Startek, Inc. - 10-K filing on 2014-03-10

DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We use derivatives to partially offset our business exposure to foreign currency exchange risk. We enter into foreign currency exchange contracts to hedge our anticipated operating commitments that are denominated in foreign currencies. The contracts cover periods commensurate with expected exposure, generally three to nine months, and are principally unsecured foreign exchange contracts. The market risk exposure is essentially limited to risk related to currency rate movements. We operate in Canada, the Philippines, Costa Rica and Honduras. The functional currencies in Canada and the Philippines are the Canadian dollar and the Philippine peso, respectively, which are used to pay labor and other operating costs in those countries. However, our client contracts generate revenues that are paid to us in U.S. dollars. In Costa Rica and Honduras, our functional currency is the U.S. dollar and the majority of our costs are denominated in U.S. dollars.

During the years ended December 31, 2013 and 2012, we entered into Canadian dollar forward contracts for a notional amount of 10,860 and 18,640 Canadian dollars, respectively, to hedge our foreign currency risk with respect to labor costs in Canada. During the years ended December 31, 2013 and 2012, we entered into Philippine peso non-deliverable forward contracts for a notional amount of 2,515,110 and 3,013,540 Philippine pesos, respectively, to hedge our foreign currency risk with respect to labor costs in the Philippines. As of December 31, 2013, we have not entered into any arrangements to hedge our exposure to fluctuations in the Costa Rican colon or the Honduran lempira relative to the U.S. dollar.

The following table shows the notional principal of our derivative instruments as of December 31, 2013:



	Currency	Notional Principal
Instruments qualifying as accounting hedges:
Foreign exchange contracts	Canadian dollar	10,860
Foreign exchange contracts	Philippine peso	1,511,910

The above Canadian dollar and Philippine peso foreign exchange contracts are to be delivered periodically through December 2014 at a purchase price of approximately $10,448 and $35,948, respectively, and as such we expect unrealized gains and losses reported in accumulated other comprehensive income will be reclassified to earnings during the next twelve months. Refer to Note 8, “Fair Value Measurements,” for additional information on the fair value measurements for all assets and liabilities, including derivative assets and derivative liabilities.

The following table shows our derivative instruments measured at gross fair value as reflected in the consolidated balance sheets in derivative asset/liability as of December 31, 2013 and 2012:



	As of December 31, 2013				As of December 31, 2012
	Assets		Liabilities		Assets		Liabilities
Foreign exchange contracts	$	—	$	2,160	$	733	$	253

The following table shows the effect of our derivative instruments designated as cash flow hedges for the years ended December 31, 2013 and 2012:



	Gain (Loss) Recognized in AOCI, net of tax Years Ended December 31,					Gain (Loss) Reclassified from AOCI into Income Years Ended December 31,
	2013			2012		2013			2012
Cash flow hedges:
Foreign exchange contracts	$	(4,590	)	$	1,749	$	(1,950	)	$	758