Note 17 - Fair Value of Financial Instruments and Non-Financial Assets and Liabilities

3 Months Ended

Sep. 28, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

17. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities

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.

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. Foreign currency forward contracts are not designated as hedges by the Company and are marked to market each period and offset by the foreign exchange (gains) losses included in other operating expense, net resulting from the underlying exposures of the foreign currency denominated assets and liabilities. As of September 28, 2014, there were no outstanding foreign currency forward contracts.

Interest rate swap

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 LIBOR-based variable rate borrowings under the Company’s ABL Revolver and ABL Term Loan. It increased to $85,000 in May 2013 (when certain other interest rate swaps terminated) and decreases $5,000 per quarter beginning in August 2013 until the balance again reaches $50,000 in February 2015, where it will remain through the life of the instrument. This interest rate swap allows the Company to fix LIBOR at 1.06% and terminates on May 24, 2017. At September 28, 2014, the notional amount of the interest rate swap was $60,000.

On November 26, 2012, the Company de-designated the interest rate swap as a cash flow hedge. For the first quarters of fiscal years 2015 and 2014, the Company reclassified pre-tax unrealized losses of $104 and $155 from accumulated other comprehensive loss to interest expense, respectively. The Company expects to reclassify additional losses of $276 during the next twelve months. The Company has recognized a pre-tax unrealized marked to market gain of $258 and a loss of $140 within interest expense for the three months ended September 28, 2014 and September 29, 2013, respectively related to this interest rate swap. See “Note 18. Accumulated Other Comprehensive Loss” for further discussion of the reclassifications of unrealized losses from accumulated other comprehensive loss.

Contingent consideration

On December 2, 2013, the Company acquired certain assets in a business combination with Dillon and recorded a contingent consideration liability, as described in “Note 4. Acquisition.” The fair value of the contingent consideration is measured at each reporting period using a discounted cash flow methodology based on inputs not observable in the market (Level 3 classification in the fair value hierarchy). The inputs to the discounted cash flow model include the estimated payments through the term of the agreement based on an agreed-upon definition and schedule, adjusted to risk-neutral estimates using a market price of risk factor which considers relevant metrics of comparable entities, discounted using an observable cost of debt over the term of the estimated payments. Any change in the fair value from either the passage of time or events occurring after the acquisition date is recorded in other operating expense, net. As of September 28, 2014, the inputs and assumptions used to develop the fair value measurement have not changed since the acquisition date.

A reconciliation of the changes in the fair value follows:

Contingent consideration as of June 29, 2014	$	2,563
Change in fair value		75
Payment		(289	)
Contingent consideration as of September 28, 2014	$	2,349

Based on the present value of the expected future payments, $683 is reflected in accrued expenses and $1,666 is reflected in other long-term liabilities.

The Company’s financial assets and liabilities accounted for at fair value on a recurring basis and the level within the fair value hierarchy used to measure these items are as follows:

As of September 28, 2014	Notional Amount				USD Equivalent		Balance Sheet Location	Fair Value Hierarchy	Fair Value
Foreign currency contracts	EUR		—	—		—	Other current assets	Level 2		—
Interest rate swap	USD	$	—	60,000	$	60,000	Other long-term liabilities	Level 2	$	105
Contingent consideration				—		—	Accrued expenses and other long-term liabilities	Level 3	$	2,349

As of June 29, 2014	Notional Amount				USD Equivalent		Balance Sheet Location	Fair Value Hierarchy	Fair Value
Foreign currency contracts	EUR		495	—	$	668	Other current assets	Level 2	$	7
Interest rate swap	USD	$	—	65,000	$	65,000	Other long-term liabilities	Level 2	$	363
Contingent consideration				—		—	Accrued expenses and other long-term liabilities	Level 3	$	2,563

Estimates for the fair value of the Company’s foreign currency forward contracts and interest rate swaps are obtained from 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 28, 2014			September 29, 2013
Foreign exchange contracts	Other operating expense, net	$	7		$	(6	)
Interest rate swap	Interest expense		(258	)		140
Total (gain) loss recognized in income		$	(251	)	$	134

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.

The Company believes that there have been no significant changes to its credit risk profile or the interest rates available to the Company for debt issuances with similar terms and average maturities and the Company estimates that the fair values of its debt obligations approximate the carrying amounts. Other financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses. The financial statement carrying amounts of these items approximate the fair value due to their short-term nature.

There were no transfers into or out of the levels of the fair value hierarchy for the three months ended September 28, 2014.

Non-Financial Assets and Liabilities

The Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring basis.