NOTE G- DERIVATIVES

The Company has entered into certain 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 values of foreign exchange contracts at March 31, 2018 and December 31, 2017 were $28.3 million and $34.9 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):


Derivatives not designated as hedging instruments	Balance Sheet Location		March 31, 2018		December 31, 2017
Foreign exchange contracts		Accrued expenses	$	2,428	$	1,951

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 not designated as hedging instruments are recognized in earnings as follows (in thousands):


		Three Months Ended March 31,
Derivatives not designated as hedging instruments	Location of loss	2018			2017
Foreign exchange contracts	Selling, general and administrative expense	$	(1,515	)	$	(189	)

In connection with the financing transaction described in Note F, the Company settled its outstanding interest rate swaps, which had an aggregate notional value of $5.3 million. The net gain reported in accumulated other comprehensive income at December 31, 2017 related to the interest rate swap was reclassified into interest expense during the three months ended March 31, 2018.