Derivative Financial Instruments

3 Months Ended

Sep. 29, 2012

Derivative Financial Instruments

5. Derivative Financial Instruments

In the ordinary course of business, we are exposed to market risks. We utilize derivative financial instruments to manage interest rate risk and manage the total debt that is subject to variable and fixed interest rates. The interest rate swap contracts we utilize modify our exposure to interest rate risk by converting variable rate debt to a fixed rate without an exchange of the underlying principal amount. We designate interest rate swap contracts as cash flow hedges of the interest expense related to variable rate debt.

All derivative financial instruments are recognized at fair value and are recorded in the “Other current assets” or “Accrued expenses” line items in the Condensed Consolidated Balance Sheets.

For derivative financial instruments that are designated and qualify as cash flow hedges, the effective portion of the change in fair value on the derivative financial instrument is reported as a component of “Accumulated other comprehensive income” and reclassified into the “Interest expense” line item in the Condensed Consolidated Statements of Operations in the same period as the expenses from the cash flows of the hedged items are recognized. We perform an assessment at the inception of the hedge and on a quarterly basis thereafter, to determine whether our derivatives are highly effective in offsetting changes in the value of the hedged items. Any change in the fair value resulting from hedge ineffectiveness is immediately recognized as income or expense.

We do not have any derivative financial instruments that have been designated as either a fair value hedge, a hedge of a net investment in a foreign operation, or that are held for trading or speculative purposes. Cash flows associated with derivative financial instruments are classified in the same category as the cash flows hedged in the Condensed Consolidated Statements of Cash Flows.

Approximately 7.3% of our outstanding variable rate debt had its interest payments modified using interest rate swap contracts at September 29, 2012.

As of September 29, 2012 and June 30, 2012, we had $1.7 million and $1.4 million, respectively, of liabilities on interest rate swap contracts that are classified as “Accrued expenses” in the Condensed Consolidated Balance Sheets. We do not have any material assets related to derivatives as of September 29, 2012 and June 30, 2012. Of the $1.1 million net loss deferred in accumulated other comprehensive income as of September 29, 2012, a $0.4 million net loss is expected to be reclassified to interest expense in the next twelve months.

As of September 29, 2012 and June 30, 2012, all derivative financial instruments were designated as hedging instruments.

As of September 29, 2012, we had interest rate swap contracts to pay fixed rates of interest and to receive variable rates of interest based on the three-month London Interbank Offered Rate (“LIBOR”) on $90.0 million notional amount, $75.0 million of which are forward starting interest rate swap contracts. Of the $90.0 million notional amount, $15.0 million matures in the next 12 months and $75.0 million matures in 25-36 months. The average rate on the $90.0 million of interest rate swap contracts was 1.61% as of September 29, 2012. These interest rate swap contracts are highly effective cash flow hedges and accordingly, gains or losses on any ineffectiveness were not material to any period.

The following tables summarize the amount of gain or loss recognized in accumulated other comprehensive income or loss and the classification and amount of gains or losses reclassified from accumulated other comprehensive income or loss into the Condensed Consolidated Statements of Operations for the three months ended September 29, 2012 and October 1, 2011 related to derivative financial instruments used in cash flow hedging relationships:

	Amount of Loss Recognized in Accumulated Other Comprehensive Income
Relationship:	Three Months Ended
	September 29, 2012			October 1, 2011
Interest rate swap contracts	$	(0.3	)	$	—
Total derivatives designated as cash flow hedging instruments	$	(0.3	)	$	—

		Amount of Loss Reclassified From Accumulated Other Comprehensive Income to Consolidated Statements of Operations
Relationship:	Statement of Operations Classification:	Three Months Ended
		September 29, 2012			October 1, 2011
Interest rate swap contracts	Interest expense	$	(0.1	)	$	(0.4	)
Total derivatives designated as cash flow hedging instruments		$	(0.1	)	$	(0.4	)