DERIVATIVE FINANCIAL INSTRUMENTS

Foreign Currency Forward Contracts

The Company enters into foreign currency forward contracts in order to reduce the impact of certain foreign currency fluctuations on sales denominated in a foreign currency. Derivatives are not used for trading or speculative activities. Firmly committed transactions and the related receivables may be hedged with forward exchange contracts. Gains and losses arising from foreign currency forward contracts are recorded in other expense (income), net as offsets of gains and losses resulting from the underlying hedged transactions. A realized loss of $10,000 and $5,000 was recorded in the three- and six months ended September 30, 2018, respectively, and a realized loss of $13,000 and $32,000 was recorded in the three- and six months ended September 30, 2017, respectively. As of September 30, 2018 and 2017, the notional amount of open foreign currency forward contracts was $1,132,000 and $1,105,000, respectively. The related unrealized loss was $13,000 and $46,000 at September 30, 2018 and 2017, respectively. The Company believes it does not have significant counterparty credit risks as of September 30, 2018 and 2017.

Interest Rate Swap Agreement

On February 1, 2018, the Company entered into an interest rate swap agreement with a term of five years to manage its exposure to interest rate movements by effectively converting a portion of its anticipated working capital debt from variable to fixed rates. The notional amount of the interest rate swap contract subject to fixed rates was $40,000,000 and fixed interest rate payments were at a weighted average rate of 2.575% during the three- and six months ended September 30, 2018. Interest rate differentials paid under this agreement were recognized as adjustments to interest expense and were $55,000 and $133,000 in the three- and six months ended September 30, 2018, respectively. There were no interest rate swap arrangements in place during the six months ended September 30, 2017.

The following table shows the fair value of the foreign currency forward contracts and interest rate swap agreement designated as hedging instruments and included in the Company’s consolidated balance sheet (in thousands):



		Fair Value of Derivative Instruments
	Balance Sheet Location	September 30, 2018		September 30, 2017
Foreign currency forward contracts	Accrued other liabilities	$	13	$	46
Interest rate swap agreement	Other assets	516		—