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Note 20 - Derivative Financial Instruments
 3 Months Ended
Sep. 23, 2012
Derivative Instruments and Hedging Activities Disclosure [Text Block]

20. Derivative Financial Instruments


The Company may use derivative financial instruments such as foreign currency forward contracts or interest rate swaps to reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates. The Company does not enter into derivative contracts for speculative purposes.


Interest rate swaps


On February 15, 2011, the Company entered into a twenty-seven month, $25,000 interest rate swap with Bank of America to provide a hedge against the variability of cash flows (monthly interest expense payments) on LIBOR-based variable rate borrowings. The interest rate swap allows the Company to fix the LIBOR rate at 1.39% and terminates on May 17, 2013. On August 5, 2011, the Company entered into a twenty-one month, $10,000 interest rate swap with Bank of America to provide a hedge against the variability of cash flows related to additional variable rate borrowings. This interest rate swap allows the Company to fix the LIBOR rate at 0.75% and terminates on May 17, 2013. On May 18, 2012, the Company entered into a five year, $50,000 interest rate swap with Wells Fargo to provide a hedge against the variability of cash flows related to additional variable rate borrowings under the Company's ABL Revolver and ABL Term Loan. This interest rate swap increases to $85,000 in May 2013 (when the $25,000 and $10,000 interest rate swaps with Bank of America terminate) and then decreases $5,000 per quarter beginning in August 2013 until the balance again reaches $50,000 in February 2015 (where it will remain through May 2017) which allows the Company to keep $50,000 of ABL Revolver borrowings hedged for the five year period from May 2012 to May 2017 and a portion of the ABL Term Loan hedged from May 2012 to February 2015. This interest rate swap allows the Company to fix the LIBOR rate at 1.06% and terminates on May 24, 2017.


The Company has designated these swaps as cash flow hedges and determined that they are highly effective. At September 23, 2012, the amount of pre-tax loss recognized in Accumulated other comprehensive income for the Company's cash flow hedge derivative instruments was $1,467. For the year to date period ended September 23, 2012, the Company did not reclassify any gains (losses) from Accumulated other comprehensive income to Interest expense.


Foreign currency forward contracts


The Company may enter into foreign currency forward contracts as economic hedges for exposures related to certain sales, inventory purchases and equipment purchases which are denominated in currencies that are not its functional currency. As of September 23, 2012, the latest maturity date for all outstanding foreign currency forward contracts is during December 2012. These items are not designated as hedges by the Company and are marked-to-market each period and offset by the foreign exchange (gains) losses resulting from the underlying exposures of the foreign currency denominated assets and liabilities.


The fair values of derivative financial instruments were as follows:


As of September 23, 2012:

 

Notional Amount

USD Equivalent

Balance Sheet Location

Fair value

Foreign exchange contracts

MXN

    2,100   $ 160

Other current liabilities

  $ (2 )

Interest rate swaps

USD

  $ 85,000   $ 85,000

Other long-term liabilities

  $ (1,467 )

As of June 24, 2012:

 

Notional Amount

USD Equivalent

Balance Sheet Location

Fair value

Foreign exchange contracts

MXN

    6,500   $ 497

Other current assets

  $ 28

Interest rate swaps

USD

  $ 85,000   $ 85,000

Other long-term liabilities

  $ (1,015 )

The fair values of the Company's foreign exchange contracts and interest rate swaps are estimated by obtaining month-end market quotes for contracts with similar terms.


The effect of marked-to-market hedging derivative instruments was as follows:


   

For the Three Months Ended

Derivatives not designated as hedges:

Classification:

September 23, 2012

September 25, 2011

Foreign exchange contracts – MXN/USD

Other operating expenses, net

  $ 36   $ (29 )

Total (gain) loss recognized in income

  $ 36   $ (29 )

By entering into derivative instrument contracts, the Company exposes itself to counterparty credit risk. The Company attempts to minimize this risk by selecting counterparties with investment grade credit ratings, limiting the amount of exposure to any single counterparty and regularly monitoring its market position with each counterparty. The Company's derivative instruments do not contain any credit risk related contingent features.