Derivative Financial Instruments

9 Months Ended

Sep. 26, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives Overview

The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are recognized on the Condensed Consolidated Balance Sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for speculative purposes.

The Company holds forward exchange contracts designed to hedge forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company’s earnings and cash flows. Some of these contracts are designated as cash flow hedges. The Company will include in earnings amounts currently included in accumulated other comprehensive income upon recognition of cost of sales related to the underlying transaction. There was $0.2 million and $0.5 million of expense reclassified from other comprehensive income during the three months and nine months ended September 26, 2014, respectively. No material amounts were reclassified to expense from other comprehensive income during the three months and nine months ended September 27, 2013. Over the next twelve months, the expense related to cash flow hedges expected to be reclassified from other comprehensive income is $0.6 million.

7. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Derivatives Designated as Cash Flow Hedges

The Term Loan Facility of the Company's Credit Agreement (“Term Loan”) contains floating rate obligations and is subject to interest rate fluctuations. During 2013, the Company entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate interest payments under its Term Loan due in 2014 and 2015. These interest rate swap agreements were designated as cash flow hedges and are intended to manage interest rate risk associated with the Company’s variable rate borrowings and minimize the impact on the Company’s earnings and cash flows of interest rate fluctuations attributable to changes in LIBOR rates.

During the second quarter of 2014, the Company entered into forward exchange contracts designed to hedge forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company's earnings and cash flows. These contracts were entered into as a result of forecasted foreign currency transactions associated with the New Zealand contract to deliver ten SH-2G(I) aircraft and were designated as cash flow hedges. During the third quarter of 2014, the Company dedesignated these forward contracts, due to a change in the timing of payments.

The following table shows the fair value of derivative instruments designated as cash flow hedging instruments:

		Fair Value
	Balance Sheet Location	September 26, 2014		December 31, 2013		Notional Amount
In thousands
Derivative Liabilities
Interest rate swap contracts	Other liabilities / Other long-term liabilities	$	234	$	276	$86,250 / $90,000
Foreign exchange contracts	Other liabilities	150		—		2,626 / 0 AUD
Total		$	384	$	276

The loss recognized in other comprehensive income for derivatives designated as hedge instruments was $0.2 million and $0.4 million, respectively, for the three months and nine months ended September 26, 2014. The loss recognized in other comprehensive income for derivatives designated as hedge instruments was $0.3 million and $0.2 million, respectively, for the three months and nine months ended September 27, 2013.

Derivatives Not Designated as Hedging Instruments

The following table shows the fair value of derivative instruments not designated as hedging instruments:

		Fair Value
	Balance Sheet	September 26,		December 31,		Notional
	Location	2014		2013		Amount
In thousands
Derivative Assets
Foreign exchange contracts	Other current assets	$	38	$	127	$1,212 / $2,349
Total		$	38	$	127
Derivative Liabilities
Foreign exchange contracts	Other liabilities	51		—		£650 / £0
Total		$	51	$	—

The amounts of the gain or (loss) recognized on the Condensed Consolidated Statements of Operations for derivatives not designated as hedge instruments were not material for the three months and nine months ended September 26, 2014 and September 27, 2013.