Note 20 - Derivative Financial Instruments

6 Months Ended

Dec. 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. It 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. 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 the Bank of America swaps as cash flow hedges and determined that they are highly effective. At December 23, 2012, the amount of pre-tax loss recognized in Accumulated other comprehensive income for these cash flow hedge derivative instruments was $145. For the year-to-date period ended December 23, 2012, the Company did not reclassify any gains (losses) related to these swaps from Accumulated other comprehensive income to Interest expense.

On November 26, 2012, the Company de-designated its Wells Fargo interest rate swap as a cash flow hedge resulting in the reclassification of a pre-tax unrealized loss of $92 from Accumulated other comprehensive income to interest expense during the second quarter of fiscal year 2013. The Company expects to reclassify $551 of pre-tax unrealized loss from Accumulated other comprehensive income to Interest expense during the next twelve months. Concurrently, the Company recognized, as interest expense, a $73 gain on the fair value of this derivative.

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 December 23, 2012, the latest maturity date for all outstanding foreign currency forward contracts is during February 2013. 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 December 23, 2012:		Notional Amount		USD Equivalent		Balance Sheet Location	Fair value
Foreign exchange contracts	MXN		3,000	$	229	Other current liabilities	$	(2	)
Interest rate swaps	USD	$	85,000	$	85,000	Other long-term liabilities	$	(1,327	)

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	)

(MXN represents the Mexican Peso)

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
		December 23, 2012			December 25, 2011
Derivatives not designated as hedges:	Classification
Foreign exchange contracts – MXN/USD	Other operating (income) expense	$	3		$	(11	)
Foreign exchange contracts – USD/$R	Other operating (income) expense		—			(2	)
Interest rate swap	Interest expense		(73	)		—
Total (gain) loss recognized in income		$	(70	)	$	(13	)

		For the Six Months Ended
		December 23, 2012			December 25, 2011
Derivatives not designated as hedges:	Classification
Foreign exchange contracts – MXN/USD	Other operating (income) expense	$	38		$	(40	)
Foreign exchange contracts – USD/$R	Other operating (income) expense		—			(2	)
Interest rate swap	Interest expense		(73	)		—
Total (gain) loss recognized in income		$	(35	)	$	(42	)

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.