Derivative Financial Instruments

6 Months Ended

Jul. 01, 2011

DERIVATIVE FINANCIAL INSTRUMENTS [Abstract]

Derivative Instruments and Hedging Activities Disclosure

    DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in foreign currency exchange rates and interest rates.  Derivative financial instruments are recognized on the consolidated balance sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for speculative purposes.

Derivatives Designated as Cash Flow Hedges

The Company’s Term Loan Credit Agreement (“Term Loan”) contains floating rate obligations and is subject to interest rate fluctuations. During 2009, the Company entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate interest payments on its Term Loan due in 2010 and 2011. These interest rate swap agreements are designated as cash flow hedges. They are intended to manage interest rate risk associated with the Company’s variable-rate borrowings and minimize the impact of interest rate fluctuations on the Company’s earnings and cash flows attributable to changes in LIBOR rates. The Company will include in earnings amounts currently included in accumulated other comprehensive income upon payment of its two remaining quarterly variable-rate interest payments.

The Company holds foreign exchange contracts designed to hedge forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company’s earnings and cash flows. Some of these contracts were designated as cash flow hedges. The Company will include in earnings amounts currently included in accumulated other comprehensive income upon recognition of cost of sales related to the underlying transaction.

The following table shows the fair value of derivative instruments designated as cash flow hedging instruments (in thousands):

		Fair Value
	Balance Sheet Location	July 1, 2011		December 31, 2010		Notional Amount
Derivative Liabilities
Interest rate swap contracts	Other liabilities	$	415	$	806	$	40,000
Total		$	415	$	806

The following table shows the gain or (loss) recognized in other comprehensive income for derivatives designated as cash flow hedges (in thousands):

	For the three months ended						For the six months ended
	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Interest rate swap contracts	$	(24	)	$	(210	)	$	(48	)	$	(593	)
Total	$	(24	)	$	(210	)	$	(48	)	$	(593	)

6. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Derivatives Designated as Cash Flow Hedges – continued

During the three months and six months ended July 1, 2011, the loss reclassified to earnings from other comprehensive income for derivative instruments designated as cash flow hedges was $0.2 million and $0.4 million, respectively.  During the three months and six months ended July 2, 2010, the loss reclassified to earnings from other comprehensive income for derivative instruments designated as cash flow hedges was $0.1 million and $0.3 million, respectively.  Over the next twelve months, the Company expects to reclassify $0.3 million to earnings from other comprehensive income for derivative instruments designated as cash flow hedges.

During the three months and six months ended July 1, 2011 and July 2, 2010, no amounts were recorded for the ineffective portion of derivative instruments designated as cash flow hedges.

Derivatives Not Designated as Hedging Instruments

The following table shows the fair value of derivative instruments not designated as hedging instruments (in thousands):

		Fair Value
	Balance Sheet Location	July 1, 2011		December 31, 2010		Notional Amount
Derivative Assets
Foreign exchange contracts	Other current assets	$	—	$	10	0 / 350 Euro
Foreign exchange contracts	Other current assets / Other assets	3,734		12,613		9,816 / 36,516 Australian Dollars
Total		$	3,734	$	12,623

On February 12, 2009, the Company dedesignated the forward contract it had entered into to hedge $36.5 million (AUD) of its $39.5 million (AUD) future minimum required payments to the Commonwealth of Australia. Payments of $26.8 million (AUD), of the $36.5 million (AUD) hedged liability, were made through July 1, 2011. At July 1, 2011, the U.S. dollar value of the remaining $9.8 million (AUD) hedged liability was $10.6 million.

The following table shows the location and amount of the gain (loss) recognized on the Condensed Consolidated Statements of Operations for derivatives not designated as hedge instruments (in thousands):

	Statement of	For the three months ended					For the six months ended
	Operations Location	July 1, 2011		July 2, 2010			July 1, 2011			July 2, 2010
Derivative Assets
Foreign exchange contracts	Other expense, net	$	—	$	—		$	—		$	5
Foreign exchange contracts (a)	Other expense, net	475		(2,304		)	725			(1,283		)
Foreign exchange contracts	Other expense, net	—		(16		)	—			(55		)
Total		$	475	$	(2,320	)	$	725		$	(1,333	)
Derivative Liabilities
Foreign exchange contracts	Other expense, net	$	—	$	(2	)	$	(2	)	$	(61	)
Total		$	—	$	(2	)	$	(2	)	$	(61	)

(a) For the three months and six months ended July 1, 2011, the Company recorded expense of $0.4 million and $0.3 million, respectively, to other income related to the change in the value of the previously hedged $36.5 million (AUD) payable. For the three months and six months ended July 2, 2010, the Company recorded income of $2.8 million and $2.0 million, respectively, to other expense related to the change in the value of the previously hedged $36.5 million (AUD) payable.

6. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Hedges of a Net Investment in Foreign Operations

The Company did not reclassify any amounts related to hedges of a net investment in foreign operations from other comprehensive income to earnings during the three months and six months ended July 1, 2011 or July 2, 2010. Over the next twelve months, the Company does not expect to reclassify any amounts related to the Euro note from other comprehensive income to earnings.