Derivative Instruments

3 Months Ended

Dec. 28, 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 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 previously entered into $1.0 billion of interest rate swap agreements, fixing the rate on a like amount of variable rate borrowings. 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 December 28, 2012 and September 28, 2012, approximately ($25.0) million and ($28.1) 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 three months ended December 28, 2012 and December 30, 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 No. 2 to the Restated Credit Agreement ("Amendment Agreement No. 2"). 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 No. 2. The Company has designated these amended swaps as cash flow hedges. During the three months ended December 28, 2012 and December 30, 2011, approximately $0.6 million and ($0.6) million of unrealized net of tax gains (losses) related to the swap were added to “Accumulated other comprehensive loss,” respectively. Approximately ($2.0) million and $3.3 million were reclassified to offset net translation gains (losses) on the foreign currency denominated debt during the three months ended December 28, 2012 and December 30, 2011, respectively. As of December 28, 2012 and September 28, 2012, unrealized net of tax losses of approximately ($1.6) million and ($5.0) million related to the cross currency swap were included in “Accumulated other comprehensive loss,” respectively. The hedge ineffectiveness for this cash flow hedging instrument during the three months ended December 28, 2012 and December 30, 2011 was immaterial. As a result of Amendment Agreement No. 3, the Company de-designated the cross currency swaps that hedged the Canadian subsidiary's term loan with a maturity date of January 26, 2014. Prior to Amendment Agreement No. 3, these contracts met the required criteria to be designated as cash flow hedging instruments. As a result, approximately $3.2 millionwas reclassified from “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets to “Interest and Other Financing Costs, net” in the Condensed Consolidated Statements of Income during the three months ended December 28, 2012.

The Company enters 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 December 28, 2012, the Company has no contracts outstanding. There was no hedge ineffectiveness for the three months ended December 30, 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
	December 28, 2012		December 30, 2011
Interest rate swap agreements	$	3,132	$	16,076
Cross currency swap agreements	3,345		2,726
Natural gas hedge agreements	—		(70		)
	$	6,477	$	18,732

Derivatives not Designated in Hedging Relationships

The Company elected to de-designate the cross currency swaps that were hedged against the Canadian subsidiary's term loan with a maturity date of January 26, 2014 due to the repayment of the term loan as a result of Amendment Agreement No. 3. As a result, on a prospective basis, changes in the fair value of these swaps will be recorded in earnings. For the three months ended December 28, 2012, the Company recorded a pretax gain of approximately $0.7 million for the change in the fair value of these swaps in “Interest and Other Financing Costs, net” in the Condensed Consolidated Statements of Income. The changes in the fair value of these swaps are expected to offset future currency transaction gains and losses on the U.S. dollar denominated intercompany loan between the Company and its Canadian subsidiary.

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 December 28, 2012, the Company has contracts for approximately 2.6 million gallons outstanding for fiscal 2013. The Company does not record its gasoline and diesel fuel agreements as hedges for accounting purposes. As such, changes in the fair value of these contracts are recorded in earnings. During the three months ended December 28, 2012 and December 30, 2011, the Company recorded a pretax gain (loss) of ($0.2) million and $0.7 million in the Condensed Consolidated Statements of Income for the change in the fair value on these agreements, respectively.

As of December 28, 2012, the Company had foreign currency forward exchange contracts outstanding with notional amounts of €88.4 million, £37.9 million and CAD30.0 million to mitigate the risk of changes in foreign currency exchange rates on 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 intercompany loans.

The following table summarizes the location and fair value, using Level 2 inputs, of the Company’s derivatives designated and not designated as hedging instruments in our Condensed Consolidated Balance Sheets (in thousands):

	Balance Sheet Location	December 28, 2012		September 28, 2012
ASSETS
Not designated as hedging instruments:
Foreign currency forward exchange contracts	Prepayments	$	350	$	251
Gasoline and diesel fuel agreements	Prepayments	465		696
		$	815	$	947
LIABILITIES
Designated as hedging instruments:
Interest rate swap agreements	Other Noncurrent Liabilities	$	41,307	$	46,484
Cross currency swap agreements	Other Noncurrent Liabilities	21,933		45,406
		63,240		91,890
Not designated as hedging instruments:
Cross currency swap agreements	Other Noncurrent Liabilities	20,317		—
		$	83,557	$	91,890

The following table summarizes the location of (gain) loss reclassified from “Accumulated other comprehensive loss” into earnings for derivatives designated as hedging instruments and the location of (gain) loss from the derivatives not designated as hedging instruments in the Condensed Consolidated Statements of Income (in thousands):

		Three Months Ended		Three Months Ended
	Account	December 28, 2012		December 30, 2011
Designated as hedging instruments:
Interest rate swap agreements	Interest Expense	$	5,542	$	28,838
Cross currency swap agreements	Interest Expense	1,997		2,113
Natural gas hedge agreements	Cost of services provided	—		70
		$	7,539	$	31,021
Not designated as hedging instruments:
Cross currency swap agreements	Interest Expense	$	2,534	$	—
Gasoline and diesel fuel agreements	Cost of services provided	122		(537		)
Foreign currency forward exchange contracts	Interest Expense	840		(782		)
		$	3,496	$	(1,319	)

At December 28, 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 $13.1 million.