15.

Derivatives

The Company conducts a large portion of its operations in international markets that subject it to foreign currency fluctuations. The most significant foreign currency exposures occur when revenue and associated accounts receivable are collected in one currency and expenses to generate that revenue are incurred in another currency. The Company’s primary exchange rate exposure relates to payroll, other payroll costs and operating expenses in the Philippines, India, Sri Lanka and Israel.

In addition, although most of the Company’s revenues are denominated in U.S. dollars, a significant portion of the total revenues is denominated in Canadian dollars, Pound Sterling and Euros.

To manage its exposure to fluctuations in foreign currency exchange rates, the Company entered into foreign currency forward contracts, authorized under Company policies, with counterparties that were highly rated financial institutions. The Company utilized non-deliverable forward contracts expiring within twelve months to reduce its foreign currency risk.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at their fair value and classified based on the instrument’s maturity date. The total notional amount for outstanding derivatives as of December 31, 2016 and 2015 was $19.3 million and $15.8 million, respectively, which is comprised of cash flow hedges denominated in U.S. dollars.

The following table presents the fair value of derivative instruments included within the consolidated balance sheets as of December 31, 2016 and 2015 (in thousands):

	Balance Sheet Location	Fair Value
		2016		2015
Derivatives designated as hedging instruments:

Foreign currency forward contracts	Accrued expenses	$	318	$	165

The effect of foreign currency forward contracts designated as cash flow hedges on the consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014 were as follows (in thousands):

	2016		2015		2014

Net gain (loss) recognized in OCI⁽¹⁾	$	(90)	$	(51)	$	141
Net gain (loss) reclassified from accumulated OCI into income⁽²⁾	$	63	$	(223)	$	(99)
Net gain recognized in income⁽³⁾	$	-	$	-	$	-

⁽¹⁾	Net change in fair value of the effective portion classified into other comprehensive income ("OCI")

⁽²⁾	Effective portion classified within direct operating costs

⁽³⁾	There were no ineffective portions for the period presented.