v2.3.0.15
Derivative Financial Instruments
9 Months Ended
Sep. 30, 2011
Derivative Financial Instruments [Abstract] 
Derivative Financial Instruments

8. Derivative financial instruments

The Company is exposed to the risk of rate fluctuations on foreign currency assets and liabilities, and foreign currency denominated forecasted cash flows. The Company has established risk management policies, including the use of derivative financial instruments to hedge foreign currency assets and liabilities, and foreign currency denominated forecasted cash flows. These derivative financial instruments are largely deliverable and non-deliverable forward foreign exchange contracts. The Company enters into these contracts with counterparties which are banks / financial institutions and the Company considers the risks of non-performance by the counterparties as not material. The forward foreign exchange contracts mature between zero and forty-eight months and the forecasted transactions are expected to occur during the same period.

The following table presents the aggregate notional principal amounts of the outstanding derivative financial instruments together with the related balance sheet exposure:

 

     Notional principal amounts (Note a)      Balance sheet exposure asset
(liability) (Note b)		  
     As of
December 31,
2010		      As of
September 30,
2011		      As of
December 31,
2010		     As of
September 30,
2011		  

Foreign exchange forward contracts denominated in:

           

United States Dollars (sell) Indian Rupees (buy)

    $ 1,937,497       $ 1,821,100       $ (19,405 )    $ (82,592 ) 

United States Dollars (sell) Mexican Peso (buy)

      14,400         9,600         510        (511 ) 

United States Dollars (sell) Philippines Peso (buy)

      51,950         44,600         2,210        1,319   

Euro (sell) United States Dollars (buy)

      61,426         79,222         953        1,123   

Euro (sell) Hungarian Forints (buy)

      13,408         12,702         341        (228 ) 

Euro (sell) Romanian Leu (buy)

      55,392         58,388         591        (474 ) 

Japanese Yen (sell) Chinese Renminbi (buy)

      66,970         64,634         (6,930 )      (7,211 ) 

Pound Sterling (sell) United States Dollars (buy)

      71,463         90,012         1,680        2,073   

Australian Dollars (sell) United States Dollars (buy)

      58,577         72,485         (6,287 )      61   
        

 

 

    

 

 

  
         $ (26,337 )    $ (86,440 ) 
        

 

 

    

 

 

  

(a) Notional amounts are key elements of derivative financial instrument agreements, but do not represent the amount exchanged by counterparties and do not measure the Company's exposure to credit or market risks. However, the amounts exchanged are based on the notional amounts and other provisions of the underlying derivative financial instruments agreements.
(b) Balance sheet exposure is denominated in U.S. Dollars and denotes the mark-to-market impact of the derivative financial instruments on the reporting date.

FASB guidance on Derivatives and Hedging requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with the FASB guidance on Derivatives and Hedging, the Company designates foreign exchange forward contracts as cash flow hedges for forecasted revenues and the purchases of services. In addition to this program the Company also has derivative instruments that are not accounted for as hedges under the FASB guidance to hedge the foreign exchange risks related to balance sheet items such as receivables including forecasted receivables, and inter-company borrowings denominated in currencies other than the underlying functional currency.

The fair value of the derivative instruments and their location in the financial statements of the Company is summarized in the table below:

 

     Cash flow      Non-designated  
     As of December 31,
2010		      As of September 30,
2011		      As of December 31,
2010		      As of September 30,
2011		  

Assets

            

Prepaid expenses and other current assets

    $ 10,186       $ 8,658       $ 1,202       $ —     

Other assets

    $ 26,638       $ 4,353       $ —         $ —     

Liabilities

            

Accrued expenses and other current liabilities

    $ 44,577       $ 24,868       $ 58       $ 12,311   

Other liabilities

    $ 19,728       $ 62,272       $ —         $ —     

Cash flow hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain (loss) on the derivative instrument is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction is recognized in the Consolidated Statements of Income. Gains (losses) on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings as incurred.

In connection with cash flow hedges, the Company has recorded as a component of accumulated other comprehensive income (loss) or OCI within equity a gain (loss) of ($18,235), and ($48,798), net of taxes, as of December 31, 2010 and September 30, 2011, respectively.

The gains / losses recognized in accumulated other comprehensive income (loss), and their effect on financial performance is summarized below:

 

Derivatives in
Cash Flow
Hedging
Relationships

   Amount of Gain (Loss)
recognized in OCI on
Derivatives (Effective
Portion)		    

Location of
Gain (Loss)
reclassified

from
accumulated
OCI into
Statement of
Income
(Effective
Portion)

   Amount of Gain (Loss) reclassified from
Accumulated OCI into
Statement of Income (Effective Portion)		     Location of
Gain (Loss)
recognized
in Income
on
Derivatives
(Ineffective
Portion and
Amount
excluded
from
Effectiveness
Testing)		   Amount of Gain (Loss)
recognized in income on
Derivative (Ineffective Portion
and Amount excluded from
Effectiveness Testing)		  
  Nine months ended
September 30,		       Three months ended
September 30,		     Nine months ended
September 30,		       Three months
ended
September 30,		     Nine months
ended
September 30,		  
    2010      2011       2010     2011     2010     2011       2010     2011     2010      2011  
Forward foreign exchange contracts   $ 10,466       $ (72,060 )    Revenue   $ (1,142 )    $ (3,070 )    $ (3,183 )    $ (7,307 )    Foreign
exchange
(gains)
losses,
net		   $ —        $ —        $ —         $ —     
       Cost of
revenue		     (15,285 )      2,390        (42,049 )      (15,067 )            
       Selling,
general and
administrative
expenses		     (3,286 )      612        (10,403 )      (3,039 )            
 

 

 

     

 

 

      

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

     

 

 

  
  $ 10,466       $ (72,060 )      $ (19,713 )    $ (68 )    $ (55,635 )    $ (25,413 )      $ —        $ —        $ —         $ —     
 

 

 

     

 

 

      

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

     

 

 

  

 

Non designated Hedges

 

Derivatives not designated as hedging instruments

    Location of (Gain) Loss
recognized in Income  on
Derivatives		    Amount of (Gain) Loss recognized in
Income on Derivatives		  
      Three months ended
September 30,		      Nine months ended
September 30,		  
          2010     2011      2010     2011  

Forward foreign exchange contracts (Note a)

    Foreign exchange
(gains) losses, net		    $ (1,924 )    $ 9,613         (8,243 )      9,610   

Forward foreign exchange contracts (Note b)

    Foreign exchange
(gains) losses, net		      —          —           (234 )      —     
     

 

 

    

 

 

     

 

 

    

 

 

  
      $ (1,924 )    $ 9,613       $ (8,477 )    $ 9,610   
     

 

 

    

 

 

     

 

 

    

 

 

  

(a) These forward foreign exchange contracts were entered into to hedge the fluctuations in foreign exchange rates for recognized balance sheet items such as receivables including forecasted receivables, and inter-company borrowings, and were not originally designated as hedges under FASB guidance on Derivatives and Hedging. Realized (gains) losses and changes in the fair value of these derivatives are recorded in foreign exchange (gains) losses, net in the Consolidated Statements of Income.
(b) These forward foreign exchange contracts were initially designated as cash flow hedges under FASB guidance on Derivatives and Hedging. The net (gains) losses amounts of $(234) and $0 for the nine months ended September 30, 2010 and 2011 respectively, and the net (gains) losses amounts of $0 and $0 for the three months ended September 30, 2010 and 2011 respectively, include the recognition of losses for certain derivative contracts accounted for within accumulated other comprehensive income (loss). These losses were recognized as certain forecasted transactions are no longer expected to occur and therefore hedge accounting is no longer applied. These amounts represent subsequent realized (gains) losses and changes in the fair value of these derivatives and are recorded in foreign exchange (gains) losses, net in the Consolidated Statements of Income.