XML 25 R14.htm IDEA: XBRL DOCUMENT v3.4.0.3
Derivative financial instruments
 3 Months Ended
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.