DERIVATIVES

12 Months Ended

Dec. 31, 2018

NOTE H — DERIVATIVES

The Company is a party to interest rate swap agreements, with an aggregate notional value of $125.0 million at December 31, 2018. The Company designated the interest rate swaps as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The hedge periods of these agreements commenced in April 2018 and expire in March 2023. The notional amounts are reduced over these periods.

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 inventory purchases denominated in foreign currencies. The aggregate gross notional values of foreign exchange contracts at December 31, 2017 was

$34.9

million. No contracts are outstanding at December 31, 2018. 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 consolidated balance sheets are presented as follows (in thousands):

		December 31,
Derivatives designated as hedging instruments	Balance Sheet Location	2018		2017
Interest rate swaps	Prepaid expenses	$	42	$	11
	Other assets		157		—

		December 31,
Derivatives not designated as hedging instruments	Balance Sheet Location	2018		2017
Foreign exchange contracts	Accrued Expenses	$	—	$	1,951

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 counterparties to the derivative financial instruments are major international financial institutions. The Company is exposed to credit risk for the net exchanges under these agreements, but not for the notional amounts. The Company does not anticipate non-performance by any of its counterparties.

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

	Year ended December 31,
Derivatives designated as hedging instruments	2018		2017		2016
Interest rate swaps	$	161	$	17	$	17

During the year ended December 31, 2018 the Company recognized $0.4 million of interest expense related to the interest rate swaps. Gains or losses on the interest rate swaps will be reclassified into earnings as interest expense as the interest expense on the debt is recognized in earnings.

In connection with the financing transaction described in Note G – Debt, the Company settled its outstanding interest rate swaps, which had been accounted for as hedges and had an aggregate notional value of $5.3 million. The net gain at such time was reclassified into interest expense during the year ended December 31, 2018.

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):

		Year Ended December 31,
Derivatives not designated as hedging instruments	Location of Gain or (Loss)	2018		2017		2016
Foreign exchange contracts	Selling, general and administrative expense	$	150	$	(2,592)	$	2,182