Derivatives and Hedging

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

Derivatives and Hedging

We attempt to limit foreign currency exposure in most of our contracts by denominating contract revenue in the currencies in which cost is incurred. Certain financial exposure, which includes currency and commodity price risk associated with engineering and construction contracts, currency risk associated with monetary assets and liabilities denominated in nonfunctional currencies and risk associated with interest rate volatility, may subject the company to earnings volatility. We may implement a hedging strategy utilizing derivatives instruments or hedging instruments to mitigate such risk. Our hedging instruments are designated as either fair value or cash flow hedges. We formally document our hedge relationships at inception, including identification of the hedging instruments and the hedged items, our risk management objectives and strategies for undertaking the hedge transaction, and the initial quantitative assessment of the hedging instrument's effectiveness in offsetting changes in the fair value of the hedged items. We subsequently assess hedge effectiveness qualitatively, unless the hedge relationship is no longer highly effective. All hedging instruments are recorded at fair value. For fair value hedges, the change in fair value is offset against the change in the fair value of the underlying asset or liability through earnings. For cash flow hedges, the change in fair value is recorded as a component of AOCI and is reclassified into earnings when the hedged item settles. For derivatives that are not designated or do not qualify as hedging instruments, the change in the fair value of the derivative is offset against the change in the fair value of the underlying asset or liability through earnings. In certain limited circumstances, foreign currency payment provisions could be deemed embedded derivatives. If an embedded foreign currency derivative is identified, the derivative is bifurcated from the host contract and the change in fair value is recognized through earnings. We maintain master netting arrangements with certain counterparties to facilitate the settlement of derivative instruments; however, we report the fair value of derivatives on a gross basis.

Derivatives Designated as Hedges

As of March 31, 2020, we had total gross notional amounts of $726 million of foreign currency contracts (primarily related to the Canadian Dollar, Chinese Yuan, British Pound, Euro, Indian Rupee and Philippine Peso) and $1 million of commodity contracts that were designated as hedging instruments. The foreign currency contracts are of varying duration, none of which extend beyond March 2022. The commodity contracts expired in May 2020.

The fair values of derivatives designated as hedging instruments follows:

	Asset Derivatives					Liability Derivatives
(in thousands)	Balance Sheet Location	March 31, 2020		December 31, 2019		Balance Sheet Location	March 31, 2020		December 31, 2019
Foreign currency contracts	Other current assets	$	4,933	$	2,871	Other accrued liabilities	$	7,040	$	1,585
Commodity contracts	Other current assets	—		10		Other accrued liabilities	158		—
Foreign currency contracts	Other assets	7,406		3,757		Noncurrent liabilities	11,128		4,747
Total		$	12,339	$	6,638		$	18,326	$	6,332

The after-tax amount of gain (loss) recognized in OCI and reclassified from AOCI into earnings associated with derivative instruments designated as cash flow hedges follows:

	After-Tax Amount of Gain (Loss) Recognized in OCI						After-Tax Amount of Gain (Loss) Reclassified from AOCI into Earnings
	Three Months Ended March 31,						Three Months Ended March 31,
Cash Flow Hedges (in thousands)	2020			2019		Location of Gain (Loss)	2020			2019
Foreign currency contracts	$	(5,140	)	$	2,696	Total cost of revenue	$	626		$	(499	)
Commodity contracts	(111		)	—		Total cost of revenue	12			—
Interest rate contracts	—			—		Interest expense	(419		)	(262		)
Total	$	(5,251	)	$	2,696		$	219		$	(761	)

Derivatives Not Designated as Hedges

As of March 31, 2020, we also had total gross notional amounts of $89 million of foreign currency contracts and $21 million of commodity contracts that were not designated as hedging instruments. The foreign currency contracts primarily related to contract obligations denominated in nonfunctional currencies. As of March 31, 2020, we had total gross notional amounts of $10 million associated with contractual foreign currency payment provisions that were deemed embedded derivatives. The gains and losses associated with derivatives not designated as hedges and embedded derivatives were not material during the three months ended March 31, 2020 and 2019.