Derivative and Hedging Activities

6 Months Ended

Jun. 27, 2013

Derivative and Hedging Activities [Abstract]

Derivative and Hedging Activities

13.  Derivative and Hedging Activities

The Company enters into interest rate swap agreements to reduce its exposure to the variable rate portion of its long-term debt. The Company could enter into foreign currency hedge contracts to reduce the risks associated with the changes in foreign exchange rates on sales and cost of sales denominated in currencies other than the entities' functional currency. Any gains or losses on hedges are included in earnings when the underlying transaction that was hedged occurs. The Company does not use these contracts for speculative or trading purposes. On the inception date, the Company designates a derivative contract as either a fair value or cash flow hedge in accordance with FASB guidance on accounting for derivatives and hedges and links the contract to either a specific asset or liability on the balance sheet, or to forecasted commitments or transactions. The Company formally documents the hedging relationship between the hedging instrument and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge, the nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge's inception and on a quarterly basis, whether the derivative item is effective in offsetting changes in fair value or cash flows.

Changes in the fair value of derivative instruments considered to be effective hedges are reported in other comprehensive income, net of tax. In the case of interest rate swaps, amounts are subsequently reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings. If the actual interest rate on the fixed rate portion of debt is less than LIBOR, the monies received are recorded as an offset to interest expense. Conversely, if the actual interest rate on the fixed rate portion of debt is greater than LIBOR, then the Company pays the difference, which is recorded to interest expense. Reclassifications of any amounts related to foreign currency hedge contracts would be recorded to earnings in the same period in which the underlying transaction occurs. Any change in the fair value resulting from ineffectiveness is immediately recognized in earnings.

The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has applied these valuation techniques as of June 27, 2013 and believes it has obtained the most accurate information available for the types of derivative contracts it holds. The Company attempts to manage exposure to counterparty credit risk by only entering into agreements with major financial institutions which are expected to be able to fully perform under the terms of the agreement.

The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item; the derivative expires or is sold, terminated or exercised; the derivative is no longer designated as a hedging instrument because it is unlikely that a forecasted transaction will occur; or management determines that the designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the Company carries the derivative instrument on the balance sheet at its fair value with subsequent changes in fair value included in earnings, and gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings to the extent the forecasted transaction is not expected to occur, or when the underlying transaction settles.

To the extent that derivative instruments do not qualify for hedge accounting treatment, the changes in fair market value of the instruments are reported in the results of operations for the current period. As a result of the senior secured Credit Agreement entered into on April 18, 2012, the interest rate swaps no longer qualify for hedge accounting while LIBOR is below the LIBOR floor of 75 basis points. Amounts in other comprehensive income for interest rate swaps as of April 18, 2012 have been included in earnings.

The Company enters into master netting arrangements for its derivatives to mitigate the credit risk of financial instruments.

The Company has certain derivative instruments covered by master netting arrangements whereby, in the event of a default as defined by the senior secured credit facility or termination event, the non-defaulting party has the right to offset any amounts payable against any obligation of the defaulting party under the same counterparty agreement.

All assets of the Company are pledged as collateral for both the term loan and the revolving credit facility under the Company's senior secured credit facility (see Note15, Debt).

Interest Rate Swaps

We enter into floating-to-fixed interest rate swap agreements periodically. As of June 27, 2013, the interest rate swap agreements had notional amounts totaling $225.0.

				Effective	Fair Value,
Notional Amount	Expires	Variable Rate	Fixed Rate (1)	Fixed Rate(2)	June 27, 2013
$225.0	July 2014	1 Month LIBOR	1.37%	N/A	$	(2.6)

________

(1) The fixed rate represents the rate at which interest is paid by the Company pursuant to the terms of its interest rate swap agreements.

(2) As of June 27, 2013 the interest rate swaps are no longer effective and therefore the effective fixed rate is not applicable.

The purpose of entering into these swaps was to reduce the Company's exposure to variable interest rates. The interest rate swaps settle on a monthly basis when interest payments are made. These settlements occur through the maturity date. The interest rate swaps are being accounted for as cash flow hedges in accordance with FASB authoritative guidance. The fair value of the interest rate swaps was a liability (unrealized loss) of $(2.6) at June 27, 2013 and $(4.0) at December 31, 2012.

Foreign Currency Forward Contracts

We could use foreign currency hedge contracts to reduce our exposure to currency exchange rate fluctuations, which include hedging contracts to hedge U.S. dollar revenue from certain customers. The objective of these contracts wouldbe to minimize the impact of currency exchange rate movements on our operating results. The hedges would be accounted for as cash flow hedges in accordance with FASB authoritative guidance. Gains and losses from cash flow hedges would be recorded to other comprehensive income until the underlying transaction for which the hedge was placed occurs and then the value in other comprehensive income is reclassified to earnings. The exception to the aforementioned treatment of realized gains/losses involves certaincash payments to Airbus, payable in British pounds sterling which were hedged, and this amount in other comprehensive incomewas reclassified into other assets when the underlying transaction occurred and will be amortized over the first A350 XWB contract block.

The following table summarizes the Company's fair value of outstanding derivatives at June 27, 2013 and December 31, 2012:

			Fair Values of Derivative Instruments
				Other Liability Derivatives
				June 27, 2013		December 31, 2012
Derivatives designated as hedging instruments
	Interest rate swaps
		Current		$	2.6	$	2.8
		Non-current			-		1.2
Total derivatives designated as hedging
instruments					2.6		4.0
Total derivatives				$	2.6	$	4.0

The impact on other comprehensive income (“OCI”)and earnings from cash flow hedges for the three and for the six months ended June 27, 2013 and June 28, 2012 was as follows:

	Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in OCI, net of tax, on Derivative (Effective Portion)				Location of (Gain) or Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
		For the Three Months Ended					For the Three Months Ended
		June 27, 2013		June 28, 2012				June 27, 2013		June 28, 2012
Interest rate						Interest
swaps		$	-	$	(0.2)	expense		$	-	$	2.4
Foreign currency						Sales/
hedge contracts			-		(0.1)	Revenue			-		-
Total		$	-	$	(0.3)			$	-	$	2.4
	Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in OCI, net of tax, on Derivative (Effective Portion)				Location of (Gain) or Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
		For the Six Months Ended					For the Six Months Ended
		June 27, 2013		June 28, 2012				June 27, 2013		June 28, 2012
Interest rate						Interest
swaps		$	-	$	(0.9)	expense		$	-	$	3.1
Foreign currency						Sales/
hedge contracts			-		-	Revenue			-		0.1
Total		$	-	$	(0.9)			$	-	$	3.2

The impact on earnings from interest rate swaps that are no longer effective was a loss of ($1.0)and a loss of ($0.3) for the six months ended June 27, 2013 and June 28, 2012, respectively.

The impact on earnings from foreign currency hedge contracts that do not qualify as cash flow hedges was income of zero and $0.2 for the six months ended June 27, 2013 andJune 28, 2012, respectively.