Derivative Instruments and Hedging Activities

12 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedging Activities [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 7 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As part of our financial risk management program, we use certain derivative financial instruments. See Note 2 for discussion on our derivative instruments and hedging activities policy.

The fair value of derivatives designated and not designated as hedging instruments in the consolidated balance sheets at June 30 is as follows:

(in thousands)	2011			2010
Derivatives designated as hedging instruments
Other current assets — range forward contracts	$	87		$	34
Other current liabilities — range forward contracts		(159	)		(2	)
Other assets — forward starting interest rate swap contracts		772			-
Other liabilities — forward starting interest rate swap contracts		(3,169	)		(2,348	)
Total derivatives designated as hedging instruments		(2,469	)		(2,316	)
Derivatives not designated as hedging instruments
Other current assets — currency forward contracts		37			9
Other current liabilities — currency forward contracts		(2	)		(1,103	)
Total derivatives not designated as hedging instruments		35			(1,094	)
Total derivatives	$	(2,434	)	$	(3,410	)

Certain currency forward contracts hedging significant cross-border intercompany loans are considered as other derivatives and therefore, do not qualify for hedge accounting. These contracts are recorded at fair value in the balance sheet, with the offset to other expense (income), net. The following represents (gains) losses related to derivatives not designated as hedging instruments for the years ended June 30:

(in thousands)	2011			2010		2009
| | |
Other expense (income), net — currency forward contracts	$	(1,126	)	$	1,077	$	73

FAIR VALUE HEDGES

Fixed-to-floating interest rate swap contracts, designated as fair value hedges, are entered into from time to time to hedge our exposure to fair value fluctuations on a portion of our fixed rate debt. We had no such contracts outstanding at June 30, 2011 and 2010, respectively.

In February 2009, we terminated interest rate swap contracts to convert $200 million of our fixed rate debt to floating rate debt. These contracts were originally set to mature in June 2012. Upon termination, we received a cash payment of $13.2 million. Within the consolidated statement of cash flow for the year ended June 30, 2009, $12.6 million related to the forward portion of the payment and has been disclosed under cash flow used for financing activities and the $0.6 million related to the current interest portion has been disclosed under cash flow provided by operating activities. This gain is being amortized as a component of interest expense over the remaining term of the related debt using the effective interest rate method. During the years ended June 30, 2011, 2010 and 2009 $5.9 million, $5.6 million and $3.2 million, respectively were recognized as a reduction in interest expense.

CASH FLOW HEDGES

Currency forward contracts and range forward contracts (a transaction where both a put option is purchased and a call option is sold) are designated as cash flow hedges and hedge anticipated cash flows from cross-border intercompany sales of products and services. Gains and losses realized on these contracts at maturity are recorded in accumulated other comprehensive (loss) income, net of tax, and are recognized as a component of other expense (income), net when the underlying sale of products or services is recognized into earnings. The notional amount of the contracts translated into U.S. dollars at June 30, 2011 and 2010 was $37.6 million and $9.4 million, respectively. The time value component of the fair value of range forwards is excluded from the assessment of hedge effectiveness. Assuming the market rates remain constant with the rates at June 30, 2011, we expect to recognize into earnings in the next 12 months immaterial losses on outstanding derivatives.

Floating-to-fixed interest rate swap contracts, designated as cash flow hedges, are entered into from time to time to hedge our exposure to interest rate changes on a portion of our floating rate debt. These interest rate swap contracts convert a portion of our floating rate debt to fixed rate debt. We record the fair value of these contracts as an asset or a liability, as applicable, in the balance sheet, with the offset to accumulated other comprehensive income (loss), net of tax. We had forward starting interest rate swap contracts outstanding for forecasted transactions that effectively converted a cumulative notional amount of $150 million and $75 million at June 30, 2011 and 2010, respectively from floating to fixed interest rates. As of June 30, 2011 and 2010 we recorded a liability of $2.4 million and $2.3 million, respectively on these contracts which was recorded as an offset in other comprehensive income (loss), net of tax. Over the next 12 months, assuming the market rates remain constant with the rates at June 30, 2011, we do not expect to recognize into earnings any significant gains or losses on outstanding derivatives.

The following represents gains (losses) related to cash flow hedges for the years ended June 30:

(in thousands)	2011			2010			2009
(Losses) gains recognized in other comprehensive income (loss)	$	(26	)	$	(962	)	$	107
Losses (gains) reclassified from accumulated other comprehensive loss into other expense (income), net	$	1,041		$	(1,107	)	$	(8,505	)

No portion of the gains or losses recognized in earnings was due to ineffectiveness and no amounts were excluded from our effectiveness testing for the years ended June 30, 2011, 2010 and 2009.