Note 11 - Financial Instruments

12 Months Ended

Dec. 03, 2016

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note

11:

Financial Instruments

Overview

As a result of being a global enterprise, our earnings, cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables. These items are denominated in various foreign currencies.

The company uses foreign currency forward contracts, cross-currency swaps, and interest rate swaps to manage risks associated with foreign currency exchange rates and interest rates. The company does not hold derivative financial instruments of a speculative nature or for trading purposes. The company records derivatives as assets and liabilities on the balance sheet at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge. Cash flows from derivatives are classified in the statement of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The company evaluates hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings.

The company is exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements. The company selects investment-grade multinational banks and financial institutions as counterparties for derivative transactions and monitors the credit quality of each of these banks on a periodic basis as warranted. The company does not anticipate nonperformance by any of these counterparties, and valuation allowances, if any, are

de minimis

.

Cash Flow Hedges

Effective

October

7,

2015,

we entered into

three

cross-currency swap agreements to convert a notional amount of

$134,736

of foreign currency denominated intercompany loans into US dollars. The

first

swap matures in

2017,

the

second

swap matures in

2018

and the

third

swap matures in

2019.

As of

December

3,

2016,

the combined fair value of the swaps was an asset of

$4,654

and was included in other assets in the Consolidated Balance Sheets. The swaps were designated as cash-flow hedges for accounting treatment. The lesser amount between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps is recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. The difference between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps are recorded as other income (expense), net in the Consolidated Statements of Income. In a perfectly effective hedge relationship, the

two

fair value calculations would exactly offset each other. Any difference in the calculation represents hedge ineffectiveness. The ineffectiveness calculations as of

December

3,

2016

resulted in additional pre-tax gain of

$28

year-to-date as the change in fair value of the cross-currency swaps was less than the change in the fair value of the hypothetical swaps. The amount in accumulated other comprehensive income (loss) related to cross-currency swaps was a loss of

$1,275

as of

December

3,

2016.

The estimated net amount of the existing loss that is reported in accumulated other comprehensive income (loss) as of

December

3,

2016

that is expected to be reclassified into earnings within the next

twelve

months is

$786.

As of

December

3,

2016,

we do not believe any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur.

The following table summarizes the cross-currency swaps outstanding as of

December

3,

2016:

	Fiscal Year of Expiration	Interest Rate		Notional Value		Fair Value
Pay EUR	2017		3.05%	$	44,912	$	1,905
Receive USD			3.9145%
Pay EUR	2018		3.45%		44,912		1,560
Receive USD			4.5374%
Pay EUR	2019		3.80%		44,912		1,189
Receive USD			5.0530%
Total				$	134,736	$	4,654

Except for the cross-currency swap agreements listed above, foreign currency derivative instruments outstanding are not designated as hedges for accounting purposes. The gains and losses related to mark-to-market adjustments are recognized as other income or expense in the Consolidated Statements of Income during the periods in which the derivative instruments are outstanding. See Note

13

for fair value amounts of these derivative instruments.

As of

December

3,

2016,

we had forward foreign currency contracts maturing between

December

6,

2016

and

April

13,

2018.

The mark-to-market effect associated with these contracts, on a net basis, at each year end was a gain of

$4,772,

$10,442

and

$574

in

2016,

2015

and

2014,

respectively. These gains were largely offset by the underlying transaction gains and losses resulting from the foreign currency exposures for which these contracts relate.

Fair Value Hedges

We have interest rate swap agreements to convert

$75,000

of our senior notes to variable interest rates. See Note

7

for additional information. The change in fair value of the senior notes, attributable to the change in the risk being hedged, was a liability of

$1,606

at

December

3,

2016

and

$3,356

at

November

28,

2015

and were included in long-term debt and current maturities of long-term debt in the Consolidated Balance Sheets. The combined fair value of the swaps in total was an asset of

$1,579

at

December

3,

2016

and

$3,395

at

November

28,

2015

and were included in other assets in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as fair value hedges.

The changes in the fair value of the swap and the fair value of the Senior Notes attributable to the change in the risk being hedged are recorded as other income (expense), net in the Consolidated Statements of Income. In a perfectly effective hedge relationship, the

two

fair value calculations would exactly offset each other. Any difference in the calculation represents hedge ineffectiveness. The calculation as of

December

3,

2016,

resulted in additional year-to-date pre-tax loss of

$66

as the fair value of the interest rate swaps decreased by more than the change in the fair value of the Senior Notes attributable to the change in the risk being hedged. The calculations as of

November

28,

2015

and

November

29,

2014

resulted in an additional year-to-date pre-tax gain of

$48

and

$126,

respectively.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities in the customer base and their dispersion across many different industries and countries. As of

December

3,

2016,

there were no significant concentrations of credit risk.

Derivatives Not Designated As Hedging Instruments

The company uses foreign currency forward contracts to offset its exposure to the change in value of certain foreign currency denominated assets and liabilities held at foreign subsidiaries that are remeasured at the end of each period. Although the contracts are effective economic hedges, they are not designated as accounting hedges. Foreign currency forward contracts are recorded as assets and liabilities on the balance sheet at fair value. Changes in the value of these derivatives are recognized immediately in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities.