Derivative financial instruments

3 Months Ended

Mar. 31, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

7.	Derivative financial instruments

The Company is exposed to the risk of rate fluctuations on its foreign currency assets and liabilities and on foreign currency denominated forecasted cash flows and interest rates. 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 during a period of up to 45 months and the forecasted transactions are expected to occur during the same period.

7. Derivative financial instruments (Continued)

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, 2019		As of March 31, 2020		As of December 31, 2019				As of March 31, 2020
Foreign exchange forward contracts denominated in:
United States Dollars (sell) Indian Rupees (buy)	$	1,305,000	$	1,202,000	$	(5,740	)	$		(69,021	)
United States Dollars (sell) Philippines Peso (buy)		66,600		56,700		462				(137	)
Euro (sell) United States Dollars (buy)		122,337		158,283		4,135				6,536
Singapore Dollars (buy) United States Dollars (sell)		10,017		10,017		38				(511	)
Euro (sell) Romanian Leu (buy)		26,918		29,746		(314	)			(356	)
Japanese Yen (sell) Chinese Renminbi (buy)		29,350		22,029		(258	)			(452	)
Pound Sterling (sell) United States Dollars (buy)		9,089		6,822		383				699
Australian Dollars (sell) United States Dollars (buy)		35,972		2,300		1,924				253
United States Dollars (sell) Hungarian Font (buy)		20,500		19,500		162				(1,751	)
Hungarian Font (Sell) Euro (buy)		9,534		9,364		(157	)			397
Australian Dollars (sell) Indian Rupees (buy)		—		29,750		—				(90	)
Interest rate swaps (floating to fixed)		477,604		495,149		(3,565	)			(21,218	)
						(2,930	)			(85,651	)

(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, foreign exchange, interest rate or market risks. However, the amounts exchanged are based on the notional amounts and other provisions of the underlying derivative financial instrument agreements. Notional amounts are denominated in U.S. dollars.

(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 the effects of future exchange rate variability on forecasted revenues and 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, that are 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, 2019		As of March 31, 2020		As of December 31, 2019		As of March 31, 2020
Assets
Prepaid expenses and other current assets	$	16,214	$	6,625	$	2,009	$	1,388
Other assets	$	3,086	$	1,189	$	—	$	—
Liabilities
Accrued expenses and other current liabilities	$	6,152	$	35,536	$	814	$	16,173
Other liabilities	$	17,273	$	43,144	$	—	$	—

7. Derivative financial instruments (Continued)

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) (“OCI”), and the related tax effects are summarized below:

	Three months ended March 31,
	2019										2020
	Before Tax Amount			Tax (Expense) or Benefit^*			Net of tax Amount			Before Tax Amount				Tax (Expense) or Benefit^*			Net of tax Amount
Opening balance	$	(2,411	)	$	(5,524	)	$	(7,935	)	$		(4,126	)	$	(1,466	)	$	(5,592	)
Net gains (losses) reclassified into statement of income on completion of hedged transactions		3,193			(1,571	)		1,622				3,740			(961	)		2,779
Changes in fair value of effective portion of outstanding derivatives, net		18,402			(3,624	)		14,778				(63,000	)		12,674			(50,326	)
Gain (loss) on cash flow hedging derivatives, net		15,209			(2,053	)		13,156				(66,740	)		13,635			(53,105	)
Closing balance	$	12,798		$	(7,577	)	$	5,221		$		(70,866	)	$	12,169		$	(58,697	)

^*The tax (expense) benefit includes the effect of novating certain hedging instruments as part of an intercompany transfer.

The Company’s gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are summarized below:




	Amount of Gain (Loss) recognized in OCI on Derivatives							Location of Gain (Loss)	Amount of Gain (Loss) reclassified from OCI into Statement of Income
Derivatives in	(Effective Portion)							reclassified	(Effective Portion)
Cash Flow		Three months ended						from OCI into		Three months ended
Hedging		March 31,						Statement of Income		March 31,
Relationships		2019			2020			(Effective Portion)		2019		2020
Forward foreign exchange contracts		$	20,583		$	(45,707	)	Revenue		$	973	$	2,032
Interest rate swaps			(2,181	)		(17,293	)	Cost of revenue			644		1,026
								Selling, general and administrative expenses			160		323
								Interest expense			1,416		359
		$	18,402		$	(63,000	)			$	3,193	$	3,740

There were no gains (losses) recognized in income on the ineffective portion of derivatives and excluded from effectiveness testing for the three months ended March 31, 2019 and 2020, respectively.

7. Derivative financial instruments (Continued)

Non-designated Hedges



		Three months ended March 31,
Derivatives not designated as hedging instruments	Location of Gain (Loss) recognized in Statement of Income on Derivatives	2019		2020
Forward foreign exchange contracts (Note a)	Foreign exchange gains (losses), net	$	3,660	$	(14,759	)
Forward foreign exchange contracts (Note b)	Foreign exchange gains (losses), net		—		3,963
		$	3,660	$	(10,796	)

(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.

(b)

These forward foreign exchange contracts were initially designated as cash flow hedges under ASC guidance on derivatives and hedging. These contracts were terminated because certain forecasted transactions were no longer expected to occur and therefore hedge accounting was no longer applied. Subsequently the realized gains (losses) are recorded in foreign exchange (gains) losses net in the consolidated statements of income.

In connection with the COVID-19 pandemic, the Company has reevaluated its hedging arrangements. The Company has considered the effect of changes, if any, in both counterparty credit risk and the Company’s own non-performance risk while assessing hedge effectiveness and measuring hedge ineffectiveness. The Company believes that its hedges continue to be effective after taking into account the expected impact of the COVID-19 pandemic on the Company’s hedged transactions.