Foreign Currency Exposures and Derivative Instruments

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Foreign Currency Exposures and Derivative Instruments

Foreign Currency Exposures and Derivative Instruments

Foreign Currency Transaction Exposure

Foreign currency transaction exposure is derived primarily from intercompany transactions of a short-term nature and transactions with clients or vendors in currencies other than the functional currency of the legal entity in which the transaction is recorded. Assets and liabilities arising from such transactions are translated into the legal entity’s functional currency at each reporting period using period-end exchange rates, and any resulting gain or loss as a result of currency fluctuations is recorded in “General and administrative expenses” in the Company’s unaudited consolidated and condensed statements of operations. Foreign currency transaction net losses of $0.6 million and $0.1 million were recorded in the three months ended June 30, 2014 and 2013, respectively. Foreign currency transaction net losses of $1.0 million and $1.8 million were recorded for the six months ended June 30, 2014 and 2013, respectively.

Foreign Currency Translation Exposure

Foreign currency translation exposure is derived from the translation of the financial statements of the Company’s subsidiaries for which the functional currency is not the U.S. dollar into U.S. dollars for consolidated reporting purposes. Assets and liabilities of these subsidiaries are translated into U.S. dollars at period-end exchange rates, and statement of operations amounts are translated into U.S. dollars using individual transactional exchange rates or average monthly exchange rates. The functional currency for the majority of the Company’s foreign subsidiaries is considered to be the local currency and, accordingly, translation adjustments for those subsidiaries are recorded in the unaudited consolidated and condensed balance sheets as a separate component of stockholders’ equity, in the caption “Accumulated other comprehensive loss”.

The Company manages its foreign currency exposures through a risk management program which is designed to mitigate its exposure to operating expenses incurred by foreign subsidiaries whose functional currency is the Indian rupee and operating margins in foreign subsidiaries whose functional currencies are the British pound sterling and the euro. This program includes the use of derivative financial instruments, consisting of foreign currency option contracts, which are not designated as accounting hedges. The Company uses these instruments to mitigate its exposure to movements of the Indian rupee, British pound sterling, and euro, relative to the U.S. dollar. The Company records all derivative instruments on its consolidated balance sheets at fair value. Changes in a derivative’s fair value through the settlement date are recognized in current period earnings unless specific hedge criteria are met.

Currently, the Company enters into 30-day average rate instruments covering rolling periods of up to four months, with the following notional amounts outstanding as of June 30, 2014:

• 1.5 billion Indian rupees (approximately $25.1 million);

• 5 million British pounds sterling (approximately $8.5 million); and

• 1.3 million euros (approximately $1.7 million).

Because these instruments are average rate option collars that are settled on a net basis with the counterparty banks, the Company has not recorded the gross underlying notional amounts in its unaudited consolidated and condensed balance sheets as of June 30, 2014 or December 31, 2013. Open option positions as of June 30, 2014 will settle in the three month period ending September 30, 2014. None of the Company’s derivative financial instruments qualified for hedge accounting.

The following table presents the fair values of the derivative assets and liabilities recorded on the Company’s unaudited consolidated and condensed balance sheets as of June 30, 2014 and December 31, 2013 (in thousands): 

		June 30,		December 31
Derivative Instrument	Balance Sheet Classification	2014		2013
Foreign exchange option contracts (asset)	Prepaid and other current assets	$	—	$	129
Foreign exchange option contracts (liability)	Accrued expenses	$	90	$	175

Realized and unrealized gains and losses on the Company’s foreign exchange option contracts are included in “General and administrative expenses” in the unaudited consolidated and condensed statements of operations. The following table presents the effect of net realized and unrealized gains and losses relating to the Company’s foreign exchange option contracts on its results of operations for the three and six months ended June 30, 2014 and 2013 (in thousands):

	Three Months Ended    June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Realized/Unrealized (loss) gain on financial instruments				As Restated						As Restated
Net realized gain (loss) on foreign exchange option contracts not designated as accounting hedges	$	242		$	(101	)	$	184		$	76
Net unrealized (loss) on foreign exchange option contracts not designated as accounting hedges	(408		)	(1,045		)	(21		)	(771		)
Total	$	(166	)	$	(1,146	)	$	163		$	(695	)