Derivative Instruments

9 Months Ended

Jul. 01, 2011

Derivative Instruments

Derivative Instruments

(7) DERIVATIVE INSTRUMENTS:

The Company enters into derivative contractual 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 periods include interest rate swap agreements, foreign currency forward exchange contracts, and natural gas, gasoline and diesel fuel hedge agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each quarter. 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. 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 all 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

As of July 1, 2011, the Company has outstanding $3.0 billion and ¥5.0 billion of interest rate swap agreements, fixing the rate on a like amount of variable rate term loan borrowings and floating rate notes. As of July 1, 2011 and October 1, 2010, approximately ($66.0) million and ($114.4) 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 the nine months ended July 1, 2011 and July 2, 2010 was immaterial.

The Company previously entered into a $169.6 million amortizing forward starting 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. During the nine months ended July 1, 2011 and July 2, 2010, approximately ($6.8) million and ($3.0) million of unrealized net of tax losses related to the swap were added to "Accumulated other comprehensive loss," respectively. Approximately $8.0 million and $4.0 million were reclassified to offset net translation gains on the foreign currency denominated debt during the nine months ended July 1, 2011 and July 2, 2010, respectively. As of July 1, 2011 and October 1, 2010, unrealized net of tax losses of approximately ($7.4) million and ($8.6) million related to the cross currency swap were included in "Accumulated other comprehensive loss," respectively. The hedge ineffectiveness for this cash flow hedging instrument during the nine months ended July 1, 2011 and July 2, 2010 was immaterial.

The Company enters 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 July 1, 2011, the Company has contracts for approximately 224,000 MMBtu's outstanding for fiscal 2012 that are designated as cash flow hedging instruments. During the nine months ended July 1, 2011, the Company entered into contracts totaling approximately 224,000 MMBtu's. As of July 1, 2011 and October 1, 2010, approximately $0 and ($0.1) million of unrealized net of tax losses were recorded in "Accumulated other comprehensive loss" for these contracts, respectively. There was no hedge ineffectiveness for the nine months ended July 1, 2011 and July 2, 2010.

The Company enters into a series of pay fixed/receive floating gasoline and diesel fuel hedge 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 July 1, 2011, the Company has contracts for approximately 5.4 million gallons outstanding for fiscal 2011 and fiscal 2012 that are designated as cash flow hedging instruments. During the nine months ended July 1, 2011, the Company entered into contracts totaling approximately 4.9 million gallons. As of July 1, 2011 and October 1, 2010, unrealized net of tax gains of approximately $0.3 million and $0.1 million were recorded in "Accumulated other comprehensive loss" for these contracts, respectively. The hedge ineffectiveness for the gasoline and diesel fuel hedging instruments for the nine months ended July 1, 2011 and July 2, 2010 was immaterial.

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

	Three Months Ended July 1, 2011			Three Months Ended July 2, 2010
Interest rate swap agreements	$	9,498		$	(5,993	)
Cross currency swap agreements		(709	)		1,554
Natural gas hedge agreements		(30	)		272
Gasoline and diesel fuel hedge agreements		(1,244	)		(1,166	)
	$	7,515		$	(5,333	)
	Nine Months Ended July 1, 2011			Nine Months Ended July 2, 2010
Interest rate swap agreements	$	48,365		$	16,371
Cross currency swap agreements		1,152			956
Natural gas hedge agreements		62			455
Gasoline and diesel fuel hedge agreements		245			359
	$	49,824		$	18,141

Derivatives not Designated in Hedging Relationships

As of July 1, 2011, the Company had foreign currency forward exchange contracts outstanding with notional amounts of €56.4 million, £16.5 million and CAD55.0 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 currently as the contracts were not designated as hedging instruments, substantially offsetting currency transaction gains and losses on the short term intercompany loans, which are included in "Interest and Other Financing Costs, net."

The following table summarizes the location and fair value of the derivatives designated and not designated as hedging instruments in the Condensed Consolidated Balance Sheets (in thousands):

	Balance Sheet Location		July 1, 2011		October 1, 2010
ASSETS
Designated as hedging instruments:
Gasoline and diesel fuel hedge agreements		Prepayments	$	563	$	179
Total derivatives			$	563	$	179
LIABILITIES
Designated as hedging instruments:
Natural gas hedge agreements		Accounts Payable	$	49	$	152
Gasoline and diesel fuel hedge agreements		Accounts Payable		—		20
Interest rate swap agreements		Accrued Expenses		77,771		—
Interest rate swap agreements		Other Noncurrent Liabilities		31,877		190,156
Cross currency swap agreements		Other Noncurrent Liabilities		48,266		38,261
				157,963		228,589
Not designated as hedging instruments:
Foreign currency forward exchange contracts		Accounts Payable		1,625		2,065
Total derivatives			$	159,588	$	230,654

The following table summarizes the location of (gain) loss reclassified from "Accumulated other comprehensive loss" into earnings for the derivatives designated as hedging instruments in the Condensed Consolidated Statements of Operations (in thousands):

	Account	Three Months Ended July 1, 2011			Three Months Ended July 2, 2010
Interest rate swap agreements	Interest Expense	$	27,615		$	27,904
Cross currency swap agreements	Interest Expense		2,424			5,782
Natural gas hedge agreements	Cost of services provided		—			369
Gasoline and diesel fuel hedge agreements	Cost of services provided		(918	)		373
		$	29,121		$	34,428
	Account	Nine Months Ended July 1, 2011			Nine Months Ended July 2, 2010
Interest rate swap agreements	Interest Expense	$	86,045		$	103,323
Cross currency swap agreements	Interest Expense		6,842			9,753
Natural gas hedge agreements	Cost of services provided		158			1,683
Gasoline and diesel fuel hedge agreements	Cost of services provided		(1,287	)		1,699
		$	91,758		$	116,458

The following table summarizes the location of (gain) loss for the derivatives not designated as hedging instruments in the Condensed Consolidated Statements of Operations (in thousands):

	Account	Three Months Ended July 1, 2011			Three Months Ended July 2, 2010
Foreign currency forward exchange contracts	Interest Expense	$	(1,971	)	$	(8,371	)
	Account	Nine Months Ended July 1, 2011			Nine Months Ended July 2, 2010
Foreign currency forward exchange contracts	Interest Expense	$	(8,453	)	$	(14,444	)