Derivative Instruments

9 Months Ended

Jun. 29, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS:

The Company enters into contractual derivative arrangements to manage changes in market conditions related to interest on debt obligations, foreign currency exposures and exposure to fluctuating natural gas, gasoline and diesel fuel prices. Derivative instruments utilized during the period include interest rate swap agreements, foreign currency forward exchange contracts, and natural gas, gasoline and diesel fuel agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each quarter. The counterparties to the Company’s contractual derivative agreements are all major international financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties. For designated hedging relationships, the Company formally documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items.

Cash Flow Hedges

The Company has entered into $1.0 billion of interest rate swap agreements, fixing the rate on a like amount of variable rate borrowings. During the nine months ended June 29, 2012, $2.3 billion and ¥5.0 billion of interest rate swap agreements matured. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. As of June 29, 2012 and September 30, 2011, approximately ($27.5) million and ($56.3) million of unrealized net of tax losses related to the interest rate swaps were included in “Accumulated other comprehensive loss,” respectively. The hedge ineffectiveness for these cash flow hedging instruments during the nine months ended June 29, 2012 and July 1, 2011 was immaterial.

The Company previously entered into a $169.6 million amortizing cross currency swap to mitigate the risk of variability in principal and interest payments on the Canadian subsidiary’s variable rate debt denominated in U.S. dollars. The agreement fixes the rate on the variable rate borrowings and mitigates changes in the Canadian dollar/U.S. dollar exchange rate. In March 2012, the cross currency swap was amended to match the terms of the Canadian subsidiary's debt that was impacted by the Amendment Agreement. A portion of the swap was amended and extended to match the terms related to its variable rate debt denominated in U.S. dollars that was extended under the Amendment Agreement. The Company has designated the swaps as cash flow hedges. During the nine months ended June 29, 2012 and July 1, 2011, approximately ($1.1) million and ($6.8) million of unrealized net of tax losses related to the swap were added to “Accumulated other comprehensive loss,” respectively. Approximately $4.6 million and $8.0 million were reclassified to offset net translation gains (losses) on the foreign currency denominated debt during the nine months ended June 29, 2012 and July 1, 2011, respectively. As of June 29, 2012 and September 30, 2011, unrealized net of tax losses of approximately ($5.2) million and ($10.6) million related to the cross currency swap were included in “Accumulated other comprehensive loss,” respectively. As a result of amending the cross currency swap, the hedge ineffectiveness for the nine months ended June 29, 2012 was approximately $3.0 million, which is recorded in "Interest and Other Financing Costs, net". The Company expects the hedge to be highly effective in future periods. The hedge ineffectiveness for this cash flow hedging instrument during the nine months ended July 1, 2011 was immaterial.

The Company entered into a series of pay fixed/receive floating natural gas hedge agreements based on a NYMEX price in order to limit its exposure to price increases for natural gas, primarily in the Uniform and Career Apparel segment. As of June 29, 2012, the Company has contracts for approximately 56,000 MMBtu’s outstanding for fiscal 2012 that are designated as cash flow hedging instruments. As of June 29, 2012 and September 30, 2011, approximately ($0.1) million and ($0.1) million of unrealized net of tax losses, respectively, were recorded in “Accumulated other comprehensive loss” for these contracts. There was no hedge ineffectiveness for the nine months ended June 29, 2012 and July 1, 2011.

The following table summarizes the net of tax effect of our derivatives designated as cash flow hedging instruments on Comprehensive Income (in thousands):

	Three Months Ended			Three Months Ended
	June 29, 2012			July 1, 2011
Interest rate swap agreements	$	(576	)	$	9,498
Cross currency swap agreements	858			(709		)
Natural gas hedge agreements	101			(30		)
Gasoline and diesel fuel agreements	—			(1,244		)
	$	383		$	7,515
	Nine Months Ended			Nine Months Ended
	June 29, 2012			July 1, 2011
Interest rate swap agreements	$	28,725		$	48,365
Cross currency swap agreements	5,336			1,152
Natural gas hedge agreements	40			62
Gasoline and diesel fuel agreements	—			245
	$	34,101		$	49,824

Derivatives not Designated in Hedging Relationships

The Company entered into a series of pay fixed/receive floating gasoline and diesel fuel agreements based on the Department of Energy weekly retail on-highway index in order to limit its exposure to price fluctuations for gasoline and diesel fuel. As of June 29, 2012, the Company has contracts for approximately 3.7 million gallons outstanding for fiscal 2012 and fiscal 2013. During the nine months ended June 29, 2012, the Company entered into contracts totaling approximately 3.2 million gallons. Prior to October 1, 2011, these contracts were designated as cash flow hedging instruments; therefore, changes in the fair value of these contracts were recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. Beginning in first quarter of fiscal 2012, the Company no longer records its gasoline and diesel fuel agreements as hedges for accounting purposes. As a result, on a prospective basis, changes in the fair value of these contracts will be recorded in earnings. Amounts previously recorded in accumulated other comprehensive income (loss) will continue to be reclassified into earnings as the underlying item affects earnings. During the three and nine months ended June 29, 2012, the Company recorded a pretax loss of ($2.2) million and ($0.9) million in the Condensed Consolidated Statement of Operations for the change in the fair value on these agreements, respectively. As of June 29, 2012 and September 30, 2011, unrealized net of tax losses of approximately ($0.3) million and ($1.1) million were recorded in “Accumulated other comprehensive loss” for these contracts, respectively. The hedge ineffectiveness for the gasoline and diesel fuel hedging instruments for the nine months ended July 1, 2011 was immaterial.

As of June 29, 2012, the Company had foreign currency forward exchange contracts outstanding with notional amounts of €53.8 million, £7.5 million and CAD25.0 million to mitigate the risk of changes in foreign currency exchange rates on short-term intercompany loans to certain international subsidiaries. Gains and losses on these foreign currency exchange contracts are recognized in income currently as the contracts were not designated as hedging instruments, substantially offsetting currency transaction gains and losses on the short term intercompany loans.

The following table summarizes the location and fair value of the Company’s derivatives designated and not designated as hedging instruments in our Condensed Consolidated Balance Sheets (in thousands):

	Balance Sheet Location	June 29, 2012		September 30, 2011
ASSETS
Not designated as hedging instruments:
Foreign currency forward exchange contracts	Prepayments	$	—	$	2,856
		$	—	$	2,856
LIABILITIES
Designated as hedging instruments:
Natural gas hedge agreements	Accounts Payable	$	120	$	187
Gasoline and diesel fuel agreements	Accounts Payable	—		1,894
Interest rate swap agreements	Accrued Expenses	—		49,349
Interest rate swap agreements	Other Noncurrent Liabilities	45,529		44,054
Cross currency swap agreements	Other Noncurrent Liabilities	38,827		35,551
		84,476		131,035
Not designated as hedging instruments:
Gasoline and diesel fuel agreements	Accounts Payable	1,458		—
Foreign currency forward exchange contracts	Accounts Payable	1,067		—
		$	87,001	$	131,035

The following table summarizes the location of (gain) loss reclassified from “Accumulated other comprehensive loss” into earnings for derivatives designated as hedging instruments in the Condensed Consolidated Statements of Operations (in thousands):

		Three Months Ended		Three Months Ended
	Account	June 29, 2012		July 1, 2011
Interest rate swap agreements	Interest Expense	$	5,508	$	27,615
Cross currency swap agreements	Interest Expense	1,741		2,424
Natural gas hedge agreements	Cost of services provided	147		—
Gasoline and diesel fuel agreements	Cost of services provided	—		(918		)
		$	7,396	$	29,121
		Nine Months Ended		Nine Months Ended
	Account	June 29, 2012		July 1, 2011
Interest rate swap agreements	Interest Expense	$	60,966	$	86,045
Cross currency swap agreements	Interest Expense	5,671		6,842
Natural gas hedge agreements	Cost of services provided	276		158
Gasoline and diesel fuel agreements	Cost of services provided	—		(1,287		)
		$	66,913	$	91,758

At June 29, 2012, the net of tax loss expected to be reclassified from “Accumulated other comprehensive loss” into earnings over the next twelve months based on current market rates is approximately $18.8 million.

The following table summarizes the location of (gain) loss for our derivatives not designated as hedging instruments in the Condensed Consolidated Statements of Operations (in thousands):

		Three Months Ended			Three Months Ended
	Account	June 29, 2012			July 1, 2011
Gasoline and diesel fuel agreements	Cost of services provided	$	2,419		$	—
Foreign currency forward exchange contracts	Interest Expense	(3,886		)	(1,971		)
		$	(1,467	)	$	(1,971	)
		Nine Months Ended			Nine Months Ended
	Account	June 29, 2012			July 1, 2011
Gasoline and diesel fuel agreements	Cost of services provided	$	1,416		$	—
Foreign currency forward exchange contracts	Interest Expense	(2,146		)	(8,453		)
		$	(730	)	$	(8,453	)