Derivative Instruments

6 Months Ended

Jan. 31, 2016

Derivative Instruments [Abstract]

Derivative Instruments

Note 5—Derivative Instruments

The primary risk managed by the Company using derivative instruments is foreign exchange risk. Foreign exchange forward contracts are entered into as hedges against unfavorable fluctuations in the U.S. Dollar – Norwegian Krone (“NOK”) exchange rate. Zedge is based in New York and Norway and much of its operations are located in Norway. The Company does not apply hedge accounting to these contracts, therefore the changes in fair value are recorded in earnings. By using derivative instruments to mitigate exposures to changes in foreign exchange rates, the Company is exposed to credit risk from the failure of the counterparty to perform under the terms of the contract. The Company minimizes the credit or repayment risk by entering into transactions with high-quality counterparties.

The Company’s outstanding contracts at January 31, 2016 were as follows:

Settlement Date	U.S. Dollar Amount		NOK Amount
February 2016		800,000		6,772,360
May 2016		1,000,000		8,238,600
July 2016		1,000,000		8,200,000

The fair value of outstanding derivative instruments recorded as assets in the accompanying consolidated balance sheets were as follows:

Asset Derivatives	Balance Sheet Location	January 31, 2016		July 31, 2015
		(in thousands)
Derivatives not designated or not qualifying as hedging instruments:
Foreign exchange forwards	Other current assets	$	—	$	38

The fair value of outstanding derivative instruments recorded as liabilities in the accompanying consolidated balance sheets were as follows:

Liability Derivatives	Balance Sheet Location	January 31, 2016		July 31, 2015
		(in thousands)
Derivatives not designated or not qualifying as hedging instruments:
Foreign exchange forwards	Other current liabilities	$	131	$	39

The effects of derivative instruments on the consolidated statements of operations were as follows:

		Amount of Gain (Loss) Recognized on Derivatives
		Three Months Ended January 31,					Six Months Ended January 31,
Derivatives not designated or not qualifying as hedging instruments	Location of Gain (Loss) Recognized on Derivatives	2016			2015		2016			2015
		(in thousands)
Foreign exchange forwards	Other (expense) income, net	$	(123	)	$	—	$	(225	)	$	—