Financial Instruments

6 Months Ended

Jul. 02, 2011

Financial Instruments

11)  Financial Instruments

ASC 815 “Derivatives and Hedging” requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value.  Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings.  If a derivative does qualify as a hedge under ASC 815, changes in the fair value will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments or recognized in other accumulated comprehensive income until the hedged item is recognized in earnings.  The ineffective portion of a hedge's change in fair value will be immediately recognized in earnings.

Foreign Exchange: The company has entered into derivative instruments, principally forward contracts to reduce exposures pertaining to fluctuations in foreign exchange rates.  As of July 2, 2011, the company had forward contracts to sell $29.0 million British Pounds for $32.4 million Euro dollars which mature in the next fiscal quarter. As of July 2, 2011, the fair value of the forward contracts was a gain of $0.4 million.

Sell	Purchase	Maturity
15,000,000 British Pounds	16,767,000 Euro Dollars	July 8, 2011
14,000,000 British Pounds	15,648,000 Euro Dollars	July 8, 2011

Interest Rate:  The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income.  As of July 2, 2011, the fair value of these instruments was a loss of $2.5 million.  The change in fair value of these swap agreements in the first six months of 2011 was a loss of $0.3 million, net of taxes.

The following tables summarize the company’s fair value of interest rate swaps (in thousands):

	Condensed Consolidated
	Balance Sheet Presentation	Jul 2, 2011			Jan 1, 2011
Fair value	Other non-current liabilities	$	(2,526	)	$	(2,186	)

The impact on earnings from interest rate swaps was as follows (in thousands):

		Three Months Ended						Six Months Ended
	Presentation of Gain/(loss)	Jul 2, 2011			Jul 3, 2010			Jul 2, 2011			Jul 3, 2010
Gain/(loss) recognized in other comprehensive income	Other comprehensive income	$	(1,286	)	$	(886	)	$	(1,920	)	$	(1,761	)
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense	$	(787	)	$	(921	)	$	(1,577	)	$	(1,911	)
Gain/(loss) recognized in income (ineffective portion)	Other expense	$	(37	)	$	(18	)	$	3		$	(11	)

Interest rate swaps are subject to default risk to the extent the counterparties are unable to satisfy their settlement obligations under the interest rate swap agreements.  The company reviews the credit profile of the financial institutions and assesses its creditworthiness prior to entering into the interest rate swap agreements.  The interest rate swap agreements typically contain provisions that allow the counterparty to require early settlement in the event that the company becomes insolvent or is unable to maintain compliance with its covenants under its existing debt agreements.