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Derivatives and Hedging
 6 Months Ended
Jun. 30, 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 June 30, 2020, we had total gross notional amounts of $715 million of foreign currency contracts outstanding (primarily related to the Canadian Dollar, Chinese Yuan, British Pound, Euro, Indian Rupee and Philippine Peso) that were designated as hedging instruments. The foreign currency contracts are of varying duration, none of which extend beyond March 2022. There were no commodity contracts outstanding that were designated as hedging instruments as of June 30, 2020.
The fair values of derivatives designated as hedging instruments follows:
 
 
Asset Derivatives
 
Liability Derivatives
(in thousands)
 
Balance Sheet
Location
 
June 30,
2020
 
December 31,
2019
 
Balance Sheet
Location
 
June 30,
2020
 
December 31,
2019
Foreign currency contracts
 
Other current assets
 
$
4,438

 
$
2,871

 
Other accrued liabilities
 
$
6,162

 
$
1,585

Commodity contracts
 
Other current assets
 
—

 
10

 
Other accrued liabilities
 
—

 
—

Foreign currency contracts
 
Other assets
 
1,657

 
3,757

 
Noncurrent liabilities
 
5,042

 
4,747

Total
 
 
 
$
6,095

 
$
6,638

 
 
 
$
11,204

 
$
6,332


The after-tax amount of gain (loss) recognized in OCI associated with derivative instruments designated as cash flow hedges follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Cash Flow Hedges (in thousands)
2020
 
2019
 
2020
 
2019
Foreign currency contracts
1,143

 
1,629

 
(3,997
)
 
4,325

Commodity contracts
3

 
—

 
(108
)
 
—

 
1,146

 
1,629

 
(4,105
)
 
4,325


The after-tax amount of gain (loss) reclassified from AOCI into earnings associated with derivative instruments designated as cash flow hedges follows:
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Cash Flow Hedges (in thousands)
 
Location of Gain (Loss)
 
2020
 
2019
 
2020
 
2019
Foreign currency contracts
 
Cost of revenue
 
$
(88
)
 
$
(347
)
 
$
538

 
$
(846
)
Commodity contracts
 
Cost of revenue
 
(112
)
 
—

 
(100
)
 
—

Interest rate contracts
 
Interest expense
 
(419
)
 
(262
)
 
(838
)
 
(524
)
Total
 
 
 
$
(619
)
 
$
(609
)
 
$
(400
)
 
$
(1,370
)

Derivatives Not Designated as Hedges
As of June 30, 2020, we also had outstanding total gross notional amounts of $88 million of foreign currency contracts and $23 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 June 30, 2020, we had total gross notional amounts of $9 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 and six months ended June 30, 2020 and 2019.