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Note 5 - Derivative Instruments and Hedging Activities
 3 Months Ended
Mar. 31, 2016
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
5. 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 incurred on its future cash flows related to a portion of payroll, rent and payments to Canadian domain name registry suppliers 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 costs. The Company does not use these forward contracts for trading or speculative purposes. These forward contracts typically mature between one and eighteen months.
 
The Company has designated certain of these transactions as cash flow hedges of forecasted transactions under ASC Topic 815. For certain contracts, 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 and cash flows attributable to the risk of being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, 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 March 31, 2016, is recorded as derivative instrument assets and derivative instrument liabilities.
 
As of March 31, 2016, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $17.0 million, of which $14.3 million met the requirements of ASC Topic 815 and were designated as hedges (March 31, 2015 - $19.5 million of which $16.5 million were designated as hedges).
 
As of March 31, 2016, we had the following outstanding forward exchange contracts to trade U.S. dollars in exchange for Canadian dollars:
 
 
                   
Maturity date
 
Notional amount
of U.S. dollars
 
 
Weighted
average
exchange rate of
U.S. dollars
 
 
Fair value
 
                         
April
 - June 2016   $ 6,002,500       1.2556     $ (192,223 )
July
 - September 2016     6,002,500       1.2554       (192,596 )
October
 - December 2016     4,952,500       1.2885       (32,002 )
    $ 16,957,500       1.2651     $ (416,821 )
 
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 three months ended March 31, 2016, were as follows (amounts presented do not include any income tax effects).
 
 
 
Fair value of derivative instruments in the consolidated
balance sheets
 
 
  
 
 
As of
March 31,
2016
 
 
As of
December 31,
2015
 
Derivatives
  
Balance Sheet
Location
 
Fair Value
Asset
(Liability)
 
 
Fair Value
Asset
(Liability)
 
                     
Foreign currency forward contracts designated as cash flow hedges
 
Derivative instruments
   $ (354,459
)
   $ (1,721,683
)
                     
Foreign currency forward contracts not designated as cash flow hedges
 
Derivative instruments
   $ (62,362
)
   $ (305,403
)
                     
Total foreign currency forward contracts
 
Derivative instruments
   $ (416,821
)
   $ (2,027,086
)
 
Movement in Accumulated Other Comprehensive Income ("AOCI") balance for the three months ended March 31, 2016:
 
   
Gains and
losses on cash
flow hedges
    
Tax impact
    
Total AOCI
  
Opening AOCI balance – December 31, 2015
   $ (1,721,683
)
   $ 612,231     $ (1,109,452
)
                         
Other comprehensive income (loss) before reclassifications
     840,777       (292,814
)
     547,963  
Amount reclassified from accumulated other comprehensive income
     526,447       (190,890
)
     335,557  
Other comprehensive income (loss) for the three months ended March 31, 2016
     1,367,224       (483,704
)
     883,520  
                         
Ending AOCI balance – March 31, 2016
   $ (354,459
)
   $ 128,527     $ (225,932
)
 
 
 
Effects of derivative
instruments on income and other comprehensive income (OCI) for the three months ended March 31, 2016 and March 31, 2015 are as follows:
 
Derivatives in Cash Flow 
Hedging Relationship
 
Amount of
Gain or
(Loss)
Recognized
in OCI
, net of
tax,
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)
 
Location of
Gain or (Loss)
Recognized in
Income on
Derivative
(ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
 
Amount of
Gain or
(Loss)
Recognized
in Income on
Derivative
(ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)
 
                             
         
Operating expenses
   $ (372,390
)
Operating expenses
   $  (47,240
)
Foreign currency forward contracts for the three months ended March 31, 2016
   $ 883,520  
Cost of revenues
     (106,817
)
Cost of
revenues
     —  
                             
                             
         
Operating expenses
   $ (468,016
)
Operating expenses
   $  (23,928
)
Foreign currency forward contracts for the three months ended March 31, 2015
   $ (544,792
)
Cost of revenues
     (177,660
)
Cost of
revenues
     —  
 
 
 
In addition to the above, for those foreign currency forward contracts not designated as hedges, the Company has recorded a loss of $0.1 million upon settlement and a gain of $0.2 million for the change in fair value of outstanding contracts for the three months ended March 31, 2016, in the consolidated statement of operations and comprehensive income. The Company has recorded a loss of $0.1 million upon settlement and a loss of $0.2 million for the change in fair value of outstanding contracts for the three months ended March 31, 2015, in the consolidated statement of operations and comprehensive income.