Derivatives and Hedge Accounting

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedge Accounting

Derivatives and Hedge Accounting

The Company uses derivative instruments and hedging transactions to mitigate exposure to foreign currency fluctuation risks associated with forecasted transactions denominated in certain foreign currencies and to minimize earnings and cash flow volatility associated with changes in foreign currency exchanges rates. The Company’s derivative financial instruments are largely forward foreign exchange contracts that are designated as effective hedges and that qualify as cash flow hedges under ASC No. 815. The Company had outstanding cash flow hedges totaling $300,757 as of December 31, 2017 and $218,545 as of December 31, 2016.

Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income / (loss), net of tax, until the hedged transactions occurs. The Company early adopted ASU 2017-12, Derivative and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. Pursuant to this adoption, effective January 1, 2017, the resultant foreign exchange gain/(loss) are recorded along with the underlying hedged item in the same line of consolidated statements of income as either part of “Cost of revenue”, “General and administrative expenses”, “Selling and marketing expenses”, Depreciation and amortization”, as applicable.

Prior to January 1, 2017, the resultant foreign exchange gain/(loss) on settlement of cash flow hedges and changes in the fair value of cash flow hedges deemed ineffective were recorded in “Foreign exchange gain, net” in the consolidated statements of income.

The Company also enters into foreign currency forward contracts to economically hedge its intercompany balances and other monetary assets and liabilities denominated in currencies other than functional currency. These derivatives do not qualify as fair value hedges under ASC No. 815. Changes in the fair value of these derivatives are recognized in the consolidated statement of income and are included in foreign exchange gain/(loss). The Company’s primary exchange rate exposure is with the Indian Rupee, the U.K. pound sterling and the Philippine peso. The Company also has exposure to Colombian pesos, Czech Koruna, the Euro, South African ZAR and other local currencies in which it operates. Outstanding foreign currency forward contracts amounted to $98,967 and GBP 17,947 as of December 31, 2017 and amounted to $63,980 and GBP 17,974 as of December 31, 2016.

The Company estimates that approximately $10,411 of net derivative gains included in accumulated other comprehensive loss (“AOCI”) could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of December 31, 2017. At December 31, 2017, the maximum outstanding term of the cash flow hedges was 45 months.

The Company evaluates hedge effectiveness at the time a contract is entered into as well as on an ongoing basis. For hedging positions that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related amounts recorded in equity are reclassified to earnings.

The following tables set forth the fair value of the foreign currency exchange contracts and their location on the consolidated financial statements:

Derivatives designated as hedging instruments :	As of
Foreign currency exchange contracts	December 31, 2017		December 31, 2016
Other current assets	$	10,892	$	3,211
Other assets	$	7,360	$	2,994
Accrued expense and other current liabilities	$	481	$	1,430
Other non-current liabilities	$	322	$	828
Derivatives not designated as hedging instruments :	As of
Foreign currency exchange contracts	December 31, 2017		December 31, 2016
Other current assets	$	46	$	113
Accrued expense and other current liabilities	$	74	$	—

The following table set forth the effect of foreign currency exchange contracts in the consolidated statements of income and accumulated other comprehensive loss for the years ended December 31, 2017 and 2016:    

Derivatives in hedging relationships	Year ended December 31,
Forward Exchange Contracts :	2017			2016
(Gain)/loss recognized in AOCI
Derivatives in cash flow hedging relationships	$	(19,802	)	$	(5,129	)
(Gain)/loss recognized in consolidated statements of income
Derivatives in fair value hedging relationships	$	(5,056	)	$	(4,790	)

Location and amount of (gain)/loss recognized in consolidated statements of income for cash flow and fair value hedging relationships
	Year ended December 31,
	2017*						2016*
Type of hedging relationships	As per consolidated statements of income			(Gain)/loss on foreign currency exchange contracts			As per consolidated statements of income			(Gain)/loss on foreign currency exchange contracts
Cash flow hedging relationships
Location in consolidated statements of income where (gain)/loss was reclassed from AOCI
Cost of revenue	$	495,586		$	(5,465	)	$	—		$	—
General & administrative expenses	$	102,567		(960		)	$	—		—
Selling & marketing expenses	$	53,383		(103		)	$	—		—
Depreciation & amortization	$	38,549		(371		)	$	—		—
Foreign exchange gain, net	$	(2,839	)	—			$	(5,597	)	(2,669		)
				$	(6,899	)				$	(2,669	)
Fair value hedging relationships
Location in consolidated statements of income where (gain)/loss was recognized
Foreign exchange gain, net	$	(2,839	)	$	(5,056	)	$	(5,597	)	$	(4,790	)
	$	(2,839	)	$	(5,056	)	$	(5,597	)	$	(4,790	)

* The Company early adopted ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. Pursuant to this adoption, effective January 1, 2017, the Company recorded settlement gain/(loss) on cash flow hedges in cost of revenues and operating expenses, as applicable, in the consolidated statements of income. In prior periods, such gain/loss were included under "Foreign exchange gain, net" line in the consolidated statements of income.