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Note 14 - Derivatives and Hedging Activities
 9 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 14:

DERIVATIVES AND HEDGING ACTIVITIES

 

The Company follows the requirements of FASB ASC No. 815,” Derivatives and Hedging” which requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in 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 transaction and further, on the type of hedging transaction. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. Due to the Company’s global operations, it is exposed to foreign currency exchange rate fluctuations in the normal course of its business. The Company’s treasury policy allows it to offset the risks associated with the effects of certain foreign currency exposures through the purchase of foreign exchange forward or option contracts (“Hedging Contracts”). The policy, however, prohibits the Company from speculating on such Hedging Contracts for profit. To protect against the increase in value of forecasted foreign currency cash flow resulting from salaries paid in currencies other than the U.S. dollar during the year, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll of its non-U.S. employees denominated in the currencies other than the U.S. dollar for a period of one to twelve months with Hedging Contracts. Accordingly, when the dollar strengthens against the foreign currencies, 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 expenses is offset by gains in the fair value of the Hedging Contracts. These Hedging Contracts are designated as cash flow hedges.

 

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of September 30, 2025, the notional principal amount of the Hedging Contracts to sell U.S. dollars held by the Company was $1,400. There were no open Hedging Contracts as of December 31, 2024.

 

The fair value of the Company’s outstanding derivative instruments is as follows:

 

   

September 30,

2025

(unaudited)

    

December 31,

2024

  

Derivative assets:

                

Derivatives designated as cash flow hedging instruments:

                

Foreign exchange forward contracts

   $ 203     $ —  

Total

   $ 203     $ —  

 

 

The increase (decrease) in unrealized gains (losses) recognized in “accumulated other comprehensive gain (loss)” on derivatives, before tax effect, is as follows:

 

   

Nine months ended
September 30,

    

Three months ended
September 30,

  
   

2025

(unaudited)

    

2024

(unaudited)

    

2025

(unaudited)

    

2024

(unaudited)

  

Derivatives designated as cash flow hedging instruments:

                                

Foreign exchange option contracts

   $ 283     $ 41     $ 1     $ 25  

Foreign exchange forward contracts

     929       (240 )     65       115  
    $ 1,212     $ (199 )   $ 66     $ 140  

 

The net gains reclassified from “accumulated other comprehensive gain (loss)” into income are as follows:

 

   

Nine months ended
September 30,

    

Three months ended
September 30,

  
   

2025

(unaudited)

    

2024

(unaudited)

    

2025

(unaudited)

    

2024

(unaudited)

  

Derivatives designated as cash flow hedging instruments:

                                

Foreign exchange option contracts

   $ (283 )   $ (41 )   $ (283 )   $ (16 )

Foreign exchange forward contracts

     (726 )     (726 )     (365 )     (144 )
    $ (1,009 )   $ (767 )   $ (648 )   $ (160 )

 

The Company recorded in cost of revenues and operating expenses a net gain of $648 and $1,009 during the three and nine months ended September 30, 2025, respectively, and a net gain of $160 and $767 during the comparable periods of 2024, related to its Hedging Contracts.