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Derivative financial instruments | 3 Months Ended
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Mar. 31, 2016
Derivative financial instruments | 7. Derivative financial instruments The Company is exposed to the risk of rate fluctuations on foreign currency assets and liabilities and on foreign currency denominated forecasted cash flows along with exposure to interest rate fluctuation risk on its indebtedness. The Company has established risk management policies, including the use of derivative financial instruments, to hedge foreign currency assets and liabilities, foreign currency denominated forecasted cash flows and interest rate risk. These derivative financial instruments are largely deliverable and non-deliverable forward foreign exchange contracts and interest rate swaps. The Company enters into these contracts with counterparties that are banks or other financial institutions, and the Company considers the risk of non-performance by such counterparties not to be material. The forward foreign exchange contracts and interest rate swaps mature between 0 and 57 months and the forecasted transactions are expected to occur during the same period. The following table presents the aggregate notional principal amounts of 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, 2015 |  |  | As of March 31, 2016 |  |  | As of December 31, 2015 |  |  | As of March 31, 2016 |
Foreign exchange forward contracts denominated in: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States Dollars (sell) Indian Rupees (buy) |  | $ | 1,139,400 |  |  | $ | 1,122,400 |  |  | $ | (48,197 | ) |  | $ | (31,954 | )
United States Dollars (sell) Mexican Peso (buy) |  |  | 8,520 |  |  |  | 6,570 |  |  |  | (1,163 | ) |  |  | (824 | )
United States Dollars (sell) Philippines Peso (buy) |  |  | 58,500 |  |  |  | 53,075 |  |  |  | (1,387 | ) |  |  | 224 |
Euro (sell) United States Dollars (buy) |  |  | 146,719 |  |  |  | 140,385 |  |  |  | 9,109 |  |  |  | 3,787 |
Euro (sell) Romanian Leu (buy) |  |  | 39,027 |  |  |  | 31,516 |  |  |  | 567 |  |  |  | 1,036 |
Japanese Yen (sell) Chinese Renminbi (buy) |  |  | 62,740 |  |  |  | 61,317 |  |  |  | (1,379 | ) |  |  | (4,765 | )
Pound Sterling (sell) United States Dollars (buy) |  |  | 118,438 |  |  |  | 105,771 |  |  |  | 7,496 |  |  |  | 9,178 |
Australian Dollars (sell) United States Dollars (buy) |  |  | 106,544 |  |  |  | 99,000 |  |  |  | 5,714 |  |  |  | (399 | )
Interest rate swaps (floating to fixed) |  |  | — |  |  |  | 200,000 |  |  |  | — |  |  |  | (1,926 | )
|  |  |  |  |  |  |  |  |  |  | (29,240 | ) |  |  | (25,643 | )
(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 instrument 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 Balance Sheet. In accordance with the FASB guidance on Derivatives and Hedging, the Company designates foreign exchange forward contracts and interest rate swaps as cash flow hedges. Foreign exchange forward contracts are entered into to cover future variability in exchange rates that affect the Company’s forecasted revenues and its purchases of services, and interest rate swaps are entered into to cover interest rate fluctuation risk. In addition to this program, the Company uses derivative instruments that are not accounted for as hedges under the FASB guidance in order to hedge foreign exchange risks related to balance sheet items, such as receivables and intercompany borrowings, denominated in currencies other than the Company’s underlying functional currency. The fair value of the Company’s derivative instruments and their location in the Company’s financial statements are summarized in the table below:
|  | Cash flow hedges |  |  | Non-designated |
|  | As of December 31, 2015 |  |  | As of March 31, 2016 |  |  | As of December 31, 2015 |  |  | As of March 31, 2016 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  | $ | 17,400 |  |  | $ | 18,164 |  |  | $ | 884 |  |  | $ | 1,872 |
Other assets |  | $ | 12,096 |  |  | $ | 13,431 |  |  | $ | — |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accrued expenses and other current liabilities |  | $ | 34,576 |  |  | $ | 28,510 |  |  | $ | 34 |  |  | $ | 208 |
Other liabilities |  | $ | 25,010 |  |  | $ | 30,392 |  |  | $ | — |  |  | $ | — |
Cash flow hedges For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain (loss) on the derivative instrument is reported as a component of 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 gains (losses) recorded as a component of other comprehensive income (loss), or OCI, and the related tax effects are summarized below:
|  | Three months ended March 31, |
|  | 2015 |  |  | 2016 |
|  | Before- Tax amount |  |  | Tax (Expense) or Benefit |  |  | Net of tax Amount |  |  | Before- Tax amount |  |  | Tax (Expense) or Benefit |  |  | Net of tax Amount |
Opening balance as of January 1 |  | $ | (66,786 | ) |  | $ | 23,646 |  |  | $ | (43,140 | ) |  | $ | (30,090 | ) |  | $ | 9,830 |  |  | $ | (20,260 | )
Net gains (losses) reclassified into statement of income on completion of hedged transactions |  |  | (9,254 | ) |  |  | 3,251 |  |  |  | (6,003 | ) |  |  | (2,902 | ) |  |  | 702 |  |  |  | (2,200 | )
Changes in fair value of effective portion of outstanding derivatives, net |  |  | 24,564 |  |  |  | (8,734 | ) |  |  | 15,830 |  |  |  | (79 | ) |  |  | (151 | ) |  |  | (230 | )
Gain (loss) on cash flow hedging derivatives, net |  |  | 33,818 |  |  |  | (11,985 | ) |  |  | 21,833 |  |  |  | 2,823 |  |  |  | (853 | ) |  |  | 1,970 |
Closing balance as of March 31 |  | $ | (32,968 | ) |  | $ | 11,661 |  |  | $ | (21,307 | ) |  | $ | (27,267 | ) |  | $ | 8,977 |  |  | $ | (18,290 | )
The gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are 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 OCI into Statement of Income (Effective Portion) |  | Amount of Gain (Loss) reclassified from 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 Derivatives (Ineffective Portion and Amount excluded from Effectiveness Testing) |
|  | Three months ended March 31, |  |  |  |  | Three months ended March 31, |  |  |  |  | Three months ended March 31, |
|  | 2015 |  |  | 2016 |  |  |  |  | 2015 |  |  | 2016 |  |  |  |  | 2015 |  |  | 2016 |
Forward foreign exchange contracts |  | $ | 24,564 |  |  | $ | 1,847 |  |  | Revenue |  | $ | 2,495 |  |  | $ | 3,871 |  |  | Foreign exchange (gains) losses, net |  | $ | — |  |  | $ | — |
Interest rate swaps |  |  | — |  |  |  | (1,926 | ) |  | Cost of revenue |  |  | (9,427 | ) |  |  | (5,312 | ) |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Selling, general and administrative expenses |  |  | (2,322 | ) |  |  | (1,461 | ) |  |  |  |  |  |  |  |  |  |
|  | $ | 24,564 |  |  | $ | (79 | ) |  |  |  | $ | (9,254 | ) |  | $ | (2,902 | ) |  |  |  | $ | — |  |  | $ | — |
Non-designated Hedges
Derivatives not designated as hedging instruments |  | Location of (Gain) Loss recognized in Statement of Income on Derivatives |  | Amount of (Gain) Loss recognized in Statement of Income on Derivatives |
|  |  |  | Three months ended March 31, |
|  |  |  | 2015 |  |  | 2016 |
Forward foreign exchange contracts (Note a) |  | Foreign exchange (gains) losses, net |  | $ | (2,244 | ) |  | $ | (1,134 | )
|  |  |  | $ | (2,244 | ) |  | $ | (1,134 | )
(a) | These forward foreign exchange contracts were entered into to hedge fluctuations in foreign exchange rates for recognized balance sheet items such as receivables and intercompany 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.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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