DERIVATIVES AND HEDGING ACTIVITIES:

12 Months Ended

Dec. 31, 2012

DERIVATIVES AND HEDGING ACTIVITIES:

DERIVATIVES AND HEDGING ACTIVITIES:

NOTE 7—DERIVATIVES AND HEDGING ACTIVITIES:

        The Company uses derivative instruments primarily to manage exposures to foreign currency. The Company enters into forward contracts to manage its exposure to changes in the exchange rate of the NIS against the U.S. dollar. The Company's primary objective in entering these arrangements is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The program is not designated for trading or speculative purposes. The Company's forward contracts expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across a number of major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

        The Company uses forward contracts designated as cash flow hedges to hedge a substantial portion of forecasted operating expenses in NIS. The gain or loss on the effective portion of a cash flow hedge is initially reported as a component of OCI and subsequently reclassified into operating expenses in the same period in which the hedged operating expenses are recognized, or reclassified into other income, net, if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is de-designated because it is no longer probable of occurring or related to an ineffective portion of a hedge, as well as any amount excluded from the Company's hedge effectiveness, is recognized as other income, net immediately. As of December 31, 2012, the Company had forward contracts in place that hedged future operating expenses of approximately 219.9 million NIS, or approximately $58.9 million based upon the exchange rate as of December 31, 2012. The forward contracts cover future NIS denominated operating expenses expected to occur over the next twelve months. At December 31, 2011, the Company had forward contracts in place that hedged future operating expenses of approximately 167.1 million NIS, or approximately $43.7 million based upon the exchange rate as of December 31, 2011.

        The Company does not use derivative financial instruments for purposes other than cash flow hedges.

• Fair Value of Derivative Contracts

        The fair value of derivative contracts as of December 31, 2012 and December 31, 2011 was as follows:

	Derivative Assets Reported in Other Current Assets				Derivative Liabilities Reported in Other Current Liabilities
	December 31,				December 31,
	2012		2011		2012		2011
	(in thousands)
Foreign exchange contracts designated as cash flow hedges	$	2,942	$	—	$	—	$	1,149
Total derivatives designated as hedging instruments	$	2,942	$	—	$	—	$	1,149

• Effect of Designated Derivative Contracts on Accumulated Other Comprehensive Income

        The following table represents the balance of derivative contracts designated as cash flow hedges as of December 31, 2012 and 2011, and their impact on OCI for the year ended December 31, 2012 (in thousands):

December 31, 2011	$	(1,149	)
Amount of gain recognized in OCI (effective portion)		3,198
Amount of loss reclassified from OCI to income (effective portion)		893
December 31, 2012	$	2,942

        Foreign exchange contracts designated as cash flow hedges relate primarily to operating expenses and the associated gains and losses are expected to be recorded in operating expenses when reclassed out of OCI. The Company expects to realize the accumulated OCI balance related to foreign exchange contracts within the next twelve months.

• Effect of Derivative Contracts on the Condensed Consolidated Statement of Operations

        The impact of derivative contracts on total operating expenses in the years ended December 31, 2012, 2011 and 2010 was:

	Year Ended December 31,
	2012			2011		2010
	(in thousands)
Gain (loss) on foreign exchange contracts designated as cash flow hedges	$	(893	)	$	1,223	$	563

The net gains or losses relating to the ineffective portion of derivative contracts were not material in the years ended December 31, 2012 and 2011.