DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2016

DERIVATIVE FINANCIAL INSTRUMENTS [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

4.DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into non-designated foreign currency derivatives, primarily comprised of foreign currency forward contracts, for which hedge accounting does not apply. The changes in the fair market value of these non-designated derivatives are included in other income/expense in the Company's consolidated statements of income. The Company uses non-designated foreign currency derivatives to hedge foreign-currency-denominated intercompany transactions and to partially mitigate the impact of foreign-currency fluctuations. The fair value of the non-designated foreign currency derivatives is based on third-party quotes.

As of September 30, 2016, the Company held non-designated derivative contracts with notional amounts of 300 million Japanese yen and 11.5 billion South Korean won ($3.0 million and $10.4 million, respectively) and 500 million Japanese yen ($4.2 million) as of September 30, 2015. The fair values of these non-designated derivative contracts were $0.9 million and none as of September 30, 2016 and 2015, respectively. The contracts held at September 30, 2016 have maturities through March 2017, and accordingly, all gains and losses on non-designated derivative contracts will be recognized in current earnings over the next 6 months.

The following table summarizes gains (losses) related to derivative instruments not designated as hedging instruments during the three- and nine-month periods ended September 30, 2016 and 2015 (U.S. dollars in thousands):

Derivatives not designated as hedging instruments:	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended		Nine Months Ended
		September 30,		September 30,
		2016	2015	2016	2015
Foreign currency  contracts	Other income (expense)	$                        (765)	$                             2	$                    (1,243)	$                            2

The Company designates as cash-flow hedges those foreign currency forward contracts it enters to hedge forecasted intercompany transactions that are subject to foreign currency exposures. Changes in the fair value of these forward contracts designated as cash-flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders' equity (deficit), and are recognized in the consolidated statement of income during the period which approximates the time the hedged transaction is settled.

As of September 30, 2016, the Company held forward contracts designated as foreign currency cash flow hedges with notional amounts totaling 2.3 billion Japanese yen and 6.0 million euros ($22.7 million and $6.7 million, respectively), and 1.5 billion Japanese yen and 15.0 million euros ($12.5 million and $16.8 million, respectively) as of September 30, 2015 to hedge forecasted foreign-currency-denominated intercompany transactions. The fair value of these hedges were $2.1 million and $0.1 million as of September 30, 2016 and 2015, respectively.  The contracts held at September 30, 2016 have maturities through June 2017, and accordingly, all unrealized gains and losses on foreign currency cash flow hedges included in accumulated other comprehensive loss will be recognized in current earnings over the next 9 months.

The following table summarizes gains (losses) related to derivative instruments recorded in other comprehensive income (loss) during the three- and nine-month periods ended September 30, 2016 and 2015 (U.S. dollars in thousands):

	Amount of Gain (Loss) Recognized in Other Comprehensive Loss
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
Derivatives designated as hedging instruments:	2016	2015	2016	2015
Foreign currency forward contracts related to intercompany license fee, product sales,        and selling expense hedges	$                       (266)	$                       (110)	$                   (3,126)	$                     199

The following table summarizes gains (losses) relating to derivative instruments reclassified from accumulated other comprehensive loss into income during the three- and nine-month periods ended September 30, 2016 and 2015 (U.S. dollars in thousands):

Derivatives designated as hedging instruments:	Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2016			2015			2016			2015
Foreign currency forward contracts related      to intercompany license fees and product      sales hedges	Revenue	$	(300	)	$	(50	)	$	(609	)	$	1,091
Foreign currency forward contracts related      to intercompany selling expense hedges	Selling expenses	$	(443	)	$	60		$	(850	)	$	232

As of September 30, 2016 and December 31, 2015, there were $(1.4) million and $0.3 million, respectively, of unrealized gains/(losses) included in accumulated other comprehensive loss related to foreign currency cash flow hedges. The remaining $67.1 million and $71.6 million as of September 30, 2016 and December 31, 2015, respectively, in accumulated other comprehensive loss are related to cumulative translation adjustments.  The Company assesses hedge effectiveness at least quarterly.  During the three and nine months ended September 30, 2016 and 2015, all hedges were determined to be effective.

The Company reports its derivatives at fair value as either other current assets or accrued expenses within its consolidated balance sheet. See Note 13 Fair Value.