Derivative Financial Instruments

12 Months Ended

Dec. 31, 2011

Derivative Financial Instruments

Derivative Financial Instruments

5. Derivative Financial Instruments

        The Company is exposed to interest rate fluctuations in the normal course of its business, including through its corporate headquarters leases. The base rents for these leases are calculated using a variable interest rate based on the three-month LIBOR. The Company has entered into interest rate swap agreements with notional values of $44.3 million and $50.1 million and, effectively, fixed the rent payment amounts on these leases through March 2011 and March 2013, respectively. The Company's swap agreement with a notional value of $44.3 million matured in March 2011 and was not renewed. The interest rate swap agreements are designated and qualify as cash flow hedges.

        The Company estimates the fair values of derivatives based on quoted prices and market observable data of similar instruments. If the lease agreements or the interest rate swap agreements are terminated prior to maturity, the fair value of the interest rate swaps recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time of termination. The Company did not discontinue any cash flow hedges in any of the periods presented.

        The Company measures the effectiveness of its cash flow hedges by comparing the change in fair value of the hedged item with the change in fair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, in the Consolidated Statement of Income. As of December 31, 2011, no portion of the gains or losses from the Company's hedging instrument was excluded from the assessment of effectiveness. There was no hedge ineffectiveness for any of the periods presented.

        The Company's derivative financial instrument consisted of the following (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2011		January 1, 2011
Interest rate swaps:	Accrued expenses	$	—	$	344
	Long-term obligations and other liabilities		1,998		3,467
	Total	$	1,998	$	3,811

        The before-tax effect of derivative instruments in cash flow hedging relationships was as follows (in thousands):

	Loss Recognized in OCI on Derivatives (Effective Portion) during the Year Ended									Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the Year Ended
	December 31, 2011			January 1, 2011			January 2, 2010				December 31, 2011			January 1, 2011			January 2, 2010
Interest rate swaps	$	(424	)	$	(2,640	)	$	(1,681	)	Rent expense	$	(2,237	)	$	(3,321	)	$	(2,792	)

        The Company expects to reclassify $1.7 million of its interest rate swap losses included in accumulated other comprehensive loss as of December 31, 2011 into earnings in the next 12 months, which is offset by lower rent payments.

        The Company's interest rate swap agreement contains provisions that require it to maintain unencumbered cash and highly-rated short-term investments of at least $150 million. If the Company's unencumbered cash and highly-rated short-term investments are less than $150 million, it would be required to post collateral with the counterparty in the amount of the fair value of the interest rate swap agreements in net liability positions. The Company's interest rate swap was in a net liability position at December 31, 2011. No collateral has been posted with the counterparty as of December 31, 2011.