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Derivatives and Hedging Instruments
 3 Months Ended
Mar. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Instruments
Derivatives and Hedging Instruments
The Company may periodically enter into derivative financial instruments to manage risks related to interest rates and foreign currency. Most of the Company’s derivative financial instruments qualify for hedge accounting treatment under the authoritative guidance for derivatives and hedging. The Company’s Cabot subsidiary has entered into several interest rate cap contracts to manage its risk related to interest rate fluctuations. As of March 31, 2015, Cabot had only one outstanding interest rate cap contract with a notional amount of £100.0 million. The Company does not apply hedge accounting on interest rate cap contracts. The impact of the interest rate cap contracts to the Company’s consolidated financial statements for the three months ended March 31, 2015 and 2014, was immaterial.
Foreign Currency Exchange Contracts
The Company has operations in foreign countries, which exposes the Company to foreign currency exchange rate fluctuations due to transactions denominated in foreign currencies. To mitigate this risk, the Company enters into derivative financial instruments, principally Indian rupee forward contracts, which are designated as cash flow hedges, to mitigate fluctuations in the cash payments of future forecasted transactions. The Company adjusts the level and use of derivatives as soon as practicable after learning that an exposure has changed and reviews all exposures and derivative positions on an ongoing basis.
Gains and losses on cash flow hedges are recorded in other comprehensive income (“OCI”) until the hedged transaction is recorded in the consolidated financial statements. Once the underlying transaction is recorded in the consolidated financial statements, the Company reclassifies the OCI on the derivative into earnings. If all or a portion of the forecasted transaction is cancelled, this would render all or a portion of the cash flow hedge ineffective and the Company would reclassify the ineffective portion of the hedge into earnings. The Company generally does not experience ineffectiveness of the hedge relationship and the accompanying consolidated financial statements do not include any such gains or losses.
As of March 31, 2015, the total notional amount of the forward contracts to buy Indian rupees in exchange for United States dollars was $45.0 million. All of these outstanding contracts qualified for hedge accounting treatment. The Company estimates that approximately $0.2 million of net derivative gain included in OCI will be reclassified into earnings within the next 12 months. No gains or losses were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the three months ended March 31, 2015 and 2014.
The Company does not enter into derivative instruments for trading or speculative purposes.
The following table summarizes the fair value of derivative instruments as recorded in the Company’s condensed consolidated statements of financial condition (in thousands):
 
March 31, 2015
 
December 31, 2014
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency exchange contracts
Other liabilities
 
$
(474
)
 
Other liabilities
 
$
(1,037
)
Foreign currency exchange contracts
Other assets
 
1,064

 
Other assets
 
768


The following table summarizes the effects of derivatives in cash flow hedging relationships on the Company’s condensed consolidated statements of income for the three months ended March 31, 2015 and 2014 (in thousands):
 
 
Gain or (Loss)
Recognized in OCI-
Effective Portion
 
Location of Gain
or (Loss)
Reclassified from
OCI into
Income - Effective
Portion
 
Gain or (Loss)
Reclassified
from OCI into
Income -  Effective
Portion
 
Location of
Gain or (Loss)
Recognized -
Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing
 
Amount of
Gain or (Loss)
Recognized -
Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing
 
Three Months Ended 
 March 31,
 
 
 
Three Months Ended 
 March 31,
 
 
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
 
 
2015
 
2014
 
 
 
2015
 
2014
Foreign currency exchange contracts
$
472

 
$
1,885

 
Salaries and
employee
benefits
 
$
(151
)
 
$
(356
)
 
Other (expense)
income
 
$
—

 
$
—

Foreign currency exchange contracts
220

 
187

 
General and
administrative
expenses
 
(16
)
 
(57
)
 
Other (expense)
income
 
—

 
—