XML 22 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
Note 4 - Derivative Instruments and Hedging Activities
 6 Months Ended
Jun. 30, 2016
Notes to Financial Statements  
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 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 June 30, 2016, is recorded as derivative instrument assets and derivative instrument liabilities.
 
As of June 30, 2016, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $11.0 million, of which $9.3 million met the requirements of ASC Topic 815 and were designated as hedges (June 30, 2015 - $24.0 million of which $20.4 million were designated as hedges).
 
As of June 30, 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
 
                             
July -
September 2016
    6,002,500       1.2554       (190,264
)
October -
December 2016
    4,952,500       1.2885       (30,289
)
        $ 10,955,000       1.2703     $ (220,553
)
  
 
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 six months ended June 30, 2016, were as follows (amounts presented do not include any income tax effects).
 
Fair value of derivative instruments in the
consolidated balance sheets
 
Derivatives
  
Balance Sheet
Location
 
As of
June 30
,
2016
Fair Value
Asset
(Liability)
 
 
As of
December 31,
2015
Fair Value
Asset
(Liability)
 
                     
Foreign currency forward contracts designated as cash flow hedges
 
Derivative instruments
   $ (187,169
)
   $ (1,721,683
)
                     
Foreign currency forward contracts not designated as cash flow hedges
 
Derivative instruments
   $ (33,384
)
   $ (305,403
)
                     
Total foreign currency forward contracts
 
Derivative instruments
   $ (220,553
)
   $ (2,027,086
)
 
Movement in Accumulated
Other Comprehensive Income ("AOCI") balance for the three months ended June 30, 2016:
 
   
Gains and
losses on cash
flow hedges
    
Tax impact
    
Total AOCI
  
Opening AOCI balance – March 31, 2016
   $ (354,459
)
   $ 128,527     $ (225,932
)
                         
Other comprehensive income (loss) before reclassifications
     42,774       (15,510
)
     27,264  
Amount reclassified from accumulated other comprehensive income
     124,516       (45,149
)
     79,367  
Other comprehensive income (loss) for the three months ended June 30, 2016
     167,290       (60,659
)
     106,631  
                         
Ending AOCI balance – June 30, 2016
   $ (187,169
)
   $ 67,868     $ (119,301
)
  
 
Movement in Accumulated Other
Comprehensive Income ("AOCI") balance for the six months ended June 30, 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
     883,551       (308,324
)
     575,227  
Amount reclassified from accumulated other comprehensive income
     650,963       (236,039
)
     414,924  
Other comprehensive income (loss) for the six months ended June 30, 2016
     1,534,514       (544,363
)
     990,151  
                         
Ending AOCI balance – June 30, 2016
   $ (187,169
)
   $ 67,868     $ (119,301
)
 
 
Effects of derivative instruments on income and other comprehensive income (OCI) for the three months ended June 30,
2016 and June 30, 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
   $ (88,441
)
Operating expenses
   $ —  
Foreign currency forward contracts for the three months ended June 30, 2016
   $ 106,631  
Cost of revenues
     (36,075
)
Cost of revenues
     —  
                             
                             
         
Operating expenses
   $ (418,444
)
Operating expenses
   $ (8,741
)
Foreign currency forward contracts for the three months ended June 30, 2015
   $ 333,909  
Cost of revenues
     (158,768
)
Cost of revenues
     —  
  
 
Effects of derivative instruments on income and other comprehensive income (OCI) for the six months ended June 30, 2016 and June 30, 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
   $ (460,830
)
Operating expenses
   $ (47,242
)
Foreign currency forward contracts for the six months ended June 30, 2016
   $ 990,151  
Cost of revenues
     (142,891
)
Cost of revenues
     —  
                             
                             
         
Operating expenses
   $ (886,461
)
Operating expenses
   $ (31,323
)
Foreign currency forward contracts for the six months ended June 30, 2015
   $ (210,883
)
Cost of revenues
     (336,428
)
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 $21,008 upon settlement and a gain of $28,977 for the change in fair value of outstanding contracts for the three months ended June 30, 2016, in the consolidated statement of operations and comprehensive income. The Company has recorded a loss of $0.1 million upon settlement and a gain of $0.1 million for the change in fair value of outstanding contracts for the three months ended June 30, 2015, in the consolidated statement of operations and comprehensive income.
 
The Company has recorded a loss of $0.1 million upon settlement and a gain of $0.3 million for the change in fair value of outstanding contracts for the six months ended June 30, 2016, 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 $0.1 million for the change in fair value of outstanding contracts for the six months ended June 30, 2015, in the consolidated statement of operations and comprehensive income.