10-K
TTEC HOLDINGS, INC. filed this Form 10-K on 03/06/2019
Entire Document
 

In order to mitigate the risk of these non-functional foreign currencies weakening against the functional currencies of the servicing subsidiaries, which thereby decreases the economic benefit of performing work in these countries, we may hedge a portion, though not 100%, of the projected foreign currency exposure related to client programs served from these foreign countries through our cash flow hedging program. While our hedging strategy can protect us from adverse changes in foreign currency rates in the short term, an overall weakening of the non-functional revenue foreign currencies would adversely impact margins in the segments of the servicing subsidiary over the long term.

Cash Flow Hedging Program

To reduce our exposure to foreign currency exchange rate fluctuations associated with forecasted revenue in non-functional currencies, we purchase forward and/or option contracts to acquire the functional currency of the foreign subsidiary at a fixed exchange rate at specific dates in the future. We have designated and account for these derivative instruments as cash flow hedges for forecasted revenue in non-functional currencies.

While we have implemented certain strategies to mitigate risks related to the impact of fluctuations in currency exchange rates, we cannot ensure that we will not recognize gains or losses from international transactions, as this is part of transacting business in an international environment. Not every exposure is or can be hedged and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts for which actual results may differ from the original estimate. Failure to successfully hedge or anticipate currency risks properly could adversely affect our consolidated operating results.

Our cash flow hedging instruments as of December 31, 2018 and 2017 are summarized as follows (in thousands). All hedging instruments are forward contracts, except as noted.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Local

    

 

 

    

    

 

    

    

 

 

 

 

Currency

 

U.S. Dollar

 

 

% Maturing

 

 

Contracts

 

 

 

Notional

 

Notional

 

 

in the next

 

 

Maturing

 

As of December 31, 2018

 

Amount

 

Amount

 

 

12 months

 

 

Through

 

Philippine Peso

 

6,710,000

 

 

130,957

(1)  

 

60.7

 

December 2021

 

Mexican Peso

 

1,091,500

 

 

57,708

 

 

53.0

 

December 2021

 

 

 

 

 

$

188,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Local

    

 

 

 

    

 

 

    

 

 

 

 

Currency

 

U.S. Dollar

 

 

 

 

 

 

 

 

 

Notional

 

Notional

 

 

 

 

 

 

 

As of December 31, 2017

 

Amount

 

Amount

 

 

 

 

 

 

 

Philippine Peso

 

10,685,000

 

 

219,917

(1)  

 

 

 

 

 

 

Mexican Peso

 

1,609,000

 

 

93,589

 

 

 

 

 

 

 

 

 

 

 

$

313,506

 

 

 

 

 

 

 

 


(1)

Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on December 31, 2018 and December 31, 2017.

The fair value of our cash flow hedges at December 31, 2018 was a liability (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturing in the

 

 

    

December 31, 2018

    

Next 12 Months

 

Philippine Peso

 

 

(5,856)

 

 

(3,570)

 

Mexican Peso

 

 

(5,460)

 

 

(4,477)

 

 

 

$

(11,316)

 

$

(8,047)

 

 

Our cash flow hedges are valued using models based on market observable inputs, including both forward and spot foreign exchange rates, implied volatility, and counterparty credit risk. The fair value liability of our cash flow hedges decreased by $14.9 million from December 31, 2017 to December 31, 2018. The decrease in fair value liability from December 31, 2017 largely reflects a reduction in the total notional value of outstanding cash flow hedges and an increase in average hedge exchange rates.

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