Glatfelter Corp - Quarter Report: 2016 June (Form 10-Q)

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PART I - FINANCIAL INFORMATION
Item 1		Financial Statements
		Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2016 and 2015 (unaudited)			2
		Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2016 and 2015 (unaudited)			3
		Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 (unaudited)			4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited)			5
		Notes to Condensed Consolidated Financial Statements (unaudited)
		1.      Organization			6
		2.      Accounting Policies			6
		3.      Earnings Per Share			7
		4.       Accumulated Other Comprehensive Income			8
		5.      Income Taxes			9
		6.      Stock-based Compensation			10
		7.       Retirement Plans and Other Post-Retirement Benefits			11

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		8.      Inventories			12
		9.      Long-term Debt			12
		10.    Asset Retirement Obligations			13
		11.    Fair Value of Financial Instruments			13
		12.    Financial Derivatives and Hedging Activities			14
		13.     Commitments, Contingencies and Legal Proceedings			16
		14.    Segment Information			21
		15.    Condensed Consolidating Financial Statements			22
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3		Quantitative and Qualitative Disclosures About Market Risks			39
Item 4		Controls and Procedures			39
PART II – OTHER INFORMATION
Item 6		Exhibits			40
		SIGNATURES			40

 

1.	ORGANIZATION

P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a manufacturer of specialty papers and fiber-based engineered materials. Headquartered in York, PA, U.S. operations include facilities in Spring Grove, PA and Chillicothe and Fremont, OH. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, and sales and distribution offices in Russia and China. Our products are marketed worldwide, either through wholesale paper merchants, brokers and agents, or directly to customers.

 

2.	ACCOUNTING POLICIES

Basis of Presentation The unaudited condensed consolidated financial statements (“financial statements”) include the accounts of Glatfelter and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2015 Annual Report on Form 10-K.

Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions.

Recently Issued Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment

Accounting designed to simplify certain aspects of accounting for share-based awards. The new ASU requires entities to recognize as a component of income tax expense all excess tax benefits or deficiencies arising from the difference between compensation costs recognized and the intrinsic value at the time an option is exercised or, in the case of restricted stock and similar awards, the fair value upon vesting of an award. Previously such differences were recognized in additional paid in capital as part of an “APIC pool.” In addition, the ASU also requires entities to exclude excess tax benefits and tax deficiencies from the calculation of common share equivalents for purposes of calculating earnings per share. The new standard is required to be adopted, either prospectively or retrospectively, in the first quarter of 2017 and early adoption is permitted. We do not believe the adoption of this standard will have a material impact on our reported results of operations or financial position.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require organizations such as us that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will be effective for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. We are in the process of assessing the impact this standard will have on us and expect to follow a modified retrospective method provided for under the standard.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards. The new standard is required to be adopted retrospectively for fiscal years beginning after December 15, 2017 and early adoption is permitted only for reporting periods beginning after December 31, 2016. We are in the process of evaluating the impact this standard may have, if any, on our reported results of operations or financial position.

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments that changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses. Under the new guidance, an allowance is recognized based on an estimate of expected credit losses. This standard is effective for us in the first quarter of 2020 and must be adopted using a modified retrospective

 

transition approach. We are currently assessing the impact this standard may have on our results of operations and financial position.

 

3.	EARNINGS PER SHARE

The following table sets forth the details of basic and diluted earnings per share (“EPS”):

 

		Three months ended June 30
In thousands, except per share		2016				2015
Net income		$	1,965			$	2,848
Weighted average common shares outstanding used in basic EPS			43,558				43,377
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs			504				655
Weighted average common shares outstanding and common share equivalents used in diluted EPS			44,062				44,032
Earnings per share
Basic		$	0.05			$	0.07
Diluted			0.04				0.06

		Six months ended June 30
In thousands, except per share		2016				2015
Net income		$	18,133			$	16,773
Weighted average common shares outstanding used in basic EPS			43,539				43,315
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs			424				677
Weighted average common shares outstanding and common share equivalents used in diluted EPS			43,963				43,992
Earnings per share
Basic		$	0.42			$	0.39
Diluted			0.41				0.38

The following table sets forth potential common shares outstanding for stock options and restricted stock units that were not included in the computation of diluted EPS for the period indicated, because their effect would be anti-dilutive:

 

		June 30
In thousands		2016				2015
Three months ended			1,368				687
Six months ended			1,451				687

 

5.	INCOME TAXES

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

As of June 30, 2016 and December 31, 2015, we had $13.2 million and $12.2 million of gross unrecognized tax benefits. As of June 30, 2016, if such benefits were to be recognized, approximately $10.6 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities.

The following table summarizes, by major jurisdiction, tax years that remain subject to examination:

 

		Open Tax Years
Jurisdiction		Examinations not yet initiated				Examination in progress
United States
Federal			2013 - 2015				N/A
State			2011 - 2015				2011 - 2014
Canada (1)			2010 - 2015				N/A
Germany (1)			2012 - 2015				2007 - 2011
France			2013 - 2015				2011 - 2012
United Kingdom			2014 - 2015				N/A
Philippines			2015				2013, 2014

 

(1)	includes provincial or similar local jurisdictions, as applicable

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these

 

reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the lapse of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $1.7 million. Substantially all of this range relates to tax positions taken in Germany.

We recognize interest and penalties related to uncertain tax positions as income tax expense. The following table summarizes information related to interest and penalties on uncertain tax positions:

 

		Six months ended June 30
In millions		2016				2015
Interest expense		$	0.2			$	—
Penalties			—				—
		June 30				December 31
		2016				2015
Accrued interest payable		$	0.8			$	0.6

6.	STOCK-BASED COMPENSATION

The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) provides for the issuance of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units.

Pursuant to terms of the LTIP, we have issued to eligible participants restricted stock units, performance share awards and stock only stock appreciation rights.

Restricted Stock Units (“RSU”) and Performance Share Awards (“PSAs”) Awards of RSUs and PSAs are made under our LTIP. The RSUs vest on the passage of time, generally on a graded scale over a three, four, and five-year period, or in certain instances the RSUs were issued with five year cliff vesting. PSAs are issued annually to members of management and each respective grant cliff vests each December 31 of the third year following the grant, assuming the achievement of predetermined, cumulative financial performance targets covering two or three year periods. The performance measures include a minimum, target and maximum performance level providing the grantees an opportunity to receive more or less shares than targeted depending on actual financial performance. For both RSUs and PSAs, the grant date fair value of the awards, which is equal to the closing price per common share on the date of the award, is used to determine the amount of expense to be recognized over the applicable service period. Settlement of RSUs and PSAs will be made in shares of our common stock currently held in treasury.

The following table summarizes RSU and PSA activity during periods indicated:

 

Units		2016				2015
Balance at January 1,			674,523				888,942
Granted			295,654				152,531
Forfeited			(143,209	)			(77,652	)
Shares delivered			(149,475	)			(283,627	)
Balance at June 30,			677,493				680,194

The amount granted in 2016 and 2015 includes PSAs of 199,693 and 100,801, respectively, exclusive of reinvested dividends.

 

The following table sets forth aggregate RSU and PSA compensation expense for the periods indicated:

 

		June 30
In thousands		2016				2015
Three months ended		$	935			$	453
Six months ended			1,402				820

Stock Only Stock Appreciation Rights (“SOSARs”) Under terms of the SOSAR, a recipient receives the right to a payment in the form of shares of common stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the exercise price. The SOSARs vest ratably over a three year period and have a term of ten years.

The following table sets forth information related to outstanding SOSARS.

 

		2016								2015
SOSARS		Shares				Wtd Avg Exercise Price				Shares				Wtd Avg Exercise Price
Outstanding at January 1,			2,199,742			$	17.82				1,864,707			$	16.20
Granted			743,925				17.54				406,142				24.94
Exercised			(53,190	)			9.91				(58,343	)			13.52
Canceled / forfeited			(108,945	)			21.81				(3,349	)			26.53
Outstanding at June 30,			2,781,532			$	17.74				2,209,157			$	17.87
SOSAR Grants
Weighted average grant date fair value per share		$	4.07							$	7.54
Aggregate grant date fair value (in thousands)		$	3,013							$	3,063
Black-Scholes assumptions
Dividend yield			2.85	%							1.92	%
Risk free rate of return			1.34	%							1.64	%
Volatility			31.97	%							36.48	%
Expected life			6 yrs								6 yrs

The following table sets forth SOSAR compensation expense for the periods indicated:

 

		June 30
In thousands		2016				2015
Three months ended		$	669			$	680
Six months ended			1,401				1,268

7.	RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

The following tables provide information with respect to the net periodic costs of our pension and post retirement medical benefit plans.

 

		Three months ended June 30
In thousands		2016				2015
Pension Benefits
Service cost		$	2,510			$	2,561
Interest cost			6,153				5,788
Expected return on plan assets			(11,275	)			(11,454	)
Amortization of prior service cost			675				761
Amortization of unrecognized loss			3,533				3,947
Net periodic benefit cost		$	1,596			$	1,603
Other Benefits
Service cost		$	250			$	303
Interest cost			456				436
Amortization of prior service cost			(46	)			(70	)
Amortization of unrecognized (gain)/loss			(327	)			15
Net periodic benefit cost		$	333			$	684
		Six months ended June 30
In thousands		2016				2015
Pension Benefits
Service cost		$	5,240			$	5,696
Interest cost			12,240				11,738
Expected return on plan assets			(22,661	)			(22,997	)
Amortization of prior service cost			1,349				1,521
Amortization of unrecognized loss			6,587				8,453
Net periodic benefit cost		$	2,755			$	4,411
Other Benefits
Service cost		$	573			$	716
Interest cost			996				999
Amortization of prior service cost			(91	)			(140	)
Amortization of unrecognized (gain)/loss			(378	)			115
Net periodic benefit cost		$	1,100			$	1,690

 

8.	INVENTORIES

Inventories, net of reserves, were as follows:

 

		June 30				December 31
In thousands		2016				2015
Raw materials		$	62,881			$	60,098
In-process and finished			122,322				115,874
Supplies			72,420				71,242
Total		$	257,623			$	247,214

 

9.	LONG-TERM DEBT

Long-term debt is summarized as follows:

 

		June 30				December 31
In thousands		2016				2015
Revolving credit facility, due Mar. 2020		$	48,851			$	58,792
5.375% Notes, due Oct. 2020			250,000				250,000
2.40% Term Loan, due Jun. 2022			9,516				10,109
2.05% Term Loan, due Mar. 2023			40,000				42,130
1.30% Term Loan, due Jun. 2023			11,102				—
1.55% Term Loan, due Sep. 2025			10,884				2,839
Total long-term debt			370,353				363,870
Less current portion			(9,098	)			(7,366	)
Unamortized deferred issuance costs			(2,889	)			(3,208	)
Long-term debt, net of current portion		$	358,366			$	353,296

The amount set forth for Long-term debt, net of current portion as of December 31, 2015, has been restated to retroactively adopt ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs to be presented as a direct deduction from the carrying value of the related debt instrument rather than as a deferred asset except for costs associated with a revolving line of credit. We adopted this standard in the first quarter of 2016 retroactive to December 31, 2015.

On March 12, 2015, we amended our revolving credit agreement with a consortium of banks (the “Revolving Credit Facility”) which increased the amount available for borrowing to $400 million, extended the maturity of the facility to March 12, 2020, and instituted a revised interest rate pricing grid.

For all US dollar denominated borrowings under the Revolving Credit Facility, the borrowing rate is, at our option, either, (a) the bank’s base rate which is equal to the greater of i) the prime rate; ii) the federal funds rate

plus 50 basis points; or iii) the daily Euro-rate plus 100 basis points plus an applicable spread over either i), ii) or iii) ranging from 12.5 basis points to 100 basis points based on the Company’s leverage ratio and its corporate credit ratings determined by Standard & Poor’s Rating Services and Moody’s Investor Service, Inc. (the “Corporate Credit Rating”); or (b) the daily Euro-rate plus an applicable margin ranging from 112.5 basis points to 200 basis points based on the Company’s leverage ratio and the Corporate Credit Rating. For non-US dollar denominated borrowings, interest is based on (b) above.

The Revolving Credit Facility contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limits certain intercompany financing arrangements, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios including: i) maximum net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio (the “leverage ratio”); and ii) a consolidated EBITDA to interest expense ratio. The most restrictive of our covenants is a maximum leverage ratio of 3.5x. As of June 30, 2016, the leverage ratio, as calculated in accordance with the definition in our credit agreement, was 1.9x. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.

On October 3, 2012, we completed a private placement offering of $250.0 million aggregate principal amount of 5.375% Senior Notes due 2020 (the “5.375% Notes”). The 5.375% Notes, which are now publically registered, are fully and unconditionally guaranteed, jointly and severally, by PHG Tea Leaves, Inc., Mollanvick, Inc., Glatfelter Composite Fibers N. A., Inc., Glatfelter Advanced Materials N.A., LLC., and Glatfelter Holdings, LLC (the “Guarantors”). Interest on the 5.375% Notes is payable semiannually in arrears on April 15 and October 15.

The 5.375% Notes are redeemable, in whole or in part, at anytime on or after October 15, 2016 at the redemption prices specified in the applicable Indenture. Prior to October 15, 2016, we may redeem some or all of the Notes at a “make-whole” premium as specified in the Indenture. These Notes and the guarantees of the notes are senior obligations of the Company and the Guarantors, respectively, rank equally in right of payment with future senior indebtedness of the Company and the Guarantors and will mature on October 15, 2020.

 

The 5.375% Notes contain various covenants customary to indebtedness of this nature including limitations on i) the amount of indebtedness that may be incurred; ii) certain restricted payments including common stock dividends; iii) distributions from certain subsidiaries; iv) sales of assets; v) transactions amongst subsidiaries; and vi) incurrence of liens on assets. In addition, the 5.375% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the Revolving Credit Agreement at maturity or a default under the Revolving Credit Agreement that accelerates the debt outstanding thereunder. As of June 30, 2016, we met all of the requirements of our debt covenants.

Glatfelter Gernsbach GmbH & Co. KG (“Gernsbach”), a wholly-owned subsidiary of ours, entered into a series of borrowing agreements with IKB Deutsche Industriebank AG, Düsseldorf (“IKB”) as summarized below:

 

Amounts in thousands		Original Principal				Interest Rate				Maturity
Borrowing date
Apr. 11, 2013		€	42,700				2.05	%			Mar. 2023
Sep. 4, 2014			10,000				2.40	%			Jun. 2022
Oct. 10, 2015			2,608				1.55	%			Sep. 2025
May 4, 2016			7,195				1.55	%			Sep. 2025
Apr. 26, 2016			10,000				1.30	%			Jun. 2023

Each of the borrowings require quarterly repayments of principal and interest and provide for representations, warranties and covenants customary for financings of these types. The financial covenants contained in each of the IKB loans, which relate to the minimum ratio of consolidated EBITDA to consolidated interest expense and the maximum ratio of consolidated total net debt to consolidated adjusted EBITDA, are calculated by reference to our Revolving Credit Agreement.

P. H. Glatfelter Company guarantees all debt obligations of its subsidiaries. All such obligations are recorded in these condensed consolidated financial statements.

Letters of credit issued to us by certain financial institutions totaled $5.1 million and $5.3 million as of June 30, 2016 and December 31, 2015, respectively. The letters of credit, which reduce amounts available under our revolving credit facility, primarily provide financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are outstanding under the letters of credit.

10.	ASSET RETIREMENT OBLIGATION

During 2008, we recorded $11.5 million, net present value, of asset retirement obligations related to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, lagoons were used to dispose of residual waste material. Closure of the lagoons has been substantially completed primarily by filling the lagoons, installing a non-permeable liner which will be covered with soil to construct the required cap over the lagoons. The retirement obligation was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the condensed consolidated balance sheet. The amount capitalized is being amortized as a charge to operations on the straight-line basis in relation to the expected closure period.

Following is a summary of activity recorded during the first six months of 2016 and 2015:

 

In thousands		2016				2015
Balance at January 1,		$	419			$	4,114
Accretion			—				59
Payments			(16	)			(1,905	)
Downward revision			—				(1,000	)
Gain			(2	)			(286	)
Balance at June 30,		$	401			$	982

The amount set forth above as of June 30, 2016, is recorded in other current liabilities in the accompanying condensed consolidated balance sheet.

 

11.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The amounts reported on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value. The following table sets forth carrying value and fair value of long-term debt:

 

		June 30, 2016								December 31, 2015
In thousands		Carrying Value				Fair Value				Carrying Value				Fair Value
Variable rate debt		$	48,851			$	48,851			$	58,792			$	58,792
Fixed-rate bonds			250,000				255,625				250,000				250,938
2.40% Term loan			9,516				9,406				10,109				10,535
2.05% Term loan			40,000				38,724				42,130				42,886
1.30% Term Loan			11,102				10,403				—				—
1.55% Term loan			10,884				9,554				2,839				2,524
Total		$	370,353			$	372,563			$	363,870			$	365,675

As of June 30, 2016, and December 31, 2015, we had $250.0 million of 5.375% fixed rate bonds. These bonds

 

are publicly registered, but thinly traded. Accordingly, the values set forth above for the bonds, as well as our other debt instruments, are based on observable inputs and other relevant market data (Level 2). The fair value of financial derivatives is set forth below in Note 12.

 

12.	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. Currency forward contracts involve fixing the exchange for delivery of a specified amount of foreign currency on a specified date. As of June 30, 2016, the maturity of currency forward contracts ranged from one month to 25 months.

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 condensed 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 condensed 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:

 

In thousands		June 30 2016				December 31 2015
Derivative
Sell/Buy - sell notional
Euro / British Pound			9,237				10,527
Sell/Buy - buy notional
Euro / Philippine Peso			670,402				758,634
British Pound / Philippine Peso			486,437				542,063
Euro / U.S. Dollar			48,574				51,433
U.S. Dollar / Canadian Dollar			33,839				34,649
U.S. Dollar / Euro			20,202				—

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 condensed consolidated statements of income under the caption “Other, net.”

 

The following sets forth derivatives used to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities:

 

In thousands		June 30 2016				December 31 2015
Derivative
Sell/Buy - sell notional
U.S. Dollar / British Pound			10,500				10,000
British Pound / Euro			2,500				3,500
Sell/Buy - buy notional
Euro / U.S. Dollar			3,500				12,500
British Pound / Euro			19,000				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 for the period indicated and the line items in the accompanying condensed consolidated balance sheets where the instruments are recorded:

 

In thousands		June 30 2016				December 31 2015				June 30 2016				December 31 2015
Balance sheet caption		Prepaid Expenses and Other Current Assets								Other Current Liabilities
Designated as hedging:
Forward foreign currency exchange contracts		$	915			$	955			$	15			$	1,545
Not designated as hedging:
Forward foreign currency exchange contracts		$	124			$	68			$	—			$	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 effect of netting the amounts presented above did not have a material effect on our consolidated financial position.