DERIVATIVES | 3 Months Ended |
Mar. 31, 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 considers, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company's creditworthiness. As of March 31, 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 other comprehensive income (loss) for the three months ended March 31, 2014 and 2013 (amounts in thousands and net of tax): |
| Three Months Ended March 31, | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Aggregate unrealized net gain/(loss) at beginning of year | $ | -8,352 | | $ | 9,559 | | | | | | | | | | | | | |
Add: Net gain/(loss) from change in fair value of cash flow hedges | | -3,649 | | | 4,099 | | | | | | | | | | | | | |
Less: Net (gain)/loss reclassified to earnings from effective hedges | | 1,115 | | | -1,919 | | | | | | | | | | | | | |
Aggregate unrealized net gain/(loss) at end of period | $ | -10,886 | | $ | 11,739 | | | | | | | | | | | | | |
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The Company's foreign exchange cash flow hedging instruments as of March 31, 2014 and December 31, 2013 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts unless noted otherwise. |
As of March 31, 2014 | | Local Currency Notional Amount | | U.S. Dollar Notional Amount | | % Maturing in the Next 12 Months | | Contracts Maturing Through | | | | | | | |
Canadian Dollar | | 6,000 | | $ | 5,857 | | | 87.5 | % | | Jun-15 | | | | | | | |
Philippine Peso | | 16,416,000 | | | 382,668 | (1) | | 37.7 | % | | Dec-18 | | | | | | | |
Mexican Peso | | 2,356,500 | | | 168,458 | | | 29.9 | % | | Dec-18 | | | | | | | |
British Pound Sterling | | 600 | | | 926 | | | 100 | % | | Jun-14 | | | | | | | |
| | | | $ | 557,909 | | | | | | | | | | | | | |
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 | (2) | | | | | | | | | | | | |
New Zealand Dollar | | 150 | | | 117 | | | | | | | | | | | | | |
| | | | $ | 580,076 | | | | | | | | | | | | | |
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(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 March 31, 2014 and December 31, 2013. |
(2) Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on December 31, 2013. |
The Company's interest rate swap arrangements as of March 31, 2014 and December 31, 2013 were as follows: |
| | Notional Amount | | Variable Rate Received | | Fixed Rate Paid | | Contract Commencement Date | | Contract Maturity Date | | | | | |
As of March 31, 2014 | | $ | 25 million | | 1 - month LIBOR | | | 2.55 | % | | Apr-12 | | Apr-16 | | | | | |
and December 31, 2013 | | | 15 million | | 1 - month LIBOR | | | 3.14 | % | | May-12 | | May-17 | | | | | |
| | $ | 40 million | | | | | | | | | | | | | | | |
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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 March 31, 2014 and December 31, 2013 the total notional amount of the Company's forward contracts used as fair value hedges were $229.5 million and $204.5 million, respectively. |
Embedded Derivatives |
In addition to hedging activities, the Company's foreign subsidiary in Argentina was party to U.S. dollar denominated lease contracts which the Company determined contain embedded derivatives. As such, the Company bifurcated the embedded derivative features of the lease contracts and valued these features as foreign currency derivatives. As of December 31, 2013, the fair value of the embedded derivative was $0.1 million and was included in Other current liabilities in the accompanying Consolidated Balance Sheets as shown in the table below. As of March 31, 2014, the lease had expired and thus the embedded derivative value was reduced to zero. |
Derivative Valuation and Settlements |
The Company's derivatives as of March 31, 2014 and December 31, 2013 were as follows (amounts in thousands): |
| | 31-Mar-14 | | | | | | |
| | 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 | | | | | | |
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Fair value and location of derivative in the | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheet: | | | | | | | | | | | | | | | | | |
Prepaids and other current assets | $ | 2,368 | | $ | - | | $ | 142 | | $ | - | | | | | | |
Other long-term assets | | 2,529 | | | - | | | - | | | - | | | | | | |
Other current liabilities | | -8,346 | | | -1,045 | | | -319 | | | - | | | | | | |
Other long-term liabilities | | -12,069 | | | -943 | | | - | | | - | | | | | | |
| Total fair value of derivatives, net | $ | -15,518 | | $ | -1,988 | | $ | -177 | | $ | - | | | | | | |
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| | 31-Dec-13 | | | | | | |
| | 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 | | | | | | |
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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 | | | | | | |
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The effects of derivative instruments on the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013 were as follows (amounts in thousands): |
| | Three Months Ended March 31, | | | | | | |
| | 2014 | | 2013 | | | | | | |
| | 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 | | | | | | |
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Amount of gain or (loss) recognized in other | | | | | | | | | | | | | | | | | |
| comprehensive income (loss) - effective portion, net of tax: | $ | -3,592 | | $ | -57 | | $ | 4,178 | | $ | -79 | | | | | | |
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Amount and location of net gain or (loss) reclassified | | | | | | | | | | | | | | | | | |
| from accumulated OCI to income - effective portion: | | | | | | | | | | | | | | | | | |
Revenue | $ | -1,570 | | $ | - | | $ | 3,460 | | $ | - | | | | | | |
Interest Expense | | - | | | -258 | | | - | | | -257 | | | | | | |
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| | Three Months Ended March 31, |
| | 2014 | | 2013 |
| | 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 |
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Amount and location of net gain or (loss) | | | | | | | | | | | | | | | | | |
| recognized in the Consolidated Statement | | | | | | | | | | | | | | | | | |
| of Comprehensive Income: | | | | | | | | | | | | | | | | | |
Costs of services | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | -69 |
Other income (expense), net | $ | - | | $ | 619 | | $ | - | | $ | - | | $ | 1,438 | | $ | - |
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