The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the 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 relationship and further, on the type of hedging relationship.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the six months ended June 30, 2020, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll denominated in NIS for a period of one to six months with hedging contracts.

Accordingly, when the dollar strengthens against the NIS, 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 cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

As of June 30, 2020, the Company entered into forward contracts to sell U.S. dollars for NIS in the amount of $9,027.

In addition to the above-mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, as financial income (expenses), net.

As of June 30, 2020, the Company entered into forward contracts to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 15 million.

As of June 30, 2020, the Company entered into put and call options to sell Euro for U.S. dollars in the amount of euros 30 million.

The fair value of derivative assets as of June 30, 2020, was $986, which was recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2019, the Company had no derivative instruments (see Note 5).

For the six months ended June 30, 2020, the Company recorded unrealized gain in the amount of $446, net of tax effect, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.

For the six months ended June 30, 2020, the Company recorded gain in the amount of $491, in “financial expenses, net” related to the derivative assets not designated as hedging instruments.

The Company had no gains or losses related to derivative instruments during the six months ended June 30, 2019.

F - 14

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 6:-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.)

The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss					Affected Line Item in the Statements of Income
	2020			2019

Unrealized gains on cash flow hedges, net	$	99		$	-	Cost of revenues
		270			-	Research and development
		61			-	Sales and marketing
		66			-	General and administrative

		496			-	Total, before income taxes

		(61	)		-	Income tax expense

	$	435		$	-	Total, net of income taxes