DERIVATIVES AND HEDGING ACTIVITIES

Derivatives Not Designated as Hedging Instruments (Balance Sheet Hedges)

The Company’s balance sheet hedges consist of foreign currency forward contracts which mature generally within three months, These forward contracts are carried at fair value and they are used to minimize the short-term impact of foreign currency exchange rate fluctuation on cash and certain trade and inter-company receivables and payables. Changes in the fair value of these foreign currency forward contracts are recognized in “Other expense, net” in the Consolidated Statement of Operations and are largely offset by the changes in the fair value of the assets or liabilities being hedged.

The locations and amounts of designated and non-designated derivative instruments’ gains and losses reported in the Company’s AOCI and Consolidated Statements of Operations are as follows (in thousands):



		Year ended December 31,
	Financial Statement Location	2018			2017		2016
Derivatives not designated as hedging instruments:
Gains (losses) recognized in income	Other expense, net	$	(2,325	)	$	155	$	343

Derivatives designated as hedging instruments ⁽¹⁾:
Gains in AOCI on derivatives (effective portion)	AOCI	$	—		$	—	$	202
Losses reclassified from AOCI into income (effective portion)	Cost of Revenue	$	—		$	—	$	(6	)
	Operating Expense	—			—		(38		)
	Total	$	—		$	—	$	(44	)
Losses recognized in income on derivatives (ineffectiveness portion and amount excluded from effectiveness testing)	Other expense, net	$	—		$	—	$	(63	)

(1) The Company did not enter into any new cash flow hedge contracts since December 31, 2016.

The U.S. dollar equivalents of all outstanding notional amounts of foreign currency forward contracts are summarized as follows (in thousands):



	December 31,
	2018		2017
Derivatives not designated as hedging instruments:
Purchase	$	28,975	$	12,875
Sell	$	—	$	1,509

The locations and fair value amounts of the Company’s derivative instruments reported in its Consolidated Balance Sheets are as follows (in thousands):



		Asset Derivatives					Liability Derivatives
	Balance Sheet Location	December 31, 2018		December 31, 2017		Balance Sheet Location	December 31, 2018		December 31, 2017
Derivatives not designated as hedging instruments:
Foreign currency contracts	Prepaid expenses and other current assets	$	—	$	33	Accrued and other current liabilities	$	333	$	4
		$	—	$	33		$	333	$	4

Offsetting of Derivative Assets and Liabilities

The Company recognizes all derivative instruments on a gross basis in the Consolidated Balance Sheets. However, the arrangements with its counterparties allows for net settlement, which are designed to reduce credit risk by permitting net settlement with the same counterparty. As of December 31, 2018, information related to the offsetting arrangements was as follows (in thousands):




	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Consolidated Balance Sheets		Net Amounts of Derivatives Presented in the Consolidated Balance Sheets
Derivative assets	$	—	$	—	$	—
Derivative liabilities	$	333	$	—	$	333

In connection with foreign currency derivatives entered in Israel, the Company’s subsidiaries in Israel are required to maintain a compensating balance with their bank at the end of each month. The compensating balance arrangements do not legally restrict the use of cash. As of December 31, 2018 and 2017, the total compensating balance maintained was $1.0 million.