NOTE F — DERIVATIVES

The Company is a party to interest rate swap agreements with an aggregate notional value of $15.8 million and $20.1 million, at September 30, 2016 and December 31, 2015, respectively, to manage interest rate exposure in connection with its variable interest rate borrowings. The hedge periods of these agreements commenced in March 2013 and expire in June 2018 and the notional amounts amortize over these periods. The interest rate swap agreements were designated as cash flow hedges under ASC Topic No. 815. The effective portion of the fair value gain or loss on these agreements is recorded as a component of accumulated other comprehensive income (loss).

The Company has also entered into certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with sales and inventory purchases denominated in foreign currencies. The aggregate gross notional values of foreign exchange contracts at September 30, 2016 and December 31, 2015 were $20.6 million and $5.5 million, respectively. These foreign exchange contracts have not been designated as hedges as required in order to apply hedge accounting. The changes in the fair values of these contracts are recorded in earnings immediately.

The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows (in thousands):


		Liabilities
Derivatives designated as hedging instruments	Balance Sheet Location	September 30, 2016		December 31, 2015
Interest rate swaps	Accrued Expenses	$	29	$	10
	Deferred rent & other long-term liability		30		25

		Assets
Derivatives not designated as hedging instruments	Balance Sheet Location	September 30, 2016		December 31, 2015
Foreign exchange contracts	Prepaid expenses and other current assets	$	575	$	261

The fair values of the derivatives have been obtained from the counterparties to the agreements and were based on Level 2 observable inputs using proprietary models and estimates about relevant future market conditions.

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments are presented as follows (in thousands):


	Amount of Gain (Loss) Recognized in Other comprehensive income (loss) on Derivatives
	Three Months Ended September 30,					Nine Months Ended September 30,
Derivatives designated as hedging instruments	2016		2015			2016			2015
Interest rate swaps	$	33	$	(34	)	$	(14	)	$	(71	)

No amounts recorded in accumulated other comprehensive income (loss) are expected to be reclassified to interest expense in the next twelve months.

The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are presented as follows (in thousands):


		Amount of Gain Recognized in Earnings on Derivatives
		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives not designated as hedging instruments	Location of Gain Recognized in Earnings on Derivatives	2016		2015		2016		2015
Foreign exchange contracts	Selling, general and administrative expense	$	403	$	161	$	1,271	$	283