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DERIVATIVES | 9 Months Ended
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Sep. 30, 2016
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, 2016, 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 other comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015 (in thousands and net of tax):
|  | Three Months Ended |  | Nine Months Ended |
|  | September 30, |  | September 30, |
|  | 2016 |  | 2015 |  | 2016 |  | 2015 |
Aggregate unrealized net gain/(loss) at beginning of period |  | $ | (25,007) |  | $ | (21,315) |  | $ | (26,885) |  | $ | (18,345) |
Add: Net gain/(loss) from change in fair value of cash flow hedges |  |  | 631 |  |  | (8,660) |  |  | 9,519 |  |  | (14,070) |
Less: Net (gain)/loss reclassified to earnings from effective hedges |  |  | (4,179) |  |  | 2,161 |  |  | (11,189) |  |  | 4,601 |
Aggregate unrealized net gain/(loss) at end of period |  | $ | (28,555) |  | $ | (27,814) |  | $ | (28,555) |  | $ | (27,814) |
The Company’s foreign exchange cash flow hedging instruments as of September 30, 2016 and December 31, 2015 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts.
|  | Local |  |  |  |  |  |  |  |  |  |
|  | Currency |  | U.S. Dollar |  |  | % Maturing |  |  | Contracts |
|  | Notional |  | Notional |  |  | in the next |  |  | Maturing |
As of September 30, 2016 |  | Amount |  | Amount |  |  | 12 months |  |  | Through |
Philippine Peso |  | 14,279,000 |  |  | 308,428 | (1) |  | 42.2 | % |  | August 2021 |
Mexican Peso |  | 2,278,000 |  |  | 142,576 |  |  | 30.0 | % |  | May 2021 |
|  |  |  | $ | 451,004 |  |  |  |  |  |  |
|  | Local |  |  |  |  |  |  |  |  |  |
|  | Currency |  | U.S. Dollar |  |  |  |  |  |  |
|  | Notional |  | Notional |  |  |  |  |  |  |
As of December 31, 2015 |  | Amount |  | Amount |  |  |  |  |  |  |
Philippine Peso |  | 16,362,000 |  |  | 361,571 | (1) |  |  |  |  |  |
Mexican Peso |  | 2,637,000 |  |  | 173,124 |  |  |  |  |  |  |
|  |  |  | $ | 534,695 |  |  |  |  |  |  |
| (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, 2016 and December 31, 2015.
The Company’s interest rate swap arrangements as of September 30, 2016 and December 31, 2015 were as follows:
|  |  |  |  |  |  |  |  | Contract |  | Contract |
|  | Notional |  | Variable Rate |  | Fixed Rate |  | Commencement |  | Maturity |
As of September 30, 2016: |  | Amount |  | Received |  | Paid |  | Date |  | Date |
Swap 2 |  | $ | 15 million |  | 1 - month LIBOR |  | 3.14 | % | May 2012 |  | May 2017 |
|  | $ | 15 million |  |  |  |  |  |  |  |  |
As of December 31, 2015: |  |  |  |  |  |  |  |  |  |  |  |
Swap 1 |  | $ | 25 million |  | 1 - month LIBOR |  | 2.55 | % | April 2012 |  | April 2016 |
Swap 2 |  |  | 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, 2016 and December 31, 2015 the total notional amounts of the Company’s forward contracts used as fair value hedges were $227.7 million and $241.0 million, respectively. Derivative Valuation and Settlements The Company’s derivatives as of September 30, 2016 and December 31, 2015 were as follows (in thousands):
|  | September 30, 2016 |
|  | Designated |  | Not Designated |
|  | as Hedging |  | as Hedging |
Designation: |  | Instruments |  | Instruments |
|  | Foreign |  | Interest |  | Foreign |
Derivative contract type: |  | Exchange |  | Rate |  | Exchange |
Derivative classification: |  | Cash Flow |  | Cash Flow |  | Fair Value |
Fair value and location of derivative in the Consolidated Balance Sheet: |  |  |  |  |  |  |  |  |  |
Prepaids and other current assets |  | $ | 6 |  | $ | — |  | $ | 199 |
Other long-term assets |  |  | 456 |  |  | — |  |  | — |
Other current liabilities |  |  | (22,884) |  |  | (246) |  |  | (2,475) |
Other long-term liabilities |  |  | (26,075) |  |  | — |  |  | — |
Total fair value of derivatives, net |  | $ | (48,497) |  | $ | (246) |  | $ | (2,276) |
|  | December 31, 2015 |
|  | Designated |  | Not Designated |
|  | as Hedging |  | as Hedging |
Designation: |  | Instruments |  | Instruments |
|  | Foreign |  | Interest |  | Foreign |
Derivative contract type: |  | Exchange |  | Rate |  | Exchange |
Derivative classification: |  | Cash Flow |  | Cash Flow |  | Fair Value |
Fair value and location of derivative in the Consolidated Balance Sheet: |  |  |  |  |  |  |  |  |  |
Prepaids and other current assets |  | $ | 39 |  | $ | — |  | $ | 2,489 |
Other long-term assets |  |  | 66 |  |  | — |  |  | — |
Other current liabilities |  |  | (20,088) |  |  | (549) |  |  | (116) |
Other long-term liabilities |  |  | (25,739) |  |  | (102) |  |  | — |
Total fair value of derivatives, net |  | $ | (45,722) |  | $ | (651) |  | $ | 2,373 |
The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2016 and 2015 were as follows (in thousands):
|  | Three Months Ended September 30, |
|  | 2016 |  | 2015 |
|  | Designated as Hedging |  | Designated as Hedging |
Designation: |  | Instruments |  | Instruments |
|  | Foreign |  | Interest |  | Foreign |  | Interest |
Derivative contract type: |  | Exchange |  | Rate |  | Exchange |  | 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 |  | $ | (4,119) |  | $ | (60) |  | $ | (2,313) |  | $ | 153 |
Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion: |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue |  | $ | (7,103) |  | $ | — |  | $ | (3,987) |  | $ | — |
Interest expense |  |  | — |  |  | (104) |  |  | — |  |  | (264) |
|  | Three Months Ended September 30, |
|  | 2016 |  | 2015 |
Designation: |  | Not Designated as Hedging Instruments |  | Not Designated as Hedging Instruments |
Derivative contract type: |  | Foreign Exchange |  | Foreign Exchange |
Derivative classification: |  | Forward Contracts |  | Fair Value |  | Forward Contracts |  | Fair Value |
Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |  |
Costs of services |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Other income (expense), net |  | $ | — |  | $ | (3,674) |  | $ | — |  | $ | (5,651) |
The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2016 and 2015 were as follows (in thousands):
|  | Nine Months Ended September 30, |
|  | 2016 |  | 2015 |
|  | Designated as Hedging |  | Designated as Hedging |
Designation: |  | Instruments |  | Instruments |
|  | Foreign |  | Interest |  | Foreign |  | Interest |
Derivative contract type: |  | Exchange |  | Rate |  | Exchange |  | 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 |  | $ | (10,939) |  | $ | (252) |  | $ | (4,756) |  | $ | 454 |
Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion: |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue |  | $ | (18,860) |  | $ | — |  | $ | (8,200) |  | $ | — |
Interest expense |  |  | — |  |  | (435) |  |  | — |  |  | (783) |
|  | Nine Months Ended September 30, |
|  | 2016 |  | 2015 |
Designation: |  | Not Designated as Hedging Instruments |  | Not Designated as Hedging Instruments |
Derivative contract type: |  | Foreign Exchange |  | Foreign Exchange |
Derivative classification: |  | Forward Contracts |  | Fair Value |  | Forward Contracts |  | Fair Value |
Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |  |
Costs of services |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Other income (expense), net |  | $ | — |  | $ | (3,616) |  | $ | — |  | $ | (8,146) |

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