Derivative Instruments

12 Months Ended

Dec. 29, 2012

Derivative Instrument Detail [Abstract]

Derivative Instruments

NOTE 11. DERIVATIVE INSTRUMENTS

We are exposed to certain risks relating to our ongoing business operations. We use derivative instruments to manage interest rate and foreign exchange risks.

Financial instruments are not used for speculative purposes. If we elect to do so, and if the instrument meets certain criteria, management designates its derivatives as cash flow hedges. For designated cash flow hedges, the effective portion of the change in fair value is included in accumulated other comprehensive income, net of related tax effects, with the corresponding asset or liability recorded in the Consolidated Balance Sheets. The ineffective portion of the gain or loss, if any, is immediately recognized in the same caption where the hedged items are recognized in the Consolidated Statements of Income.

The fair value of the derivative instrument asset/(liability) in the Consolidated Balance Sheets using Level 2 inputs as of December 29, 2012 and December 31, 2011 is as follows:

(in thousands)	Balance Sheet Location	2012			2011
Interest rate swaps	Other payables and accrued liabilities	$	(15	)	$	—
Interest rate swaps	Other noncurrent liabilities	(1,575		)	(1,309		)
Foreign currency forwards	Prepaid expenses and other current assets	—			126
Total fair value of derivative instruments		$	(1,590	)	$	(1,183	)

Interest Rate Swaps

Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar rate and U.S. base rate interest. To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable-rate debt. The fair value of interest rate swaps is determined utilizing a market approach model using the notional amount of the interest rate swaps and the observable inputs of time to maturity and interest rates. The notional amount of the interest rate swaps designated as hedging instruments as of December 29, 2012 and December 31, 2011 was $54.3 million and $56.3 million, respectively.

In October 2011, we entered into an interest rate swap agreement on $50 million of debt in order to fix the interest rate at 1.32%, plus applicable margin, through November 2015. The applicable margin on December 29, 2012, was 1.30%. The fair value of the interest rate swap liability was $1.4 million at December 29, 2012 and $0.9 million at December 31, 2011.

We assumed interest rate swaps with a remaining notional amount of $4.3 million in connection with the Merger, which are used to manage the exposure to changing interest rates, through October 2015. The fair value of the interest rate swap liabilities was $0.2 million at December 29, 2012 and $0.4 million at December 31, 2011.

While these swaps fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $0.8 million lower without these swaps during 2012. These swaps are accounted for as cash flow hedges.

Foreign Currency Forwards

We have exposure to foreign exchange rate fluctuations through the operations of our Canadian subsidiary. A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of its costs, such as raw materials and direct labor, are denominated in Canadian dollars. We enter into derivative forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts matured in December 2012. The fair value of the forward contracts was determined utilizing a market approach model using the notional amount of the foreign currency forwards and the observable inputs of time to maturity and exchange rates. The notional amount for foreign currency forwards decreased to zero at December 29, 2012, from $18.1 million at December 31, 2011, due to the maturity of the contracts.

The pre-tax income/(expense) effect of derivative instruments on the Consolidated Statements of Income for the years ended December 29, 2012 and December 31, 2011 is as follows:

(in thousands)	Income Statement Location	2012			2011
Interest rate swaps	Interest expense, net	$	(753	)	$	(2,300	)
Foreign currency forwards	Net revenue	631			201
Foreign currency forwards	Other income/expense, net	(48		)	(29		)
Total net pre-tax expense from derivative instruments		$	(170	)	$	(2,128	)

The changes in unrealized losses, net of income tax, included in other comprehensive income due to fluctuations in interest rates and foreign exchange rates for the years ended December 29, 2012 and December 31, 2011 were as follows:

	Gain/(Loss)
(in thousands)	2012			2011
Interest rate swaps	$	(463	)	$	768
Foreign currency forwards	(126		)	(130		)
Total change in unrealized losses from derivative instruments, net of income tax (effective portion)	$	(589	)	$	638