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Derivatives | 9 Months Ended
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Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives Hedging Objectives—We are exposed to certain risks relating to ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk on operational exposure denominated in foreign currencies. Interest rate swaps are entered into to manage interest rate risk associated with our floating-rate borrowings. In accordance with authoritative guidance on accounting for derivatives and hedging, we designate foreign currency forward contracts as cash flow hedges on operational exposure and interest rate swaps as cash flow hedges of floating-rate borrowings. Cash Flow Hedging Strategy—To protect against the reduction in value of forecasted foreign currency cash flows, we hedge portions of our revenues and expenses denominated in foreign currencies with forward contracts. For example, when the dollar strengthens significantly against the foreign currencies, the decline in present value of future foreign currency expense is offset by losses in the fair value of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of future foreign currency expense is offset by gains in the fair value of the forward contracts. We enter into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements modify our exposure to interest rate risk by converting floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense and net earnings. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (ineffective portion), and hedge components excluded from the assessment of effectiveness, are recognized in the consolidated statements of operations during the current period. Forward Contracts—In order to hedge our operational exposure to foreign currency movements, we are a party to certain foreign currency forward contracts that extend until September 2017. We have designated these instruments as cash flow hedges. No hedging ineffectiveness was recorded in earnings relating to the forward contracts during the three and nine months ended September 30, 2016 and 2015. As of September 30, 2016, we estimate that $0.5 million in gains will be reclassified from other comprehensive income (loss) to earnings over the next 12 months. As of September 30, 2016 and December 31, 2015, we had the following unsettled purchased foreign currency forward contracts that were entered into to hedge our operational exposure to foreign currency movements (in thousands, except for average contract rates):
Outstanding Notional Amounts as of September 30, 2016
Buy Currency |  | Sell Currency |  | Foreign Amount |  | USD Amount |  | Average Contract Rate
Australian Dollar |  | US Dollar |  | 19,700 |  |  | 14,454 |  |  | 0.7337 |
Euro |  | US Dollar |  | 1,800 |  |  | 2,031 |  |  | 1.1283 |
British Pound Sterling |  | US Dollar |  | 18,100 |  |  | 25,143 |  |  | 1.3891 |
Indian Rupee |  | US Dollar |  | 1,195,500 |  |  | 17,136 |  |  | 0.0143 |
Polish Zloty |  | US Dollar |  | 263,250 |  |  | 67,470 |  |  | 0.2563 |
Singapore Dollar |  | US Dollar |  | 44,600 |  |  | 32,525 |  |  | 0.7293 |
Outstanding Notional Amounts as of December 31, 2015
Buy Currency |  | Sell Currency |  | Foreign Amount |  | USD Amount |  | Average Contract Rate
US Dollar |  | Australian Dollar |  | 2,080 |  |  | 1,570 |  |  | 0.7548 |
US Dollar |  | Euro |  | 2,870 |  |  | 3,169 |  |  | 1.1042 |
Australian Dollar |  | US Dollar |  | 1,260 |  |  | 939 |  |  | 0.7452 |
Euro |  | US Dollar |  | 2,870 |  |  | 3,122 |  |  | 1.0878 |
British Pound Sterling |  | US Dollar |  | 18,075 |  |  | 27,415 |  |  | 1.5167 |
Indian Rupee |  | US Dollar |  | 1,880,500 |  |  | 27,736 |  |  | 0.0147 |
Polish Zloty |  | US Dollar |  | 226,500 |  |  | 59,120 |  |  | 0.2610 |
Interest Rate Swap Contracts—Interest rate swaps outstanding during the nine months ended September 30, 2016 and 2015 are as follows:
Notional Amount |  | Interest Rate Received |  | Interest Rate Paid |  | Effective Date |  | Maturity Date
$750 million |  | 1 month LIBOR(1) |  | 1.48% |  | December 31, 2015 |  | December 30, 2016
$750 million |  | 1 month LIBOR(1) |  | 2.19% |  | December 30, 2016 |  | December 29, 2017
$750 million |  | 1 month LIBOR(1) |  | 2.61% |  | December 29, 2017 |  | December 31, 2018
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(1) | Subject to a 1% floor.
In December 2014, we entered into eight forward starting interest rate swaps to hedge interest payments associated with $750 million of floating-rate liabilities on the notional amounts of a portion of our senior secured debt. We have designated these interest rate swaps as cash flow hedges. The total notional amount outstanding is $750 million in each of 2015, 2016 and 2017. There was no material hedge ineffectiveness for the three and nine months ended September 30, 2016. The effective portion of changes in the fair value of the interest rate swaps is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. As of September 30, 2016, we estimate that $7 million in losses will be reclassified from other comprehensive income (loss) to earnings over the next 12 months. The estimated fair values of our derivatives designated as hedging instruments as of September 30, 2016 and December 31, 2015 are as follows (in thousands):
|  | Derivative Assets (Liabilities)
|  |  |  | Fair Value as of
Derivatives Designated as Hedging Instruments |  | Consolidated Balance Sheet Location |  | September 30, 2016 |  | December 31, 2015
Foreign exchange contracts |  | Prepaid expenses and other current assets |  | $ | 1,670 |  |  | $ | — |
Foreign exchange contracts |  | Other accrued liabilities |  | (1,184 | ) |  | (1,759 | )
Interest rate swaps |  | Other accrued liabilities |  | (7,363 | ) |  | (3,912 | )
Interest rate swaps |  | Other noncurrent liabilities |  | (12,073 | ) |  | (9,822 | )
|  |  |  | $ | (18,950 | ) |  | $ | (15,493 | )
The effects of derivative instruments, net of taxes, on OCI for the three and nine months ended September 30, 2016 and 2015 are as follows (in thousands):
|  | Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships |  | 2016 |  | 2015 |  | 2016 |  | 2015
Foreign exchange contracts |  | $ | 1,282 |  |  | $ | (1,069 | ) |  | $ | 724 |  |  | $ | (4,115 | )
Interest rate swaps |  | 759 |  |  | (4,255 | ) |  | (3,637 | ) |  | (9,003 | )
Total |  | $ | 2,041 |  |  | $ | (5,324 | ) |  | $ | (2,913 | ) |  | $ | (13,118 | )
|  |  |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships |  | Income Statement Location |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2016 |  | 2015 |  | 2016 |  | 2015
Foreign exchange contracts |  | Cost of revenue |  | $ | 227 |  |  | $ | (1,970 | ) |  | $ | 1,240 |  |  | $ | (8,902 | )

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