12. FOREIGN CURRENCY DERIVATIVES

The Company maintains a foreign currency risk management program that is designed to reduce the volatility of the Company’s economic value from the effects of unanticipated currency fluctuations. International operations generate both revenues and costs denominated in foreign currencies. The Company’s policy is to hedge significant foreign currency revenues and costs to improve margin visibility and reduce earnings volatility associated with unexpected changes in currency.

Non-Designated Hedges

The Company hedges its net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated revenues and expenses with foreign exchange forward contracts to reduce the risk that the Company’s earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative instruments are carried at fair value with changes in the fair value recorded as interest and other income (expense), net. These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset remeasurement gains and losses on the hedged assets and liabilities. The Company executes non-designated foreign exchange forward contracts primarily denominated in Euros, British Pounds, Israeli Shekels, Brazilian Reais, Japanese Yen and Mexican Pesos.

The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent, at September 30, 2013 of the outstanding non-designated hedges (in thousands):

	Original Maturities of 360 Days or Less
	Foreign Currency		USD Equivalent		Positions		Foreign Currency		USD Equivalent		Positions
Brazilian Real		4,103	$	1,840		Buy		—	$	—		—
Brazilian Real		8,372	$	3,624		Sell		—	$	—		—
Euro		16,807	$	22,753		Buy		15,150	$	19,663		Buy
Euro		33,127	$	44,313		Sell		38,385	$	50,982		Sell
British Pound		4,690	$	7,413		Buy		10,552	$	16,730		Buy
British Pound		2,610	$	4,216		Sell		14,803	$	23,469		Sell
Israeli Shekel		47,442	$	13,454		Buy		68,436	$	17,405		Buy
Israeli Shekel		103,486	$	29,039		Sell		—	$	—		—
Japanese Yen		332,319	$	3,383		Buy		—	$	—		—
Japanese Yen		643,072	$	6,547		Sell		—	$	—		—
Mexican Peso		8,739	$	665		Buy		—	$	—		—
Mexican Peso		18,566	$	1,401		Sell		—	$	—		—

The following table shows the effect of the Company’s non-designated hedges in the condensed consolidated statements of operations for the nine months ended September 30, 2013 and 2012 (in thousands):

Derivatives Not Designated as Hedging Instruments		Location of Gain or (Loss) Recognized in Income on Derivative		Amount of Gain or (Loss) Recognized in Income on Derivative
				September 30, 2013									September 30, 2012
Foreign exchange contracts		Other income (expense)		$		(182	)				$				571

Cash Flow Hedges

The Company’s foreign exchange risk management program objective is to reduce volatility in the Company’s economic value from unanticipated foreign currency fluctuations. The Company designates forward contracts as cash flow hedges of foreign currency revenues and expenses, primarily the Euro, British Pound and Israeli Shekel. All foreign exchange contracts are carried at fair value on the condensed consolidated balance sheets and the maximum duration of foreign exchange forward contracts does not exceed thirteen months. Speculation is prohibited by policy.

To receive hedge accounting treatment under ASC 815, Derivatives and Hedging, all cash flow hedging relationships are formally designated at hedge inception, and tested both prospectively and retrospectively to ensure the forward contracts are highly effective in offsetting changes to future cash flows on the hedged transactions. The Company records effective spot to spot changes in these cash flow hedges in cumulative other comprehensive income until they are reclassified to revenue, cost of revenue or operating expenses together with the hedged transaction. The time value on forward contracts is excluded from effectiveness testing and recorded to interest and other income (expense), net over the life of the contract together with any ineffective portion of the hedge.

The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges in the condensed consolidated statements of operations for the nine months ended September 30, 2013 and 2012 (in thousands):

Nine Months Ended September 30, 2013:	Gain or (Loss) Recognized in OCI—Effective Portion		Location of Gain or (Loss) Reclassified from OCI into Income—Effective Portion	Gain or (Loss) Reclassified from OCI into Income—Effective Portion
Foreign exchange contracts	$	1,793	Product revenues	$	1,190		Other income (expense)	$	273
			Cost of revenues		138
			Sales and marketing		(73	)
			Research and development		1,075
			General and administrative		26
Total	$	1,793		$	2,356			$	273

Nine Months Ended September 30, 2012:
Foreign exchange contracts	$	789	Product revenues	$	7,263		Other income (expense)	$	(63	)
			Cost of revenues		(721	)
			Sales and marketing		(1,228	)
			Research and development		(842	)
			General and administrative		(1,083	)
Total	$	789		$	3,389			$	(63	)

(a) For both the nine months ended September 30, 2013 and 2012, there were no gains or losses recorded for the ineffective portion.

As of September 30, 2013, the Company estimated that all values reported in accumulated other comprehensive income (loss) will be reclassified to income within the next twelve months.

In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge would be immediately reclassified to interest and other income (expense), net on the consolidated statements of operations. For the three and nine months ended September 30, 2013 and 2012, there were no such gains or losses.

The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent, at September 30, 2013 of the outstanding cash flow hedges, all of which are carried at fair value on the condensed consolidated balance sheets (foreign currency and dollar amounts in thousands):

	Original Maturities of Greater than 360 Days
	Foreign Currency		USD Equivalent		Positions
Euro		27,850	$	36,844		Buy
Euro		56,315	$	74,943		Sell
British Pound		22,348	$	34,591		Buy
British Pound		20,697	$	31,829		Sell
Israeli Shekel		88,764	$	24,026		Buy

There were no outstanding cash flow hedge contracts with original maturities of 360 days or less at September 30, 2013. The estimates of fair value are based on applicable and commonly quoted prices and prevailing financial market information as of September 30, 2013 and December 31, 2012. See Note 11 for additional information on the fair value measurements for all financial assets and liabilities, including derivative assets and derivative liabilities that are measured at fair value in the condensed consolidated financial statements on a recurring basis.

The following table shows the Company’s derivative instruments measured at gross fair value as reflected in the condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012 (in thousands):

	Fair Value of Derivatives Designated as Hedge Instruments
	September 30, 2013		December 31, 2012			September 30, 2013			December 31, 2012
Derivative assets (a):
Foreign exchange contracts	$	3,614	$	2,992	$		3,517	$		1,166
Derivative liabilities (b):
Foreign exchange contracts	$	3,032	$	1,760	$		2,580	$		1,513

(a) All derivative assets are recorded as prepaid and other current assets in the condensed consolidated balance sheets.

(b) All derivative liabilities are recorded as other accrued liabilities in the condensed consolidated balance sheets.

Offsetting Derivative Assets and Liabilities

The Company has entered into master netting arrangements with each of its derivative counterparties. These arrangements afford the right to net derivative assets against liabilities with the same counterparty. Under certain default provisions, the Company has the right to setoff any other amounts payable to the payee whether or not arising under this agreement. As a result of the netting provisions, the Company’s maximum amount of loss under derivative transactions due to credit risk is limited to the net amounts due from the counterparties under the derivative contracts. Although netting is permitted, it is currently the Company’s policy and practice to record all derivative assets and liabilities on a gross basis in the condensed consolidated balance sheets.

The following table sets forth the offsetting of derivative assets as of September 30, 2013 and December 31, 2012 (in thousands):

									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets			Net Amounts Of Assets Presented In the Condensed Consolidated Balance Sheets			Financial Instruments				Cash Collateral Pledged			Net Amount
As of September 30, 2013:
Foreign exchange contracts	$	7,131	$	—	$		7,131	$		(4,731	)	$		—	$		2,400
As of December 31, 2012:
Foreign exchange contracts	$	4,158	$	—	$		4,158	$		(3,227	)	$		—	$		931

The following table sets forth the offsetting of derivative liabilities as of September 30, 2013 and December 31, 2012 (in thousands):

										Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Condensed Consolidated Balance Sheets			Net Amounts Of Liabilities Presented In the Condensed Consolidated Balance Sheets			Financial Instruments				Cash Collateral Pledged			Net Amount
As of September 30, 2013:
Foreign exchange contracts	$	5,612	$		—	$		5,612	$		(4,731	)	$		—	$		881
As of December 31, 2012:
Foreign exchange contracts	$	3,273	$		—	$		3,273	$		(3,227	)	$		—	$		46