Derivative Instruments

12 Months Ended

Sep. 28, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS:

The Company enters into contractual derivative arrangements to manage changes in market conditions related to interest on debt obligations, foreign currency exposures and exposure to fluctuating natural gas, gasoline and diesel fuel prices. Derivative instruments utilized during the period include interest rate swap agreements, foreign currency forward exchange contracts, and natural gas, gasoline and diesel fuel agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each quarter. The counterparties to the Company’s contractual derivative agreements are all major international financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties. For designated hedging relationships, the Company formally documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items.

Cash Flow Hedges

The Company has entered into $1.0 billion of interest rate swap agreements, fixing the rate on a like amount of variable rate borrowings. During fiscal2012, $2.3 billion and ¥5.0 billion of interest rate swap agreements matured. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. As of September 28, 2012 and September 30, 2011, approximately ($28.1) million and ($56.3) million of unrealized net of tax losses related to the interest rate swaps were included in “Accumulated other comprehensive loss,” respectively. The hedge ineffectiveness for these cash flow hedging instruments during fiscal2012, fiscal2011 and fiscal2010 was immaterial.

The Company previously entered into a $169.6 million amortizing cross currency swap to mitigate the risk of variability in principal and interest payments on the Canadian subsidiary’s variable rate debt denominated in U.S. dollars. The agreement fixes the rate on the variable rate borrowings and mitigates changes in the Canadian dollar/U.S. dollar exchange rate. In March 2012, the cross currency swap was amended to match the terms of the Canadian subsidiary's debt that was impacted by the Amendment Agreement No. 2. A portion of the swap was amended and extended to match the terms related to its variable rate debt denominated in U.S. dollars that was extended under Amendment Agreement No. 2. The Company has designated the swaps as cash flow hedges. During fiscal2012 and fiscal2011, approximately ($8.1) million and $1.8 million of unrealized net of tax gains (losses) related to the swap were added to “Accumulated other comprehensive loss,” respectively. Approximately $10.0 million and ($3.8) million were reclassified to offset net translation gains (losses) on the foreign currency denominated debt during fiscal2012 and fiscal2011, respectively. As of September 28, 2012 and September 30, 2011, unrealized net of tax losses of approximately ($5.0) million and ($10.6) million related to the cross currency swap were included in “Accumulated other comprehensive loss,” respectively. As a result of amending the cross currency swap, the hedge ineffectiveness for fiscal2012 was approximately $3.6 million, which is recorded in "Interest and Other Financing Costs, net". The Company expects the hedge to be highly effective in future periods. The hedge ineffectiveness for this cash flow hedging instrument during fiscal2011 and fiscal2010 was immaterial.

The Company previously entered into a series of pay fixed/receive floating natural gas hedge agreements based on a NYMEX price in order to limit its exposure to price increases for natural gas, primarily in the Uniform and Career Apparel segment. As of September 28, 2012, the Company has no natural gas contracts outstanding. As of September 28, 2012 and September 30, 2011, approximately $0 and ($0.1) million of unrealized net of tax losses, respectively, were recorded in “Accumulated other comprehensive loss” for these contracts. There was no hedge ineffectiveness for fiscal2012, fiscal2011 and fiscal2010.

The following table summarizes the net of tax effect of our derivatives designated as cash flow hedging instruments on Comprehensive Income (in thousands):

	Fiscal Year Ended		Fiscal Year Ended			Fiscal Year Ended
	September 28, 2012		September 30, 2011			October 1, 2010
Interest rate swap agreements	$	28,147	$	58,082		$	13,749
Cross currency swap agreements	5,580		(1,956		)	(224		)
Natural gas hedge agreements	113		(21		)	536
Gasoline and diesel fuel agreements	—		(1,232		)	1,191
	$	33,840	$	54,873		$	15,252

Derivatives not Designated in Hedging Relationships

The Company entered into a series of pay fixed/receive floating gasoline and diesel fuel agreements based on the Department of Energy weekly retail on-highway index in order to limit its exposure to price fluctuations for gasoline and diesel fuel. As of September 28, 2012, the Company has contracts for approximately 4.2 million gallons outstanding for fiscal 2013. During fiscal2012, the Company entered into contracts totaling approximately 5.3 million gallons. Prior to October 1, 2011, all outstanding contracts were designated as cash flow hedging instruments; therefore, changes in the fair value of these contracts were recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. Beginning in first quarter of fiscal 2012, the Company no longer records its gasoline and diesel fuel agreements as hedges for accounting purposes. As a result, on a prospective basis, changes in the fair value of these contracts are recorded in earnings. Amounts previously recorded in accumulated other comprehensive income (loss) were reclassified into earnings as the underlying item affected earnings. During fiscal2012, the Company recorded a pretax gain of $0.7 million in the Consolidated Statements of Income for the change in the fair value on these agreements. As of September 28, 2012 and September 30, 2011, unrealized net of tax losses of approximately $0 and ($1.1) million were recorded in “Accumulated other comprehensive loss” for these contracts, respectively. The hedge ineffectiveness for the gasoline and diesel fuel hedging instruments for fiscal2011 and fiscal2010 was immaterial.

As of September 28, 2012, the Company had foreign currency forward exchange contracts outstanding with notional amounts of €61.6 million, £18.0 million, kr.22.0 million and CAD79.0 million to mitigate the risk of changes in foreign currency exchange rates on short-term intercompany loans to certain international subsidiaries. Gains and losses on these foreign currency exchange contracts are recognized in income as the contracts were not designated as hedging instruments, substantially offsetting currency transaction gains and losses on the short term intercompany loans.

The following table summarizes the location and fair value, using Level 2 inputs, of the Company’s derivatives designated and not designated as hedging instruments in the Consolidated Balance Sheets (in thousands):

	Balance Sheet Location	September 28, 2012		September 30, 2011
ASSETS
Not designated as hedging instruments:
Foreign currency forward exchange contracts	Prepayments	$	251	$	2,856
Gasoline and diesel fuel agreements	Prepayments	696		—
		$	947	$	2,856
LIABILITIES
Designated as hedging instruments:
Natural gas hedge agreements	Accounts Payable	$	—	$	187
Gasoline and diesel fuel agreements	Accounts Payable	—		1,894
Interest rate swap agreements	Accrued Expenses	—		49,349
Interest rate swap agreements	Other Noncurrent Liabilities	46,484		44,054
Cross currency swap agreements	Other Noncurrent Liabilities	45,406		35,551
		$	91,890	$	131,035

The following table summarizes the location of (gain) loss reclassified from “Accumulated other comprehensive loss” into earnings for derivatives designated as hedging instruments and the location of (gain) loss for our derivatives not designated as hedging instruments in the Consolidated Statements of Income (in thousands):

		Fiscal Year Ended			Fiscal Year Ended			Fiscal Year Ended
	Account	September 28, 2012			September 30, 2011			October 1, 2010
Designated as hedging instruments:
Interest rate swap agreements	Interest Expense	$	66,260		$	123,739		$	132,787
Cross currency swap agreements	Interest Expense	8,077			8,960			11,763
Natural gas hedge agreements	Cost of services provided	396			158			1,961
Gasoline and diesel fuel agreements	Cost of services provided	—			(2,289		)	2,192
		$	74,733		$	130,568		$	148,703
Not designated as hedging instruments:
Gasoline and diesel fuel agreements	Cost of services provided	$	24		$	—		$	—
Foreign currency forward exchange contracts	Interest Expense	(265		)	(1,586		)	(5,812		)
		(241		)	(1,586		)	(5,812		)
		$	74,492		$	128,982		$	142,891

As part of the Transaction, the Company entered into a Japanese yen denominated term loan in the amount of ¥5,422 million (see Note 5). The term loan was designated as a hedge of the Company's net Japanese currency exposure represented by the equity investment in our Japanese affiliate, AIM Services Co., Ltd.

At September 28, 2012, the net of tax loss expected to be reclassified from “Accumulated other comprehensive loss” into earnings over the next twelve months based on current market rates is approximately $20.2 million.