risk Management

Interest Rate Swap Contracts

During the first quarter of Fiscal 2011, the Company entered into a fixed-to-floating interest rate swap with an aggregate notional value of €209.2 million, which was designated as a fair value hedge to mitigate its exposure to changes in the fair value of the Company’s Euro Debt due to changes in the benchmark interest rate. The interest rate swap was executed to swap the 4.5% fixed interest rate on the Company’s Euro Debt for a variable interest rate. On April 11, 2011, the interest rate swap agreement was terminated by the Company at a loss of $7.6 million. This loss has been recorded as an adjustment to the carrying value of the Company’s Euro Debt and will be recognized within interest expense over the remaining term of the debt, through October 4, 2013. During the three months ended July 2, 2011, $0.8 million of this loss was recognized as interest expense within the Company’s consolidated statement of operations.

See Note 3 for further discussion of the Company’s accounting policies relating to its derivative financial instruments.

Investments

The following table summarizes the Company’s short-term and non-current investments recorded in the consolidated balance sheets as of July 2, 2011 and April 2, 2011:

	July 2, 2011						April 2, 2011
	Short-term		Non-current				Short-term		Non-current
Type of Investment	< 1 year		1 - 3 years		Total		< 1 year		1 - 3 years		Total
	(millions)
Held-to-Maturity:
Municipal bonds	$	23.6	$	2.7	$	26.3	$	90.8	$	12.7	$	103.5
Total held-to-maturity investments	$	23.6	$	2.7	$	26.3	$	90.8	$	12.7	$	103.5
Available-for-Sale:
Municipal bonds	$	12.0	$	24.2	$	36.2	$	32.3	$	68.1	$	100.4
Variable rate municipal securities		—		—		—		14.5		—		14.5
Auction rate securities		—		2.3		2.3		—		2.3		2.3
Other securities		—		0.4		0.4		—		0.5		0.5
Total available-for-sale investments	$	12.0	$	26.9	$	38.9	$	46.8	$	70.9	$	117.7
Other:
Time deposits and other	$	484.4	$	—	$	484.4	$	456.3	$	—	$	456.3
Total Investments	$	520.0	$	29.6	$	549.6	$	593.9	$	83.6	$	677.5

See Note 3 to the Company’s Fiscal 2011 10-K for further discussion of the Company’s accounting policies relating to its investments.