Financial Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Financial Derivatives and Hedging Activities

19. FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

As part of our overall risk management practices, we enter into financial derivatives primarily designed to either i) hedge foreign currency risks associated with forecasted transactions – “cash flow hedges”; or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing transactions and foreign currency denominated receivables and payables – “foreign currency hedges."

Derivatives Designated as Hedging Instruments - Cash Flow Hedges  We use currency forward contracts as cash flow hedges to manage our exposure to fluctuations in the currency exchange rates on certain forecasted production costs or capital expenditures expected to be incurred over a maximum of nineteen months. Currency forward contracts involve fixing the EUR-USD exchange rate or USD-CAD for delivery of a specified amount of foreign currency on a specified date.

We designate certain currency forward contracts as cash flow hedges of forecasted raw material purchases, certain production costs or capital expenditures with exposure to changes in foreign currency exchange rates. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is deferred as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. With respect to hedges of forecasted raw material purchases or production costs, the amount deferred is subsequently reclassified into costs of products sold in the period that inventory produced using the hedged transaction affects earnings. For hedged capital expenditures, deferred gains or losses are reclassified and included in the historical cost of the capital asset and subsequently affect earnings as depreciation is recognized. The ineffective portion of the change in fair value of the derivative is recognized directly to earnings and reflected in the accompanying consolidated statements of income as non-operating income (expense) under the caption “Other-net.”

We had the following outstanding derivatives that were used to hedge foreign exchange risks associated with forecasted transactions and designated as hedging instruments:

	December 31
In thousands		2016	2015
Derivative
Sell/Buy - sell notional
Euro / British Pound		10,373	10,527
Sell/Buy - buy notional
Euro / Philippine Peso		699,279	758,634
British Pound / Philippine Peso		557,025	542,063
Euro / U.S. Dollar		43,951	51,433
U.S. Dollar / Canadian Dollar		35,290	34,649
U.S. Dollar / Euro		15,379	—

These contracts have maturities of nineteen months or less.

Derivatives Not Designated as Hedging Instruments - Foreign Currency Hedges We also enter into forward foreign exchange contracts to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities. None of these contracts are designated as hedges for financial accounting purposes and, accordingly, changes in value of the foreign exchange forward contracts and in the offsetting underlying on-balance-sheet transactions are reflected in the accompanying consolidated statements of income under the caption “Other, net.”

	December 31
In thousands		2016	2015
Derivative
Sell/Buy -  sell notional
U.S. Dollar / Euro		—	—
U.S. Dollar / British Pound		10,500	10,000
Euro / British Pound		—	—
British Pound / Euro		2,500	3,500
Sell/Buy - buy notional
Euro / U.S. Dollar		3,500	12,500
British Pound / Euro		18,500	13,500

These contracts have maturities of one month from the date originally entered into.

Fair Value Measurements

The following table summarizes the fair values of derivative instruments as of December 31 for the year indicated and the line items in the accompanying consolidated balance sheets where the instruments are recorded:

	December 31				December 31
In thousands		2016		2015		2016		2015
	Prepaid Expenses and Other				Other Current
Balance sheet caption	Current Assets				Liabilities
Designated as    hedging:
Forward foreign    currency exchange    contracts	$	2,625	$	955	$	1,493	$	1,545
Not designated as    hedging:
Forward foreign    currency exchange    contracts	$	60	$	68	$	104	$	49

The amounts set forth in the table above represent the net asset or liability giving effect to rights of offset with each counterparty.

The following table summarizes the amount of income or loss from derivative instruments recognized in our results of operations for the periods indicated and the line items in the accompanying consolidated statements of income where the results are recorded:

	Year ended December 31
In thousands	2016			2015			2014
Designated as    hedging:
Forward foreign    currency exchange    contracts:
Effective portion –    cost of products    sold	$	(551	)	$	5,752		$	(655	)
Ineffective portion –    other – net		(166	)		(152	)		184
Not designated as    hedging:
Forward foreign    currency exchange    contracts:
Other – net	$	806		$	599		$	1,599

The impact of activity not designated as hedging was substantially all offset by the remeasurement of the underlying on-balance sheet item.

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described in Note 2.

The fair values of the foreign exchange forward contracts are considered to be Level 2. Foreign currency forward contracts are valued using foreign currency forward and interest rate curves. The fair value of each contract is determined by comparing the contract rate to the forward rate and discounting to present value. Contracts in a gain position are recorded in the accompanying consolidated balance sheets under the caption “Prepaid expenses and other current assets” and the value of contracts in a loss position is recorded under the caption “Other current liabilities.”

A rollforward of fair value amounts recorded as a component of accumulated other comprehensive income is as follows:

In thousands	2016			2015
Balance at January 1,	$	(178	)	$	3,282
Deferred (losses) gains    on cash flow hedges		1,509			2,292
Reclassified to earnings		551			(5,752	)
Balance at December 31,	$	1,882		$	(178	)

We expect substantially all of the amounts recorded as a component of accumulated other comprehensive income will be realized in results of operations within the next twelve to eighteen months and the amount ultimately recognized will vary depending on actual market rates.

Credit risk related to derivative activity arises in the event a counterparty fails to meet its obligations to us. This exposure is generally limited to the amounts, if any, by which the counterparty’s obligations exceed our obligation to them. Our policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings.