FINANCIAL INSTRUMENTS

Derivative Instruments

The Company is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices. The Company’s risk management strategy includes the use of derivative instruments to reduce the effects on its operating results and cash flows from fluctuations caused by volatility in currency exchange and interest rates.

The Company serves many of its U.S.-based clients using contact center capacity in the Philippines, India, Canada and Colombia. Although the contracts with these clients are typically priced in U.S. dollars, a substantial portion of the costs incurred to render services under these contracts are denominated in Philippine pesos (PHP), Indian rupees (INR), Canadian dollars (CAD) or Colombian pesos (COP), which represents a foreign exchange exposure. Beginning in 2011, the Company entered into a contract with a client priced in Australian dollars (AUD). The Company has hedged a portion of its exposure related to the anticipated cash flow requirements denominated in these foreign currencies by entering into forward exchange contracts and options with several financial institutions to acquire a total of PHP 16,551.5 at a fixed price of $365.6 at various dates through December 2014, INR 8,219.1 at a fixed price of $157.2 at various dates through June 2015, CAD 6.0 at a fixed price of $5.7 at various dates through December 2012 and COP 23,400.0 at a fixed price of $11.9 at various dates through December 2013, and to sell a total of AUD 24.6 at a fixed price of $25.3 at various dates through June 2013. These instruments mature within the next 36 months and had a notional value of $565.7 at June 30, 2012 and $619.8 at December 31, 2011. The derivative instruments discussed above are designated and effective as cash flow hedges. The following table reflects the fair values of these derivative instruments:



	June 30, 2012		December 31, 2011
Forward exchange contracts and options designated as hedging instruments:
Included within other current assets	$	17.5	$	13.0
Included within other non-current assets	6.8		3.9
Included within other current liabilities	8.6		11.2
Included within other long-term liabilities	7.9		8.1

The Company recorded deferred tax expense of $3.1 and deferred tax benefit of $1.0 related to these derivatives at June 30, 2012 and December 31, 2011, respectively. A total of $4.7 of deferred gains and $1.5 of deferred losses, net of tax, related to these cash flow hedges at June 30, 2012 and December 31, 2011, respectively, were included in accumulated other comprehensive loss (OCL). As of June 30, 2012, deferred gains of $8.9 ($5.5 net of tax), on derivative instruments included in accumulated OCL are expected to be reclassified into earnings during the next twelve months. The following table provides the effect of these derivative instruments on the Company’s Consolidated Financial Statements for the three and six months ended June 30, 2012 and 2011:



	Gain (Loss) Recognized in OCL on Derivative (Effective Portion)			Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)		Location of Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
Three Months Ended June 30, 2012
Foreign exchange contracts	$	(0.1	)	$	3.5	- Cost of providing services and products sold and Selling, general and administrative
Six Months Ended June 30, 2012
Foreign exchange contracts	$	16.0		$	5.8	- Cost of providing services and products sold and Selling, general and administrative
Three Months Ended June 30, 2011
Foreign exchange contracts	$	1.5		$	3.9	- Cost of providing services and products sold and Selling, general and administrative
Six Months Ended June 30, 2011
Foreign exchange contracts	$	0.7		$	6.1	- Cost of providing services and products sold and Selling, general and administrative

The amount recognized related to the ineffective portion of the derivative instruments was not material for the six months ended June 30, 2012.

The Company also enters into derivative instruments (forwards) to economically hedge the foreign currency impact of assets and liabilities denominated in nonfunctional currencies. During the six months ended June 30, 2012, the Company recorded a net gain of $1.0 compared to a net loss of $0.5 for the same period in 2011, related to changes in fair value of these derivative instruments not designated as hedges. The gains and losses largely offset the currency gains and losses that resulted from changes in the assets and liabilities denominated in nonfunctional currencies. These gains and losses are classified within other income, net in the accompanying Consolidated Statements of Income. The fair value of these derivative instruments not designated as hedges at June 30, 2012 was not material to the Company’s Consolidated Balance Sheet.

A few of the Company’s counterparty agreements related to derivative instruments contain provisions that require that the Company maintain collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments in liability position on June 30, 2012 is $16.5 for which the Company has posted no collateral. Future downgrades in the Company’s credit ratings and/or changes in the foreign currency markets could result in collateral being provided to counterparties.

Short Term Investments

In December 2011, the Company made investments in certain securities, included within short-term investments in the Consolidated Balance Sheets, which are held in a grantor trust for the benefit of participants of the executive deferred compensation plan, which was frozen during the fourth quarter of 2011. This investment was made in securities reflecting the hypothetical investment balances of plan participants. As of June 30, 2012, the Company maintained investment securities with a fair value of $19.2 classified as trading securities. The investment securities include exchange-traded mutual funds, common stock of the Company and money market accounts. These securities are carried at fair value, with gains and losses, both realized and unrealized, reported in other income (expense), net in the Consolidated Statements of Income. The cost of securities sold is based upon the specific identification method. Interest and dividends on securities classified as trading are included in other income (expense), net.

Additionally, during the second quarter of 2012, the Company made investments in time deposits with maturities greater than 90 days and less than 180 days, included within short-term investments in the Consolidated Balance Sheets. As of June 30, 2012, the fair value of these short-term time deposits was $19.0.