Note O - Derivative Financial Instruments

9 Months Ended

Mar. 26, 2021

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

O. Derivative Financial Instruments

From time to time, the Company enters into derivative instruments to manage volatility arising from risks relating to interest rates and foreign exchange. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. The Company’s practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if it determines the underlying forecasted transaction is no longer probable of occurring.

The Company reports all derivative instruments on its consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes.

Interest Rate Swap Contracts

The Company has one outstanding interest rate swap contract as of March 26, 2021, with a notional amount of $16,500. It has been designated as a cash flow hedge in accordance with ASC 815, Derivatives and Hedging.

The primary purpose of the Company’s cash flow hedging activities is to manage the potential changes in value associated with interest payments on the Company’s LIBOR-based indebtedness. The Company records gains and losses on interest rate swap contracts qualifying as cash flow hedges in accumulated other comprehensive loss to the extent that these hedges are effective and until the Company recognizes the underlying transactions in net earnings, at which time these gains and losses are recognized in interest expense on its consolidated statements of operations and comprehensive loss. Cash flows from derivative financial instruments are classified as cash flows from financing activities on the consolidated statements of cash flows. These contracts generally have original maturities of greater than 12 months.

Net unrealized after-tax losses related to cash flow hedging activities that were included in accumulated other comprehensive loss were $732 and $1,104 as of March 26, 2021 and June 30, 2020, respectively. The unrealized amounts in accumulated other comprehensive loss will fluctuate based on changes in the fair value of open contracts during each reporting period.

The Company estimates that $359 of net unrealized losses related to cash flow hedging activities included in accumulated other comprehensive loss will be reclassified into earnings within the next twelve months.

Foreign Currency Forward Contracts

The Company primarily enters into forward exchange contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. The Company had no outstanding forward exchange contracts at March 26, 2021. At June 30, 2020, one of the Company's foreign subsidiaries had one outstanding forward exchange contract to purchase U.S. dollars in the notional value of $1,247 with a weighted average maturity of 7 days. The fair value of the Company’s contract was a loss of $9 at June 30, 2020.

Fair Value of Derivative Instruments

The fair value of derivative instruments included in the condensed consolidated balance sheets were as follows:

	Balance Sheet Location	March 26, 2021		June 30, 2020
Derivative designated as hedge:
Interest rate swap	Accrued liabilities	$	335	$	392
Interest rate swap	Other long-term liabilities		623		1,052

The impact of the Company’s derivative instruments on the consolidated statement of operations and comprehensive loss for the quarter and three quarters ended March 26, 2021 and March 27, 2020, respectively, was as follows:

	Statement of Comprehensive	For the Quarter Ended					For the Three Quarters Ended
	Income Location	March 26, 2021		March 27, 2020			March 26, 2021			March 27, 2020
Derivative designated as hedge:
Interest rate swap	Interest expense	$	98	$	37		$	297		$	79
Interest rate swap	Unrealized gain (loss) on cash flow hedge		193		(582	)		372			(579	)
Derivatives not designated as hedges:
Foreign currency forward contracts	Other income (expense), net	$	-	$	-		$	(13	)	$	-