Derivative Instruments And Hedging Activity

3 Months Ended

Mar. 31, 2012

Derivative Instruments And Hedging Activity [Abstract]

Derivative Instruments And Hedging Activity

Note K– 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 first quarter of 2012, the company had a series of monthly option contracts for approximately 7.2 million gallons of fuel through January 2013 that may or may not be executed. These contracts are 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 or availability on our asset based credit facility. 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, net of the portion that was recognized as a component of the loss on extinguishment of debt during the first quarter of 2012. This deferral is being amortized to interest expense through 2013.

In certain markets, we may contract with third parties for our future electricity needs. Such arrangements are not considered derivatives because they are within the ordinary course of business and are for physical delivery. Accordingly, these arrangements are not included in the tables below.

Financial instruments authorized under the company's established risk management policy include spot trades, swaps, options, caps, collars, forwards and futures. Use of derivative financial instruments for speculative purposes is expressly prohibited.

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

Fair value of derivative instruments
	Balance sheet location	March 31,		December 31,		March 26,
(Dollars in thousands)		2012		2011		2011
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	—	$	284	$	633
Foreign exchange contracts	Other current liabilities		392		—		—
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	341	$	57	$	—
Foreign exchange contracts	Other current liabilities		43		92		331
Commodity contracts – fuel	Other current assets		790		—		4,511
Commodity contracts – fuel	Other current liabilities		—		251		—
Total derivative assets		$	1,131	$	341	$	5,144
Total derivative liabilities		$	435	$	343	$	331

Derivatives not designated as hedging instruments	Location of gain/(loss) recognized in earnings	Amount of  gain/(loss) recognized in earnings
(Dollars in thousands)		March, 31 2012		March, 26 2011
Foreign exchange contracts	Miscellaneous income (expense), net	$	1,044	$	(331	)
Commodity contracts – fuel	Cost of goods sold and occupancy costs & Store and warehouse operating and selling expenses*		1,041		4,463
Total		$	2,085	$	4,132

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)	March 31, 2012			March 26, 2011			March 31, 2012		March 26, 2011
Foreign exchange contracts	$	(395	)	$	725	Cost of goods sold and occupancy costs	$	—	$	(234	)
		—			—	Miscellaneous income (expense), net		299		—
Total	$	(395	)	$	725		$	299	$	(234	)

* Approximately 60% of the amounts for 2012 and 2011 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 March 31, 2012, the foreign exchange contracts extend through July 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.