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DERIVATIVES | 9 Months Ended
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Sep. 30, 2013
DERIVATIVES [ABSTRACT] |
DERIVATIVES | (6) DERIVATIVES Cash Flow Hedges The Company enters into foreign exchange and interest rate related derivatives. Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company's exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. Interest rate derivatives consist of interest rate swaps to reduce the Company's exposure to interest rate fluctuations associated with its variable rate debt. Upon proper qualification, these contracts are designated as cash flow hedges. It is the Company's policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the fair value of derivative assets consider, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company's creditworthiness. As of September 30, 2013, the Company has not experienced, nor does it anticipate, any issues related to derivative counterparty defaults. The following table summarizes the aggregate unrealized net gain or loss in Accumulated o ther c omprehensive i ncome (loss) for the three and nine months ended September 30, 2013 and 2012 (amounts in thousands and net of tax):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2013 |  | 2012 |  | 2013 |  | 2012
Aggregate unrealized net gain (loss) at beginning of period | $ | (2,644) |  | $ | 2,964 |  | $ | 9,559 |  | $ | (5,852)
Add: Net gain/(loss) from change in fair value of cash flow hedges |  | (630) |  |  | 4,945 |  |  | (9,332) |  |  | 14,040
Less: Net (gain)/loss reclassified to earnings from effective hedges |  | (398) |  |  | (591) |  |  | (3,899) |  |  | (870)
Aggregate unrealized net gain (loss) at end of period | $ | (3,672) |  | $ | 7,318 |  | $ | (3,672) |  | $ | 7,318
The Company's foreign exchange cash flow hedging instruments as of September 30, 2013 and December 31, 2012 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts unless noted otherwise.
As of September 30, 2013 |  | Local Currency Notional Amount |  | U.S. Dollar Notional Amount |  | % Maturing in the Next 12 Months |  | Contracts Maturing Through
Canadian Dollar |  | 12,750 |  | $ | 12,415 |  |  | 70.6 | % |  | June 2015
Philippine Peso |  | 15,835,000 |  |  | 372,909 | (1) |  | 37.8 | % |  | December 2017
Mexican Peso |  | 2,056,000 |  |  | 147,144 |  |  | 34.5 | % |  | December 2017
British Pound Sterling |  | 2,508 |  |  | 4,217 | (2) |  | 100.0 | % |  | June 2014
New Zealand Dollar |  | 300 |  |  | 235 |  |  | 100.0 | % |  | March 2014
|  |  |  | $ | 536,920 |  |  |  |  |  |
As of December 31, 2012 |  | Local Currency Notional Amount |  | U.S. Dollar Notional Amount |  |  |  |  |  |
Canadian Dollar |  | 7,750 |  | $ | 7,407 |  |  |  |  |  |
Philippine Peso |  | 11,710,000 |  |  | 271,970 | (1) |  |  |  |  |
Mexican Peso |  | 1,320,500 |  |  | 94,530 |  |  |  |  |  |
British Pound Sterling |  | 3,518 |  |  | 5,575 | (2) |  |  |  |  |
New Zealand Dollar |  | 398 |  |  | 300 |  |  |  |  |  |
|  |  |  | $ | 379,782 |  |  |  |  |  |
(1) Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on September 30, 2013 and December 31, 2012. (2) Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on September 30, 2013 and December 31, 2012. The Company's interest rate swap arrangement s as of September 30, 2013 and December 31, 2012 were as follows:
|  | Notional Amount |  | Variable Rate Received |  | Fixed Rate Paid |  | Contract Commencement Date |  | Contract Maturity Date
As of September 30, 2013 |  | $ | 25 million |  | 1 - month LIBOR |  |  | 2.55 | % |  | April 2012 |  | April 2016
|  |  | 15 million |  | 1 - month LIBOR |  |  | 3.14 | % |  | May 2012 |  | May 2017
|  | $ | 40 million |  |  |  |  |  |  |  |  |  |
As of December 31, 2012 |  | $ | 25 million |  | 1 - month LIBOR |  |  | 2.55 | % |  | April 2012 |  | April 2016
|  |  | 15 million |  | 1 - month LIBOR |  |  | 3.14 | % |  | May 2012 |  | May 2017
|  | $ | 40 million |  |  |  |  |  |  |  |  |  |
Fair Value Hedges The Company enters into foreign exchange forward contracts to economically hedge against foreign currency exchange gains and losses on certain receivables and payables of the Company's foreign operations. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings in Other income (expense), net. As of September 30, 2013 and December 31, 2012 the total notional amount of the Company's forward contracts used as fair value hedges were $247.2 million and $189.3 million, respectively. Embedded Derivatives In addition to hedging activities, the Company's foreign subsidiar y in Argentina was part y to U.S. dollar denominated lease contracts which the Company determined contain embedded derivatives. As such, the Company bifurcate d the embedded derivative features of the lease contracts and valued these features as foreign currency derivatives. As of September 30, 2013 and December 31, 2012, the fair value of the embedded derivative was $0.1 million and $0.3 million, respectively, and was included in Other current liabilities and Other long-term liabilities in the accompanying Consolidated Balance Sheets as shown in the table below. Derivative Valuation and Settlements The Company's derivatives as of September 30, 2013 and December 31, 2012 were as follows (amounts in thousands):
|  | September 30, 2013
|  | Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contracts: | Foreign Exchange |  | Interest Rate |  | Foreign Exchange |  | Leases
Derivative classification: | Cash Flow |  | Cash Flow |  | Fair Value |  | Embedded Derivative
Fair value and location of derivative in the |  |  |  |  |  |  |  |  |  |  |
| Consolidated Balance Sheet: |  |  |  |  |  |  |  |  |  |  |
Prepaids and other current assets | $ | 4,607 |  | $ | - |  | $ | 20 |  | $ | -
Other long-term assets |  | 2,971 |  |  | - |  |  | - |  |  | -
Other current liabilities |  | (3,155) |  |  | (1,029) |  |  | (430) |  |  | (147)
Other long-term liabilities |  | (8,159) |  |  | (1,258) |  |  | - |  |  | -
| Total fair value of derivatives, net | $ | (3,736) |  | $ | (2,287) |  | $ | (410) |  | $ | (147)
|  | December 31, 2012
|  | Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contracts: | Foreign Exchange |  | Interest Rate |  | Foreign Exchange |  | Leases
Derivative classification: | Cash Flow |  | Cash Flow |  | Fair Value |  | Embedded Derivative
Fair value and location of derivative in |  |  |  |  |  |  |  |  |  |  |
| the Consolidated Balance Sheet: |  |  |  |  |  |  |  |  |  |  |
Prepaids and other current assets | $ | 11,421 |  | $ | - |  | $ | 11 |  | $ | -
Other long-term assets |  | 7,619 |  |  | - |  |  | - |  |  | -
Other current liabilities |  | (157) |  |  | (1,032) |  |  | (476) |  |  | (59)
Other long-term liabilities |  | (65) |  |  | (1,955) |  |  | - |  |  | (219)
| Total fair value of derivatives, net | $ | 18,818 |  | $ | (2,987) |  | $ | (465) |  | $ | (278)
The effects of derivative instruments on the Consolidated Statements of Comprehensive Income for the three months ended September 30, 2013 and 2012 were as follows (amounts in thousands):
|  | Three Months Ended September 30,
|  | 2013 |  | 2012
|  | Designated as Hedging Instruments |  | Designated as Hedging Instruments
Derivative contracts: | Foreign Exchange |  | Interest Rate |  | Foreign Exchange |  | Interest Rate
Derivative classification: | Cash Flow |  | Cash Flow |  | Cash Flow |  | Cash Flow
Amount of gain or (loss) recognized in other comprehensive |  |  |  |  |  |  |  |  |  |  |
| income (loss) - effective portion, net of tax | $ | (476) |  | $ | (154) |  | $ | 5,331 |  | $ | (386)
Amount and location of net gain or (loss) reclassified |  |  |  |  |  |  |  |  |  |  |
| from accumulated OCI to income - effective portion: |  |  |  |  |  |  |  |  |  |  |
Revenue | $ | 917 |  | $ | - |  | $ | 1,367 |  | $ | -
Interest Expense |  | - |  |  | (264) |  |  | - |  |  | (381)
Amount and location of net gain or (loss) reclassified |  |  |  |  |  |  |  |  |  |  |
| from accumulated OCI to income - ineffective portion |  |  |  |  |  |  |  |  |  |  |
| and amount excluded from effectiveness testing: |  |  |  |  |  |  |  |  |  |  |
Other income (expense), net | $ | - |  | $ | - |  | $ | - |  | $ | -
|  | Three Months Ended September 30,
|  | 2013 |  | 2012
|  | Not Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contracts: | Foreign Exchange | Leases |  | Foreign Exchange | Leases
Derivative classification: | Option and Forward Contracts | Fair Value | Embedded Derivative |  | Option and Forward Contracts | Fair Value | Embedded Derivative
Amount and location of net gain or (loss) |  |  |  |  |  |  |  |  |  |  |  |  |
| recognized in the Consolidated Statement |  |  |  |  |  |  |  |  |  |  |  |  |
| of Comprehensive Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |  |
Costs of services | $ | - | $ | - | $ | 18 |  | $ | - | $ | - | $ | 7
Other income (expense), net | $ | - | $ | (2,373) | $ | - |  | $ | - | $ | 544 | $ | -
The effects of derivative instruments on the Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2013 and 2012 were as follows (amounts in thousands):
|  | Nine Months Ended September 30,
|  | 2013 |  | 2012
|  | Designated as Hedging Instruments |  | Designated as Hedging Instruments
Derivative contracts: | Foreign Exchange |  | Interest Rate |  | Foreign Exchange |  | Interest Rate
Derivative classification: | Cash Flow |  | Cash Flow |  | Cash Flow |  | Cash Flow
Amount of gain or (loss) recognized in other comprehensive |  |  |  |  |  |  |  |  |  |  |
| income (loss) - effective portion, net of tax | $ | (9,254) |  | $ | (78) |  | $ | 14,902 |  | $ | (862)
Amount and location of net gain or (loss) reclassified |  |  |  |  |  |  |  |  |  |  |
| from accumulated OCI to income - effective portion: |  |  |  |  |  |  |  |  |  |  |
Revenue | $ | 7,227 |  | $ | - |  | $ | 2,016 |  | $ | -
Interest Expense |  | - |  |  | (778) |  |  | - |  |  | (564)
Amount and location of net gain or (loss) reclassified |  |  |  |  |  |  |  |  |  |  |
| from accumulated OCI to income - ineffective portion |  |  |  |  |  |  |  |  |  |  |
| and amount excluded from effectiveness testing: |  |  |  |  |  |  |  |  |  |  |
Other income (expense), net | $ | - |  | $ | - |  | $ | - |  | $ | -
|  | Nine Months Ended September 30,
|  | 2013 |  | 2012
|  | Not Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contracts: | Foreign Exchange | Leases |  | Foreign Exchange | Leases
Derivative classification: | Option and Forward Contracts | Fair Value | Embedded Derivative |  | Option and Forward Contracts | Fair Value | Embedded Derivative
Amount and location of net gain or (loss) |  |  |  |  |  |  |  |  |  |  |  |  |
| recognized in the Consolidated Statement |  |  |  |  |  |  |  |  |  |  |  |  |
| of Comprehensive Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |  |
Costs of services | $ | - | $ | - | $ | 131 |  | $ | - | $ | - | $ | 259
Other income (expense), net | $ | - | $ | (3,620) | $ | - |  | $ | - | $ | 4,399 | $ | -

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. 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