Derivative Financial Instruments

3 Months Ended

Mar. 31, 2013

Derivative Financial Instruments

Note 7 – Derivative Financial Instruments

We are exposed to market risk from changes in foreign currency exchange rates, short term interest rates and price fluctuations of certain material commodities such as copper. Foreign currency exchange risks are attributable to sales to foreign customers not denominated in the seller’s functional currency, foreign plant operations, intercompany indebtedness and purchases from foreign suppliers and include exposures to the European Euro, Canadian Dollar, Japanese Yen, Hungarian Forint, Korean Won and Mexican Peso. The Company regularly enters into derivative contracts with the objective of managing its financial and operational exposure arising from this risk by offsetting gains and losses on the underlying exposures with gains and losses on the financial instruments used to hedge them. We do not enter into derivative financial instruments for speculative or trading purposes. Our hedging relationships are formally documented at the inception of the hedge, and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions both at the inception of a hedge and on an ongoing basis to be designated for hedge accounting treatment. We record the ineffective portion of hedging instruments, if any, to other income (expense) in the consolidated condensed statements of operations.

In March 2008, W.E.T. entered into a 10 year currency related interest rate swap (“CRS”) having a notional value of €10,000, or $12,816 as of March 31, 2013, in order to offset the interest rate risk associated with a debt financing which was repaid prior to our acquisition of W.E.T. Under this agreement W.E.T. receives interest equal to the then six month Euro Interbank Offered Rate (“EURIBOR”), 0.34% at March 31, 2013, plus 1.40% and pays interest equal to the six month EURIBOR when the exchange rate between the European Euro (“EUR”) and the Swiss Franc (“CHF”), which was 1.22 at March 31, 2013, equals or exceeds 1.46 EUR to the CHF or pays interest equal to the six month EURIBOR plus a premium when this exchange rate is less than 1.46. The premium is calculated as [(1.46 – current EUR/CHF rate)/current EUR/CHF rate] x 100. In 2012, W.E.T. entered into offsetting derivative contracts designed to cancel out the payment due under the CRS through the end of the CRS agreement, in 2018.

In September 2011, W.E.T. brought a lawsuit against UniCredit Bank AG (“UniCredit”), a past financial advisor, stemming from the recommendation to invest in the aforementioned CRS. On March 25, 2013, the Munich District Court in Munich, Germany ruled in favor of W.E.T., asserting that UniCredit violated its duty to properly advise W.E.T. with respect to the initial negative market value for the CRS and UniCredit’s inherent conflict of interest in recommending that W.E.T. invest in CRS. The Munich District Court ruled that UniCredit must (1) pay €144 to W.E.T. and (2) bear the costs of all future obligations under the CRS, which were €10,179, or $13,045 as of March 31, 2013, plus additional accrued liabilities for past due payments under the CRS of approximately €4,000, or $5,126 as of March 31, 2013. The Company expects that UniCredit will appeal the decision. If the decision is appealed, it may take up to several years until a final, non-appealable decision is rendered. As a result, the Company cannot be certain that any portion of the award by the Munich District Court will be realized by W.E.T. See the derivatives table below for information about our future obligations under the CRS as of March 31, 2013.

In July 2011, the Company entered into a series of interest rate swap contracts designated as cash flow hedges and an interest rate cap agreement in order to hedge the exposure to variable market interest rates on the Company’s senior debt. Gains and losses reported in accumulative other comprehensive income will be reclassified to earnings once the Company’s senior debt is repaid.

The Company uses a market approach to value derivative instruments, analyzing observable benchmark rates at commonly quoted intervals for the instrument’s full term. Information related to the recurring fair value measurement of derivative instruments in our consolidated balance sheet as of March 31, 2013 is as follows:

					Asset Derivatives				Liability Derivatives				Net Asset/ (Liabilities)
	Hedge Designation		Fair Value Hierarchy		Balance Sheet Location		Fair Value		Balance Sheet Location	Fair Value
CRS		Not a hedge		Level 2					Current liabilities	$	(2,435	)
									Non current liabilities		(10,610	)
Total CRS										$	(13,045	)	$	(13,045	)
Foreign currency derivatives		Not a hedge		Level 2		Current assets	$	2	Current liabilities	$	(453	)	$	(451	)
Foreign currency derivatives		Not a hedge		Level 2		Current assets	$	146					$	146
						Non current assets		2,865					$	2,865
Total foreign currency derivatives							$	3,013		$	(453	)	$	2,560
Interest rate swap derivatives		Cash flow hedge		Level 2					Current liabilities	$	(185	)	$	(185	)

Information relating to the effect of derivative instruments on our consolidated income statements is as follows:

	Location	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012
Foreign currency derivatives	Revaluation of derivatives	$	(974	)	$	1,087
	Foreign currency gain (loss)		(291	)		897
Total foreign currency derivatives		$	(1,265	)	$	1,984
CRS	Revaluation of derivatives	$	1,320		$	147
Commodity derivatives	Revaluation of derivatives	$	—		$	126
Interest Rate Swap	Interest Expense	$	(1	)	$	(28	)
	Other Comprehensive Income	$	39		$	(33	)

We did not incur any hedge ineffectiveness during the three months ended March 31, 2013 and 2012.