DERIVATIVES

The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial in the three months ended March 31, 2018 and 2017.

The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at March 31, 2018. 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 $52,848 at March 31, 2018 and $35,489 at December 31, 2017.

Fair Value Hedges

Certain interest rate swap agreements were qualified and designated as fair value hedges. At March 31, 2018, the Company had interest rate swap agreements outstanding that effectively convert notional amounts of $125,000 of debt from a fixed interest rate to a variable interest rate based on three-month LIBOR plus a spread of between 0.5% and 1.8%. The variable rates reset every three months, at which time payment or receipt of interest will be settled.

Net Investment Hedges

From time to time, the Company executes foreign currency forward contracts that qualify and are designated as net investment hedges. No such contracts were outstanding at March 31, 2018 or December 31, 2017.

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 $356,058 at March 31, 2018 and $340,884 at December 31, 2017.

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



	March 31, 2018						December 31, 2017
Derivatives by hedge designation	Other Current Assets		Other Current Liabilities		Other Liabilities		Other Current Assets		Other Current Liabilities		Other Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	1,023	$	229	$	—	$	519	$	604	$	—
Interest rate swap agreements	—		—		8,393		—		—		5,085
Not designated as hedging instruments:
Foreign exchange contracts	1,920		3,356		—		2,257		3,747		—
Total derivatives	$	2,943	$	3,585	$	8,393	$	2,776	$	4,351	$	5,085

The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:



		Three Months Ended March 31,
Derivatives by hedge designation	Classification of gain (loss)	2018		2017
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	8,655	$	13,702

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, 2018		December 31, 2017
Foreign exchange contracts	$	631	$	(224	)
Net investment contracts	1,099		1,099

The Company expects a gain of $631 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.



		Three Months Ended March 31,
Derivative type	Gain (loss) recognized in the Consolidated Statements of Income:	2018		2017
Foreign exchange contracts	Sales	$	143	$	(185	)
	Cost of goods sold	33		166