NOTE I - Financial Instruments
The Company is exposed to market risks arising from adverse changes in foreign exchange and interest rates. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivatives. Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. Gains or losses from derivatives used to manage foreign exchange are classified as selling, general and administrative expenses.

For cash flow hedges, changes in fair value are deferred in accumulated other comprehensive loss within shareholders' equity until the underlying hedged item is recognized in net income. For fair value hedges, changes in fair value are recognized immediately in earnings, consistent with the underlying hedged item. Hedging transactions are limited to an underlying exposure. As a result, any change in the value of the derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. Hedging ineffectiveness and a net earnings impact occur when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. Ineffectiveness of the Company's hedges is not material. If the derivative instrument is terminated, the Company continues to defer the related gain or loss and include it as a component of the cost of the underlying hedged item. Upon determination that the underlying hedged item will not be part of an actual transaction, the Company recognizes the related gain or loss in the statement of income immediately.

The Company also uses derivatives that do not qualify for hedge accounting treatment. The Company accounts for such derivatives at market value with the resulting gains and losses reflected in the statements of income.

The Company enters into arrangements with one financial institution that it believes is creditworthy and generally settles such arrangements on a net basis. In addition, the Company performs a quarterly assessment of counterparty credit risk, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty. Based on the most recent quarterly assessment of counterparty credit risk, the Company considers this risk to be low.

Foreign Exchange
The Company enters into derivatives, primarily forward foreign exchange contracts with terms of no more than one year, to manage risk associated with exposure to certain foreign currency denominated balance sheet positions, primarily intercompany accounts receivable. Gains or losses resulting from the translation of certain foreign currency balance sheet positions are recognized in the statement of operations as incurred. Foreign currency derivatives had a total notional value of $0 as of September 28, 2013 and $24.6 million as of December 29, 2012. Gains and losses on the derivatives were generally offset by changes in U.S. dollar value of the underlying hedged items.

Interest Rates
In 2010, the Company entered into a forward interest rate swap agreement with an initial notional amount of $15.0 million and a term of three years. This swap effectively fixed the interest rate on a portion of the Company’s line of credit at approximately 1.2%. The item being hedged was the first interest payment to be made on $15.0 million of principal expected to occur each month beginning March 31, 2011. The Company measures hedge ineffectiveness using the “hypothetical” derivative method. This swap was designated a cash flow hedge and the effect of the mark-to-market valuation is recorded as an adjustment, net of tax, to accumulated other comprehensive loss. The interest rate swap expired July 28, 2013.

Fair Value Measurements
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1	Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2	Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3	Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.

The fair values of our financial assets and liabilities are categorized as follows:


(THOUSANDS OF DOLLARS)	SEPTEMBER 28,								DECEMBER 29,
	2013								2012
	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL		LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Assets:
Money market funds (A)	$	56,002	$	-	$	-	$	56,002	$	705	$	-	$	-	$	705
Short-term investments (B)		292		-		-		292		227		-		-		227
Derivatives not designated as
hedging instruments:
Foreign exchange contracts (C)		-		-		-		-		-		257		-		257
	$	56,294	$	-	$	-	$	56,294	$	932	$	257	$	-	$	1,189


(THOUSANDS OF DOLLARS)	SEPTEMBER 28,								DECEMBER 29,
	2013								2012
	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL		LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Liabilities
Derivatives designated as
hedging instruments:
Interest rate swaps (D)	$	-	$	-	$	-	$	-	$	-	$	87	$	-	$	87
Derivatives not designated as
hedging instruments:
Foreign exchange contracts (C)		-		-		-		-		-		157		-		157
	$	-	$	-	$	-	$	-	$	-	$	244	$	-	$	244

(A) Value is based on quoted market prices of identical instruments, fair value is included in cash and cash equivalents

(B) Value is based on quoted market prices of identical instruments

(C) Value is based on the present value of the forward rates less the contract rate multiplied by the notional amount, fair value is included in other current assets or accounts payable, accrued expenses and other liabilities

(D) Value is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve, fair value is included in accounts payable, accrued expenses and other liabilities

Accounts receivable are recorded at net realizable value, which approximates fair value. Accounts payable, included in accounts payable, accrued expenses and other current liabilities, are recorded at historical cost, which approximates fair value due to the short-term nature of the liabilities. Line of credit is recorded at historical cost, which approximates fair value since the interest rate varies with prevailing market rates similar to level 2 categorized items.

The effective portion of the pre-tax gains (losses) on our derivative instruments for the three and nine month periods ended September 28, 2013 and September 29, 2012 are categorized in the following table:


(THOUSANDS OF DOLLARS)	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 28,		SEPTEMBER 29,		SEPTEMBER 28,		SEPTEMBER 29,
	2013		2012		2013		2012
Fair Value / Non-designated Hedges:
Foreign exchange contracts (A)	$	(8)	$	(31)	$	-	$	(137)
Cash Flow Hedges:
Effective portion recognized in other
comprehensive income:
Interest rate swaps	$	14	$	57	$	162	$	152
Effective portion reclassified from other
comprehensive income:
Interest rate swaps (B)	$	(14)	$	(36)	$	(88)	$	(108)


(A)	Included in discontinued operations
(B)	Included in interest expense