Derivative Instruments And Hedging Activities | Note 5 – Derivative instruments and hedging activities We recognize all of our derivative instruments as either assets or liabilities in our statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. We have operations in over 50 countries. Sales outside of the Americas accounted for approximately 62% and 63% of our net sales during the three month periods ended June 30, 2017 and 2016, respectively, and approximately 61% and 62% of our net sales during the six month periods ended June 30, 2017 and 2016 , respectively. Our activities expose us to a variety of market risks, including the effects of changes in foreign currency exchange rates. These financial risks are monitored and managed by us as an integral part of our overall risk management program. We maintain a foreign currency risk management strategy that uses derivative instruments (foreign currency forward and purchased option contracts) to help protect our earnings and cash flows from fluctuations caused by the volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to our operations and competitive position, in that exchange rate changes may affect our profitability and cash flow, and the business or pricing strategies of our non-U.S. based competitors. The vast majority of our foreign sales are denominated in the customers’ local currency. We purchase foreign currency forward and option contracts as hedges of forecasted sales that are denominated in foreign currencies and as hedges of foreign currency denominated financial assets or liabilities. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash inflows resulting from such sales or firm commitments will be adversely affected by changes in exchange rates. We also purchase foreign currency forward contracts as hedges of forecasted expenses that are denominated in foreign currencies. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash outflows resulting from foreign currency operating and cost of sales expenses will be adversely affected by changes in exchange rates. We designate foreign currency forward and purchased option contracts as cash flow hedges of forecasted net sales or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts that are not designated as hedging instruments. None of our derivative instruments contain a credit-risk-related contingent feature. Cash flow hedges To help protect against the reduction in value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales over the next one to three years, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted net sales and forecasted expenses denominated in foreign currencies with forward and purchased option contracts. For forward contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the forward contracts designated as hedges. For option contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the option contracts net of the premium paid designated as hedges. Our foreign currency purchased option contracts are purchased “at-the-money” or “out-of-the-money.” We purchase foreign currency forward and option contracts for up to 100 % of our forecasted exposures in selected currencies (primarily in Euro, Japanese yen, Hungarian forint, British pound, Malaysian ringgit and Chinese yuan ) and limit the duration of these contracts to 40 months or less. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“OCI”) and reclassified into earnings in the same line item (net sales, operating expenses, or cost of sales) associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings or expenses during the current period and are classified as a component of “ net foreign exchange gain (l oss ) .” Hedge effectiveness of foreign currency forwards and purchased option contracts designated as cash flow hedges are measured by comparing the hedging instrument’s cumulative change in fair value from inception to maturity to the forecasted transaction’s terminal value. We held forward contracts with the following notional amounts: (In thousands) US Dollar Equivalent As of June 30, 2017 As of December 31, (Unaudited) 2016 Chinese yuan $ 41,860 $ 27,414 Euro 137,059 123,522 Japanese yen 30,334 44,982 Hungarian forint 55,671 57,077 Malaysian ringgit 36,513 42,510 Total forward contracts notional amount $ 301,437 $ 295,505 The contracts in the foregoing table had contractual maturities of 36 months or less at June 30, 2017 and December 31, 2016 . At June 30, 2017, we expect to reclassify $0.7 million of losses on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $0.3 million of losses on derivative instruments from accumulated OCI to cost of sales during the next twelve months when the cost of sales are incurred and $0.3 million of losses on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged operating expenses occur. Expected amounts are based on derivative valuations at June 30, 2017 . Actual results may vary materially as a result of changes in the corresponding exchange rates subsequent to this date. The gains and losses recognized in earnings due to hedge ineffectiveness were not material for each of the six month periods ended June 30, 2017 and 2016 and are included as a component of net income under the line item “ net foreign exchange gain (loss).” Other Derivatives Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated net receivable or net payable positions to help protect against the change in value caused by a fluctuation in foreign currency exchange rates . We typically attempt to hedge up to 90 % of our outstanding foreign denominated net receivables or net payables and typically limit the duration of these foreign currency forward contracts to approximately 120 days or less. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item “ net foreign exchange gain (loss).” As of June 30, 2017 and December 31, 2016 , we held foreign currency forward contracts with a notional amount of $ 46 million and $ 60 million, respectively. The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets at June 30, 201 7 and December 31, 2016 , respectively. Asset Derivatives June 30, 2017 December 31, 2016 (In thousands) (Unaudited) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives designated as hedging instruments Foreign exchange contracts - ST forwards Prepaid expenses and other current assets $ 3,014 $ 9,378 Foreign exchange contracts - LT forwards Other long-term assets 2,427 3,866 Total derivatives designated as hedging instruments $ 5,441 $ 13,244 Derivatives not designated as hedging instruments Foreign exchange contracts - ST forwards Prepaid expenses and other current assets $ 224 $ 1,869 Total derivatives not designated as hedging instruments $ 224 $ 1,869 Total derivatives $ 5,665 $ 15,113 Liability Derivatives June 30, 2017 December 31, 2016 (In thousands) (Unaudited) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives designated as hedging instruments Foreign exchange contracts - ST forwards Accrued expenses and other liabilities $ (4,343) $ (4,672) Foreign exchange contracts - LT forwards Other long-term liabilities (2,304) (3,352) Total derivatives designated as hedging instruments $ (6,647) $ (8,024) Derivatives not designated as hedging instruments Foreign exchange contracts - ST forwards Accrued expenses and other liabilities $ (724) $ (175) Total derivatives not designated as hedging instruments $ (724) $ (175) Total derivatives $ (7,371) $ (8,199) The following tables present the effect of derivative instruments on our Consolidated Statements of Income for three month periods ended June 30, 2017 and 2016 , respectively: June 30, 2017 (In thousands) (Unaudited) Derivatives in Cash Flow Hedging Relationship Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Foreign exchange contracts - forwards and options $ (9,488) Net sales $ 669 Net foreign exchange gain/(loss) $ - Foreign exchange contracts - forwards and options 3,171 Cost of sales (428) Net foreign exchange gain/(loss) - Foreign exchange contracts - forwards and options 2,795 Operating expenses (416) Net foreign exchange gain/(loss) - Total $ (3,522) $ (175) $ - June 30, 2016 (In thousands) (Unaudited) Derivatives in Cash Flow Hedging Relationship Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Foreign exchange contracts - forwards and options $ 2,764 Net sales $ (904) Net foreign exchange gain/(loss) $ - Foreign exchange contracts - forwards and options (1,442) Cost of sales (382) Net foreign exchange gain/(loss) - Foreign exchange contracts - forwards and options (1,184) Operating expenses (360) Net foreign exchange gain/(loss) - Total $ 138 $ (1,646) $ - (In thousands) Derivatives not Designated as Hedging Instruments Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income June 30, 2017 June 30, 2016 (Unaudited) (Unaudited) Foreign exchange contracts - forwards Net foreign exchange gain/(loss) $ (632) 2,063 Total $ (632) $ 2,063 The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the six month periods ended June 30, 2017 and 2016 , respectively: June 30, 2017 (In thousands) (Unaudited) Derivatives in Cash Flow Hedging Relationship Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Foreign exchange contracts - forwards and options $ (14,797) Net sales $ 2,749 Net foreign exchange gain/(loss) $ - Foreign exchange contracts - forwards and options 4,480 Cost of sales (978) Net foreign exchange gain/(loss) - Foreign exchange contracts - forwards and options 3,983 Operating expenses (979) Net foreign exchange gain/(loss) - Total $ (6,334) $ 792 $ - June 30, 2016 (In thousands) (Unaudited) Derivatives in Cash Flow Hedging Relationship Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Foreign exchange contracts - forwards and options $ (276) Net sales $ (1,141) Net foreign exchange gain/(loss) $ - Foreign exchange contracts - forwards and options 1,597 Cost of sales (953) Net foreign exchange gain/(loss) - Foreign exchange contracts - forwards and options 2,244 Operating expenses (889) Net foreign exchange gain/(loss) - Total $ 3,565 $ (2,983) $ - (In thousands) Derivatives not Designated as Hedging Instruments Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income June 30, 2017 June 30, 2016 (Unaudited) (Unaudited) Foreign exchange contracts - forwards Net foreign exchange gain/(loss) $ (3,178) (191) Total $ (3,178) $ (191) |