. Derivative Financial Instruments

The Company’s derivative financial instruments include foreign currency forward contracts, which are entered into for risk management purposes, as well as the Peak Nano contingent consideration liability. See Note 16 for further information on the contingent consideration liability.

Foreign Currency Forward Contracts. The Company’s U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are denominated in currencies other than their functional currencies. To protect the functional currency equivalent cash flows associated with certain of these contracts, the Company enters into foreign currency forward contracts. The Company’s activities involving foreign currency forward contracts are designed to hedge the changes in the functional currency equivalent cash flows due to movements in foreign exchange rates compared to the functional currency. The foreign currencies hedged are primarily the Canadian dollar, the U.S. dollar, the Euro, the United Arab Emirates dirham, the British pound and the New Zealand dollar. The Company manages exposure to counterparty non-performance credit risk by entering into foreign currency forward contracts only with major financial institutions that are expected to fully perform under the terms of such contracts. Foreign currency forward contracts are recorded in the Company’s condensed consolidated balance sheets at fair value and are generally designated and accounted for as cash flow hedges in accordance with the accounting standards for derivative instruments and hedging activities. Gains and losses on designated foreign currency forward contracts that are highly effective in offsetting the corresponding change in the cash flows of the hedged transactions are recorded net of income taxes in AOCI and then recognized in income when the underlying hedged transaction affects income. Gains and losses on foreign currency forward contracts that do not meet hedge accounting criteria are recognized in income immediately. Notional amounts are used to measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. The table below presents the notional amounts of the Company’s outstanding foreign currency forward contracts by currency at June 29, 2018.



Currency	Notional Amounts
	(in millions)
Canadian dollar	$	183
U.S. dollar	145
Euro	80
United Arab Emirates dirham	12
British pound	11
New Zealand dollar	7
Total	$	438

At June 29, 2018, the Company’s foreign currency forward contracts had maturities through 2023.

The table below presents the location of the Company’s derivative instruments recorded at fair value on the condensed consolidated balance sheets.



	June 29, 2018								December 31, 2017
	Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities		Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities
	(in millions)
Derivatives designated as hedging instruments:
Foreign currency forward contracts ⁽¹⁾	$	3	$	—	$	6	$	2	$	11	$	—	$	1	$	—
Derivatives not designated as hedging instruments:
Contingent consideration ⁽²⁾	—		—		6		—		—		—		—		—
Total derivative instruments	$	3	$	—	$	12	$	2	$	11	$	—	$	1	$	—

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⁽¹⁾	See Note 16 for a description of the fair value hierarchy related to the Company’s foreign currency forward contracts.


⁽²⁾	See Note 16 for additional information on Peak Nano contingent consideration liability.

The effects from foreign currency forward contracts on the unaudited condensed consolidated statements of operations were a pre-tax gain of $1 million for the quarterly period ended June 30, 2017 and pre-tax gains of $1 million for each of the first half periods ended June 29, 2018 and June 30, 2017. At June 29, 2018, the estimated net amount of existing losses that are expected to be reclassified into income within the next 12 months was $5 million.