4. Derivative Instruments

The Company’s primary objective for holding derivative instruments is to reduce its exposure to foreign currency rate changes. The Company reduces its exposure by entering into forward foreign exchange contracts with respect to operating expenses that are forecast to be incurred in currencies other than U.S. dollars. Substantially all of the Company’s revenue and capital purchasing activities and a majority of its operating expenditures are transacted in U.S. dollars. However, certain operating expenditures are incurred in or exposed to other currencies, primarily the Israeli shekel and the Euro.

The Company has established forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in exchange rates. The Company’s currency risk management program includes forward foreign exchange contracts designated as cash flow hedges. These forward foreign exchange contracts generally mature within 12 months. The Company does not enter into derivative financial instruments for trading purposes.

Derivative instruments measured at fair value and their classification on the condensed consolidated balance sheets are presented in the following tables (in thousands):

As of March 31, 2018

As of December 31, 2017

Notional

Amount

Fair Value

Notional

Amount

Fair Value

Foreign exchange forward contract derivatives in

cash flow hedging relationships - included in

prepaid expenses and other current assets

48,495

175

66,560

551

Gains (losses) on derivative instruments and their classification on the condensed consolidated statement of operations are presented in the following table (in thousands):

	For the three months ended March 31
	2018			2017
Foreign Exchange Forward Contract Derivatives in cash flow hedging relationships:
Gains recognized in OCI (a)	$	356		$	2,887
Losses recognized in OCI (a)	$	(510	)		-
Gains recognized from accumulated OCI into net income (b)	$	257		$	206
Losses recognized from accumulated OCI into net income (b)	$	-		$	(5	)

(a)	Net change in the fair value of the effective portion classified in other comprehensive income (loss) (“OCI”).

(b)

Effective portion of cash flow hedges reclassified from accumulated other comprehensive income (loss) into net income, of which $84 and $173 were recognized within cost of sales and operating expenses, respectively, for the three months ended March 31, 2018; $14 and $187 were recognized within cost of sales and operating expenses, respectively, for the three months ended March 31, 2017. All amounts are reflected within the respective condensed consolidated statement of operations.