Derivative Financial Instruments

9 Months Ended

Oct. 02, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

11. Derivative Financial Instruments

Interest

The Company periodically uses interest rate hedging products to modify risk from interest rate fluctuations. The Company has historically altered its fixed/floating rate mix based upon anticipated cash flows from operations relative to the Company’s debt level and the potential impact of changes in interest rates on the Company’s overall financial condition. Sensitivity analyses are performed to review the impact on the Company’s financial position and coverage of various interest rate movements. The Company does not use derivative financial instruments for trading purposes nor does it use leveraged financial instruments.

On September 18, 2008, the Company terminated six outstanding interest rate swap agreements with a notional amount of $225 million receiving $6.2 million in cash proceeds including $1.1 million for previously accrued interest receivable. After accounting for the previously accrued interest receivable, the Company began amortizing a gain of $5.1 million over the remaining term of the underlying debt. As of October 2, 2011, the remaining amount to be amortized was $1.7 million. All of the Company’s interest rate swap agreements were LIBOR-based.

During both YTD 2011 and YTD 2010, the Company amortized deferred gains related to terminated interest rate swap agreements and forward interest rate agreements of $0.9 million which was recorded as a reduction to interest expense.

The Company had no interest rate swap agreements outstanding at October 2, 2011, January 2, 2011 and October 3, 2010.

Commodities

The Company is subject to the risk of loss arising from adverse changes in commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage commodity price risk. Currently, the Company has derivative instruments to hedge some or all of its projected diesel fuel, unleaded gasoline and aluminum purchase requirements. These derivative instruments are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company is exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties. The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions.

The Company used derivative instruments to hedge substantially all of the Company’s diesel fuel purchases for 2010 and is using derivative instruments to hedge all of the Company’s projected diesel fuel and unleaded gasoline purchases for the second, third and fourth quarters of 2011. These derivative instruments relate to diesel fuel and unleaded gasoline used by the Company’s delivery fleet and other vehicles. The Company used derivative instruments to hedge approximately 75% of the Company’s aluminum purchase requirements in 2010 and is using derivative instruments to hedge approximately 75% of the Company’s projected aluminum purchase requirements for 2011.

The following table summarizes Q3 2011 and Q3 2010 net gains and losses on the Company’s fuel and aluminum derivative financial instruments and the classification, either as cost of sales or selling, delivery and administrative (“S,D&A”) expenses, of such net gains and losses in the consolidated statements of operations:

		Third Quarter
In Thousands	Classification of Gain (Loss)	2011			2010
Fuel hedges — contract premium and contract settlement	S,D&A expenses	$	(235	)	$	(213	)
Fuel hedges — mark-to-market adjustment	S,D&A expenses		10			82
Aluminum hedges — contract premium and contract settlement	Cost of sales		1,145			98
Aluminum hedges — mark-to-market adjustment	Cost of sales		(1,849	)		3,003
Total Net Gain (Loss)		$	(929	)	$	2,970

The following table summarizes YTD 2011 and YTD 2010 net gains and losses on the Company’s fuel and aluminum derivative financial instruments and the classification, either as cost of sales or S,D&A expenses, of such net gains and losses in the consolidated statements of operations:

		First Nine Months
In Thousands	Classification of Gain (Loss)	2011			2010
Fuel hedges — contract premium and contract settlement	S,D&A expenses	$	(169	)	$	(243	)
Fuel hedges — mark-to-market adjustment	S,D&A expenses		(161	)		(1,274	)
Aluminum hedges — contract premium and contract settlement	Cost of sales		2,449			609
Aluminum hedges — mark-to-market adjustment	Cost of sales		(4,065	)		(3,210	)
Total Net Gain (Loss)		$	(1,946	)	$	(4,118	)

The following table summarizes the fair values and classification in the consolidated balance sheets of derivative instruments held by the Company as of October 2, 2011, January 2, 2011 and October 3, 2010:

	Balance Sheet	Oct. 2,		Jan. 2,		Oct. 3,
In Thousands	Classification	2011		2011		2010
Fuel hedges at fair market value	Prepaid expenses and other current assets	$	10	$	171	$	343
Unamortized cost of fuel hedging agreements	Prepaid expenses and other current assets		291		—		246
Aluminum hedges at fair market value	Prepaid expenses and other current assets		2,601		6,666		5,660
Unamortized cost of aluminum hedging agreements	Prepaid expenses and other current assets		651		2,453		2,284
Total		$	3,553	$	9,290	$	8,533
Aluminum hedges at fair market value	Other assets	$	—	$	—	$	1,582
Unamortized cost of aluminum hedging agreements	Other assets		—		—		651
Total		$	—	$	—	$	2,233

The following table summarizes the Company’s outstanding derivative agreements as of October 2, 2011:

	Notional		Latest
In Millions	Amount		Maturity
Fuel hedging agreements	$	7.0	December 2011
Aluminum hedging agreements		7.0	December 2011