10)

Derivative Financial Instruments

Interest Rate Swaps

From time to time as dictated by market opportunities, the Company enters into interest rate swap agreements designed to manage exposure to interest rates on the Company’s variable rate indebtedness. The Company recognizes all derivatives on its balance sheet at fair value. The Company has designated its interest rate swap agreements, including those that are forward-dated, as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense.

The Company’s effective swap agreements convert the base borrowing rate on

$50

million of debt due under our revolving credit agreement from a variable rate equal to LIBOR to a weighted average fixed rate of

1.43%

March

31,

2017.

The fair value of the swaps recognized in accrued expenses and in other comprehensive income is as follows (in thousands, except percentages):

						Fair Value

Effective Date	Notional Amount		Fixed Rate		Maturity	March 31, 2017			June 30, 2016
December 19, 2014		20,000		1.18%	December 19, 2017	$	(4	)	$	(201	)
December 19, 2014		5,000		1.20%	December 19, 2017		(2	)		(52	)
December 18, 2015		15,000		1.46%	December 19, 2018		(17	)		(325	)
December 19, 2015		10,000		2.01%	December 19, 2019		(108	)		(460	)
						$	(131	)	$	(1,038	)

The Company reported

losses for the

three

and

nine

months ended

March

31,

2017,

as a result of hedge ineffectiveness. Future changes in these swap arrangements, including termination of the agreements,

may

result in a reclassification of any gain or loss reported in accumulated other comprehensive income (loss) into earnings as an adjustment to interest expense. Accumulated other comprehensive income (loss) related to these instruments is being amortized into interest expense concurrent with the hedged exposure.

Foreign Exchange Contracts

Forward foreign currency exchange contracts are used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as foreign sales, foreign purchases of materials, and loan payments to and from subsidiaries. The Company enters into such contracts for hedging purposes only. For hedges of intercompany loan payments, the Company has not elected hedge accounting due to the general short-term nature and predictability of the transactions, and records derivative gains and losses directly to the Unaudited Condensed Consolidated Statements of Operations. At

March

31,

2017

and

June

30,

2016,

the Company had outstanding forward and cross currency contracts related to hedges of intercompany loans with net unrealized gain (losses) of

$(2.1)

million and

$(0.1)

million, respectively, which approximates the unrealized gains and losses on the related loans. The notional amounts of the Company’s forward and cross currency contracts, by currency, are as follows (in thousands):

	Notional Amount
	(in native currency)
Currency	March 31, 2017		June 30, 2016
Euro		21,362		2,477
British Pound Sterling		6,750		594
Canadian		16,600		-
USD		20,000		-

The table below presents the fair value of derivative financial instruments as well as their classification on the Unaudited Condensed Consolidated Balance Sheets (in thousands):

Asset Derivatives

March 31, 2017

June 30, 2016

Derivative designated

Balance

as hedging instruments

Sheet

Line Item

Fair Value

Line Item

Fair Value

Foreign exchange contracts

Other Assets

Liability Derivatives

March 31, 2017

June 30, 2016

Derivative designated

Balance

as hedging instruments

Sheet

Line Item

Fair Value

Line Item

Fair Value

Interest rate swaps

Accrued Liabilities

131

Accrued Liabilities

1,038

Foreign exchange contracts

Accrued Liabilities

2,148

Accrued Liabilities

2,279

1,132

The table below presents the amount of gain (loss) recognized in comprehensive income on our derivative financial instruments (effective portion) designated as hedging instruments and their classification within comprehensive income for the periods ended (in thousands):

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	201 7			201 6			201 7			201 6
Interest rate swaps	$	(3,445	)	$	(869	)	$	(2,817	)	$	(1,114	)
Foreign exchange contracts		-			(94	)		(74	)		107
	$	(3,445	)	$	(963	)	$	(2,891	)	$	(1,007	)

The table below presents the amount reclassified from accumulated other comprehensive income (loss) to Net Income for the periods ended (in thousands):

Details about Accumulated									Affected line item
Other Comprehensive	Three Months Ended				Nine Months Ended				in the Unaudited
Income (Loss) Components	March 31,				March 31,				Condensed Statements
	201 7		201 6		201 7		201 6		of Operations
Interest rate swaps	$	80	$	176	$	309	$	442	Interest expense
Foreign exchange contracts		-		71		75		32	Cost of Sales
	$	80	$	247	$	384	$	474