Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. We selectively use derivative financial instruments including foreign currency forward contracts and interest rate swaps to manage our exposure to these risks.

The use of derivative financial instruments exposes the Company to credit risk, which relates to the risk of nonperformance by a counterparty to the derivative contracts. We manage our credit risk by entering into derivative contracts with only highly rated financial institutions and by using netting agreements.

The effective portion of derivative gains and losses are recorded in accumulated other comprehensive loss until the hedged transaction affects earnings upon settlement, at which time they are reclassified to cost of goods sold or net sales. If it is probable that an anticipated hedged transaction will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive loss to other income (expense).

We assess hedge effectiveness qualitatively by verifying that the critical terms of the hedging instrument and the forecasted transaction continue to match, and that there have been no adverse developments that have increased the risk that the counterparty will default. No recognition of ineffectiveness was recorded in our Consolidated Statement of Earnings for the twelve months ended December 31, 2019.

We use forward contracts to mitigate currency risk related to a portion of our forecasted foreign currency revenues and costs. The currency forward contracts are designed as cash flow hedges and are recorded in the Consolidated Balance Sheets at fair value.

We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future. At December 31, 2019, we had a net unrealized gain of $655 in accumulated other comprehensive loss, of which $595 is expected to be reclassified to income within the next 12 months. The notional amount of foreign currency forward contracts outstanding was $8,011 at December 31, 2019.

We use interest rate swaps to convert a portion of our revolving credit facility's outstanding balance from a variable rate of interest to a fixed rate. As of December 31, 2019, we have agreements to fix interest rates on $50,000 of long-term debt through February 2024. The difference to be paid or received under the terms of the swap agreements will be recognized as an adjustment to interest expense when settled.

These swaps are treated as cash flow hedges and consequently, the changes in fair value are recorded in other comprehensive loss. The estimated net amount of the existing gains or losses that are reported in accumulated other comprehensive loss that are expected to be reclassified into earnings within the next twelve months is approximately $82.

The location and fair values of derivative instruments designated as hedging instruments in the Consolidated Balance Sheets as of December 31, 2019, are shown in the following table:



	As of December 31,
	2019			2018
Interest rate swaps reported in Other current assets	$	82		$	576
Interest rate swaps reported in Other assets	$	—		$	369
Interest rate swaps reported in Other long-term obligations	$	(78	)	$	—
Foreign currency hedges reported in Other current assets	$	580		$	393

The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 (Balance Sheet, Offsetting). On a gross basis, there were foreign currency derivative assets of $648 and foreign currency derivative liabilities of $68 at December 31, 2019.

The effect of derivative instruments on the Consolidated Statements of Earnings is as follows:



	Years Ended December 31,
	2019		2018			2017
Foreign Exchange Contracts:
Amounts reclassified from AOCI to earnings:
Net sales	$	—	$	383		$	(488	)
Cost of goods sold	860		(6		)	497
Selling, general and administrative	92		107			45
Total amounts reclassified from AOCI to earnings	952		484			54
Loss recognized in other expense for hedge ineffectiveness	—		—			(1		)
Loss recognized in other expense for derivatives not designated as cash flow hedges	—		—			(15		)
Total derivative gain on foreign exchange contracts recognized in earnings	$	952	$	484		$	38

Interest Rate Swaps:
Benefit recorded in interest expense	$	491	$	421		$	37
Total gain	$	1,443	$	905		$	75