Derivatives

12 Months Ended

Dec. 28, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivatives

8. Derivatives

Aluminum Forward Contracts

We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusion we use in production. Our contracts are initially designated as cash flow hedges since they are believed to be highly effective in offsetting changes in the cash flows attributable to forecasted purchases of aluminum.

Guidance under the Financial Instruments topic of the Codification requires us to record our hedge contracts at fair value and consider our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts in an asset position, in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value of financial instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit ratings. We assess our risk of non-performance when measuring the fair value of our financial instruments in a liability position by evaluating our credit ratings, our current liquidity including cash on hand and availability under our revolving credit facility as compared to the maturities of the financial liabilities. In addition, we entered into a master netting arrangement (MNA) with our commodities broker that provides for, among other things, the close-out netting of exchange-traded transactions in the event of the insolvency of either party to the MNA.

We net cash collateral from payments of margin calls on deposit with our commodities broker against the liability position of open contracts for the purchase of aluminum on a first-in, first-out basis. For statement of cash flows presentation, we present net cash receipts from and payments to the margin account as investing activities.

We maintain a $2.0 million line of credit with our commodities broker to cover the liability position of open contracts for the purchase of aluminum in the event that the price of aluminum falls. Should the price of aluminum fall to a level which causes our liability for open aluminum contracts to exceed $2.0 million, we are required to fund daily margin calls to cover the excess.

As of December 28, 2013, the fair value of our aluminum forward contracts was in a net liability position of approximately $479 thousand. We had 33 outstanding forward contracts for the purchase of 9.5 million pounds of aluminum at an average price of $0.89 per pound with maturity dates of between less than one month and 18 months through June 2015. We assessed our risk of non-performance of the Company on these contracts and recorded an immaterial adjustment to fair value as of December 28, 2013.

As of December 29, 2012, the fair value of our aluminum forward contracts was in a net asset position of approximately $20 thousand. We had 24 outstanding forward contracts for the purchase of 3.9 million pounds of aluminum at an average price of $0.94 per pound with maturity dates of between less than one month and 12 months through December 2013. We assessed the risk of non-performance of the counter-party on these contracts and recorded an immaterial adjustment to fair value as of December 29, 2012.

Interest Rate Contracts

On September 16, 2013, we entered into two interest rate caps and one interest rate swap. The first is a one year interest rate cap agreement with a notional amount of $40.0 million that was designated as a cash flow hedge that protects the variable rate debt from an increase in the floating one month LIBOR rate of greater than 0.50%. The second is a two year interest rate cap agreement with a notional amount of $20.0 million that was designated as a cash flow hedge that protects the variable rate debt from an increase in the floating one month LIBOR rate of greater than 0.50%. Effectiveness for the interest rate caps will be measured by comparing the changes in the intrinsic value of the cap with the change in the fair value of the forecasted interest payments due to changes in the LIBOR interest rate when LIBOR is greater than 0.5%. The intrinsic value portion of the interest rate caps are expected to be highly effective due to the critical terms of the cap exactly matching those of the hedge debt. The time value portion of the caps are deemed ineffective and will be marked to market in the reporting period.

The swap is a forward starting three year six months interest rate swap agreement with a notional amount of $40.0 million that effectively converted a portion of the floating rate debt to a fixed rate of 2.15% that starts September 28, 2014, with a termination date of May 18, 2018. Since all of the critical terms of the swap and cap exactly matched those of the hedged debt, no ineffectiveness was identified in the hedging relationship. Consequently, all changes in fair value are recorded as a component of accumulated other comprehensive income. Hedge effectiveness for the interest rate swap will be evaluated in accordance with ASC 815 on a quarterly basis by comparing changes in the cumulative gain or loss from the forward-starting interest rate swap with the cumulative changes in the discounted expected cash flows of future monthly interest related to changes of the swap rate.

The fair value of our aluminum hedges and interest rate cap are classified in the accompanying consolidated balance sheets as follows (in thousands):

		December 28, 2013			December 29, 2012
Derivatives in a net asset (liability) position	Balance Sheet Location
Hedging instruments:
Aluminum forward contracts	Other Current Asset	$	—		$	20
Aluminum forward contracts	Accrued Liabilities		(441	)		—
Aluminum forward contracts	Other Liabilities		(38	)		—
Interest rate cap	Other Current Asset		21			—
Interest rate cap	Other Asset		13			—
Interest rate swap	Other Liabilities		(630	)		—
Total hedging instruments		$	(1,075	)	$	20

Although it is our intent to have our aluminum hedges qualify as highly effective for reporting purposes, for the year ended December 29, 2012, they did not qualify as effective. Effectiveness of aluminum forward contracts is determined by comparing the change in the fair value of the forward contract to the change in the expected cash to be paid for the hedged item. The effective portion of the gain or loss on our aluminum forward contracts is reported as a component of other comprehensive income (loss) and is reclassified into earnings in the same line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. During the third and fourth quarter of 2012, these contracts became ineffective and no longer qualified for hedge accounting. When a cashflow hedge becomes ineffective, and if the forecasted hedged transaction is still probable of occurrence, amounts previously recorded in other comprehensive income remain in other comprehensive income and are recognized in earnings in the period in which the hedged transaction affects earnings. The change in value of the aluminum forward contracts occurring after termination is recognized in other expense (income), net on the consolidated statements of operations.

The ending accumulated balance for the aluminum forward contracts and interest rate swaps included in accumulated other comprehensive expense, net of tax, is $0.7 million as of December 28, 2013. In December 29, 2012, the ending accumulated balance for the aluminum forward contracts included in accumulated other comprehensive income, net of tax, was $0.1 million.

The impact of the offsetting derivative instruments are depicted below:

As of December 28, 2013
(in thousands)
	Gross Amounts of Recognized Assets		Gross Amounts offset in Balance Sheet			Net amounts of Assets Presented in Balance Sheet		Gross Amounts not offset in Balance Sheet
Description								Financial Instruments		Cash Collateral Received		Net Amount
Aluminum Forward Contract	$	—	$	—		$	—	$	—	$	—	$	—
Interest Rate Caps	$	34	$	—		$	34	$	—	$	—	$	34
As of December 28, 2013
(in thousands)
	Gross Amounts of Recognized Liabilities		Gross Amounts offset in Balance Sheet			Net amounts of Liabilities Presented in Balance Sheet		Gross Amounts not offset in Balance Sheet
Description								Financial Instruments		Cash Collateral Pledged		Net Amount
Aluminum Forward Contract	$	479	$	—		$	479	$	—	$	—	$	479
Interest Rate Swap	$	630	$	—		$	630	$	—	$	—	$	630
As of December 29, 2012
(in thousands)
	Gross Amounts of Recognized Assets		Gross Amounts offset in Balance Sheet			Net amounts of Assets Presented in Balance Sheet		Gross Amounts not offset in Balance Sheet
Description								Financial Instruments		Cash Collateral Received		Net Amount
Aluminum Forward Contract	$	53	$	(33	)	$	20	$	—	$	—	$	20
As of December 29, 2012
(in thousands)
	Gross Amounts of Recognized Liabilities		Gross Amounts offset in Balance Sheet			Net amounts of Liabilities Presented in Balance Sheet		Gross Amounts not offset in Balance Sheet
Description								Financial Instruments		Cash Collateral Pledged		Net Amount
Aluminum Forward Contract	$	33	$	(33	)	$	—	$	—	$	—	$	—

The following represents the gains (losses) on derivative financial instruments for the years ended December 28, 2013, December 29, 2012, and December 31, 2011, and their classifications within the accompanying consolidated financial statements (in thousands):

	Derivatives in Cash Flow Hedging Relationships
	Amount of (loss) Recognized in OCI on Derivatives (Effective Portion)									Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	Year Ended										Year Ended
	December 28, 2013			December 29, 2012			December 31, 2011				December 28, 2013			December 29, 2012		December 31, 2011
Aluminum contracts	$	(761	)	$	(24	)	$	(220	)	Cost of sales	$	145		$	408	$	(335	)
Interest Rate Swap	$	(630	)	$	—		$	—		Interest Expense	$	—		$	—	$	—
	Derivatives in Cash Flow Hedging Relationships
										Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion)
											Year Ended
											December 28, 2013			December 29, 2012		December 31, 2011
Aluminum contracts										Other income or other expense	$	(358	)	$	208	$	—
Interest rate swap										Other income or other expense	$	—		$	—	$	—