NOTE 17 – DERIVATIVE FINANCIAL INSTRUMENTS

In accordance with ASC 815 we recognize derivative instruments on our balance sheet, and we measure them at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate the derivative as being in a hedging relationship, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivative instruments that are designated, and qualify as hedges of the exposure to changes in the fair value are considered fair value hedges. Derivative instruments that are designated, and qualify as hedges of the exposure to variability in expected future cash flows are considered cash flow hedges. Derivative instruments may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. We currently only utilize cash flow hedges and do not use derivatives for trading or speculative purposes.

Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain risks, even though we elect not to apply hedge accounting under ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in the consolidated statements of income. Specific information about the valuations of derivatives is described in Note 1 and classification of derivatives in the fair value hierarchy is described in Note 2. Currently our interest rate swaps and interest rate collars are designated as hedges while our foreign exchange contracts are not designated as hedges.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings.

Certain of the Company's agreements with its derivative counterparties contain provisions where if certain merger activity, a change of control, or a capital structure change occurs that materially changes the Company's creditworthiness in an adverse manner, the Company’s counterparty may have the right to terminate any derivative transactions under such agreement.

The company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness.

Hedges of Foreign Currency Risk

We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency forward agreements to manage this exposure. At December 31, 2017 we had outstanding foreign currency forward contracts that are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities; these instruments are not designated for hedge accounting treatment in accordance with ASC 815. There is no fair value of our foreign exchange hedges, therefore they are not recorded in our Consolidated Balance Sheets. As of December 31, 2017 and 2016 the total notional amounts of these foreign exchange contracts was $87.6 million and zero, respectively.

The table below sets forth outstanding foreign currency forward contracts at December 31, 2017:

Notional Amount		Effective Date	Maturity Date	Index*	Weighted Average Strike Rate	Cash Flow Hedge Designation
$	2,494	December 2017	December 2017	EUR/GPB	1.2009	Non-designated
	10,514	December 2017	December 2017	EUR/USD	1.2009	Non-designated
	10,612	December 2017	December 2017	GPB/USD	1.3541	Non-designated
	31,834	December 2017	December 2017	USD/CNY	6.5343	Non-designated
	1,594	December 2017	December 2017	USD/JPY	112.35	Non-designated
	30,594	December 2017	December 2017	USD/TWD	29.406	Non-designated

* EUR = Euro
GBP = British Pound Sterling
USD = United States Dollar
CNY = Chinese Yuan Renminbi
JPY = Japan Yen
TWD = Taiwan dollar

Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps, including interest rate collars, as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The table below sets forth information related to the number of and the notional amount of our interest rate related derivative instruments at December 31 2017 and December 31, 2016:

	Number of Instruments		Notional Amount
	2017	2016	2017		2016
Interest rate swaps and collars	14	6	$	220,000	$	150,000

The table below sets forth the fair value of the Company’s interest rate related derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016:

	Fair Value
	Other Current Assets				Other Assets				Other Liabilities
	2017		2016		2017		2016		2017		2016
Interest rate swaps and collars	$	486	$	-	$	3,398	$	3,052	$	-	$	735

The tables below sets forth the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the years ended December 31, 2017 and 2016:

Derivatives Designated as Hedging Instruments	Amount of Gain or (Loss) Recognized in OCI on Derivative				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Net Income
	2017		2016			2017		2016
Interest rate swaps and collars	$	1,567	$	2,317	Interest expense	$	577	$	112

We estimate that $0.5 million of net derivative gains included in AOCI as of December 31, 2017 will be reclassified into earnings within the following 12 months. No gains or losses were reclassified from AOCI into earnings as a result of forecasted transactions that failed to occur during fiscal year 2017.

Derivatives Not Designated as Hedging Instruments	Amount of Gain or (Loss) Recognized in Net Income				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
	2017		2016
Foreign currency forward contracts	$	1,491	$	-	Foreign currency (loss) gain, net

There was no effect from derivative financial instruments on the Company’s Consolidated Statements of Operations for the twelve months ended December 31, 2015.

At December 31, 2017 and 2016, the fair value of derivatives in a net asset position, which includes accrued interest but excludes any adjustments for nonperformance risk, related to these agreements was $3.9 million and $2.3 million, respectively. As of December 31, 2017 and 2016, the Company had not posted any collateral related to these agreements.