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Derivative Financial Instruments
 12 Months Ended
Jan. 01, 2012
Derivative Financial Instruments [Abstract]  
Derivative Financial Instruments

10.    Derivative Financial Instruments

Interest

The Company periodically uses interest rate hedging products to modify risk from interest rate fluctuations. The Company has historically altered its fixed/floating rate mix based upon anticipated cash flows from operations relative to the Company’s debt level and the potential impact of changes in interest rates on the Company’s overall financial condition. Sensitivity analyses are performed to review the impact on the Company’s financial position and coverage of various interest rate movements. The Company does not use derivative financial instruments for trading purposes nor does it use leveraged financial instruments.

On September 18, 2008, the Company terminated six outstanding interest rate swap agreements with a notional amount of $225 million receiving $6.2 million in cash proceeds including $1.1 million for previously accrued interest receivable. After accounting for previously accrued interest receivable, the Company began amortizing a gain of $5.1 million over the remaining term of the underlying debt. The remaining amount to be amortized is $1.5 million. All of the Company’s interest rate swap agreements were LIBOR-based.

During 2011, 2010 and 2009, the Company amortized deferred gains related to previously terminated interest rate swap agreements and forward interest rate agreements, which reduced interest expense by $1.2 million, $1.2 million and $2.1 million, respectively. Interest expense will be reduced by the amortization of these deferred gains in 2012 through 2015 as follows: $1.1 million, $0.5 million, $0.6 million and $0.1 million, respectively.

The Company had no interest rate swap agreements outstanding at January 1, 2012 and January 2, 2011.

Commodities

The Company is subject to the risk of loss arising from adverse changes in commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity risk. At January 1, 2012, the Company had no derivative instruments to hedge its projected diesel fuel, unleaded gasoline and aluminum purchase requirements. Derivative instruments held are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.

The Company uses several different financial institutions for commodity derivative instruments, to minimize the concentration of credit risk. While the Company is exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.

 

The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions.

The Company used derivative instruments to hedge essentially all of its diesel fuel purchases for 2009 and 2010 and used derivative instruments to hedge all of the Company’s projected diesel fuel and unleaded gasoline purchases for the second, third and fourth quarters of 2011. These derivative instruments related to diesel fuel and unleaded gasoline used by the Company’s delivery fleet and other vehicles. During the first quarter of 2009, the Company began using derivative instruments to hedge approximately 75% of the Company’s projected 2010 aluminum purchase requirements. During the second quarter of 2009, the Company entered into derivative agreements to hedge approximately 75% of the Company’s projected 2011 aluminum purchase requirements.

There were no outstanding derivative agreements as of January 1, 2012.

The following summarizes 2011, 2010 and 2009 net gains and losses on the Company’s fuel and aluminum derivative financial instruments and the classification, either as cost of sales or S,D&A expenses, of such net gains and losses in the consolidated statements of operations:

 

                             
        Fiscal Year  

In thousands

   Classification of Gain (Loss)   2011     2010     2009  

Fuel hedges – contract premium and contract settlement

   S,D&A expenses   $ (460 )    $ (267 )    $ (1,189 ) 

Fuel hedges – mark-to-market adjustment

   S,D&A expenses     (171 )      (1,445 )      3,601  

Aluminum hedges – contract premium and contract settlement

   Cost of sales     4,400       1,158       385  

Aluminum hedges – mark-to-market adjustment

   Cost of sales     (6,666 )      (3,786 )      10,452  
       

 

 

    

 

 

    

 

 

  

Total Net Gain (Loss)

       $ (2,897 )    $ (4,340 )    $ 13,249  
       

 

 

    

 

 

    

 

 

  

The following summarizes the fair values and classification in the consolidated balance sheets of derivative instruments held by the Company as of January 1, 2012 and January 2, 2011:

 

                 

In thousands

  

Balance Sheet

Classification

     Jan. 1,  
2012		   Jan. 2,
2011		  

Assets

                

Fuel hedges at fair market value

   Prepaid expenses and other current assets   $  —     $ 171  

Aluminum hedges at fair market value

   Prepaid expenses and other current assets       —       6,666  

Unamortized cost of aluminum hedging agreements

   Prepaid expenses and other current assets       —       2,453  
       

 

  

 

 

  

Total

       $  —     $ 9,290