DERIVATIVES

The Company uses derivatives to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Derivative contracts to hedge currency and commodity exposures are generally written on a short-term basis but may cover exposures for up to two years while interest rate contracts may cover longer periods consistent with the terms of the underlying debt. The Company does not enter into derivatives for trading or speculative purposes.

All derivatives are recognized at fair value on the Company’s Consolidated Balance Sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. The Company formally documents the relationship of the hedge with the hedged item as well as the risk-management strategy for all designated hedges. Both at inception and on an ongoing basis, the hedging instrument is assessed as to its effectiveness, when applicable. If and when a derivative is determined not to be highly effective as a hedge, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued. The cash flows from settled derivative contracts are recognized in operating activities in the Company’s Consolidated Statements of Cash Flows. Hedge ineffectiveness was immaterial in the three months ended March 31, 2014 and 2013.

The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. The Company manages individual counterparty exposure by monitoring the credit rating of the counterparty and the size of financial commitments and exposures between the Company and the counterparty. None of the concentrations of risk with any individual counterparty was considered significant at March 31, 2014. The Company does not expect any counterparties to fail to meet their obligations.

Cash Flow Hedges

Certain foreign currency forward contracts were qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $32,639 and $36,880 at March 31, 2014 and December 31, 2013, respectively. The effective portions of the fair value gains or losses on these cash flow hedges are recognized in AOCI and subsequently reclassified to Cost of goods sold or Sales for hedges of purchases and sales, respectively, as the underlying hedged transactions affect earnings.

Derivatives Not Designated as Hedging Instruments

The Company has certain foreign exchange forward contracts that are not designated as hedges. These derivatives are held as economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was $199,307 and $186,158 at March 31, 2014 and December 31, 2013, respectively. The fair value gains or losses from these contracts are recognized in Selling, general and administrative expenses, offsetting the losses or gains on the exposures being hedged.

The Company had short-term silver and copper forward contracts with notional amounts of 315,000 troy ounces and 375,000 pounds, respectively, at March 31, 2014. The notional amount of short-term silver and copper forward contracts was 290,000 troy ounces and 375,000 pounds, respectively, at December 31, 2013. Realized and unrealized gains and losses on these contracts are recognized in Costs of goods sold.

Fair values of derivative instruments in the Company’s Consolidated Balance Sheets follow:



	March 31, 2014				December 31, 2013
Derivatives by hedge designation	Other Current Assets		Other Current Liabilities		Other Current Assets		Other Current Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	268	$	360	$	706	$	219
Not designated as hedging instruments:
Foreign exchange contracts	1,204		1,448		766		228
Commodity contracts	358		13		262		47
Total derivatives	$	1,830	$	1,821	$	1,734	$	494

The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income for the three month periods ended March 31, 2014 and 2013 consisted of the following:



		Three Months Ended March 31,
Derivatives by hedge designation	Classification of gain (loss)	2014		2013
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	39	$	(398	)
Commodity contracts	Cost of goods sold	4		606

The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:



Total gain (loss) recognized in AOCI, net of tax	March 31, 2014			December 31, 2013
Foreign exchange contracts	$	(52	)	$	369



		Three Months Ended March 31,
Derivative type	Gain (loss) reclassified from AOCI to:	2014		2013
Foreign exchange contracts	Sales	$	132	$	101
	Cost of goods sold	157		581

The Company expects a loss of $52 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.