8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We participate in foreign exchange forward contracts in connection with the management of exposure to fluctuations in foreign exchange rates.

Cash Flow Hedges

Our cash flow hedging activities utilize foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the planned purchase of products from foreign suppliers. Purchases of U.S. denominated inventory by our European subsidiary represent our primary exposure. Changes in the fair value of derivatives designated as cash flow hedges are not recognized in current operating results, but are recorded in accumulated other comprehensive income. Amounts related to cash flow hedges are reclassified from accumulated other comprehensive income when the underlying hedged item impacts earnings. This reclassification is recorded in cost of sales, the same line item of the Consolidated Statements of Income at which the effects of the hedged item are recorded.

Undesignated Hedges

We have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange rates may adversely affect our results of operations and financial condition, as outstanding non-functional balances are revalued to the functional currency through profit and loss. When appropriate, we utilize foreign exchange forward contracts to help manage the volatility relating to these valuation exposures. All changes in the fair value of our derivative instruments that do not qualify for or are not designated for hedged accounting transactions are recognized as other expense, net in the Consolidated Statements of Income.

We do not hold or issue derivative instruments for trading or other speculative purposes. Our derivative instruments are recorded in the Consolidated Balance Sheets at their fair values. Our derivative instruments are not subject to master netting arrangements and are not offset in the Consolidated Balance Sheets.

As of June 30, 2018, we had no foreign exchange forward contracts.

The changes in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three and six months ended June 30, 2018 and 2017 were as follows:

		Three Months Ended					Six Months Ended
	Income Statement	June 30,					June 30,
(In thousands)	Location	2018		2017			2018		2017
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	Other expense, net	$	—	$	(451	)	$	13	$	(485	)

The changes in our derivatives designated as hedging instruments recorded in other comprehensive income (OCI) and reclassified to income, net of tax, during the three and six months ended June 30, 2018 and 2017, were as follows:

	Amount of Gains (Losses) Recognized in						Amount of Gains (Losses) Reclassified
	OCI on Derivatives						from AOCI into Income
	Three Months Ended					Location of Gains	Three Months Ended
	June 30,					(Losses) Reclassified	June 30,
(In thousands)	2018		2017			from AOCI into Income	2018		2017
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts	$	—	$	(571	)	Cost of Sales	$	—	$	(154	)

	Amount of Gains (Losses) Recognized in						Amount of Gains (Losses) Reclassified
	OCI on Derivatives						from AOCI into Income
	Six Months Ended					Location of Gains	Six Months Ended
	June 30,					(Losses) Reclassified	June 30,
(In thousands)	2018		2017			from AOCI into Income	2018		2017
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts	$	—	$	(492	)	Cost of Sales	$	—	$	(154	)