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 exchange 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 815. The Company had outstanding cash flow hedges totaling $362,435 (including $6,900 of range forward contracts) as of December 31, 2018 and $300,757 as of December 31, 2017.

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 No. 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) on settlement of cash flow hedges are recorded along with the underlying hedged item in the same line of consolidated statements of income as either a part of “Cost of revenues”, “General and administrative expenses”, “Selling and marketing expenses” or “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 currencies. These derivatives do not qualify as fair value hedges under ASC 815. Changes in the fair value of these derivatives are recognized in the consolidated statements 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 $125,503, GBP 15,616 and EUR 512 as of December 31, 2018 and amounted to $97,949, GBP 17,947 and EUR 848 as of December 31, 2017.

The Company estimates that approximately $885 of net derivative gains, excluding tax effects, included in AOCI, representing changes in the fair value of cash flow hedges, could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of December 31, 2018. At December 31, 2018, 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 balance sheets:



Derivatives designated as hedging instruments :	As of
Foreign currency exchange contracts	December 31, 2018		December 31, 2017
Other current assets	$	4,022	$	10,892
Other assets	$	1,971	$	7,360
Accrued expense and other current liabilities	$	3,137	$	481
Other non-current liabilities	$	3,075	$	322

Derivatives not designated as hedging instruments :	As of
Foreign currency exchange contracts	December 31, 2018		December 31, 2017
Other current assets	$	37	$	46
Accrued expense and other current liabilities	$	67	$	74

The following tables set forth the effect of foreign currency exchange contracts on the consolidated statements of income and accumulated other comprehensive loss for the years ended December 31, 2018, 2017 and 2016:



	Year ended December 31,
Forward exchange contracts :	2018			2017		2016
(Loss)/gain recognized in AOCI
Derivatives in cash flow hedging relationships	$	(13,919	)	$	19,802	$	5,129

(Loss)/gain recognized in consolidated statements of income
Derivatives not designated as hedging instruments	$	(3,224	)	$	5,056	$	4,790



Location and amount of gain/(loss) recognized in consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments
	Year ended December 31,
	2018					2017				2016
	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		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 revenues	$	584,855	$	2,481		$	495,142	$	5,465	$	447,718	$	—
General & administrative expenses	$	116,202	$	443		$	102,515	$	960	$	88,616	$	—
Selling & marketing expenses	$	63,612	$	44		$	53,379	$	103	$	50,579	$	—
Depreciation & amortization	$	48,566	$	181		$	38,549	$	371	$	34,580	$	—
Foreign exchange gain/(loss), net	$	4,787	$	—		$	2,839	$	—	$	5,597	$	2,669
			$	3,149				$	6,899			$	2,669

Derivatives not designated as hedging instruments
Location in consolidated statements of income where gain/(loss) was recognized

Foreign exchange gain/(loss), net	$	4,787	$	(3,224	)	$	2,839	$	5,056	$	5,597	$	4,790
	$	4,787	$	(3,224	)	$	2,839	$	5,056	$	5,597	$	4,790