14.	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 that management considered when determining the fair value.

As of December 31, 2018 and 2017, the Company did not hold any non-designated derivative contracts.

The following table summarizes gains (losses) related to derivative instruments not designated as hedging instruments during the years ended December 31, 2018 and 2017 (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
		Year Ended December 31,
		2018		2017			2016

Foreign currency contracts	Other income (expense)	$	─	$	(485	)	$	39

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 December 31, 2018, the Company held no forward contracts designated as foreign currency cash flow hedges compared to notional amounts of 600 billion Japanese yen ($5.5 million) as of December 31, 2017 to hedge forecasted foreign-currency-denominated intercompany transactions. The fair value of these hedges were zero and $0.2 million as of December 31, 2018 and 2017, respectively.

The following table summarizes gains (losses) related to derivative instruments recorded in other comprehensive income (loss) during the years ended December 31, 2018, 2017 and 2016 (U.S. dollars in thousands):

Derivatives designated as hedging instruments:	Amount of Gain (Loss) Recognized in Other Comprehensive Loss
	Year Ended December 31,
	2018			2017			2016

Foreign currency forward contracts related to intercompany license fee, product sales, and selling expense hedges	$	(160	)	$	(152	)	$	(1,423	)

The following table summarizes gains (losses) relating to derivative instruments reclassified from accumulated other comprehensive loss into income during the years ended December 31, 2018, 2017 and 2016 (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
		Year Ended December 31,
		2018		2017		2016

Foreign currency forward contracts related to intercompany license fees and product sales hedges	Revenue	$	18	$	119	$	(1,088	)
Foreign currency forward contracts related to intercompany selling expense hedges	Selling expenses	$	─	$	358	$	(1,544	)

As of December 31, 2018 and 2017, there were zero and $0.1 million, respectively, of unrealized gains/(losses) included in accumulated other comprehensive loss related to foreign currency cash flow hedges. The remaining $79.9 million and $66.4 million as of December 31, 2018 and 2017, respectively, in accumulated other comprehensive loss are related to cumulative translation adjustments. The Company assesses hedge effectiveness at least quarterly. During the years ended December 31, 2018 and 2017, 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 10, “Fair Value.”