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 nine months ended September 30, 2020, the Company instituted a foreign currency cash flow hedging program whereby 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 September 30, 2020, the Company had no derivative instruments that were designated as cash flow hedges.

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 a financial expense (income), net.

As of September 30, 2020, the Company entered into forward contracts to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 7.5 million.

As of September 30, 2020, the Company entered into put and call options to sell Euro ("EUR") for U.S. dollars in the amount of EUR 45 million.

As of September 30, 2020, the Company entered into put and call options to sell U.S. dollars for South Korean Won in the amount of USD 48.6 million.

The fair value of derivative assets as of September 30, 2020, was $780, which was recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

The fair value of derivative liabilities as of September 30, 2020, was $1,119, which was recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

As of December 31, 2019 and for the year then ended, the Company had no derivative instruments (see Note 5).

For the three and nine months ended September 30, 2020, the Company recorded a loss in the amount of $1,450 and $959, respectively, in “financial income, net” related to the derivative assets not designated as hedging instruments.

F - 18

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):

Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Loss										Affected Line Item in the Statements of Income
	Three months ended					Nine months ended
	September 30, 2020					September 30, 2020
	2020			2019		2020			2019

Unrealized gains on cash flow hedges, net	$	90		$	-	$	189		$	-	Cost of revenues
		353			-		623			-	Research and development
		75			-		136			-	Sales and marketing
		87			-		153			-	General and administrative

		605			-		1,101			-	Total, before income taxes

		(74	)		-		(135	)		-	Income tax expense

	$	531		$	-	$	966		$	-	Total, net of income taxes