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Note 4 - Derivative Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

4. Derivative instruments and hedging activities:


Foreign currency forward contracts


In October 2012, the Company entered into a hedging program with a Canadian chartered bank to limit the potential foreign exchange fluctuations in its future cash flows related to a portion of payroll, rent and payments to a Canadian domain name registry supplier that are denominated in Canadian dollars and are expected to be paid by its Canadian operating subsidiary. As part of its risk management strategy, the Company uses derivative instruments to hedge a portion of the foreign exchange risk associated with these future payments. The Company does not use these forward contracts for trading or speculative purposes. These forward contracts typically mature between one and eighteen months from the acquisition date.


The Company has designated a portion of these transactions as cash flow hedges of forecasted transactions under ASC Topic 815 “Derivatives and Hedging” (“ASC Topic 815”). As the critical terms of the hedging instrument, and of the entire hedged forecasted transaction, are the same, in accordance with ASC Topic 815, the Company has been able to conclude that changes in fair value or cash flows attributable to the risk of being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized gains or losses on the effective portion of these contracts have been included within other comprehensive income. The fair value of the contracts, as of September 30, 2014, is recorded as derivative instrument liabilities.


As of September 30, 2014, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $22.8 million, of which $19.0 million met the requirements of ASC Topic 815 and were designated as hedges (September 30, 2013 - $32.8 million of which $25.5 million were designated as hedges). As of September 30, 2014, the Company has forward contracts with a notional amount of $3.8 million, which are not accounted for as hedges. The decrease in fair value of $0.1 million for these contracts not accounted for as hedges is recorded on the statement of operations.


Fair value of derivative instruments and effect of derivative instruments on financial performance


The effect of these derivative instruments on our consolidated financial statements as of, and for the nine months ended September 30, 2014, were as follows (amounts presented do not include any income tax effects).


Fair value of derivative instruments in the consolidated balance sheets


       

As of

September 30,

2014

   

As of

December 31,

2013

 

Derivatives

 

Balance Sheet
Location

 

Fair Value

Asset

(Liability)

   

Fair Value

Asset

(Liability)

 
                     

Foreign currency forward contracts designated as cash flow hedges

 

Derivative instruments

  $ (623,559

)

  $ (118,505

)

                     

Foreign currency forward contracts not designated as cash flow hedges

 

Derivative instruments

  $ (138,494

)

  $ (372,593

)

                     

Total foreign currency forward contracts

 

Derivative instruments

  $ (762,053

)

  $ (491,098

)


Movement in AOCI balance for the three months ended September 30, 2014:


   

Gains and losses on cash flow hedges

   

Tax impact

   

Total AOCI

 

Opening AOCI balance – June 30, 2014

  $ (45,889 )   $ 15,718     $ (30,171 )
                         

Other comprehensive income (loss)before reclassifications

    (665,428 )     227,909       (437,519 )

Amount reclassified from accumulated other comprehensive income

    87,758       (30,057 )     57,701  

Other comprehensive income (loss) for the three months ended September 30, 2014

    (577,670 )     197,852       (379,818 )
                         

Ending AOCI balance – September 30, 2014

  $ (623,559 )   $ 213,570     $ (409,989 )

Movement in AOCI balance for the nine months ended September 30, 2014:


   

Gains and losses on cash flow hedges

   

Tax impact

   

Total AOCI

 

Opening AOCI balance – December 31, 2013

  $ (372,596 )   $ 127,615     $ (244,981 )
                         

Other comprehensive income (loss)before reclassifications

    (916,960 )     314,059       (602,901 )

Amount reclassified from accumulated other comprehensive income

    665,997       (228,104 )     437,893  

Other comprehensive income (loss) for the nine months ended September 30, 2014

    (250,963 )     85,955       (165,008 )
                         

Ending AOCI balance – September 30, 2014

  $ (623,559 )   $ 213,570     $ (409,989 )

Effects of derivative instruments on income and other comprehensive income (OCI) for the three months ended September 30, 2014and September 30, 2013 are as follows:


Derivatives in Cash Flow

Hedging Relationship

 

Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)

 

Location of Gain or (Loss) Reclassified from Accumulated OCI into Income

(Effective Portion)

 

Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

 
                   

Foreign currency forward contracts for the three months ended September 30, 2014

  $ (437,519 )

Operating expenses

  $ (40,112

)

         

Cost of revenues

  $ (17,589

)

Foreign currency forward contracts for the three months ended September 30, 2013

  $ 402,026  

Operating expenses

  $ (77,036

)

         

Cost of revenues

  $ (15,272 )

Effects of derivative instruments on income and other comprehensive income (OCI) for the nine months ended September 30, 2014 and September 30, 2013 are as follows:


Derivatives in Cash Flow

Hedging Relationship

 

Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)

 

Location of Gain or (Loss) Reclassified from Accumulated OCI into Income

(Effective Portion)

 

Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

 
                   

Foreign currency forward contracts for the nine months ended September 30, 2014

  $ (602,901 )

Operating expenses

  $ (321,136

)

         

Cost of revenues

  $ (116,757

)

Foreign currency forward contracts for the nine months ended September 30, 2013

  $ (71,629 )

Operating expenses

  $ (97,929 )
         

Cost of revenues

  $ (21,309 )

In addition to the above, for those foreign currency forward contracts not designated as hedges, the Company has recorded a loss of $25,000 upon settlement and a loss of $0.1 million for the change in fair value of outstanding contracts for the three months ended September 30, 2014, in the consolidated statement of operations and comprehensive income. The Company has recorded a gain of $36,000 upon settlement and a loss of $0.2 million for the change in fair value of outstanding contracts for the three months ended September 30, 2013, in the consolidated statement of operations and comprehensive income.


The Company has recorded a loss of $0.2 million upon settlement and a loss of $20,000 for the change in fair value of outstanding contracts for the nine months ended September 30, 2014, in the consolidated statement of operations and comprehensive income. The Company has recorded a loss of $0.2 million upon settlement and a loss of $0.4 million for the change in fair value of outstanding contracts for the nine months ended September 30, 2013, in the consolidated statement of operations and comprehensive income.