Derivative Instruments And Hedging Activity

9 Months Ended

Sep. 24, 2011

Derivative Instruments And Hedging Activity [Abstract]

Derivative Instruments And Hedging Activity

Note I – Derivative Instruments and Hedging Activity

As a global supplier of office products and services we are exposed to risks associated with changes in foreign currency exchange rates, commodity prices and interest rates. Our foreign operations are typically, but not exclusively, conducted in the currency of the local environment. We are exposed to the risk of foreign currency exchange rate changes when we make purchases, sell products, or arrange financings that are denominated in a currency different from the entity's functional currency. Depending on the settlement timeframe and other factors, we may enter into foreign currency derivative transactions to mitigate those risks. We may designate and account for such qualifying arrangements as hedges. Gains and losses on these cash flow hedging transactions are deferred in other comprehensive income ("OCI") and recognized in earnings in the same period as the hedged item. Transactions that are not designated as cash flow hedges are marked to market at each period with changes in value included in earnings. Historically, we have not entered into transactions to hedge our net investment in foreign operations but may in future periods.

We also are exposed to the risk of changing fuel prices from inbound and outbound transportation arrangements. The structure of many of these transportation arrangements, however, precludes applying hedge accounting. In those circumstances, we may enter into derivative transactions to offset the risk of commodity price changes, and the value of the derivative contract is marked to market at each reporting period with changes recognized in earnings. To the extent fuel arrangements qualify for hedge accounting, gains and losses are deferred in OCI until such time as the hedged item impacts earnings. At the end of the third quarter of 2011, the company had contracts for approximately 3.1 million gallons of fuel that will be settled monthly through December 2011. Those contracts were not designated as hedging instruments.

Interest rate changes on our obligations may result from external market factors, as well as changes in our credit rating. We manage our exposure to interest rate risks at the corporate level. Interest rate sensitive assets and liabilities are monitored and assessed for market risk. Currently, no interest rate related derivative arrangements are in place. OCI includes the deferred gain from a hedge contract terminated in a prior period. This deferral is being amortized to interest expense through 2013.

Our risk management policies allow the use of specified financial instruments for hedging purposes only; speculation is not permitted.

The following tables provide information on our hedging and derivative positions and activity.

Fair value of derivative instruments

(Dollars in thousands)	Balance sheet location	September 24, 2011		December 25, 2010		September 25, 2010
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	559	$	—	$	—
Foreign exchange contracts	Other current liabilities		—		317		304
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	393	$	—	$	—
Commodity contracts – fuel	Other current assets		725		253		—
Foreign exchange contracts	Other current liabilities		38		117		—
Total derivative assets		$	1,677	$	253	$	—
Total derivative liabilities		$	38	$	434	$	304

	00000000		00000000		00000000		00000000		00000000
Derivatives not designated as hedging instruments	Location of gain/(loss) recognized in earnings	Amount of gain/(loss) recognized in earnings
(Dollars in thousands)		Third quarter				Year-to-Date
		2011		2010		2011		2010
Foreign exchange contracts	Miscellaneous income, net	$	(220)	$	—	$	(2,728)	$	—
Commodity contracts – fuel	Cost of goods sold and occupancy costs & Store and warehouse operating and selling expenses*		435		—		3,431		—
Total		$	215	$	—	$	703	$	—

Derivatives designated as cash flow hedges:	Amount of gain/(loss) recognized in OCI				Location of gain/(loss) reclassified from OCI into earnings	Amount of gain/(loss)     reclassified from OCI     into earnings
(Dollars in thousands)	Third Quarter 2011		Year-to- Date 2011			Third Quarter 2011		Year-to- Date 2011
Foreign exchange contracts	$	581	$	1,346	Cost of goods sold and occupancy costs	$	95	$	450
Total	$	581	$	1,346		$	95	$	450
Derivatives designated as cash flow hedges:	Amount of gain/(loss) recognized in OCI				Location of gain/(loss) reclassified from OCI into earnings	Amount of gain/(loss)     reclassified from OCI     into earnings
(Dollars in thousands)	Third Quarter 2010		Year-to- Date 2010			Third Quarter 2010		Year-to- Date 2010
Foreign exchange contracts	$	554	$	(2,317)	Cost of goods sold and occupancy costs	$	(791)	$	(2,246)
Total	$	554	$	(2,317)		$	(791)	$	(2,246)

* Approximately 60% of the amounts for 2011 and 2010 are reflected in cost of goods sold and occupancy costs. The remaining 40% of the amounts are reflected in store and warehouse operating and selling expenses.

The existing hedge contracts are highly effective and the ineffective portion is considered immaterial. As of September 24, 2011, the foreign exchange contracts extend through January 2012. Losses currently deferred in OCI are expected to be recognized in earnings within the next twelve months. There were no hedging arrangements requiring collateral. However, we may be required to provide collateral on certain arrangements in the future. The fair values of our foreign currency contracts and fuel contracts are the amounts receivable or payable to terminate the agreements at the reporting date, taking into account current exchange rates. The values are based on market-based inputs or unobservable inputs that are corroborated by market data.