NOTE G — DERIVATIVES

The Company is a party to interest rate swap agreements with an aggregate notional amount of $14.0 million 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 loss.

The Company has also entered into foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. The aggregate gross notional amount of foreign exchange contracts at December 31, 2016 was $38.3 million. These foreign exchange contracts have not been designated as hedges as required in order to apply hedge accounting. The changes in the fair value of these contracts are recorded in earnings immediately.

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


		December 31,
Derivatives designated as hedging instruments	Balance Sheet Location	2016		2015

Interest rate swaps	Accrued expenses	$	4	$	10
	Deferred rent & other long-term liabilities		3		25

		December 31,
Derivatives not designated as hedging instruments	Balance Sheet Location	2016		2015

Foreign exchange contracts	Prepaid expenses and other current assets	$	924	$	261

The fair value 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 recognized in other comprehensive (loss) income as follows (in thousands):


	Year ended December 31,
Derivatives designated as hedging instruments	2016		2015			2014

Interest rate swaps	$	17	$	(2	)	$	13

No amounts recorded in accumulated other comprehensive 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 recognized in earnings as follows (in thousands):

Derivatives not designated as hedging instruments

Location of
Gain or (Loss)

Year Ended December 31,

2016

2015

2014

Foreign exchange contracts

Selling,
general and
administrative
expense

2,182

272

694