Financial Derivatives

9 Months Ended

Sep. 30, 2012

Financial Derivatives

Note 7. Financial Derivatives

Cash Flow Hedges — The Company had derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815, consisting of Philippine Peso and Costa Rican Colones contracts. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.

The deferred gains (losses) and related taxes on the Company’s derivative instruments recorded in “Accumulated other comprehensive income (loss)” in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):

	September 30, 2012			December 31, 2011
Deferred gains (losses) in AOCI	$	1,076		$	(670	)
Tax on deferred gains (losses) in AOCI		(175	)		232
Deferred gains (losses) in AOCI, net of taxes	$	901		$	(438	)
Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months	$	1,076

Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts and options.

Other Hedges — The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect our interests against adverse foreign currency moves pertaining to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries’ functional currencies. These contracts generally do not exceed 90 days in duration.

The Company had the following outstanding foreign currency forward contracts and options (in thousands):

	As of September 30, 2012				As of December 31, 2011
Contract Type	Notional Amount in USD		Settle Through Date		Notional Amount in USD		Settle Through Date
Cash flow hedges: (1)
Options:
Philippine Pesos	$	57,000		May 2013	$	85,500		September 2012
Forwards:
Philippine Pesos	$	3,000		October 2012	$	12,000		March 2012
Costa Rican Colones	$	53,000		September 2013	$	30,000		September 2012
Non-designated hedges: (2)
Forwards	$	42,992		January 2013	$	27,192		March 2012

⁽¹⁾  Cash flow hedge as defined under ASC 815. Purpose is to protect against the risk that eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.

⁽²⁾  Foreign currency hedge contract not designated as a hedge as defined under ASC 815. Purpose is to reduce the effects on the Company’s operating results and cash flows from fluctuations caused by volatility in currency exchange rates, primarily related to intercompany loan payments and cash held in non-functional currencies.

See Note 1, Overview and Summary of Significant Accounting Policies, for additional information on the Company’s purpose for entering into derivatives not designated as hedging instruments and its overall risk management strategies.

As of September 30, 2012, the maximum amount of loss due to credit risk that, based on the gross fair value of the financial instruments, the Company would incur if parties to the financial instruments that make up the concentration failed to perform according to the terms of the contracts is $2.2 million.

The following tables present the fair value of the Company’s derivative instruments included in the accompanying Condensed Consolidated Balance Sheets (in thousands):

	Derivative Assets
	September 30, 2012		December 31, 2011
	Fair Value		Fair Value
Derivatives designated as cash flow hedging instruments under ASC 815:
Foreign currency forward and option contracts (1)	$	2,125	$	704
Derivatives not designated as hedging instruments under ASC 815:
Foreign currency forward contracts (1)		40		6
Total derivative assets	$	2,165	$	710
	September 30, 2012		December 31, 2011
	Fair Value		Fair Value
Derivatives designated as cash flow hedging instruments under ASC 815:
Foreign currency forward and option contracts (2)	$	704	$	485
Derivatives not designated as hedging instruments under ASC 815:
Foreign currency forward contracts (2)		25		267
Total derivative liabilities	$	729	$	752

⁽¹⁾  Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets.

⁽²⁾  Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets.

The following tables present the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the three months ended September 30, 2012 and 2011 (in thousands):

	Gain (Loss) Recognized in AOCI on Derivatives (Effective  Portion)					Gain (Loss) Reclassified From Accumulated AOCI Into “Revenues” (Effective Portion)				Gain (Loss) Recognized in “Revenues” on Derivatives (Ineffective Portion)
	September 30,					September 30,				September 30,
	2012		2011			2012		2011		2012		2011
Derivatives designated as cash flow hedging instruments under ASC 815:
Foreign currency forward and option contracts	$	127	$	(1,993	)	$	1,631	$	1,378	$	—	$	—

	Gain (Loss) Recognized in “Other income and (expense)” on Derivatives
	September 30,
	2012			2011
Derivatives not designated as hedging instruments under ASC 815:
Foreign currency forward contracts	$	(849	)	$	3,835

The following tables present the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the nine months ended September 30, 2012 and 2011 (in thousands):

	Gain (Loss) Recognized in AOCI on Derivatives (Effective  Portion)					Gain (Loss) Reclassified From Accumulated AOCI Into  “Revenues” (Effective Portion)				Gain (Loss) Recognized in “Revenues” on Derivatives (Ineffective  Portion)
	September 30,					September 30,				September 30,
	2012		2011			2012		2011		2012		2011
Derivatives designated as cash flow hedging instruments under ASC 815:
Foreign currency forward and option contracts	$	4,090	$	(2,933	)	$	2,290	$	2,430	$	17	$	—

	Gain (Loss) Recognized in “Other income and (expense)” on  Derivatives
	September 30,
	2012			2011
Derivatives not designated as hedging instruments under ASC 815:
Foreign currency forward contracts	$	(1,046	)	$	103