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DERIVATIVES | 9 Months Ended
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Sep. 30, 2014
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, 2014, 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 comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 (in thousands and net of tax):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Aggregate unrealized net gain/(loss) at beginning of period | $ | 119 |  | $ | (2,644) |  | $ | (8,352) |  | $ | 9,559
Add: Net gain/(loss) from change in fair value of cash flow hedges |  | (11,245) |  |  | (630) |  |  | (4,948) |  |  | (9,332)
Less: Net (gain)/loss reclassified to earnings from effective hedges |  | 12 |  |  | (398) |  |  | 2,186 |  |  | (3,899)
Aggregate unrealized net gain/(loss) at end of period | $ | (11,114) |  | $ | (3,672) |  | $ | (11,114) |  | $ | (3,672)
The Company's foreign exchange cash flow hedging instruments as of September 30, 2014 and December 31, 2013 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts.
As of September 30, 2014 |  | Local Currency Notional Amount |  | U.S. Dollar Notional Amount |  | % Maturing in the Next 12 Months |  | Contracts Maturing Through
Canadian Dollar |  | 3,000 |  | $ | 2,909 |  |  | 100.0 | % |  | June 2015
Philippine Peso |  | 17,753,000 |  |  | 405,369 | (1) |  | 34.7 | % |  | August 2019
Mexican Peso |  | 2,411,000 |  |  | 171,234 |  |  | 28.9 | % |  | July 2019
Total |  |  |  | $ | 579,512 |  |  |  |  |  |
As of December 31, 2013 |  | Local Currency Notional Amount |  | U.S. Dollar Notional Amount |  |  |  |  |  |
Canadian Dollar |  | 7,500 |  | $ | 7,336 |  |  |  |  |  |
Philippine Peso |  | 17,355,000 |  |  | 404,638 | (1) |  |  |  |  |
Mexican Peso |  | 2,305,500 |  |  | 166,132 |  |  |  |  |  |
British Pound Sterling |  | 1,200 |  |  | 1,853 |  |  |  |  |  |
New Zealand Dollar |  | 150 |  |  | 117 |  |  |  |  |  |
Total |  |  |  | $ | 580,076 |  |  |  |  |  |
(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, 2014 and December 31, 2013. The Company's interest rate swap arrangement s as of September 30, 2014 and December 31, 2013 were as follows:
|  | Notional Amount |  | Variable Rate Received |  | Fixed Rate Paid |  | Contract Commencement Date |  | Contract Maturity Date
As of September 30, 2014 |  | $ | 25 million |  | 1 - month LIBOR |  |  | 2.55 | % |  | April 2012 |  | April 2016
and December 31, 2013 |  |  | 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, 2014 and December 31, 2013 the total notional amount s of the Company's forward contracts used as fair value hedges were $226.8 million and $204.5 million, respectively. Derivative Valuation and Settlements The Company's derivatives and related fair value as of September 30, 2014 and December 31, 2013 were as follows (in thousands):
|  | September 30, 2014
Designation: | Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contract type: | 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 | $ | 1,998 |  | $ | - |  | $ | 77 |  | $ | -
Other long-term assets |  | 1,184 |  |  | - |  |  | - |  |  | -
Other current liabilities |  | (8,671) |  |  | (1,019) |  |  | (2,585) |  |  | -
Other long-term liabilities |  | (11,609) |  |  | (562) |  |  | - |  |  | -
| Total fair value of derivatives, net | $ | (17,098) |  | $ | (1,581) |  | $ | (2,508) |  | $ | -
|  | December 31, 2013
Designation: | Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contract type: | 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 | $ | 3,379 |  | $ | - |  | $ | 97 |  | $ | -
Other long-term assets |  | 1,439 |  |  | - |  |  | - |  |  | -
Other current liabilities |  | (4,595) |  |  | (1,028) |  |  | (815) |  |  | (116)
Other long-term liabilities |  | (11,708) |  |  | (1,124) |  |  | - |  |  | -
| Total fair value of derivatives, net | $ | (11,485) |  | $ | (2,152) |  | $ | (718) |  | $ | (116)
The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2014 and 2013 were as follows (i n thousands):
|  | Three Months Ended September 30,
|  | 2014 |  | 2013
Designation : | Designated as Hedging Instruments |  | Designated as Hedging Instruments
Derivative contract type: | 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 | $ | (11,271) |  | $ | 26 |  | $ | (476) |  | $ | (154)
Amount and location of net gain or (loss) reclassified |  |  |  |  |  |  |  |  |  |  |
| from accumulated OCI to income - effective portion: |  |  |  |  |  |  |  |  |  |  |
Revenue | $ | 248 |  | $ | - |  | $ | 917 |  | $ | -
Interest Expense |  | - |  |  | (267) |  |  | - |  |  | (264)
|  | Three Months Ended September 30,
|  | 2014 |  | 2013
Designation : | Not Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contract type: | 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: |  |  |  |  |  |  |  |  |  |  |  |  |
Costs of services | $ | - | $ | - | $ | - |  | $ | - | $ | - | $ | 18
Other income (expense), net | $ | - | $ | 3,708 | $ | - |  | $ | - | $ | (2,373) | $ | -
The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2014 and 2013 were as follows (in thousands):
|  | Nine Months Ended September 30,
|  | 2014 |  | 2013
Designation : | 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 | $ | (4,814) |  | $ | (134) |  | $ | (9,254) |  | $ | (78)
Amount and location of net gain or (loss) reclassified |  |  |  |  |  |  |  |  |  |  |
| from accumulated OCI to income - effective portion: |  |  |  |  |  |  |  |  |  |  |
Revenue | $ | (2,795) |  | $ | - |  | $ | 7,227 |  | $ | -
Interest Expense |  | - |  |  | (790) |  |  | - |  |  | (778)
|  | Nine Months Ended September 30,
|  | 2014 |  | 2013
Designation : | Not Designated as Hedging Instruments |  | Not Designated as Hedging Instruments
Derivative contract type: | 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: |  |  |  |  |  |  |  |  |  |  |  |  |
Costs of services | $ | - | $ | - | $ | 116 |  | $ | - | $ | - | $ | 131
Other income (expense), net | $ | - | $ | 1,502 | $ | - |  | $ | - | $ | (3,620) | $ | -

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