Derivative Instruments

9 Months Ended

Jul. 10, 2011

Derivative Instruments

Derivative Instruments

4. DERIVATIVE INSTRUMENTS

Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. To reduce our exposure to rising interest rates, in August 2010, we entered into two interest rate swap agreements that will effectively convert $100.0 million of our variable rate term loan borrowings to a fixed-rate basis beginning September 2011 through September 2014. Previously, we held two interest rate swaps that effectively converted $200.0 million of our variable rate term loan borrowings to a fixed-rate basis from March 2007 to April 2010. These agreements have been designated as cash flow hedges under the terms of the Financial Accounting Standards Board ("FASB") authoritative guidance for derivatives and hedging. To the extent that they are effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivatives are not included in net earnings but are included in other comprehensive income ("OCI"). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our term debt.

We are also exposed to the impact of utility price fluctuations related to unpredictable factors such as weather and various other market conditions outside our control. From time to time, we enter into futures and option contracts to manage these fluctuations. These contracts have not been designated as hedging instruments under the FASB authoritative guidance for derivative instruments and hedging. We have not entered into any such contracts during 2011, and the contracts entered into during 2010 were not material to our condensed consolidated financial statements.

Financial position — The following derivative instruments were outstanding as of the end of each period (in thousands):

	July 10, 2011					October 3, 2010
	Balance					Balance
	Sheet		Fair			Sheet		Fair
	Location		Value			Location		Value
Derivatives designated as hedging instruments:
Interest rate swaps (Note 3)		Accrued liabilities		$    (1,479	)		Accrued liabilities		$    (733	)
Total derivatives				$    (1,479	)				$    (733	)

Financial performance — The following is a summary of the gains or losses recognized on our interest rate swap derivative instruments designated as cash flow hedges (in thousands):

	Location of		Quarter					Year-to-Date
	Loss		July 10,			July 4,		July 10,			July 4,
	in Income		2011			2010		2011			2010
Gain/(loss) recognized in OCI (Note 9)		N/A	$	(1,936	)	$	—	$	(746	)		$	(104	)
Gain/(loss) reclassified from accumulated OCI into income (Note 9)		Interest expense, net	$	—		$	—	$	—			$	(4,719	)

During 2011 and 2010, our interest rate swaps had no hedge ineffectiveness.