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Financial Instruments and Fair Value Measurements | 6 Months Ended
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Jun. 30, 2014
Financial Instruments and Fair Value Measurements [Abstract] |
Financial Instruments and Fair Value Measurements | (6) Financial Instruments and Fair Value Measurements Financial Instruments A financial instrument is cash or a contract that imposes an obligation to deliver, or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The estimated fair value of the Company's senior secured notes with a face value of $175,000 (fixed rate debt) at June 30, 2014 and December 31, 2013 was $186,603 and $190,100, respectively, and was determined using market quotes classified as Level 2 input within the fair value hierarchy. Derivative Instruments and Hedging Activities On June 30, 2014, the Company had open foreign currency forward contracts, fixed price commodity contracts and an interest rate swap. These contracts are used solely for hedging and not for speculative purposes. Management believes that its use of these instruments to reduce risk is in the Company's best interest. The counterparties to these financial instruments are financial institutions with investment grade credit ratings. Foreign Currency Exchange Rate Risk The Company conducts business internationally and therefore is exposed to foreign currency exchange rate risk. The Company uses derivative financial instruments as cash flow and fair value hedges to mitigate its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions and other foreign currency exposures. The currencies hedged by the Company during 2014 and 2013 include the euro and Mexican peso. In certain instances, the foreign currency forward contracts do not qualify for hedge accounting or are not designated as hedges, and therefore are marked-to-market with gains and losses recognized in the Company's condensed consolidated statement of operations as a component of other expense, net. The Company's foreign currency forward contracts offset a portion of the gains and losses on the underlying foreign currency denominated transactions as follows: Euro-denominated Foreign Currency Forward Contract As of June 30, 2014 and December 31, 2013, the Company held a foreign currency forward contract with underlying notional amounts of $13,279 and $13,335, respectively, to reduce the exposure related to the Company's euro-denominated intercompany loans. This contract expires in September 2014. The euro-denominated foreign currency forward contract was not designated as a hedging instrument. For the three months ended June 30, 2014 and 2013, the Company recognized a gain of $86 and a loss of $278, respectively, in the condensed consolidated statement of operations as a component of other expense, net related to the euro-denominated contract. For the six months ended June 30, 2014 and 2013, the Company recognized a gain of $25 and $85, respectively, related to this contract. Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedge The Company holds Mexican peso-denominated foreign currency forward contracts with underlying notional amounts at June 30, 2014 totaling $22,500 which expire ratably on a monthly basis from July through December 2014, compared to $45,000 at December 31, 2013.
These contracts were executed to hedge forecasted transactions and are accounted for as cash flo w hedges. As such, the effective portion of the unrealized gain or loss is deferred and reported in the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive loss. The cash flow hedges are highly effective and the Company expects them to remain highly effective in future periods. The effectiveness of the transactions has been and will be measured on an ongoing basis using regression analysis and forecasted future Mexican peso purchases. The Company evaluated the effectiv eness of the Mexican p eso-denominated foreign currency forward contracts as of June 30, 2014. As a result of the sale of the Wiring business, the Company forecasts that it will purchase Mexican p esos to fulfill only two of the five hedge contracts for the period August 2014 through December 201 4. As the purchase of Mexican p esos related to three of the five hedge contracts is not probable, these three hedges attributed to the Wiring business have been de-designated at June 30, 2014 and the associated unrecognized $320 gain at that date has been recorded in discontinued operations in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2014. The previous unrecognized gains on the de-designated hedge contracts have been reclassified from accumulated other comprehensive loss. Commodity Price Risk - Cash Flow Hedge To mitigate the risk of future price volatility and, consequently, fluctuations in gross margins, the Company entered into fixed price commodity contracts with a financial institution to fix the cost of a portion of the Company’s copper purchases as copper is a significant raw material. The Company has fixed price commodity contracts at June 30, 2014 with an aggregate notional amount of 1,237 pounds, which expire on a monthly basis over the period from July 2014 through March 2015, compared to an aggregate notional amount of 1,582 pounds at December 31, 2013. All of these contracts represent a portion of the Company’s forecasted copper purchases. These contracts were executed to hedge a portion of forecasted transactions and the contracts are accounted for as cash flow hedges. The unrealized gain or loss for the effective portion of the hedges is deferred and reported in the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive loss while the ineffective portion, if any, is reported in the condensed consolidated statements of operations. The effectiveness of the transactions is measured on an ongoing basis using regression analysis and forecasted future copper purchases. Based upon the results of the regression analysis, the Company has concluded that these cash flow hedges are highly effective. The Company eval uated the effectiveness of the c opper fixed price commodity contracts as of June 30, 2014. As a result of the sale of the Wiring business, the Company forecasts that it will not purchase the quantities of c opper to fulfill the two hedge contracts for the period August 2014 through December 2014. As the purchase of c opper quantities related to these hedge contracts is not probable, the contract s primarily associated with the Wiring segment not expected to be fulfilled ha ve been de-designated at June 30, 2014 and the associated unrecognized $77 gain at that date has been recorded in discontinued operations in the Company’s condensed consolidated statements of operations for the three and six months en ded June 30, 2014. T he previous unrecognized gains have been reclassified from accumulated other comprehensive loss. Interest Rate Risk - Fair Value Hedge The Company has a fixed-to-floating interest rate swap agreement (the “Swap”) with a notional amount of $45,000 to hedge its exposure to fair value fluctuations on a portion of its senior secured notes. The Swap was designated as a fair value hedge of the fixed interest rate obligation under the Company's $175,000 9.5% senior secured notes due October 15, 2017. The critical terms of the Swap are aligned with the terms of the senior secured notes, including maturity of October 15, 2017, resulting in no hedge ineffectiveness. The unrealized gain or loss for the effective portion of the hedge is deferred and reported in the Company's condensed consolidated balance sheets as an asset or liability as applicable, with the offset to the carrying value of the senior secured notes. Under the Swap, the Company pays a variable interest rate equal to the six-month London Interbank Offered Rate (“LIBOR”) plus 7.2% and it receives a fixed interest rate of 9.5%. The Swap requires semi-annual settlements on April 15 and October 15. The difference between amounts to be received and paid under the Swap is recognized as a component of interest expense, net on the condensed consolidated statements of operations. The Swap reduced interest expense by $206 and $191 for the three months ended June 30, 2014 and 2013, respectively, and by $431 and $422 for the six months ended June 30, 2014 and 2013, respectively. The notional amounts and fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
|  |  |  |  |  |  |  | Prepaid expenses and other |  |  |  |  |  |  |
|  |  |  |  |  |  |  | current assets / O ther |  | Accrued expenses and other |
|  | Notional amounts (A) |  | long-term assets |  | current liabilities |
|  | June 30, |  | December 31, |  | June 30, |  | December 31, |  | June 30, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash Flow Hedge s: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  |  | $ 11,250 |  |  | $ 45,000 |  |  | $ 29 |  |  | $- |  |  | $- |  |  | $ 263 |
Fixed price commodity contracts |  |  | 152 |  |  | 1,582 |  |  | $- |  |  | $ 152 |  |  | $ 10 |  |  | $- |
Fair Value Hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contract |  |  | $ 45,000 |  |  | $ 45,000 |  |  | $ 899 |  |  | $ 793 |  |  | $- |  |  | $- |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  |  | $ 24,529 |  |  | $ 13,335 |  |  | $ 320 |  |  | $- |  |  | $ 19 |  |  | $ 18 |
Fixed price commodity contracts |  |  | 1,085 |  |  | -2 |  |  | $42- |  |  | $- |  |  | $- |  |  | $-
(A) | Notional amounts represent the gross contract / notional amount of the derivatives outstanding. The fixed price commodity contract notional amounts are in pounds.
Amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net income (loss) for the three months ended June 30 are as follows:
|  | Gain (loss) recorded in other comprehensive income (loss) |  | Gain (loss) reclassified from other comprehensive income (loss) into net income (loss) |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 416 |  | $ | (1,430) |  | $ | 423 |  | $ | 863 |
Fixed price commodity contracts |  |  | 154 |  |  | (988) |  |  | (91) |  |  | (344) |
Total derivatives designated as cash flow hedges |  | $ | 570 |  | $ | (2,418) |  | $ | 332 |  | $ | 519 |
Amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net income (loss) for the six months ended June 30 are as follows:
|  | Gain (loss) recorded in other comprehensive income (loss) |  | Gain (loss) reclassified from other comprehensive income (loss) into net income (loss) |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 534 |  | $ | 311 |  | $ | 242 |  | $ | 1,538 |
Fixed price commodity contracts |  |  | (318) |  |  | (1,734) |  |  | (121) |  |  | (283) |
Total derivatives designated as cash flow hedges |  | $ | 216 |  | $ | (1,423) |  | $ | 121 |  | $ | 1,255 |
Gains and losses reclassified from other comprehensive income (loss) into net income (loss) were recognized in cost of goods sold in the Company's condensed consolidated statements of operations. The net deferred gain of $19 on the cash flow hedge derivatives will be reclassified from other comprehensive income (loss) to the condensed consolidated statements of operations through December 2014. Fair Value Measurements The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used.
|  | June 30, |  | December 31, |
|  | 2014 |  | 2013 |
|  | Fair values estimated using |  |  |  |
|  |  |  |  | Level 1 |  | Level 2 |  | Level 3 |  |  |  |
|  | Fair value |  | inputs (A) |  | inputs (B) |  | inputs (C) |  | Fair value |
Financial assets carried at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contract |  | $ | 899 |  | $ | - |  | $ | 899 |  | $ | - |  | $ | 793 |
Forward currency contracts |  |  | 349 |  |  | - |  |  | 349 |  |  | - |  |  | - |
Fixed price commodity contracts |  |  | 42 |  |  | - |  |  | 42 |  |  |  |  |  | 152 |
Total financial assets carried at fair value |  | $ | 1,290 |  | $ | - |  | $ | 1,290 |  | $ | - |  | $ | 945 |
Financial liabilities carried at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 19 |  | $ | - |  | $ | 19 |  | $ | - |  | $ | 281 |
Fixed price commodity contracts |  |  | 10 |  |  | - |  |  | 10 |  |  | - |  |  | - |
Total financial liabilities carried at fair value |  | $ | 29 |  | $ | - |  | $ | 29 |  | $ | - |  | $ | 281 |
(A) | Fair values estimated using Level 1 inputs, which consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The Company did not have any recurring fair value estimates using Level 1 inputs at June 30, 2014 or December 31, 2013.
(B) | Fair values estimated using Level 2 inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency, fixed price commodity and interest rate swap contracts, inputs include foreign currency exchange rates, commodity indexes and the six-month forward LIBOR.
(C) | Fair values estimated using Level 3 inputs consist of significant unobservable inputs. The Company did not have any recurring fair value estimates using Level 3 inputs at June 30, 2014 or December 31, 2013.
As described in Note 4 the Company performed an interim assessment for impairment of the PST goodwill as of June 30, 2014. In step one the Company used an income approach to estimate the fair value of PST. The income approach utilized a discounted cash flow valuation technique which incorporates the Company's projected future estimates of after-tax cash flows attributable to its future growth rates, terminal value amounts and the weighted average cost of capital. The Company determined that the carrying value of the PST reporting unit exceeded its estimated fair value. In performing a preliminary step two e valuation the Company recorded its best estimate of the implied fair value of PST’s goodwill resulting in an impairment charge of $29,300 at June 30, 2014. This charge had no impact on the Company's cash flows or compliance with debt covenants. The primary factors contributing to the goodwill impairment charge were a significant weakening of the Brazilian economy and automotive market in the first half of 2014 which decreased consumer demand for PST’s products, and increased competition. As such, the Company’s sales for the first half of 2014 declined, and estimated growth rates were lowered which negatively impacted future cash flows. The fair value measurement of th e reporting unit under the step one analysis and the step two analysis in their entirety are classified as Level 3 inputs. The estimates and assumptions underlying the fair value calculations used in the Company's impairment test are uncertain by their nature and can vary significantly from actual results. Factors that management must estimate include, but are not limited to, industry and market conditions, sales volume and pricing, raw material costs, capital expenditures, working capital changes, cost of capital, debt-equity mix and tax rates. The estimates and assumptions that most significantly affect the fair value calculation are sales volume and the associated cash flow assumptions, market growth and weighted average cost of capital. The estimates and assumptions used in the estimate of fair value are consistent with those the Company uses in its internal planning.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13504-108611 + Details
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