NOTE 12 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

General

The Company operates internationally, which gives rise to exposure to market risks, mainly from changes in foreign exchange rates. The Company uses financial instruments and derivatives to hedge its balance sheet exposures as well as certain future cash flows in connection with payroll and related expenses and anticipated probable transactions which are expected to be denominated in non-Dollar currencies.

The Company is exposed to losses in the event of non-performance by counterparties to financial instruments; however, as the counterparties are major Israeli, European and United States banks, the Company does not expect any counterparties to fail to meet their obligations. The Company does not require or place collateral with respect to these financial instruments. The Company does not hold or issue derivatives for trading purposes.

Derivative instruments

As stated in Note 1s, the Company enters into various types of foreign exchange derivatives in managing its foreign exchange risks. The notional amounts of these derivatives as of December 31, 2014 were as follows:


	$ in millions
Forward exchange and options for conversion of:
Euros into Dollars		18.6

Japanese Yen into Dollars		34.2

Dollars into NIS		43.1

Korean Won into Dollars		25.1

Chinese Yuan into Dollars		13.1

Taiwan Dollars into Dollars		27.7

Dollars into British Pounds		39.9

The terms of all of these currency derivatives are less than one year.

The following table summarizes activity in accumulated other comprehensive income (loss) related to derivatives classified as foreign currency cash flow hedges held by the Company during the reported years:


	Year ended December 31
	2014			2013			2012
	$ in thousands
Balance at beginning of year		409			628			(600	)
Unrealized gains (losses) from derivatives		(2,364	)		2,050			636
Reclassifications into earnings from other comprehensive income (loss):
included in revenues		(1,917	)		(809	)		(888	)
included in various statements of operations items		1,667			(1,519	)		1,634
Tax effect		277			59			(154	)

Balance at end of year		(1,928	)		409			628

Fair value of financial instruments

The fair value of financial instruments included in working capital is usually close or identical to their carrying amounts. The fair value of non-current other receivables and long-term liabilities, including long term loans, also approximates the carrying amounts, since they bear interest at rates close to prevailing market rates.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2014 and 2013, consistent with the fair value hierarchy provisions of the applicable accounting rules:


	Level 1		Level 2		Total
December 31, 2014:
Assets:
Marketable securities		5,890				5,890

Derivative assets not designated as hedging instruments				1,665		1,665

Liabilities -
Derivative liabilities designated as hedging instruments				1,891		1,891

Derivative liabilities not designated as hedging instruments				218		218

December 31, 2013:
Assets:
Derivative assets designated as hedging instruments				361		361

Derivative assets not designated as hedging instruments				958		958

Liabilities -
Derivative liabilities not designated as hedging instrument				131		131

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 - Valuations based on quoted prices in markets that are not active but for which all significant inputs are observable, either directly or indirectly. Derivaties, as described in b. above, are of value primarily based on observable inputs including interest rate curves and both forward and spot prices for currencies and the Company therefore has the ability to perform an independent verification to validate the quotation obtained.

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. These estimated fair values are subject to uncertainties that are difficult to predict.