Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 2012

Derivatives and Hedging Activities [Abstract]

DERIVATIVES AND HEDGING ACTIVITIES

NOTE 8:     DERIVATIVES AND HEDGING ACTIVITIES

The Company implemented the requirements of FASB ASC No. 815, “Derivatives and Hedging” which requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging transaction and further, on the type of hedging transaction. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. Due to the Company’s global operations, it is exposed to foreign currency exchange rate fluctuations in the normal course of its business. The Company’s treasury policy allows it to offset the risks associated with the effects of certain foreign currency exposures through the purchase of foreign exchange forward or option contracts (“Hedging Contracts”). The policy, however, prohibits the Company from speculating on such Hedging Contracts for profit. To protect against the increase in value of forecasted foreign currency cash flow resulting from salaries paid in currencies other than the U.S. dollar during the year, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll of its non-U.S. employees denominated in the currencies other than the U.S. dollar for a period of one to twelve months with Hedging Contracts. Accordingly, when the dollar strengthens against the foreign currencies, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the Hedging Contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency expenses is offset by gains in the fair value of the Hedging Contracts. These Hedging Contracts are designated as cash flow hedges.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change. As of September 30, 2012 and December 31, 2011, the notional principal amount of the Hedging Contracts to sell U.S. dollars held by the Company was $6,150 and $8,350, respectively.

Other derivative instruments that are not qualified as hedging instruments consist of forward contracts that the Company uses to hedge monetary assets denominated in currencies other than the U.S. dollar. Gains and losses on these contracts as well as related costs are included in financial income, net, along with the gains and losses of the related hedged item. As of September 30, 2012 and December 31, 2011, the notional principal amount of the foreign exchange contracts to sell New Israeli Shekels (“NIS”) held by the Company was $2,490 and $0, respectively.

The fair value of the Company’s outstanding derivative instruments is as follows:

	As at September 30,		As at December 31,
	2012		2011
	(Unaudited)		(Audited)
Derivative assets:
Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts	$	9	$	—
Derivatives not qualified as hedging instruments:
Foreign exchange forward contracts	$	17	$	—
Total	$	26	$	—
Derivative liabilities:
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts	$	25	$	143
Foreign exchange forward contracts		9		82
Total	$	34	$	225

The Company recorded the fair value of derivative assets in “prepaid expenses and other accounts receivable” and the fair value of derivative liabilities in “accrued expenses and other payables” on the Company’s interim condensed consolidated balance sheet.

The increase (decrease) in gains recognized in “accumulated other comprehensive income (loss)” on derivatives, before tax effect, is as follows:

	Nine months ended September 30,						Three months ended September 30,
	2012			2011			2012		2011
	(unaudited)			(unaudited)			(unaudited)		(unaudited)
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts	$	(19	)	$	42		$	42	$	(113	)
Foreign exchange forward contracts		7			(165	)		14		(225	)
	$	(12	)	$	(123	)	$	56	$	(338	)

The gains (losses) reclassified from “accumulated other comprehensive income (loss)” into income, are as follows:

	Nine months ended September 30,					Three months ended September 30,
	2012		2011			2012		2011
	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts	$	137	$	(240	)	$	33	$	(12	)
Foreign exchange forward contracts		75		(43	)		27		(29	)
	$	212	$	(283	)	$	60	$	(41	)

The Company recorded in cost of revenues and operating expenses a net loss of $82 and $222 during the three and nine months ended September 30, 2012, respectively, and a net gain of $41 and $283 for the comparable periods of 2011, related to its Hedging Contracts. In addition, the Company recorded in financial income, net, a loss of $5 and a gain of $17 during the three and nine months ended September 30, 2012, respectively, and a loss of $0 and $284 for the comparable periods of 2011, related to derivatives not qualified as hedging instruments.