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Note 1. Overview and Summary of Significant Accounting Policies
Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides comprehensive outsourced customer contact management solutions and services in the business process outsourcing arena to companies, primarily within the communications, financial services, technology/consumer, transportation and leisure, and healthcare industries. SYKES provides flexible, high-quality outsourced customer contact management services (with an emphasis on inbound technical support and customer service), which includes customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels encompassing phone, e-mail, social media, text messaging and chat. SYKES complements its outsourced customer contact management services with various enterprise support services in the United States that encompass services for a company’s internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services including order processing, payment processing, inventory control, product delivery and product returns handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and Africa.
Acquisition — In August 2012, the Company completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated July 27, 2012. The Company has reflected the operating results in the Consolidated Statements of Operations since August 20, 2012. See Note 2, Acquisition of Alpine Access, Inc., for additional information on the acquisition of this business.
Discontinued Operations — In March 2012, the Company sold its operations in Spain (the “Spanish operations”), pursuant to an asset purchase agreement dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. The Company reflected the operating results related to the Spanish operations as discontinued operations in the Consolidated Statement of Operations for the year ended December 31, 2012. Cash flows from discontinued operations are included in the Consolidated Statement of Cash Flows for the year ended December 31, 2012. See Note 3, Discontinued Operations, for additional information on the sale of the Spanish operations.
Principles of Consolidation — The consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “U.S. GAAP”) requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance of the consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the accompanying consolidated financial statements.
Recognition of Revenue — The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition” (“ASC 605”). The Company primarily recognizes revenues from services as the services are performed, which is based on either a per minute, per call, per transaction or per time and material basis, under a fully executed contractual agreement and record reductions to revenues for contractual penalties and holdbacks for failure to meet specified minimum service levels and other performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future product or service or meeting other specified performance conditions. Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.
Revenues from fulfillment services account for 1.4%, 1.3% and 1.5% of total consolidated revenues for the years ended December 31, 2014, 2013 and 2012, respectively, some of which contain multiple-deliverables. The service offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 “Revenue Recognition — Multiple-Element Arrangements” (“ASC 605-25”) [as amended by Accounting Standards Update (“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”)], the Company determines if the services provided under these contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value, and where return rights exist, delivery or performance of the undelivered items is considered probable and substantially within our control. If those deliverables are determined to be separate units of accounting, revenues from these services are recognized as the services are performed under a fully executed contractual agreement. If those deliverables are not determined to be separate units of accounting, revenue for the delivered services are bundled into a single unit of accounting and recognized on the proportional performance method using the straight-line basis over the contract period, or the actual number of operational seats used to serve the client, as appropriate.
The Company allocates revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated selling price is based on the Company’s best estimate of what the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, service offerings, and customer classifications. Once the Company allocates revenue to each deliverable, the Company recognizes revenue when all revenue recognition criteria are met. As of December 31, 2014, the Company’s fulfillment contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was accounted for accordingly. Other than these fulfillment contracts, the Company had no other contracts that contain multiple-deliverables as of December 31, 2014.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments. Cash in the amount of $215.1 million and $212.0 million at December 31, 2014 and 2013, respectively, was primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash equivalents of $194.4 million and $195.0 million at December 31, 2014 and 2013, respectively, were held in international operations and may be subject to additional taxes if repatriated to the United States (“U.S.”).
Restricted Cash — Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations. Restricted cash is included in “Other current assets” and “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets.
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts on trade account receivables for estimated losses arising from the inability of its customers to make required payments. The Company’s estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and methodologies using the publicly available credit and capital market information, a review of the current status of the Company’s trade accounts receivable and historical collection experience of the Company’s clients. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments.
Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop software upon the establishment of technological feasibility. Costs incurred prior to the establishment of technological feasibility are expensed as incurred.
The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment.” For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets or independent third party offers. Occasionally, the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the carrying amount of these assets. Except as discussed in Note 5, Fair Value, the Company determined that its property and equipment were not impaired as of December 31, 2014.
Rent Expense — The Company has entered into operating lease agreements, some of which contain provisions for future rent increases, rent free periods, or periods in which rent payments are reduced. The total amount of the rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease in accordance with ASC 840 “Leases.”
Goodwill — The Company accounts for goodwill and other intangible assets under ASC 350 “Intangibles — Goodwill and Other” (“ASC 350”). The Company expects to receive future benefits from previously acquired goodwill over an indefinite period of time. For goodwill and other intangible assets with indefinite lives not subject to amortization, the Company reviews goodwill and intangible assets for impairment at least annually in the third quarter, and more frequently in the presence of certain circumstances. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if the Company concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the Company is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any.
The Company elected to forgo the option to first assess qualitative factors and completed its annual two-step goodwill impairment test during the three months ended September 30, 2014. Under ASC 350, the carrying value of assets is calculated at the reporting unit level. The quantitative assessment of goodwill includes comparing a reporting unit’s calculated fair value to its carrying value. The calculation of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth, the useful life over which cash flows will occur and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. If the fair value of the reporting unit is less than its carrying value, goodwill is considered impaired and an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. As of July 31, 2014, the Company concluded that the fair value of each reporting unit was substantially in excess of its carrying value and goodwill was not impaired.
Intangible Assets — Intangible assets, primarily customer relationships and trade names, are amortized using the straight-line method over their estimated useful lives which approximate the pattern in which the economic benefits of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or appraised values, as appropriate.
Value Added Tax Receivables — The Philippine operations are subject to value added tax (“VAT”) which is usually applied to all goods and services purchased throughout The Philippines. Upon validation and certification of the VAT receivables by the Philippine government, the resulting value added tax certificates (“certificates”) can be either used to offset current tax obligations or offered for sale to the Philippine government. The VAT receivables balance is recorded at its net realizable value.
Income Taxes — The Company accounts for income taxes under ASC 740 “Income Taxes” (“ASC 740”) which requires recognition of deferred tax assets and liabilities to reflect tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the accompanying consolidated financial statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated financial statements.
Self-Insurance Programs — The Company self-insures for certain levels of workers’ compensation and self-funds the medical, prescription drug and dental benefit plans in the United States. Estimated costs are accrued at the projected settlements for known and anticipated claims. Amounts related to these self-insurance programs are included in “Accrued employee compensation and benefits” and “Other long-term liabilities” in the accompanying Consolidated Balance Sheets.
Deferred Grants — Recognition of income associated with grants for land and the acquisition of property, buildings and equipment (together, “property grants”) is deferred until after the completion and occupancy of the building and title has passed to the Company, and the funds have been released from escrow. The deferred amounts for both land and building are amortized and recognized as a reduction of depreciation expense over the corresponding useful lives of the related assets. Amounts received in excess of the cost of the building are allocated to the cost of equipment and, only after the grants are released from escrow, recognized as a reduction of depreciation expense over the weighted average useful life of the related equipment, which approximates five years. Upon sale of the related facilities, any deferred grant balance is recognized in full and is included in the gain on sale of property and equipment.
The Company receives government employment grants as an incentive to create and maintain permanent employment positions for a specified time period. The grants are repayable, under certain terms and conditions, if the Company’s relevant employment levels do not meet or exceed the employment levels set forth in the grant agreements. Accordingly, grant monies received are deferred and amortized primarily as a reduction to “Direct salaries and related costs” using the proportionate performance model over the required employment period.
Deferred Revenue — The Company receives up-front fees in connection with certain contracts. The deferred revenue is earned over the service periods of the respective contracts, which range from 30 days to seven years. Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets includes the up-front fees associated with services to be provided over the next ensuing twelve month period and the up-front fees associated with services to be provided over multiple years in connection with contracts that contain cancellation and refund provisions, whereby the manufacturers or customers can terminate the contracts and demand pro-rata refunds of the up-front fees with short notice. Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets also includes estimated penalties and holdbacks for failure to meet specified minimum service levels in certain contracts and other performance based contingencies.
Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees). All of these plans are discussed more fully in Note 26, Stock-Based Compensation. Stock-based awards under these plans may consist of common stock, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and uses treasury stock to satisfy stock option exercises or vesting of stock awards.
In accordance with ASC 718 “Compensation — Stock Compensation” (“ASC 718”), the Company recognizes in its accompanying Consolidated Statements of Operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is re-measured to fair value at each balance sheet date until the awards are settled.
Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
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Cash, Short-Term and Other Investments, Investments Held in Rabbi Trust and Accounts Payable — The carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts payable approximate their fair values. |
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Foreign Currency Forward Contracts and Options — Foreign currency forward contracts and options, including premiums paid on options, are recognized at fair value based on quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. |
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Long-Term Debt — The carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. |
Fair Value Measurements — ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820-10-20 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
ASC 825 “Financial Instruments” (“ASC 825”) permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are not already recorded at fair value.
A description of the Company’s policies regarding fair value measurement is summarized below.
Fair Value Hierarchy — ASC 820-10-35 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:
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Level 1 — Quoted prices for identical instruments in active markets. |
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Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
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Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Determination of Fair Value — The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
Money Market and Open-End Mutual Funds — The Company uses quoted market prices in active markets to determine the fair value of money market and open-end mutual funds, which are classified in Level 1 of the fair value hierarchy.
Foreign Currency Forward Contracts and Options — The Company enters into foreign currency forward contracts and options over the counter and values such contracts using quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.
Investments Held in Rabbi Trust — The investment assets of the rabbi trust are valued using quoted market prices in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the deferred compensation plan, refer to Note 13, Investments Held in Rabbi Trust, and Note 26, Stock-Based Compensation.
Guaranteed Investment Certificates — Guaranteed investment certificates, with variable interest rates linked to the prime rate, approximate fair value due to the automatic ability to re-price with changes in the market; such items are classified in Level 2 of the fair value hierarchy.
Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income and expenses are translated at the weighted average exchange rate during the period. The net effect of translation gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency transactional gains and losses are included in “Other income (expense)” in the accompanying Consolidated Statements of Operations.
Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under ASC 815 “Derivatives and Hedging” (“ASC 815”). The Company generally utilizes non-deliverable forward contracts and options expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional foreign currencies and net investments in foreign operations. In using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.
The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net investment in a foreign operation; or (3) a derivative that does not qualify for hedge accounting. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge.
Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in AOCI, until the forecasted underlying transactions occur. Any realized gains or losses resulting from the cash flow hedges are recognized together with the hedged transaction within “Revenues”. Changes in the fair value of derivatives that are highly effective and designated as a net investment hedge are recorded in cumulative translation adjustment in AOCI, offsetting the change in cumulative translation adjustment attributable to the hedged portion of the Company’s net investment in the foreign operation. Any realized gains and losses from settlements of the net investment hedge remain in AOCI until partial or complete liquidation of the net investment. Ineffectiveness is measured based on the change in fair value of the forward contracts and options and the fair value of the hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is recognized within “Revenues” for cash flow hedges and within “Other income (expense)” for net investment hedges. Cash flows from the derivative contracts are classified within the operating section in the accompanying Consolidated Statements of Cash Flows.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging activities. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. Hedges of a net investment in a foreign operation are linked to the specific foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring, or if the Company de-designates a derivative as a hedge, the Company discontinues hedge accounting prospectively. At December 31, 2014 and 2013, all hedges were determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to reduce the effects from fluctuations caused by volatility in currency exchange rates on the Company’s operating results and cash flows. All changes in the fair value of the derivative instruments are included in “Other income (expense)”. See Note 12, Financial Derivatives, for further information on financial derivative instruments.
Reclassifications — Certain balances in prior years have been reclassified to conform to current year presentation.
New Accounting Standards Not Yet Adopted
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). The amendments in ASU 2014-08 indicate that only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results will be reported as discontinued operations in the financial statements. Currently, a component of an entity that is a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group is eligible for discontinued operations presentation. The amendments should be applied to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08 on January 1, 2015 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The amendments in ASU 2014-09 outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and indicate that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity should identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. The amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact that the adoption of ASU 2014-09 may have on its financial condition, results of operations and cash flows.
In June 2014, the FASB issued ASU 2014-12 “Compensation – Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic 718, “Compensation — Stock Compensation” (“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not expect the adoption of ASU 2014-12 to materially impact its financial condition, results of operations and cash flows.
In January 2015, the FASB issued ASU 2015-01 “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). This amendment eliminates from U.S. GAAP the concept of extraordinary items as part of the FASB’s initiative to reduce complexity in accounting standards. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-01 to materially impact its financial condition, results of operations and cash flows.
New Accounting Standards Recently Adopted
In March 2013, the FASB issued ASU 2013-05 “Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The amendments in ASU 2013-05 indicate that a cumulative translation adjustment (“CTA”) is attached to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, a loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or a step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). ASU 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. The adoption of ASU 2013-05 on January 1, 2014 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In July 2013, the FASB issued ASU 2013-11 “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The amendments in ASU 2013-11 indicate that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of ASU 2013-11 on January 1, 2014 resulted in a $3.1 million reclassification of a portion of the Company’s unrecognized tax benefits from “Long-term income tax liabilities” to “Deferred charges and other assets.” See Note 22, Income Taxes, for further information.
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Note 2. Acquisition of Alpine Access, Inc.
On August 20, 2012, the Company acquired 100% of the outstanding common shares and voting interest of Alpine, pursuant to the terms of the merger agreement. Alpine, an industry leader in the virtual at-home agent space, provides award-winning customer contact management services through a secured and proprietary virtual call center environment with its operations located in the United States and Canada. The results of Alpine’s operations have been included in the Company’s consolidated financial statements since its acquisition on August 20, 2012. The Company acquired Alpine to: create significant competitive differentiation for quality, speed to market, scalability and flexibility driven by proprietary, internally-developed software, systems, processes and other intellectual property, which uniquely overcome the challenges of the virtual at-home agent delivery model; strengthen the Company’s current service portfolio and go-to-market offering while expanding the breadth of clients with minimal client overlap; broaden the addressable market opportunity within existing and new verticals as well as clients; expand the addressable pool of skilled labor; leverage operational best practices across the Company’s global platform, with the potential to convert more of its fixed costs to variable costs; and further enhance the growth and margin profile of the Company to drive shareholder value. This resulted in the Company paying a substantial premium for Alpine resulting in the recognition of goodwill.
The acquisition date fair value of the consideration transferred totaled $149.0 million, which was funded through cash on hand of $41.0 million and borrowings of $108.0 million under the Company’s credit agreement, dated May 3, 2012. See Note 20, Borrowings, for further information.
The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations”, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from Alpine based on their estimated fair values as of the closing date. During the three months ended December 31, 2012, the final working capital adjustment was approved by the authorized representative of Alpine’s shareholders. The Company finalized its purchase price allocation during the three months ended December 31, 2012, resulting in no changes from the estimated acquisition date fair values previously reported.
The following table summarizes the final purchase price allocation of the fair values of the assets acquired and liabilities assumed, all included in the Americas segment (in thousands):
Amount | ||||
Cash and cash equivalents |
$ | 1,859 | ||
Receivables |
11,831 | |||
Prepaid expenses |
617 | |||
|
|
|||
Total current assets |
14,307 | |||
Property and equipment |
11,326 | |||
Goodwill |
80,766 | |||
Intangibles |
57,720 | |||
Deferred charges and other assets |
916 | |||
Accounts payable |
(880 | ) | ||
Accrued employee compensation and benefits |
(3,774 | ) | ||
Income taxes payable |
(141 | ) | ||
Deferred revenue |
(94 | ) | ||
Other accrued expenses and current liabilities |
(601 | ) | ||
|
|
|||
Total current liabilities |
(5,490 | ) | ||
Other long-term liabilities (1) |
(10,592 | ) | ||
|
|
|||
$ | 148,953 | |||
|
|
(1) |
Primarily includes long-term deferred tax liabilities. |
Fair values were based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach.
The following table presents the Company’s purchased intangibles assets as of August 20, 2012, the acquisition date (in thousands):
Amount Assigned |
Weighted Average Amortization Period (years) |
|||||||
Customer relationships |
$ | 46,000 | 8 | |||||
Trade names |
10,600 | 8 | ||||||
Non-compete agreements |
670 | 2 | ||||||
Favorable lease agreement |
450 | 2 | ||||||
|
|
|||||||
$ | 57,720 | 8 | ||||||
|
|
The $80.8 million of goodwill was assigned to the Company’s Americas operating segment. Pursuant to Federal income tax regulations, no amount of intangibles or goodwill from this acquisition will be deductible for tax purposes.
The fair value of receivables purchased was $11.8 million, with the gross contractual amount of $11.8 million.
The amount of Alpine’s revenues and net loss since the August 20, 2012 acquisition date, included in the Company’s accompanying Consolidated Statement of Operations for the year ended December 31, 2012 was as follows (in thousands):
From August 20, 2012 Through December 31, 2012 |
||||
Revenues |
$ | 40,635 | ||
(Loss) from continuing operations before income taxes |
$ | (3,201 | ) | |
(Loss) from continuing operations, net of taxes |
$ | (2,166 | ) |
The loss from continuing operations before income taxes of $3.2 million includes $3.6 million in severance costs, depreciation resulting from the adjustment to fair value of the acquired property and equipment, and amortization of the fair values of the acquired intangibles.
The following table presents the unaudited pro forma combined revenues and net earnings as if Alpine had been included in the consolidated results of the Company for the entire year for the year ended December 31, 2012. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2012 (in thousands):
Year Ended December 31, 2012 |
||||
Revenues |
$ | 1,190,150 | ||
Income from continuing operations, net of taxes |
$ | 37,352 | ||
Income from continuing operations per common share: |
||||
Basic |
$ | 0.87 | ||
Diluted |
$ | 0.87 |
These amounts have been calculated to reflect the additional depreciation, amortization and interest expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2012, together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies’ operating results. Included in these costs are severance, advisory and legal costs, net of the tax effects.
Merger and integration costs associated with Alpine were as follows (none in 2014) (in thousands):
Years Ended December 31, | ||||||||
2013 | 2012 | |||||||
Severance costs included in “Direct salaries and related costs”: (1) |
||||||||
Americas |
$ | 526 | $ | — | ||||
|
|
|
|
|||||
526 | — | |||||||
Severance costs included in “General and administrative”: (1) |
||||||||
Americas |
985 | 591 | ||||||
Corporate |
159 | 377 | ||||||
|
|
|
|
|||||
1,144 | 968 | |||||||
Transaction and integration costs included in “General and administrative”: (1) |
||||||||
Corporate |
444 | 3,793 | ||||||
|
|
|
|
|||||
444 | 3,793 | |||||||
|
|
|
|
|||||
Total merger and integration costs |
$ | 2,114 | $ | 4,761 | ||||
|
|
|
|
(1) |
In the accompanying Consolidated Statements of Operations. |
|
Note 3. Discontinued Operations
In November 2011, the Finance Committee of the Board of Directors (the “Board”) of the Company approved a plan to sell its Spanish operations, which were operated through its Spanish subsidiary, Sykes Enterprises, Incorporated S.L. (“Sykes Spain”). Sykes Spain operated customer contact management centers, providing contact center services through a total of three customer contact management centers in Spain to clients in Spain. The decision to sell the Spanish operations was made in 2011 after management completed a strategic review of the Spanish market and determined the operations were no longer consistent with the Company’s strategic direction.
On March 29, 2012, Sykes Spain entered into the asset purchase agreement, by and between Sykes Spain and Iberphone, S.A.U., and pursuant thereto, on March 29, 2012, Sykes Spain sold the fixed assets located in Ponferrada, Spain, which were previously written down to zero, cash of $4.1 million, and certain contracts and licenses relating to the business of Sykes Spain, to Iberphone, S.A.U. Under the asset purchase agreement, Ponferrada, Spain employees were transferred to Iberphone S.A.U. which assumed certain payroll liabilities in the approximate amount of $1.7 million, and paid a nominal purchase price for the assets.
On March 30, 2012, the Company entered into a stock purchase agreement with a former member of Sykes Spain’s management, and pursuant thereto, on March 30, 2012, the Company sold all of the shares of capital stock of Sykes Spain to the purchaser for a nominal price. Pursuant to the stock purchase agreement, immediately prior to closing, the Company made a cash capital contribution of $8.6 million to Sykes Spain to cover a portion of Sykes Spain’s liabilities and to fund the $4.1 million of cash transferred and sold pursuant to the asset purchase agreement with Iberphone, S.A.U. discussed above. As this was a stock transaction, the Company anticipates no future obligation with regard to Sykes Spain and there were no material post-closing obligations.
The Company reflected the operating results related to the Spanish operations as discontinued operations in the accompanying Consolidated Statement of Operations for the year ended December 31, 2012. Cash flows from discontinued operations are included in the accompanying Consolidated Statement of Cash Flows for the year ended December 31, 2012. This business was historically reported by the Company as part of the EMEA segment.
The results of discontinued operations were as follows (none in 2014 and 2013) (in thousands):
Year Ended | ||||
December 31, 2012 | ||||
Revenues |
$ | 10,102 | ||
|
|
|||
(Loss) from discontinued operations before income taxes |
$ | (820 | ) | |
Income taxes (1) |
— | |||
|
|
|||
(Loss) from discontinued operations, net of taxes |
$ | (820 | ) | |
|
|
|||
(Loss) on sale of discontinued operations before income taxes |
$ | (10,707 | ) | |
Income taxes (1) |
— | |||
|
|
|||
(Loss) on sale of discontinued operations, net of taxes |
$ | (10,707 | ) | |
|
|
(1) |
There were no income taxes as any tax benefit from the losses would be offset by a valuation allowance. |
|
Note 4. Costs Associated with Exit or Disposal Activities
During 2011 and 2010, the Company announced several initiatives to streamline excess capacity through targeted seat reductions (the “Exit Plans”) in an on-going effort to manage and optimize capacity utilization. These Exit Plans included, but were not limited to, closing customer contact management centers in The Philippines, the United Kingdom, Ireland and South Africa and consolidating leased space in various locations in the U.S. and the Netherlands. These Exit Plans impacted approximately 800 employees. The Company has paid $14.5 million in cash through December 31, 2014 under these Exit Plans.
The cumulative costs expected and incurred as a result of the Exit Plans were as follows as of December 31, 2014 (in thousands):
Americas Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2010 Exit Plan |
Americas Third Quarter 2010 Exit Plan |
Total | ||||||||||||||||
Lease obligations and facility exit costs |
$ | 1,365 | $ | 19 | $ | 1,914 | $ | 6,729 | $ | 10,027 | ||||||||||
Severance and related costs |
— | 5,857 | 185 | — | 6,042 | |||||||||||||||
Legal-related costs |
— | 110 | — | — | 110 | |||||||||||||||
Non-cash impairment charges |
480 | 474 | 159 | 3,847 | 4,960 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,845 | $ | 6,460 | $ | 2,258 | $ | 10,576 | $ | 21,139 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Restructuring charges in the Company’s Consolidated Statements of Operations are summarized as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
By Type: |
||||||||||||
Lease obligations and facility exit costs |
$ | (185 | ) | $ | 318 | $ | 858 | |||||
Severance and related costs |
(129 | ) | (56 | ) | 857 | |||||||
Legal-related costs |
— | — | 89 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (314 | ) | $ | 262 | $ | 1,804 | |||||
|
|
|
|
|
|
|||||||
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
By Statements of Operations Caption: |
||||||||||||
Direct salaries and related costs |
$ | — | $ | — | $ | 715 | ||||||
General and administrative |
(314 | ) | 262 | 1,089 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (314 | ) | $ | 262 | $ | 1,804 | |||||
|
|
|
|
|
|
|||||||
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
By Segment: |
||||||||||||
Americas |
$ | — | $ | — | $ | 1,426 | ||||||
EMEA |
(314 | ) | 262 | 378 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (314 | ) | $ | 262 | $ | 1,804 | |||||
|
|
|
|
|
|
The following table summarizes the accrued liability associated with the Exit Plans’ exit or disposal activities and related charges for the years ended December 31, 2014, 2013 and 2012 (in thousands):
Lease Obligation and Facility Exit Costs |
Severance and Related Costs |
Legal-Related Costs |
Total | |||||||||||||
Balance at January 1, 2012 |
$ | 4,839 | $ | 4,470 | $ | 13 | $ | 9,322 | ||||||||
Charges (reversals) (1) |
858 | 857 | 89 | 1,804 | ||||||||||||
Cash payments |
(1,926 | ) | (5,134 | ) | (91 | ) | (7,151 | ) | ||||||||
Other non-cash changes (4) |
1 | (6 | ) | (1 | ) | (6 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2012 |
3,772 | 187 | 10 | 3,969 | ||||||||||||
Charges (reversals) (2) |
318 | (56 | ) | — | 262 | |||||||||||
Cash payments |
(1,264 | ) | (8 | ) | (10 | ) | (1,282 | ) | ||||||||
Other non-cash changes (4) |
17 | 8 | — | 25 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2013 |
2,843 | 131 | — | 2,974 | ||||||||||||
Charges (reversals) (3) |
(185 | ) | (129 | ) | — | (314 | ) | |||||||||
Cash payments |
(1,095 | ) | — | — | (1,095 | ) | ||||||||||
Other non-cash changes (4) |
(5 | ) | (2 | ) | — | (7 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2014 |
$ | 1,558 | $ | — | $ | — | $ | 1,558 | ||||||||
|
|
|
|
|
|
|
|
(1) |
During 2012, the Company recorded lease obligations and facility exit costs due to the initiation of one of the Exit Plans, recorded additional severance and related costs and legal-related costs due to a change in estimates and recorded additional lease obligations due to an unanticipated lease termination penalty, all of which were included in “General and administrative” costs in the accompanying Consolidated Statement of Operations. Also, during 2012, the Company reversed accruals related to the final settlement of lease obligations and facility exit costs for one of the Ireland sites, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. |
(2) |
During 2013, the Company recorded additional lease obligations and facility exit costs for one of the Ireland site’s lease restoration. Also during 2013, the Company reversed accruals related to the final settlement of severance and related costs for the Netherlands site, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. |
(3) |
During 2014, the Company reversed accruals related to the final settlement of lease obligations and facility exit costs as well as severance and related costs for the Ireland sites, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. |
(4) |
Effect of foreign currency translation. |
The charges (reversals) for the lease obligations and facility exit costs of $0.9 million for the year ended December 31, 2012 is net of a reversal of $0.6 million as described in (1) to the table above.
Restructuring Liability Classification
The following table summarizes the Company’s short-term and long-term accrued liabilities associated with its exit and disposal activities, by plan, as of December 31, 2014 and 2013 (in thousands):
Americas Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2010 Exit Plan |
Americas Third Quarter 2010 Exit Plan |
Total | ||||||||||||||||
December 31, 2014 |
||||||||||||||||||||
Short-term accrued restructuring liability (1) |
$ | 109 | $ | — | $ | — | $ | 521 | $ | 630 | ||||||||||
Long-term accrued restructuring liability (2) |
203 | — | — | 725 | 928 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending accrual at December 31, 2014 |
$ | 312 | $ | — | $ | — | $ | 1,246 | $ | 1,558 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2013 |
||||||||||||||||||||
Short-term accrued restructuring liability (1) |
$ | 136 | $ | 131 | $ | 538 | $ | 440 | $ | 1,245 | ||||||||||
Long-term accrued restructuring liability (2) |
376 | — | — | 1,353 | 1,729 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending accrual at December 31, 2013 |
$ | 512 | $ | 131 | $ | 538 | $ | 1,793 | $ | 2,974 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheets. |
(2) |
Included in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. |
The remaining restructuring liability relates to future rent obligations to be paid through the remainder of the lease terms, the last of which ends in February 2017.
|
Note 5. Fair Value
The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2014 Using: | ||||||||||||||||
Balance at | Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||
December 31, 2014 | Level (1) | Level (2) | Level (3) | |||||||||||||
Assets: |
||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” (1) |
$ | 100,915 | $ | 100,915 | $ | — | $ | — | ||||||||
Money market funds and open-end mutual funds included in “Deferred charges and other assets” (1) |
10 | 10 | — | — | ||||||||||||
Foreign currency forward and option contracts included in “Other current assets” (2) |
1,489 | — | 1,489 | — | ||||||||||||
Foreign currency forward contracts included in “Deferred charges and other assets” (2) |
4,060 | — | 4,060 | — | ||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan (3) |
5,589 | 5,589 | — | — | ||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan (3) |
1,363 | 1,363 | — | — | ||||||||||||
Guaranteed investment certificates (4) |
79 | — | 79 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 113,505 | $ | 107,877 | $ | 5,628 | $ | — | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Long-term debt (5) |
$ | 75,000 | $ | — | $ | 75,000 | $ | — | ||||||||
Foreign currency forward and option contracts included in “Other accrued expenses and current liabilities” (2) |
1,261 | — | 1,261 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 76,261 | $ | — | $ | 76,261 | $ | — | |||||||||
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013 Using: | ||||||||||||||||
Balance at | Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||
December 31, 2013 | Level (1) | Level (2) | Level (3) | |||||||||||||
Assets: |
||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” (1) |
$ | 50,627 | $ | 50,627 | $ | — | $ | — | ||||||||
Money market funds and open-end mutual funds included in “Deferred charges and other assets” (1) |
11 | 11 | — | — | ||||||||||||
Foreign currency forward and option contracts included in “Other current assets” (2) |
2,240 | — | 2,240 | — | ||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan (3) |
5,251 | 5,251 | — | — | ||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan (3) |
1,170 | 1,170 | — | — | ||||||||||||
Guaranteed investment certificates (4) |
80 | — | 80 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 59,379 | $ | 57,059 | $ | 2,320 | $ | — | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Long-term debt (5) |
$ | 98,000 | $ | — | $ | 98,000 | $ | — | ||||||||
Foreign currency forward and option contracts included in “Other accrued expenses and current liabilities” (2) |
5,063 | — | 5,063 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 103,063 | $ | — | $ | 103,063 | $ | — | |||||||||
|
|
|
|
|
|
|
|
(1) |
In the accompanying Consolidated Balance Sheet. |
(2) |
In the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives. |
(3) |
Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13, Investments Held in Rabbi Trust. |
(4) |
Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. |
(5) |
The carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. See Note 20, Borrowings. |
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with acquired businesses, including goodwill, other intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be impaired. The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities) subject to the requirements of ASC 820 were not material at December 31, 2014 and 2013.
The table below summarizes impairment losses resulting from nonrecurring fair value measurements of certain assets (no liabilities), primarily long-lived assets that the Company determined were no longer being used and were disposed of, as follows (in thousands):
Total Impairment (Loss) | ||||||||||||
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Americas: |
||||||||||||
Property and equipment, net (1) |
$ | (89 | ) | $ | — | $ | (355 | ) | ||||
EMEA: |
||||||||||||
Property and equipment, net (1) |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
$ | (89 | ) | $ | — | $ | (355 | ) | |||||
|
|
|
|
|
|
(1) |
See Note 1, Overview and Summary of Significant Accounting Policies, for additional information regarding the fair value measurement as outlined in Property and Equipment. |
|
Note 6. Goodwill and Intangible Assets
The following table presents the Company’s purchased intangible assets as of December 31, 2014 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted
Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 100,719 | $ | (47,571 | ) | $ | 53,148 | 8 | ||||||||
Trade name |
11,600 | (4,128 | ) | 7,472 | 8 | |||||||||||
Non-compete agreements |
1,209 | (1,209 | ) | — | 2 | |||||||||||
Proprietary software |
850 | (850 | ) | — | 2 | |||||||||||
Favorable lease agreement |
449 | (449 | ) | — | 2 | |||||||||||
|
|
|
|
|
|
|||||||||||
$ | 114,827 | $ | (54,207 | ) | $ | 60,620 | 8 | |||||||||
|
|
|
|
|
|
The following table presents the Company’s purchased intangible assets as of December 31, 2013 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted
Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 102,774 | $ | (35,873 | ) | $ | 66,901 | 8 | ||||||||
Trade name |
11,600 | (2,803 | ) | 8,797 | 8 | |||||||||||
Non-compete agreements |
1,220 | (1,009 | ) | 211 | 2 | |||||||||||
Proprietary software |
850 | (847 | ) | 3 | 2 | |||||||||||
Favorable lease agreement |
449 | (306 | ) | 143 | 2 | |||||||||||
|
|
|
|
|
|
|||||||||||
$ | 116,893 | $ | (40,838 | ) | $ | 76,055 | 8 | |||||||||
|
|
|
|
|
|
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to December 31, 2014, is as follows (in thousands):
Years Ending December 31, |
Amount | |||
2015 |
13,884 | |||
2016 |
13,884 | |||
2017 |
13,884 | |||
2018 |
7,565 | |||
2019 |
6,961 | |||
2020 and thereafter |
4,442 |
Changes in goodwill for the year ended December 31, 2014 consist of the following (in thousands):
January 1, 2014 | Acquisitions | Impairments | Effect of Foreign Currency |
December 31, 2014 |
||||||||||||||||
Americas |
$ | 199,802 | $ | — | $ | — | $ | (5,971 | ) | $ | 193,831 | |||||||||
EMEA |
— | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 199,802 | $ | — | $ | — | $ | (5,971 | ) | $ | 193,831 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Changes in goodwill for the year ended December 31, 2013 consist of the following (in thousands):
January 1, 2013 | Acquisitions | Impairments | Effect of Foreign Currency |
December 31, 2013 |
||||||||||||||||
Americas |
$ | 204,231 | $ | — | $ | — | $ | (4,429 | ) | $ | 199,802 | |||||||||
EMEA |
— | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 204,231 | $ | — | $ | — | $ | (4,429 | ) | $ | 199,802 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
Note 7. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets in which the Company’s services are sold. See Note 12, Financial Derivatives, for a discussion of the Company’s credit risk relating to financial derivative instruments, and Note 27, Segments and Geographic Information, for a discussion of the Company’s customer concentration.
|
Note 8. Receivables, Net
Receivables, net consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Trade accounts receivable |
$ | 290,711 | $ | 266,048 | ||||
Income taxes receivable |
993 | 1,377 | ||||||
Other |
3,354 | 2,478 | ||||||
|
|
|
|
|||||
295,058 | 269,903 | |||||||
Less: Allowance for doubtful accounts |
4,661 | 4,987 | ||||||
|
|
|
|
|||||
$ | 290,397 | $ | 264,916 | |||||
|
|
|
|
|||||
Allowance for doubtful accounts as a percent of trade receivables |
1.6 | % | 1.9 | % | ||||
|
|
|
|
|
Note 9. Prepaid Expenses
Prepaid expenses consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Prepaid maintenance |
$ | 5,315 | $ | 5,852 | ||||
Prepaid rent |
3,147 | 3,009 | ||||||
Prepaid insurance |
3,112 | 2,631 | ||||||
Prepaid other |
3,322 | 4,218 | ||||||
|
|
|
|
|||||
$ | 14,896 | $ | 15,710 | |||||
|
|
|
|
|
Note 10. Other Current Assets
Other current assets consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Deferred tax assets (Note 22) |
$ | 13,703 | $ | 7,961 | ||||
Financial derivatives (Note 12) |
1,489 | 2,240 | ||||||
Investments held in rabbi trust (Note 13) |
6,952 | 6,421 | ||||||
Value added tax certificates (Note 11) |
6,303 | 2,066 | ||||||
Other current assets |
1,209 | 1,984 | ||||||
|
|
|
|
|||||
$ | 29,656 | $ | 20,672 | |||||
|
|
|
|
|
Note 11. Value Added Tax Receivables
The VAT receivables balances, and the respective locations in the accompanying Consolidated Balance Sheets, are presented below (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
VAT included in: |
||||||||
Other current assets (Note 10) |
$ | 6,303 | $ | 2,066 | ||||
Deferred charges and other assets (Note 15) |
856 | 5,406 | ||||||
|
|
|
|
|||||
$ | 7,159 | $ | 7,472 | |||||
|
|
|
|
During the years ended December 31, 2014, 2013 and 2012, the Company wrote down the VAT receivables balances by the following amounts, which are reflected in the accompanying Consolidated Statements of Operations (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Write-downs (recoveries) of value added tax receivables |
$ | (638 | ) | $ | 143 | $ | 546 | |||||
|
|
|
|
|
|
|
Note 12. Financial Derivatives
Cash Flow Hedges — The Company has derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815 “Derivatives and Hedging” (“ASC 815”), consisting of Philippine Peso, Costa Rican Colon, Hungarian Forint and Romanian Leu contracts. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.
The deferred gains (losses) and related taxes on the Company’s cash flow hedges recorded in “Accumulated other comprehensive income (loss)” in the accompanying Consolidated Balance Sheets are as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Deferred gains (losses) in AOCI |
$ | (157 | ) | $ | (2,704 | ) | ||
Tax on deferred gains (losses) in AOCI |
46 | 169 | ||||||
|
|
|
|
|||||
Deferred gains (losses) in AOCI, net of taxes |
$ | (111 | ) | $ | (2,535 | ) | ||
|
|
|
|
|||||
Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months |
$ | (157 | ) | |||||
|
|
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts and options.
Net Investment Hedge — During 2014 and 2013, the Company entered into foreign exchange forward contracts to hedge its net investment in a foreign operation, as defined under ASC 815. The Company did not hedge net investments in foreign operations during 2012. The purpose of these derivative instruments is to protect the Company’s interests against the risk that the net assets of certain foreign subsidiaries will be adversely affected by changes in exchange rates and economic exposures related to the Company’s foreign currency-based investments in these subsidiaries.
Non-Designated Hedges — The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect the Company’s interests against adverse foreign currency moves pertaining to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries’ functional currencies. These contracts generally do not exceed 180 days in duration.
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
As of December 31, 2014 | As of December 31, 2013 | |||||||||||||||
Contract Type |
Notional Amount in USD |
Settle Through Date |
Notional Amount in USD |
Settle Through Date |
||||||||||||
Cash flow hedges: (1) |
||||||||||||||||
Options: |
||||||||||||||||
Philippine Pesos |
$ | 73,000 | December 2015 | $ | 59,000 | December 2014 | ||||||||||
Forwards: |
||||||||||||||||
Philippine Pesos |
9,000 | March 2015 | 63,300 | July 2014 | ||||||||||||
Costa Rican Colones |
51,600 | October 2015 | 41,600 | October 2014 | ||||||||||||
Hungarian Forints |
— | |
— |
|
550 | January 2014 | ||||||||||
Romanian Leis |
10,414 | December 2015 | 619 | January 2014 | ||||||||||||
Net investment hedges: (2) |
||||||||||||||||
Forwards: |
||||||||||||||||
Euros |
51,648 | March 2016 | 32,657 | September 2014 | ||||||||||||
Non-designated hedges: (3) |
||||||||||||||||
Forwards |
64,541 | March 2015 | 59,207 | June 2014 |
(1) |
Cash flow hedge as defined under ASC 815. Purpose is to protect against the risk that eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates. |
(2) |
Net investment hedge as defined under ASC 815. Purpose is to protect against the risk that the net assets of certain of our international subsidiaries will be adversely affected by changes in exchange rates and economic exposures related to our foreign currency-based investments in these subsidiaries. |
(3) |
Foreign currency hedge contract not designated as a hedge as defined under ASC 815. Purpose is to reduce the effects on the Company’s operating results and cash flows from fluctuations caused by volatility in currency exchange rates, primarily related to intercompany loan payments and cash held in non-functional currencies. See Note 1, Overview and Summary of Significant Accounting Policies, for additional information on the Company’s purpose for entering into derivatives not designated as hedging instruments and its overall risk management strategies. |
Master netting agreements exist with each respective counterparty to reduce credit risk by permitting net settlement of derivative positions. In the event of default by the Company or one of its counterparties, these agreements include a set-off clause that provides the non-defaulting party the right to net settle all derivative transactions, regardless of the currency and settlement date. The maximum amount of loss due to credit risk that, based on gross fair value, the Company would incur if parties to the derivative transactions that make up the concentration failed to perform according to the terms of the contracts was $5.5 million and $2.2 million as of December 31, 2014 and 2013, respectively. After consideration of these netting arrangements and offsetting positions by counterparty, the total net settlement amount as it relates to these positions are asset positions of $4.4 million and $0.4 million, and liability positions of $0.1 million and $3.3 million as of December 31, 2014 and 2013, respectively.
Although legally enforceable master netting arrangements exist between the Company and each counterparty, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in the accompanying Consolidated Balance Sheets. Additionally, the Company is not required to pledge, nor is it entitled to receive, cash collateral related to these derivative transactions.
The following tables present the fair value of the Company’s derivative instruments included in the accompanying Consolidated Balance Sheets (in thousands):
Derivative Assets | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (1) |
$ | 974 | $ | 862 | ||||
Derivatives designated as net investment hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (2) |
4,060 | — | ||||||
|
|
|
|
|||||
5,034 | 862 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (1) |
515 | 1,378 | ||||||
|
|
|
|
|||||
Total derivative assets |
$ | 5,549 | $ | 2,240 | ||||
|
|
|
|
Derivative Liabilities | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (3) |
$ | 406 | $ | 2,997 | ||||
Derivatives designated as net investment hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (3) |
— | 1,720 | ||||||
|
|
|
|
|||||
406 | 4,717 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (3) |
855 | 346 | ||||||
|
|
|
|
|||||
Total derivative liabilities |
$ | 1,261 | $ | 5,063 | ||||
|
|
|
|
(1) |
Included in “Other current assets” in the accompanying Consolidated Balance Sheets. |
(2) |
Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. |
(3) |
Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheets. |
The following tables present the effect of the Company’s derivative instruments included in the accompanying Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012 (in thousands):
Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) |
Gain (Loss) Reclassified From Accumulated AOCI Into “Revenues” (Effective Portion) |
Gain (Loss) Recognized in “Revenues” on Derivatives (Ineffective Portion) |
||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||||||||||||||||||||||||||||||
Foreign currency forward and option contracts |
$ | (2,787 | ) | $ | (2,823 | ) | $ | 4,400 | $ | (5,339 | ) | $ | (666 | ) | $ | 4,156 | $ | (3 | ) | $ | 119 | $ | 17 | |||||||||||||
Derivatives designated as net investment hedging instruments under ASC 815: |
||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts |
6,344 | (1,720 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Foreign currency forward and option contracts |
$ | 3,557 | $ | (4,543 | ) | $ | 4,400 | $ | (5,339 | ) | $ | (666 | ) | $ | 4,156 | $ | (3 | ) | $ | 119 | $ | 17 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in “Other income and (expense)” on Derivatives |
||||||||||||
December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||||||
Foreign currency forward contracts |
$ | (44 | ) | $ | 4,216 | $ | (295 | ) | ||||
|
|
|
|
|
|
|
Note 13. Investments Held in Rabbi Trust
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets” in the accompanying Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
December 31, 2014 | December 31, 2013 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Mutual funds |
$ | 5,160 | $ | 6,952 | $ | 4,749 | $ | 6,421 | ||||||||
|
|
|
|
|
|
|
|
The mutual funds held in the rabbi trust were 80% equity-based and 20% debt-based as of December 31, 2014. Net investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of Operations consists of the following (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Gross realized gains from sale of trading securities |
$ | 586 | $ | 160 | $ | 163 | ||||||
Gross realized (losses) from sale of trading securities |
— | (10 | ) | (1 | ) | |||||||
Dividend and interest income |
58 | 279 | 129 | |||||||||
Net unrealized holding gains (losses) |
(276 | ) | 568 | 312 | ||||||||
|
|
|
|
|
|
|||||||
Net investment income (losses) |
$ | 368 | $ | 997 | $ | 603 | ||||||
|
|
|
|
|
|
|
Note 14. Property and Equipment
Property and equipment consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Land |
$ | 3,600 | $ | 4,144 | ||||
Buildings and leasehold improvements |
94,786 | 92,652 | ||||||
Equipment, furniture and fixtures |
293,857 | 287,728 | ||||||
Capitalized internally developed software costs |
7,963 | 7,752 | ||||||
Transportation equipment |
531 | 624 | ||||||
Construction in progress |
8,071 | 1,909 | ||||||
|
|
|
|
|||||
408,808 | 394,809 | |||||||
Less: Accumulated depreciation |
298,928 | 277,260 | ||||||
|
|
|
|
|||||
$ | 109,880 | $ | 117,549 | |||||
|
|
|
|
Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the accompanying Consolidated Balance Sheets as of December 31, 2014 and 2013 was as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Capitalized internally developed software costs, net |
$ | 1,270 | $ | 2,599 | ||||
|
|
|
|
Sale of Fixed Assets, Land and Building Located in Bismarck, North Dakota
In November 2014, the Company sold the fixed assets, land and building located in Bismarck, North Dakota for cash of $3.1 million (net of selling costs of $0.2 million) resulting in a net gain on disposal of property and equipment of $2.6 million, which is included in “Net gain (loss) on disposal of property and equipment” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2014. These assets, with a carrying value of $0.9 million, were included in “Property and equipment” in the accompanying Consolidated Balance Sheet as of December 31, 2013. Related to these assets were deferred property grants of $0.4 million, which were included in “Deferred grants” in the accompanying Consolidated Balance Sheet as of December 31, 2013.
|
Note 15. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Non-current deferred tax assets (Note 22) |
$ | 1,681 | $ | 13,048 | ||||
Non-current mandatory tax security deposits (Note 22) |
15,906 | 17,317 | ||||||
Non-current value added tax certificates (Note 11) |
856 | 5,406 | ||||||
Foreign currency forward contracts (Note 12) |
4,060 | — | ||||||
Rent and other deposits |
3,215 | 3,169 | ||||||
Other |
4,365 | 4,632 | ||||||
|
|
|
|
|||||
$ | 30,083 | $ | 43,572 | |||||
|
|
|
|
|
Note 16. Accrued Employee Compensation and Benefits
Accrued employee compensation and benefits consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Accrued compensation |
$ | 32,786 | $ | 32,003 | ||||
Accrued bonus and commissions |
18,590 | 14,265 | ||||||
Accrued vacation |
16,613 | 17,055 | ||||||
Accrued employment taxes |
9,362 | 12,448 | ||||||
Other |
4,721 | 5,293 | ||||||
|
|
|
|
|||||
$ | 82,072 | $ | 81,064 | |||||
|
|
|
|
|
Note 17. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Future service |
$ | 25,222 | $ | 25,102 | ||||
Estimated potential penalties and holdbacks |
9,023 | 9,923 | ||||||
|
|
|
|
|||||
$ | 34,245 | $ | 35,025 | |||||
|
|
|
|
|
Note 18. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Accrued legal and professional fees |
$ | 4,508 | $ | 3,220 | ||||
Accrued equipment and software |
2,196 | 1,779 | ||||||
Accrued roadside assistance claim costs |
1,878 | 2,341 | ||||||
Accrued utilities |
1,329 | 1,425 | ||||||
Foreign currency forward and option contracts (Note 12) |
1,261 | 5,063 | ||||||
Accrued telephone charges |
1,068 | 1,475 | ||||||
Customer deposits |
793 | 2,418 | ||||||
Accrued rent |
640 | 2,057 | ||||||
Accrued restructuring (Note 4) |
630 | 1,245 | ||||||
Other |
7,913 | 9,370 | ||||||
|
|
|
|
|||||
$ | 22,216 | $ | 30,393 | |||||
|
|
|
|
|
Note 19. Deferred Grants
The components of deferred grants consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Property grants |
$ | 5,110 | $ | 6,643 | ||||
Employment grants |
207 | 146 | ||||||
|
|
|
|
|||||
Total deferred grants |
5,317 | 6,789 | ||||||
Less: Property grants — short-term (1) |
— | (6 | ) | |||||
Less: Employment grants — short-term (1) |
(207 | ) | (146 | ) | ||||
|
|
|
|
|||||
Total long-term deferred grants (2) |
$ | 5,110 | $ | 6,637 | ||||
|
|
|
|
(1) |
Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheets. |
(2) |
Included in “Deferred grants” in the accompanying Consolidated Balance Sheets. |
|
Note 20. Borrowings
On May 3, 2012, the Company entered into a $245 million revolving credit facility (the “2012 Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent (“KeyBank”). The 2012 Credit Agreement replaced the Company’s previous $75 million revolving credit facility dated February 2, 2010, as amended, which agreement was terminated simultaneous with entering into the 2012 Credit Agreement. The 2012 Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants.
The 2012 Credit Agreement includes a $184 million alternate-currency sub-facility, a $10 million swingline sub-facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be available to the Company, even though it is a binding commitment of the financial institutions.
Borrowings consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Revolving credit facility |
$ | 75,000 | $ | 98,000 | ||||
Less: Current portion |
— | — | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 75,000 | $ | 98,000 | ||||
|
|
|
|
The 2012 Credit Agreement matures on May 2, 2017 and has no varying installments due.
Borrowings under the 2012 Credit Agreement will bear interest at the rates set forth in the Credit Agreement. In addition, the Company is required to pay certain customary fees, including a commitment fee of 0.175%, which is due quarterly in arrears and calculated on the average unused amount of the 2012 Credit Agreement.
The 2012 Credit Agreement is guaranteed by all of the Company’s existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the direct foreign subsidiaries of the Company and those of the guarantors.
In May 2012, the Company paid an underwriting fee of $0.9 million for the 2012 Credit Agreement, which is deferred and amortized over the term of the loan. The 2012 Credit Agreement had an average daily utilization of $85.9 million and $102.5 million during the years ended December 31, 2014 and 2013, respectively, and $96.8 million for the period outstanding during the year ended December 31, 2012. During the years ended December 31, 2014, 2013 and 2012, the related interest expense, excluding amortization of deferred loan fees, under our credit agreements was $1.1 million, $1.5 million and $0.5 million, respectively, which represented weighted average interest rates of 1.3%, 1.5% and 1.5%, respectively.
|
Note 21. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Consolidated Statements of Changes in Shareholders’ Equity in accordance with ASC 220 “Comprehensive Income” (“ASC 220”). ASC 220 establishes rules for the reporting of comprehensive income (loss) and its components. The components of accumulated other comprehensive income (loss) consist of the following (in thousands):
Foreign Currency Translation Gain (Loss) |
Unrealized Gain (Loss) on Net Investment Hedges |
Unrealized Actuarial Gain (Loss) Related to Pension Liability |
Unrealized Gain (Loss) on Cash Flow Hedging Instruments |
Unrealized Gain (Loss) on Post Retirement Obligation |
Total | |||||||||||||||||||
Balance at January 1, 2012 |
$ | 5,995 | $ | (2,565 | ) | $ | 985 | $ | (438 | ) | $ | 459 | $ | 4,436 | ||||||||||
Pre-tax amount |
9,516 | — | 499 | 4,417 | 92 | 14,524 | ||||||||||||||||||
Tax (provision) benefit |
— | — | (90 | ) | (306 | ) | — | (396 | ) | |||||||||||||||
Reclassification of (gain) loss to net income |
570 | — | (48 | ) | (4,174 | ) | (56 | ) | (3,708 | ) | ||||||||||||||
Foreign currency translation |
2 | — | 67 | (69 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2012 |
16,083 | (2,565 | ) | 1,413 | (570 | ) | 495 | 14,856 | ||||||||||||||||
Pre-tax amount |
(3,465 | ) | (1,720 | ) | (136 | ) | (2,704 | ) | (127 | ) | (8,152 | ) | ||||||||||||
Tax (provision) benefit |
— | 602 | 16 | 449 | — | 1,067 | ||||||||||||||||||
Reclassification of (gain) loss to net income |
— | — | (41 | ) | 321 | (54 | ) | 226 | ||||||||||||||||
Foreign currency translation |
133 | — | (102 | ) | (31 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2013 |
12,751 | (3,683 | ) | 1,150 | (2,535 | ) | 314 | 7,997 | ||||||||||||||||
Pre-tax amount |
(34,947 | ) | 6,344 | (50 | ) | (2,790 | ) | 77 | (31,366 | ) | ||||||||||||||
Tax (provision) benefit |
— | (2,385 | ) | 57 | (17 | ) | — | (2,345 | ) | |||||||||||||||
Reclassification of (gain) loss to net income |
— | — | (35 | ) | 5,237 | (49 | ) | 5,153 | ||||||||||||||||
Foreign currency translation |
120 | — | (114 | ) | (6 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2014 |
$ | (22,076 | ) | $ | 276 | $ | 1,008 | $ | (111 | ) | $ | 342 | $ | (20,561 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the amounts reclassified to net income from accumulated other comprehensive income (loss) and the associated line item in the accompanying Consolidated Statement of Operations (in thousands):
Years Ended December 31, |
Statements of Operations Location |
|||||||||
2014 | 2013 | |||||||||
Actuarial Gain (Loss) Related to Pension Liability: (1) |
||||||||||
Pre-tax amount |
$ | 50 | $ | 60 | Direct salaries and related costs | |||||
Tax (provision) benefit |
(15 | ) | (19 | ) | Income taxes | |||||
|
|
|
|
|||||||
Reclassification to net income |
35 | 41 | ||||||||
Gain (Loss) on Cash Flow Hedging Instruments: (2) |
||||||||||
Pre-tax amount |
(5,342 | ) | (547 | ) | Revenues | |||||
Tax (provision) benefit |
105 | 226 | Income taxes | |||||||
|
|
|
|
|||||||
Reclassification to net income |
(5,237 | ) | (321 | ) | ||||||
Gain (Loss) on Post Retirement Obligation: (1) |
||||||||||
Pre-tax amount |
49 | 54 | General and administrative | |||||||
Tax (provision) benefit |
— | — | Income taxes | |||||||
|
|
|
|
|||||||
Reclassification to net income |
49 | 54 | ||||||||
|
|
|
|
|||||||
Total reclassification of gain (loss) to net income |
$ | (5,153 | ) | $ | (226 | ) | ||||
|
|
|
|
(1) |
See Note 25, Defined Benefit Pension Plan and Postretirement Benefits, for further information. |
(2) |
See Note 12, Financial Derivatives, for further information. |
Except as discussed in Note 22, Income Taxes, earnings associated with the Company’s investments in its foreign subsidiaries are considered to be indefinitely reinvested and no provision for income taxes on those earnings or translation adjustments have been provided.
|
Note 22. Income Taxes
The income from continuing operations before income taxes includes the following components (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Domestic (U.S., state and local) |
$ | 28,563 | $ | 5,544 | $ | (10,430 | ) | |||||
Foreign |
48,596 | 45,781 | 55,587 | |||||||||
|
|
|
|
|
|
|||||||
Total income from continuing operations before income taxes |
$ | 77,159 | $ | 51,325 | $ | 45,157 | ||||||
|
|
|
|
|
|
Significant components of the income tax provision are as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Current: |
||||||||||||
U.S. federal |
$ | 2,579 | $ | 881 | $ | 236 | ||||||
State and local |
542 | 82 | (61 | ) | ||||||||
Foreign |
11,382 | 13,464 | 9,899 | |||||||||
|
|
|
|
|
|
|||||||
Total current provision for income taxes |
14,503 | 14,427 | 10,074 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
U.S. federal |
5,437 | 866 | (2,846 | ) | ||||||||
State and local |
(446 | ) | — | — | ||||||||
Foreign |
(126 | ) | (1,228 | ) | (2,021 | ) | ||||||
|
|
|
|
|
|
|||||||
Total deferred provision (benefit) for income taxes |
4,865 | (362 | ) | (4,867 | ) | |||||||
|
|
|
|
|
|
|||||||
Total provision for income taxes |
$ | 19,368 | $ | 14,065 | $ | 5,207 | ||||||
|
|
|
|
|
|
The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net operating loss and tax credit carryforwards |
$ | 19,335 | $ | 8,029 | $ | (4,113 | ) | |||||
Depreciation and amortization |
(6,220 | ) | (5,030 | ) | (5,684 | ) | ||||||
Accrued expenses/liabilities |
(4,505 | ) | 954 | (1,274 | ) | |||||||
Valuation allowance |
(3,706 | ) | (1,887 | ) | 4,120 | |||||||
Deferred statutory income |
(29 | ) | (2,425 | ) | 2,084 | |||||||
Other |
(10 | ) | (3 | ) | — | |||||||
|
|
|
|
|
|
|||||||
Total deferred provision (benefit) for income taxes |
$ | 4,865 | $ | (362 | ) | $ | (4,867 | ) | ||||
|
|
|
|
|
|
The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s effective income tax provision is as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Tax at U.S. federal statutory tax rate |
$ | 27,005 | $ | 17,964 | $ | 15,805 | ||||||
State income taxes, net of federal tax benefit |
934 | 82 | (61 | ) | ||||||||
Foreign rate differential |
(13,164 | ) | (9,319 | ) | (7,078 | ) | ||||||
Tax holidays |
(2,749 | ) | (4,686 | ) | (6,450 | ) | ||||||
Permanent differences |
10,170 | 9,051 | 3,531 | |||||||||
Tax credits |
(4,894 | ) | (5,020 | ) | (699 | ) | ||||||
Foreign withholding and other taxes |
2,541 | 4,643 | 1,263 | |||||||||
Change in valuation allowance, net of related adjustments |
(7 | ) | 1,354 | (538 | ) | |||||||
Changes in uncertain tax positions |
(468 | ) | (4 | ) | (613 | ) | ||||||
Change of assertion related to foreign earnings distribution |
— | — | 47 | |||||||||
|
|
|
|
|
|
|||||||
Total provision for income taxes |
$ | 19,368 | $ | 14,065 | $ | 5,207 | ||||||
|
|
|
|
|
|
Withholding taxes on offshore cash movements assessed by certain foreign governments of $1.8 million, $4.1 million and $0.8 million were included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012, respectively.
Earnings associated with the investments in the Company’s foreign subsidiaries of $380.8 million at December 31, 2014 are considered to be indefinitely reinvested outside of the U.S. Therefore, a U.S. provision for income taxes on those earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740 “Income Taxes.” Determination of any unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates.
The Company has been granted tax holidays in The Philippines, Colombia, Costa Rica and El Salvador. The tax holidays have various expiration dates ranging from 2015 through 2028. In some cases, the tax holidays expire without possibility of renewal. In other cases, the Company expects to renew these tax holidays, but there are no assurances from the respective foreign governments that they will renew them. This could potentially result in future adverse tax consequences in the local jurisdiction, the impact of which is not practicable to estimate due to the inherent complexity of estimating critical variables such as long-term future profitability, tax regulations and rates in the multi-national tax environment in which the Company operates. The Company’s tax holidays decreased the provision for income taxes by $2.7 million ($0.06 per diluted share), $4.7 million ($0.11 per diluted share) and $6.5 million ($0.15 per diluted share) for the years ended December 31, 2014, 2013 and 2012, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Deferred tax assets: |
||||||||
Net operating loss and tax credit carryforwards |
$ | 35,400 | $ | 61,626 | ||||
Valuation allowance |
(34,146 | ) | (42,664 | ) | ||||
Accrued expenses |
25,694 | 21,305 | ||||||
Deferred revenue |
3,757 | 4,045 | ||||||
Depreciation and amortization |
835 | 559 | ||||||
Other |
— | 104 | ||||||
|
|
|
|
|||||
31,540 | 44,975 | |||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Depreciation and amortization |
(20,172 | ) | (26,379 | ) | ||||
Deferred statutory income |
(772 | ) | (241 | ) | ||||
Accrued liabilities |
(141 | ) | (79 | ) | ||||
Other |
(1 | ) | (114 | ) | ||||
|
|
|
|
|||||
(21,086 | ) | (26,813 | ) | |||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 10,454 | $ | 18,162 | ||||
|
|
|
|
|||||
December 31, | ||||||||
2014 | 2013 | |||||||
Classified as follows: |
||||||||
Other current assets (Note 10) |
$ | 13,703 | $ | 7,961 | ||||
Other long-term liabilities |
(4,786 | ) | (2,763 | ) | ||||
Deferred charges and other assets (Note 15) |
1,681 | 13,048 | ||||||
Current deferred income tax liabilities |
(144 | ) | (84 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 10,454 | $ | 18,162 | ||||
|
|
|
|
There are approximately $185.0 million of income tax loss carryforwards as of December 31, 2014, with varying expiration dates, approximately $131.4 million relating to foreign operations and $53.6 million relating to U.S. state operations. For U.S. federal purposes, $2.7 million of tax credits are available for carryforward as of December 31, 2014, with the latest expiration date ending December 2035. With respect to foreign operations, $109.0 million of the net operating loss carryforwards have an indefinite expiration date and the remaining $22.4 million net operating loss carryforwards have varying expiration dates through December 2035. Regarding the U.S. state and foreign aforementioned tax loss carryforwards, no benefit has been recognized for $50.3 million and $123.5 million, respectively, as it is more likely than not that these losses will expire without realization of tax benefits.
The Company has accrued $13.3 million and $15.0 million as of December 31, 2014 and 2013, respectively, excluding penalties and interest, for the liability for unrecognized tax benefits. As of December 31, 2014, $2.7 million of unrecognized tax benefits have been recorded to “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet in accordance with ASU 2013-11. The remaining $10.6 million of the unrecognized tax benefits at December 31, 2014 and the $15.0 million at December 31, 2013 are recorded in “Long-term income tax liabilities” in the accompanying Consolidated Balance Sheets. Had the Company recognized these tax benefits, approximately $13.3 million and $15.0 million, and the related interest and penalties, would have favorably impacted the effective tax rate in 2014 and 2013, respectively. The Company anticipates that approximately $2.2 million of the unrecognized tax benefits will be recognized in the next twelve months due to a lapse in the applicable statute of limitations.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company had $10.1 million and $10.5 million accrued for interest and penalties as of December 31, 2014 and 2013, respectively. Of the accrued interest and penalties at December 31, 2014 and 2013, $3.3 million and $3.8 million, respectively, relate to statutory penalties. The amount of interest and penalties, net, included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 was $(0.5) million, $0.4 million and $(0.1) million, respectively.
The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Gross unrecognized tax benefits as of January 1, |
$ | 14,991 | $ | 16,897 | $ | 17,136 | ||||||
Prior period tax position increases (decreases) (1) |
— | — | 321 | |||||||||
Decreases from settlements with tax authorities |
— | — | (426 | ) | ||||||||
Decreases due to lapse in applicable statute of limitations |
— | (390 | ) | (561 | ) | |||||||
Foreign currency translation increases (decreases) |
(1,706 | ) | (1,516 | ) | 427 | |||||||
|
|
|
|
|
|
|||||||
Gross unrecognized tax benefits as of December 31, |
$ | 13,285 | $ | 14,991 | $ | 16,897 | ||||||
|
|
|
|
|
|
(1) |
Includes amounts assumed upon acquisition of Alpine on August 20, 2012. |
The Company is currently under audit in several tax jurisdictions. The Company received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and the Company paid mandatory security deposits to Canada as part of this process. The total amount of deposits, net of fluctuations in the foreign exchange rate, are $15.9 million and $17.3 million as of December 31, 2014 and 2013, respectively, and are included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. Although the outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved for these audits and that resolution is not expected to have a material impact on its financial condition and results of operations.
The significant tax jurisdictions currently under audit are as follows:
Tax Jurisdiction |
Tax Year Ended |
|
Canada |
2003 to 2009 | |
The Philippines |
2009 and 2010 |
The Company and its subsidiaries file federal, state and local income tax returns as required in the U.S. and in various foreign tax jurisdictions. The following table presents the major tax jurisdictions and tax years that are open and subject to examination by the respective tax authorities as of December 31, 2014:
Tax Jurisdiction |
Tax Year Ended |
|
Canada | 2003 to present | |
The Philippines | 2009 to present | |
United States | 2002 to 2010 (1) and 2011 to present |
(1) |
These tax years are open to the extent of the net operating loss and tax credit carryforward amounts. |
|
Note 24. Commitments and Loss Contingency
Lease and Purchase Commitments
The Company leases certain equipment and buildings under operating leases having original terms ranging from one to twenty years, many with options to cancel at varying points during the lease. The building leases can contain up to three five-year renewal options. Rental expense under operating leases was as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Rental expense |
$ | 44,916 | $ | 47,365 | $ | 43,626 | ||||||
|
|
|
|
|
|
The following is a schedule of future minimum rental payments required under operating leases that have noncancelable lease terms as of December 31, 2014 (in thousands):
Amount | ||||
2015 |
$ | 33,287 | ||
2016 |
24,907 | |||
2017 |
21,586 | |||
2018 |
20,325 | |||
2019 |
15,617 | |||
2020 and thereafter |
35,801 | |||
|
|
|||
Total minimum payments required |
$ | 151,523 | ||
|
|
The Company enters into agreements with third-party vendors in the ordinary course of business whereby the Company commits to purchase goods and services used in its normal operations. These agreements, which are not cancelable, generally range from one to five year periods and contain fixed or minimum annual commitments. Certain of these agreements allow for renegotiation of the minimum annual commitments based on certain conditions.
The following is a schedule of future minimum purchases remaining under the agreements as of December 31, 2014 (in thousands):
Amount | ||||
2015 |
$ | 33,039 | ||
2016 |
21,025 | |||
2017 |
10,448 | |||
2018 |
1,485 | |||
2019 |
1,483 | |||
2020 and thereafter |
1,600 | |||
|
|
|||
Total minimum payments required |
$ | 69,080 | ||
|
|
Indemnities, Commitments and Guarantees
From time to time, during the normal course of business, the Company may make certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include, but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence or willful misconduct of the Company and (ii) indemnities involving breach of contract, the accuracy of representations and warranties of the Company, or other liabilities assumed by the Company in certain contracts. In addition, the Company has agreements whereby it will indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company believes the applicable insurance coverage is generally adequate to cover any estimated potential liability under these indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying Consolidated Balance Sheets. In addition, the Company has some client contracts that do not contain contractual provisions for the limitation of liability, and other client contracts that contain agreed upon exceptions to limitation of liability. The Company has not recorded any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under which the Company has or may have unlimited liability.
Loss Contingency
The Company from time to time is involved in legal actions arising in the ordinary course of business. With respect to these matters, management believes that it has adequate legal defenses and/or when possible and appropriate, provided adequate accruals related to those matters such that the ultimate outcome will not have a material adverse effect on the Company’s financial position or results of operations.
|
Note 25. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The Company sponsors non-contributory defined benefit pension plans (the “Pension Plans”) for its covered employees in The Philippines. The Pension Plans provide defined benefits based on years of service and final salary. All permanent employees meeting the minimum service requirement are eligible to participate in the Pension Plans. As of December 31, 2014, the Pension Plans were unfunded. The Company expects to make no cash contributions to its Pension Plans during 2015.
The following table provides a reconciliation of the change in the benefit obligation for the Pension Plans and the net amount recognized, included in “Other long-term liabilities”, in the accompanying Consolidated Balance Sheets (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Beginning benefit obligation |
$ | 2,481 | $ | 1,997 | ||||
Service cost |
387 | 392 | ||||||
Interest cost |
104 | 137 | ||||||
Actuarial (gains) losses |
50 | 136 | ||||||
Effect of foreign currency translation |
78 | (181 | ) | |||||
|
|
|
|
|||||
Ending benefit obligation |
$ | 3,100 | $ | 2,481 | ||||
|
|
|
|
|||||
Unfunded status |
$ | (3,100 | ) | $ | (2,481 | ) | ||
|
|
|
|
|||||
Net amount recognized |
$ | (3,100 | ) | $ | (2,481 | ) | ||
|
|
|
|
The actuarial assumptions used to determine the benefit obligations and net periodic benefit cost for the Pension Plans were as follows:
Years Ended December 31, | ||||||
2014 | 2013 | 2012 | ||||
Discount rate |
4.5% - 4.9% | 4.3% - 5.2% | 5.9% | |||
Rate of compensation increase |
2.0% | 2.0% | 2.0% |
The Company evaluates these assumptions on a periodic basis taking into consideration current market conditions and historical market data. The discount rate is used to calculate expected future cash flows at a present value on the measurement date, which is December 31. This rate represents the market rate for high-quality fixed income investments. A lower discount rate would increase the present value of benefit obligations. Other assumptions include demographic factors such as retirement, mortality and turnover.
The following table provides information about the net periodic benefit cost and other accumulated comprehensive income for the Pension Plans (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Service cost |
$ | 387 | $ | 392 | $ | 372 | ||||||
Interest cost |
104 | 137 | 120 | |||||||||
Recognized actuarial (gains) |
(50 | ) | (60 | ) | (46 | ) | ||||||
|
|
|
|
|
|
|||||||
Net periodic benefit cost |
441 | 469 | 446 | |||||||||
Unrealized net actuarial (gains), net of tax |
(1,008 | ) | (1,150 | ) | (1,413 | ) | ||||||
|
|
|
|
|
|
|||||||
Total amount recognized in net periodic benefit cost and other accumulated comprehensive income (loss) |
$ | (567 | ) | $ | (681 | ) | $ | (967 | ) | |||
|
|
|
|
|
|
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in thousands):
Years Ending December 31, |
Amount | |||
2015 |
$ | 28 | ||
2016 |
133 | |||
2017 |
77 | |||
2018 |
58 | |||
2019 |
303 | |||
2020 - 2024 |
963 |
The Company expects to recognize less than $0.1 million of net actuarial gains as a component of net periodic benefit cost in 2015.
Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements. Under the plan provisions, the Company matches 50% of participant contributions to a maximum matching amount of 2% of participant compensation. The Company’s contributions included in the accompanying Consolidated Statements of Operations were as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
401(k) plan contributions |
$ | 870 | $ | 895 | $ | 1,221 | ||||||
|
|
|
|
|
|
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other comprehensive income” in the accompanying Consolidated Balance Sheets were as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Postretirement benefit obligation |
$ | 46 | $ | 81 | ||||
Unrealized gains (losses) in AOCI (1) |
342 | 314 |
(1) |
Unrealized gains (losses) are due to changes in discount rates related to the postretirement obligation. |
Post-Retirement Defined Contribution Healthcare Plan
On January 1, 2005, the Company established a Post-Retirement Defined Contribution Healthcare Plan for eligible employees meeting certain service and age requirements. The plan is fully funded by the participants and accordingly, the Company does not recognize expense relating to the plan.
|
Note 26. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the 2004 Non-Employee Director Fee Plan and the Deferred Compensation Plan. The following table summarizes the stock-based compensation expense (primarily in the Americas), income tax benefits related to the stock-based compensation and excess tax benefits (deficiencies) (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Stock-based compensation (expense) (1) |
$ | (6,381 | ) | $ | (4,873 | ) | $ | (3,467 | ) | |||
Income tax benefit (2) |
2,233 | 1,706 | 1,213 | |||||||||
Excess tax benefit (deficiency) from stock-based compensation (3) |
(82 | ) | (187 | ) | (292 | ) |
(1) |
Included in “General and administrative” costs in the accompanying Consolidated Statements of Operations. |
(2) |
Included in “Income taxes” in the accompanying Consolidated Statements of Operations. |
(3) |
Included in “Additional paid-in capital” in the accompanying Consolidated Statements of Changes in Shareholders’ Equity. |
There were no capitalized stock-based compensation costs at December 31, 2014, 2013 and 2012.
2011 Equity Incentive Plan — The Company’s Board adopted the Sykes Enterprises, Incorporated 2011 Equity Incentive Plan (the “2011 Plan”) on March 23, 2011, as amended on May 11, 2011 to reduce the number of shares of common stock available to 4.0 million shares. The 2011 Plan was approved by the shareholders at the May 2011 annual shareholders meeting. The 2011 Plan replaced and superseded the Company’s 2001 Equity Incentive Plan (the “2001 Plan”), which expired on March 14, 2011. The outstanding awards granted under the 2001 Plan will remain in effect until their exercise, expiration or termination. The 2011 Plan permits the grant of restricted stock, stock appreciation rights, stock options and other stock-based awards to certain employees of the Company, and certain non-employees who provide services to the Company in order to encourage them to remain in the employment of, or to faithfully provide services to, the Company and to increase their interest in the Company’s success.
Stock Appreciation Rights — The Board, at the recommendation of the Compensation and Human Resource Development Committee (the “Committee”), has approved in the past, and may approve in the future, awards of stock-settled stock appreciation rights (“SARs”) for eligible participants. SARs represent the right to receive, without payment to the Company, a certain number of shares of common stock, as determined by the Committee, equal to the amount by which the fair market value of a share of common stock at the time of exercise exceeds the grant price.
SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date. The SARs have a term of 10 years from the date of grant. In the event of a change in control, the SARs will vest on the date of the change in control, provided that the participant is employed by the Company on the date of the change in control.
All currently outstanding SARs are exercisable within three months after the death, disability, retirement or termination of the participant’s employment with the Company, if and to the extent the SARs were exercisable immediately prior to such termination. If the participant’s employment is terminated for cause, or the participant terminates his or her own employment with the Company, any portion of the SARs not yet exercised (whether or not vested) terminates immediately on the date of termination of employment.
The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses various assumptions. The fair value of the SARs is expensed on a straight-line basis over the requisite service period. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate for periods within the contractual life of the award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Exercises and forfeitures are estimated within the valuation model using employee termination and other historical data. The expected term of the SARs granted represents the period of time the SARs are expected to be outstanding.
The following table summarizes the assumptions used to estimate the fair value of SARs granted:
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Expected volatility |
38.9 | % | 45.2 | % | 47.1 | % | ||||||
Weighted-average volatility |
38.9 | % | 45.2 | % | 47.1 | % | ||||||
Expected dividend rate |
0.0 | % | 0.0 | % | 0.0 | % | ||||||
Expected term (in years) |
5.0 | 5.0 | 4.7 | |||||||||
Risk-free rate |
1.7 | % | 0.8 | % | 0.8 | % |
The following table summarizes SARs activity as of December 31, 2014 and for the year then ended:
Stock Appreciation Rights |
Shares (000s) | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (000s) |
||||||||||||
Outstanding at January 1, 2014 |
963 | $ | — | |||||||||||||
Granted |
246 | $ | — | |||||||||||||
Exercised |
(77 | ) | $ | — | ||||||||||||
Forfeited or expired |
(173 | ) | $ | — | ||||||||||||
|
|
|||||||||||||||
Outstanding at December 31, 2014 |
959 | $ | — | 7.0 | $ | 5,171 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested or expected to vest at December 31, 2014 |
959 | $ | — | 7.0 | $ | 5,171 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at December 31, 2014 |
548 | $ | — | 5.8 | $ | 2,700 | ||||||||||
|
|
|
|
|
|
|
|
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of SARs granted |
246 | 318 | 259 | |||||||||
Weighted average grant-date fair value per SAR |
$ | 7.20 | $ | 6.08 | $ | 5.97 | ||||||
Intrinsic value of SARs exercised |
$ | 391 | $ | 488 | $ | — | ||||||
Fair value of SARs vested |
$ | 1,553 | $ | 1,298 | $ | 1,388 |
The following table summarizes nonvested SARs activity as of December 31, 2014 and for the year then ended:
Nonvested Stock Appreciation Rights | Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
535 | $ | 6.17 | |||||
Granted |
246 | $ | 7.20 | |||||
Vested |
(246 | ) | $ | 6.31 | ||||
Forfeited or expired |
(124 | ) | $ | 6.48 | ||||
|
|
|
|
|||||
Nonvested at December 31, 2014 |
411 | $ | 6.61 | |||||
|
|
|
|
As of December 31, 2014, there was $1.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested SARs granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period of 1.3 years.
Restricted Shares — The Board, at the recommendation of the Committee, has approved in the past, and may approve in the future, awards of performance and employment-based restricted shares (“restricted shares”) for eligible participants. In some instances, where the issuance of restricted shares has adverse tax consequences to the recipient, the Board may instead issue restricted stock units (“RSUs”). The restricted shares are shares of the Company’s common stock (or in the case of RSUs, represent an equivalent number of shares of the Company’s common stock) which are issued to the participant subject to (a) restrictions on transfer for a period of time and (b) forfeiture under certain conditions. The performance goals, including revenue growth and income from operations targets, provide a range of vesting possibilities from 0% to 100% and will be measured at the end of the performance period. If the performance conditions are met for the performance period, the shares will vest and all restrictions on the transfer of the restricted shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common stock will be issued to the recipient). The Company recognizes compensation cost, net of estimated forfeitures, based on the fair value (which approximates the current market price) of the restricted shares (and RSUs) on the date of grant ratably over the requisite service period based on the probability of achieving the performance goals.
Changes in the probability of achieving the performance goals from period to period will result in corresponding changes in compensation expense. The employment-based restricted shares currently outstanding vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date. In the event of a change in control (as defined in the 2011 Plan and 2001 Plan) prior to the date the restricted shares vest, all of the restricted shares will vest and the restrictions on transfer will lapse with respect to such vested shares on the date of the change in control, provided that participant is employed by the Company on the date of the change in control.
If the participant’s employment with the Company is terminated for any reason, either by the Company or participant, prior to the date on which the restricted shares have vested and the restrictions have lapsed with respect to such vested shares, any restricted shares remaining subject to the restrictions (together with any dividends paid thereon) will be forfeited, unless there has been a change in control prior to such date.
The following table summarizes nonvested restricted shares/RSUs activity as of December 31, 2014 and for the year then ended:
Nonvested Restricted Shares and RSUs |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
1,367 | $ | 15.96 | |||||
Granted |
500 | $ | 19.77 | |||||
Vested |
(57 | ) | $ | 15.67 | ||||
Forfeited or expired |
(616 | ) | $ | 17.45 | ||||
|
|
|||||||
Nonvested at December 31, 2014 |
1,194 | $ | 16.80 | |||||
|
|
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands, except per restricted share/RSU amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of restricted shares/RSUs granted |
500 | 706 | 420 | |||||||||
Weighted average grant-date fair value per restricted share/RSU |
$ | 19.77 | $ | 15.25 | $ | 15.21 | ||||||
Fair value of restricted shares/RSUs vested |
$ | 895 | $ | 366 | $ | 3,845 |
As of December 31, 2014, based on the probability of achieving the performance goals, there was $14.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted shares/RSUs granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period of 1.4 years.
2004 Non-Employee Director Fee Plan — The Company’s 2004 Non-Employee Director Fee Plan (the “2004 Fee Plan”), as last amended on May 17, 2012, provided that all new non-employee directors joining the Board would receive an initial grant of shares of common stock on the date the new director is elected or appointed, the number of which will be determined by dividing $60,000 by the closing price of the Company’s common stock on the trading day immediately preceding the date a new director is elected or appointed, rounded to the nearest whole number of shares. The initial grant of shares vested in twelve equal quarterly installments, one-twelfth on the date of grant and an additional one-twelfth on each successive third monthly anniversary of the date of grant. The award lapses with respect to all unvested shares in the event the non-employee director ceases to be a director of the Company, and any unvested shares are forfeited.
The 2004 Fee Plan also provided that each non-employee director would receive, on the day after the annual shareholders meeting, an annual retainer for service as a non-employee director (the “Annual Retainer”). Prior to May 17, 2012, the Annual Retainer was $95,000, of which $50,000 was payable in cash, and the remainder was paid in stock. The annual grant of cash vested in four equal quarterly installments, one-fourth on the day following the annual meeting of shareholders, and an additional one-fourth on each successive third monthly anniversary of the date of grant. The annual grant of shares paid to non-employee directors prior to May 17, 2012 vests in eight equal quarterly installments, one-eighth on the day following the annual meeting of shareholders, and an additional one-eighth on each successive third monthly anniversary of the date of grant. On May 17, 2012, upon the recommendation of the Compensation and Human Resource Development Committee, the Board adopted the Fifth Amended and Restated Non-Employee Director Fee Plan (the “Amendment”), which increased the common stock component of the Annual Retainer by $30,000, resulting in a total Annual Retainer of $125,000, of which $50,000 was payable in cash and the remainder paid in stock. In addition, the Amendment also changed the vesting period for the annual equity award, from a two-year vesting period, to a one-year vesting period (consisting of four equal quarterly installments, one-fourth on the date of grant and an additional one-fourth on each successive third monthly anniversary of the date of grant). The award lapses with respect to all unpaid cash and unvested shares in the event the non-employee director ceases to be a director of the Company, and any unvested shares and unpaid cash are forfeited.
In addition to the Annual Retainer award, the 2004 Fee Plan also provided for any non-employee Chairman of the Board to receive an additional annual cash award of $100,000, and each non-employee director serving on a committee of the Board to receive an additional annual cash award. The additional annual cash award for the Chairperson of the Audit Committee is $20,000 and Audit Committee members’ are entitled to an annual cash award of $10,000. Prior to May 20, 2011, the annual cash awards for the Chairpersons of the Compensation and Human Resource Development Committee, Finance Committee and Nominating and Corporate Governance Committee were $12,500 and the members of such committees were entitled to an annual cash award of $7,500. On May 20, 2011, the Board increased the additional annual cash award to the Chairperson of the Compensation and Human Resource Development Committee to $15,000. All other additional cash awards remained unchanged.
The 2004 Fee Plan expired in May 2014, prior to the 2014 Annual Shareholder Meeting. In March 2014, upon the recommendation of the Compensation Committee, the Board determined that, following the expiration of the 2004 Fee Plan, the compensation of non-employee Directors should continue on the same terms as provided in the Fifth Amended and Restated Non-Employee Director Fee Plan, and that the stock portion of such compensation would be issued under the 2011 Plan.
The Board may pay additional cash compensation to any non-employee director for services on behalf of the Board over and above those typically expected of directors, including but not limited to service on a special committee of the Board.
The following table summarizes nonvested common stock share award activity as of December 31, 2014 and for the year then ended:
Nonvested Common Stock Share Awards |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
9 | $ | 16.01 | |||||
Granted |
36 | $ | 20.15 | |||||
Vested |
(33 | ) | $ | 18.95 | ||||
Forfeited or expired |
— | $ | — | |||||
|
|
|||||||
Nonvested at December 31, 2014 |
12 | $ | 20.24 | |||||
|
|
The following table summarizes information regarding common stock share awards granted and vested (in thousands, except per share award amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of share awards granted |
36 | 37 | 42 | |||||||||
Weighted average grant-date fair value per share award |
$ | 20.15 | $ | 16.01 | $ | 16.15 | ||||||
Fair value of share awards vested |
$ | 630 | $ | 669 | $ | 771 |
As of December 31, 2014, there was $0.2 million of total unrecognized compensation costs, net of estimated forfeitures, related to nonvested common stock share awards granted under the 2004 Fee Plan. This cost is expected to be recognized over a weighted average period of 0.7 years.
Deferred Compensation Plan — The Company’s non-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”), which is not shareholder-approved, was adopted by the Board effective December 17, 1998. It was last amended and restated on August 20, 2014, effective as of January 1, 2014. It provides certain eligible employees the ability to defer any portion of their compensation until the participant’s retirement, termination, disability or death, or a change in control of the Company. Using the Company’s common stock, the Company matches 50% of the amounts deferred by certain senior management participants on a quarterly basis up to a total of $12,000 per year for the president, chief executive officer and executive vice presidents and $7,500 per year for senior vice presidents, global vice presidents and vice presidents (participants below the level of vice president are not eligible to receive matching contributions from the Company). Matching contributions and the associated earnings vest over a seven year service period. Deferred compensation amounts used to pay benefits, which are held in a rabbi trust, include investments in various mutual funds and shares of the Company’s common stock (See Note 13, Investments Held in Rabbi Trust). As of December 31, 2014 and 2013, liabilities of $7.0 million and $6.4 million, respectively, of the Deferred Compensation Plan were recorded in “Accrued employee compensation and benefits” in the accompanying Consolidated Balance Sheets.
Additionally, the Company’s common stock match associated with the Deferred Compensation Plan, with a carrying value of approximately $1.5 million and $1.6 million at December 31, 2014 and 2013, respectively, is included in “Treasury stock” in the accompanying Consolidated Balance Sheets.
The following table summarizes nonvested common stock activity as of December 31, 2014 and for the year then ended:
Nonvested Common Stock |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
6 | $ | 16.89 | |||||
Granted |
10 | $ | 20.54 | |||||
Vested |
(10 | ) | $ | 20.13 | ||||
Forfeited or expired |
(1 | ) | $ | 16.30 | ||||
|
|
|||||||
Nonvested at December 31, 2014 |
5 | $ | 17.88 | |||||
|
|
The following table summarizes information regarding shares of common stock granted and vested (in thousands, except per common stock amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of shares of common stock granted |
10 | 13 | 15 | |||||||||
Weighted average grant-date fair value per common stock |
$ | 20.54 | $ | 16.76 | $ | 15.27 | ||||||
Fair value of common stock vested |
$ | 212 | $ | 257 | $ | 195 | ||||||
Cash used to settle the obligation |
$ | 1,493 | $ | 1,014 | $ | 459 |
As of December 31, 2014, there was less than $0.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected to be recognized over a weighted average period of 2.1 years.
|
Note 27. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, and provides outsourced customer contact management solutions (with an emphasis on technical support and customer service) and technical staffing and (2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer contact management solutions (with an emphasis on technical support and customer service) and fulfillment services. The sites within Latin America, Australia and the Asia Pacific Rim are included in the Americas segment given the nature of the business and client profile, which is primarily made up of U.S.-based companies that are using the Company’s services in these locations to support their customer contact management needs.
Information about the Company’s reportable segments was as follows (in thousands):
Americas | EMEA | Other (1) | Consolidated | |||||||||||||
Year Ended December 31, 2014: |
||||||||||||||||
Revenues (2) |
$ | 1,070,824 | $ | 256,699 | $ | 1,327,523 | ||||||||||
Percentage of revenues |
80.7 | % | 19.3 | % | 100.0 | % | ||||||||||
Depreciation, net (2) |
$ | 40,557 | $ | 4,806 | $ | 45,363 | ||||||||||
Amortization of intangibles (2) |
$ | 14,396 | $ | — | $ | 14,396 | ||||||||||
Income (loss) from continuing operations |
$ | 113,549 | $ | 16,208 | $ | (50,202 | ) | $ | 79,555 | |||||||
Other (expense), net |
(2,396 | ) | (2,396 | ) | ||||||||||||
Income taxes |
(19,368 | ) | (19,368 | ) | ||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
57,791 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | — | $ | — | — | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 57,791 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of December 31, 2014 |
$ | 1,080,010 | $ | 1,373,590 | $ | (1,509,100 | ) | $ | 944,500 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Year Ended December 31, 2013: |
||||||||||||||||
Revenues (2) |
$ | 1,050,813 | $ | 212,647 | $ | 1,263,460 | ||||||||||
Percentage of revenues |
83.2 | % | 16.8 | % | 100.0 | % | ||||||||||
Depreciation, net (2) |
$ | 37,818 | $ | 4,266 | $ | 42,084 | ||||||||||
Amortization of intangibles (2) |
$ | 14,863 | $ | — | $ | 14,863 | ||||||||||
Income (loss) from continuing operations |
$ | 94,006 | $ | 6,052 | $ | (46,531 | ) | $ | 53,527 | |||||||
Other (expense), net |
(2,202 | ) | (2,202 | ) | ||||||||||||
Income taxes |
(14,065 | ) | (14,065 | ) | ||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
37,260 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | — | $ | — | — | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 37,260 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of December 31, 2013 |
$ | 1,097,788 | $ | 1,409,185 | $ | (1,556,712 | ) | $ | 950,261 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Year Ended December 31, 2012: |
||||||||||||||||
Revenues (2) |
$ | 947,147 | $ | 180,551 | $ | 1,127,698 | ||||||||||
Percentage of revenues |
84.0 | % | 16.0 | % | 100.0 | % | ||||||||||
Depreciation, net (2) |
$ | 36,494 | $ | 3,875 | $ | 40,369 | ||||||||||
Amortization of intangibles (2) |
$ | 10,479 | $ | — | $ | 10,479 | ||||||||||
Income (loss) from continuing operations |
$ | 93,580 | $ | 5,488 | $ | (51,289 | ) | $ | 47,779 | |||||||
Other (expense), net |
(2,622 | ) | (2,622 | ) | ||||||||||||
Income taxes |
(5,207 | ) | (5,207 | ) | ||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
39,950 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | (10,707 | ) | $ | (820 | ) | (11,527 | ) | ||||||||
|
|
|||||||||||||||
Net income |
$ | 28,423 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of December 31, 2012 |
$ | 1,265,119 | $ | 1,100,938 | $ | (1,457,368 | ) | $ | 908,689 | |||||||
|
|
|
|
|
|
|
|
(1) |
Other items (including corporate costs, other income and expense, and income taxes) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the years ended December 31, 2014, 2013 and 2012. The accounting policies of the reportable segments are the same as those described in Note 1 to the accompanying Consolidated Financial Statements. Inter-segment revenues are not material to the Americas and EMEA segment results. The Company evaluates the performance of its geographic segments based on revenues and income (loss) from continuing operations, and does not include segment assets or other income and expense items for management reporting purposes. |
(2) |
Revenues, depreciation and amortization include results from continuing operations only. |
(3) |
Includes both the (loss) from discontinued operations, net of taxes, and the (loss) on sale of discontinued operations, net of taxes, if any. |
Total revenues by segment from AT&T Corporation, a major provider of communication services for which the Company provides various customer support services, were as follows (in thousands):
Years Ended December 31, | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||||
Americas |
$ | 212,607 | 19.9 | % | $ | 162,888 | 15.5 | % | $ | 130,072 | 13.7 | % | ||||||||||||
EMEA |
3,519 | 1.4 | % | 3,513 | 1.7 | % | 3,018 | 1.7 | % | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
$ | 216,126 | 16.3 | % | $ | 166,401 | 13.2 | % | $ | 133,090 | 11.8 | % | |||||||||||||
|
|
|
|
|
|
The Company has multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire at varying dates between 2015 and 2017. The Company has historically renewed most of these contracts. However, there is no assurance that these contracts will be renewed, or if renewed, will be on terms as favorable as the existing contracts. Each line of business is governed by separate business terms, conditions and metrics. Each line of business also has a separate decision maker such that a loss of one line of business would not necessarily impact the Company’s relationship with the client and decision makers on other lines of business. The loss of (or the failure to retain a significant amount of business with) any of the Company’s key clients, including AT&T, could have a material adverse effect on its performance. Many of the Company’s contracts contain penalty provisions for failure to meet minimum service levels and are cancelable by the client at any time or on short notice. Also, clients may unilaterally reduce their use of the Company’s services under the contracts without penalty.
Total revenues by segment from the Company’s next largest client, which was in the financial services vertical market in each of the years, were as follows (in thousands):
Years Ended December 31, | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||||
Americas |
$ | 70,255 | 6.6 | % | $ | 73,226 | 7.0 | % | $ | 70,311 | 7.4 | % | ||||||||||||
EMEA |
— | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
$ | 70,255 | 5.3 | % | $ | 73,226 | 5.8 | % | $ | 70,311 | 6.2 | % | |||||||||||||
|
|
|
|
|
|
The Company’s top ten clients accounted for approximately 46.8%, 45.9% and 47.8% of its consolidated revenues during the years ended December 31, 2014, 2013 and 2012, respectively.
Information about the Company’s operations by geographic location was as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Revenues: (1) |
||||||||||||
United States |
$ | 425,746 | $ | 388,775 | $ | 302,046 | ||||||
The Philippines |
205,332 | 213,132 | 225,629 | |||||||||
Canada |
195,739 | 210,463 | 198,585 | |||||||||
Costa Rica |
97,295 | 101,888 | 100,101 | |||||||||
El Salvador |
52,609 | 46,301 | 46,910 | |||||||||
Australia |
33,126 | 36,725 | 24,633 | |||||||||
China |
32,167 | 25,478 | 21,614 | |||||||||
Mexico |
20,439 | 23,701 | 23,315 | |||||||||
Other |
8,371 | 4,350 | 4,314 | |||||||||
|
|
|
|
|
|
|||||||
Total Americas |
1,070,824 | 1,050,813 | 947,147 | |||||||||
|
|
|
|
|
|
|||||||
Germany |
88,887 | 77,950 | 73,380 | |||||||||
Sweden |
68,057 | 49,953 | 22,229 | |||||||||
United Kingdom |
42,328 | 33,750 | 35,833 | |||||||||
Romania |
18,288 | 14,856 | 10,773 | |||||||||
Hungary |
8,723 | 8,525 | 7,619 | |||||||||
Netherlands |
3,126 | 3,073 | 6,511 | |||||||||
Other |
27,290 | 24,540 | 24,206 | |||||||||
|
|
|
|
|
|
|||||||
Total EMEA |
256,699 | 212,647 | 180,551 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,327,523 | $ | 1,263,460 | $ | 1,127,698 | |||||||
|
|
|
|
|
|
(1) |
Revenues are attributed to countries based on location of customer, except for revenues for Costa Rica, The Philippines, China and India which are primarily comprised of customers located in the U.S., but serviced by centers in those respective geographic locations. |
December 31, | ||||||||
2014 | 2013 | |||||||
Long-Lived Assets: (1) |
||||||||
United States |
$ | 108,030 | $ | 120,759 | ||||
Canada |
16,257 | 23,164 | ||||||
The Philippines |
14,656 | 17,197 | ||||||
Costa Rica |
5,625 | 4,759 | ||||||
El Salvador |
3,298 | 2,552 | ||||||
Australia |
2,923 | 3,799 | ||||||
Mexico |
1,575 | 1,902 | ||||||
Other |
6,998 | 6,695 | ||||||
|
|
|
|
|||||
Total Americas |
159,362 | 180,827 | ||||||
|
|
|
|
|||||
United Kingdom |
3,871 | 4,158 | ||||||
Sweden |
2,478 | 3,676 | ||||||
Germany |
2,310 | 2,097 | ||||||
Romania |
682 | 679 | ||||||
Slovakia |
496 | 666 | ||||||
Norway |
490 | 603 | ||||||
Hungary |
442 | 564 | ||||||
Other |
369 | 334 | ||||||
|
|
|
|
|||||
Total EMEA |
11,138 | 12,777 | ||||||
|
|
|
|
|||||
$ | 170,500 | $ | 193,604 | |||||
|
|
|
|
(1) |
Long-lived assets include property and equipment, net, and intangibles, net. |
Goodwill by segment was as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Americas |
$ | 193,831 | $ | 199,802 | ||||
EMEA |
— | — | ||||||
|
|
|
|
|||||
$ | 193,831 | $ | 199,802 | |||||
|
|
|
|
Revenues for the Company’s products and services were as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Outsourced customer contract management services |
$ | 1,303,607 | $ | 1,240,328 | $ | 1,104,442 | ||||||
Fulfillment services |
18,392 | 16,953 | 16,357 | |||||||||
Enterprise support services |
5,524 | 6,179 | 6,899 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,327,523 | $ | 1,263,460 | $ | 1,127,698 | |||||||
|
|
|
|
|
|
|
Note 28. Other Income (Expense)
Other income (expense) consists of the following (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Foreign currency transaction gains (losses) |
$ | (1,740 | ) | $ | (5,962 | ) | $ | (2,856 | ) | |||
Gains (losses) on foreign currency derivative instruments not designated as hedges |
(44 | ) | 4,216 | (295 | ) | |||||||
Gains (losses) on liquidation of foreign subsidiaries |
— | — | (582 | ) | ||||||||
Other miscellaneous income (expense) |
441 | 985 | 1,200 | |||||||||
|
|
|
|
|
|
|||||||
$ | (1,343 | ) | $ | (761 | ) | $ | (2,533 | ) | ||||
|
|
|
|
|
|
|
Note 29. Related Party Transactions
In January 2008, the Company entered into a lease for a customer contact management center located in Kingstree, South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes, the founder, former Chairman and Chief Executive Officer of the Company and the father of Charles Sykes, President and Chief Executive Officer of the Company. The lease payments on the 20 year lease were negotiated at or below market rates, and the lease is cancellable at the option of the Company. There are significant penalties for early cancellation which decrease over time. The Company paid $0.4 million to the landlord during each of the years ended December 31, 2014, 2013 and 2012 under the terms of the lease.
|
Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2014, 2013 and 2012:
(in thousands) |
Balance at Beginning of Period |
Charged (Credited) to Costs and Expenses |
Additions (Deductions)(1) |
Balance at End of Period |
||||||||||||
Allowance for doubtful accounts: |
||||||||||||||||
Year ended December 31, 2014 |
$ | 4,987 | (181 | ) | $ | (145 | ) | $ | 4,661 | |||||||
Year ended December 31, 2013 |
5,081 | 483 | (577 | ) | 4,987 | |||||||||||
Year ended December 31, 2012 |
4,304 | 1,115 | (338 | ) | 5,081 | |||||||||||
Valuation allowance for net deferred tax assets: |
||||||||||||||||
Year ended December 31, 2014 |
$ | 42,664 | $ | (8,518 | ) | $ | — | $ | 34,146 | |||||||
Year ended December 31, 2013 |
43,298 | (634 | ) | — | 42,664 | |||||||||||
Year ended December 31, 2012 |
38,544 | 4,754 | — | 43,298 | ||||||||||||
Reserves for value added tax receivables: |
||||||||||||||||
Year ended December 31, 2014 |
$ | 2,530 | $ | (638 | ) | $ | (1,617 | ) | $ | 275 | ||||||
Year ended December 31, 2013 |
3,076 | 143 | (689 | ) | 2,530 | |||||||||||
Year ended December 31, 2012 |
2,355 | 546 | 175 | 3,076 |
(1) |
Net write-offs and recoveries, including the effect of foreign currency translation. |
|
Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides comprehensive outsourced customer contact management solutions and services in the business process outsourcing arena to companies, primarily within the communications, financial services, technology/consumer, transportation and leisure, and healthcare industries. SYKES provides flexible, high-quality outsourced customer contact management services (with an emphasis on inbound technical support and customer service), which includes customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels encompassing phone, e-mail, social media, text messaging and chat. SYKES complements its outsourced customer contact management services with various enterprise support services in the United States that encompass services for a company’s internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services including order processing, payment processing, inventory control, product delivery and product returns handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and Africa.
Acquisition — In August 2012, the Company completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated July 27, 2012. The Company has reflected the operating results in the Consolidated Statements of Operations since August 20, 2012. See Note 2, Acquisition of Alpine Access, Inc., for additional information on the acquisition of this business.
Discontinued Operations — In March 2012, the Company sold its operations in Spain (the “Spanish operations”), pursuant to an asset purchase agreement dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. The Company reflected the operating results related to the Spanish operations as discontinued operations in the Consolidated Statement of Operations for the year ended December 31, 2012. Cash flows from discontinued operations are included in the Consolidated Statement of Cash Flows for the year ended December 31, 2012. See Note 3, Discontinued Operations, for additional information on the sale of the Spanish operations.
Principles of Consolidation — The consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “U.S. GAAP”) requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance of the consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the accompanying consolidated financial statements.
Recognition of Revenue — The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition” (“ASC 605”). The Company primarily recognizes revenues from services as the services are performed, which is based on either a per minute, per call, per transaction or per time and material basis, under a fully executed contractual agreement and record reductions to revenues for contractual penalties and holdbacks for failure to meet specified minimum service levels and other performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future product or service or meeting other specified performance conditions. Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.
Revenues from fulfillment services account for 1.4%, 1.3% and 1.5% of total consolidated revenues for the years ended December 31, 2014, 2013 and 2012, respectively, some of which contain multiple-deliverables. The service offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 “Revenue Recognition — Multiple-Element Arrangements” (“ASC 605-25”) [as amended by Accounting Standards Update (“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”)], the Company determines if the services provided under these contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value, and where return rights exist, delivery or performance of the undelivered items is considered probable and substantially within our control. If those deliverables are determined to be separate units of accounting, revenues from these services are recognized as the services are performed under a fully executed contractual agreement. If those deliverables are not determined to be separate units of accounting, revenue for the delivered services are bundled into a single unit of accounting and recognized on the proportional performance method using the straight-line basis over the contract period, or the actual number of operational seats used to serve the client, as appropriate.
The Company allocates revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated selling price is based on the Company’s best estimate of what the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, service offerings, and customer classifications. Once the Company allocates revenue to each deliverable, the Company recognizes revenue when all revenue recognition criteria are met. As of December 31, 2014, the Company’s fulfillment contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was accounted for accordingly. Other than these fulfillment contracts, the Company had no other contracts that contain multiple-deliverables as of December 31, 2014.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments. Cash in the amount of $215.1 million and $212.0 million at December 31, 2014 and 2013, respectively, was primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash equivalents of $194.4 million and $195.0 million at December 31, 2014 and 2013, respectively, were held in international operations and may be subject to additional taxes if repatriated to the United States (“U.S.”).
Restricted Cash — Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations. Restricted cash is included in “Other current assets” and “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets.
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts on trade account receivables for estimated losses arising from the inability of its customers to make required payments. The Company’s estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and methodologies using the publicly available credit and capital market information, a review of the current status of the Company’s trade accounts receivable and historical collection experience of the Company’s clients. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments.
Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop software upon the establishment of technological feasibility. Costs incurred prior to the establishment of technological feasibility are expensed as incurred.
The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment.” For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets or independent third party offers. Occasionally, the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the carrying amount of these assets. Except as discussed in Note 5, Fair Value, the Company determined that its property and equipment were not impaired as of December 31, 2014.
Rent Expense — The Company has entered into operating lease agreements, some of which contain provisions for future rent increases, rent free periods, or periods in which rent payments are reduced. The total amount of the rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease in accordance with ASC 840 “Leases.”
Goodwill — The Company accounts for goodwill and other intangible assets under ASC 350 “Intangibles — Goodwill and Other” (“ASC 350”). The Company expects to receive future benefits from previously acquired goodwill over an indefinite period of time. For goodwill and other intangible assets with indefinite lives not subject to amortization, the Company reviews goodwill and intangible assets for impairment at least annually in the third quarter, and more frequently in the presence of certain circumstances. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if the Company concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the Company is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any.
The Company elected to forgo the option to first assess qualitative factors and completed its annual two-step goodwill impairment test during the three months ended September 30, 2014. Under ASC 350, the carrying value of assets is calculated at the reporting unit level. The quantitative assessment of goodwill includes comparing a reporting unit’s calculated fair value to its carrying value. The calculation of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth, the useful life over which cash flows will occur and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. If the fair value of the reporting unit is less than its carrying value, goodwill is considered impaired and an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. As of July 31, 2014, the Company concluded that the fair value of each reporting unit was substantially in excess of its carrying value and goodwill was not impaired.
Intangible Assets — Intangible assets, primarily customer relationships and trade names, are amortized using the straight-line method over their estimated useful lives which approximate the pattern in which the economic benefits of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or appraised values, as appropriate.
Value Added Tax Receivables — The Philippine operations are subject to value added tax (“VAT”) which is usually applied to all goods and services purchased throughout The Philippines. Upon validation and certification of the VAT receivables by the Philippine government, the resulting value added tax certificates (“certificates”) can be either used to offset current tax obligations or offered for sale to the Philippine government. The VAT receivables balance is recorded at its net realizable value.
Income Taxes — The Company accounts for income taxes under ASC 740 “Income Taxes” (“ASC 740”) which requires recognition of deferred tax assets and liabilities to reflect tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the accompanying consolidated financial statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated financial statements.
Self-Insurance Programs — The Company self-insures for certain levels of workers’ compensation and self-funds the medical, prescription drug and dental benefit plans in the United States. Estimated costs are accrued at the projected settlements for known and anticipated claims. Amounts related to these self-insurance programs are included in “Accrued employee compensation and benefits” and “Other long-term liabilities” in the accompanying Consolidated Balance Sheets.
Deferred Grants — Recognition of income associated with grants for land and the acquisition of property, buildings and equipment (together, “property grants”) is deferred until after the completion and occupancy of the building and title has passed to the Company, and the funds have been released from escrow. The deferred amounts for both land and building are amortized and recognized as a reduction of depreciation expense over the corresponding useful lives of the related assets. Amounts received in excess of the cost of the building are allocated to the cost of equipment and, only after the grants are released from escrow, recognized as a reduction of depreciation expense over the weighted average useful life of the related equipment, which approximates five years. Upon sale of the related facilities, any deferred grant balance is recognized in full and is included in the gain on sale of property and equipment.
The Company receives government employment grants as an incentive to create and maintain permanent employment positions for a specified time period. The grants are repayable, under certain terms and conditions, if the Company’s relevant employment levels do not meet or exceed the employment levels set forth in the grant agreements. Accordingly, grant monies received are deferred and amortized primarily as a reduction to “Direct salaries and related costs” using the proportionate performance model over the required employment period.
Deferred Revenue — The Company receives up-front fees in connection with certain contracts. The deferred revenue is earned over the service periods of the respective contracts, which range from 30 days to seven years. Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets includes the up-front fees associated with services to be provided over the next ensuing twelve month period and the up-front fees associated with services to be provided over multiple years in connection with contracts that contain cancellation and refund provisions, whereby the manufacturers or customers can terminate the contracts and demand pro-rata refunds of the up-front fees with short notice. Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets also includes estimated penalties and holdbacks for failure to meet specified minimum service levels in certain contracts and other performance based contingencies.
Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees). All of these plans are discussed more fully in Note 26, Stock-Based Compensation. Stock-based awards under these plans may consist of common stock, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and uses treasury stock to satisfy stock option exercises or vesting of stock awards.
In accordance with ASC 718 “Compensation — Stock Compensation” (“ASC 718”), the Company recognizes in its accompanying Consolidated Statements of Operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is re-measured to fair value at each balance sheet date until the awards are settled.
Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
• |
Cash, Short-Term and Other Investments, Investments Held in Rabbi Trust and Accounts Payable — The carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts payable approximate their fair values. |
• |
Foreign Currency Forward Contracts and Options — Foreign currency forward contracts and options, including premiums paid on options, are recognized at fair value based on quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. |
• |
Long-Term Debt — The carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. |
Fair Value Measurements — ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820-10-20 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
ASC 825 “Financial Instruments” (“ASC 825”) permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are not already recorded at fair value.
A description of the Company’s policies regarding fair value measurement is summarized below.
Fair Value Hierarchy — ASC 820-10-35 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:
• |
Level 1 — Quoted prices for identical instruments in active markets. |
• |
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
• |
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Determination of Fair Value — The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
Money Market and Open-End Mutual Funds — The Company uses quoted market prices in active markets to determine the fair value of money market and open-end mutual funds, which are classified in Level 1 of the fair value hierarchy.
Foreign Currency Forward Contracts and Options — The Company enters into foreign currency forward contracts and options over the counter and values such contracts using quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.
Investments Held in Rabbi Trust — The investment assets of the rabbi trust are valued using quoted market prices in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the deferred compensation plan, refer to Note 13, Investments Held in Rabbi Trust, and Note 26, Stock-Based Compensation.
Guaranteed Investment Certificates — Guaranteed investment certificates, with variable interest rates linked to the prime rate, approximate fair value due to the automatic ability to re-price with changes in the market; such items are classified in Level 2 of the fair value hierarchy.
Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income and expenses are translated at the weighted average exchange rate during the period. The net effect of translation gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency transactional gains and losses are included in “Other income (expense)” in the accompanying Consolidated Statements of Operations.
Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under ASC 815 “Derivatives and Hedging” (“ASC 815”). The Company generally utilizes non-deliverable forward contracts and options expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional foreign currencies and net investments in foreign operations. In using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.
The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net investment in a foreign operation; or (3) a derivative that does not qualify for hedge accounting. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge.
Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in AOCI, until the forecasted underlying transactions occur. Any realized gains or losses resulting from the cash flow hedges are recognized together with the hedged transaction within “Revenues”. Changes in the fair value of derivatives that are highly effective and designated as a net investment hedge are recorded in cumulative translation adjustment in AOCI, offsetting the change in cumulative translation adjustment attributable to the hedged portion of the Company’s net investment in the foreign operation. Any realized gains and losses from settlements of the net investment hedge remain in AOCI until partial or complete liquidation of the net investment. Ineffectiveness is measured based on the change in fair value of the forward contracts and options and the fair value of the hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is recognized within “Revenues” for cash flow hedges and within “Other income (expense)” for net investment hedges. Cash flows from the derivative contracts are classified within the operating section in the accompanying Consolidated Statements of Cash Flows.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging activities. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. Hedges of a net investment in a foreign operation are linked to the specific foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring, or if the Company de-designates a derivative as a hedge, the Company discontinues hedge accounting prospectively. At December 31, 2014 and 2013, all hedges were determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to reduce the effects from fluctuations caused by volatility in currency exchange rates on the Company’s operating results and cash flows. All changes in the fair value of the derivative instruments are included in “Other income (expense)”. See Note 12, Financial Derivatives, for further information on financial derivative instruments.
Cash Flow Hedges – The Company has derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815 “Derivatives and Hedging” (“ASC 815”), consisting of Philippine Peso, Costa Rican Colon, Hungarian Forint and Romanian Leu contracts. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.
New Accounting Standards Not Yet Adopted
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). The amendments in ASU 2014-08 indicate that only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results will be reported as discontinued operations in the financial statements. Currently, a component of an entity that is a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group is eligible for discontinued operations presentation. The amendments should be applied to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08 on January 1, 2015 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The amendments in ASU 2014-09 outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and indicate that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity should identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. The amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact that the adoption of ASU 2014-09 may have on its financial condition, results of operations and cash flows.
In June 2014, the FASB issued ASU 2014-12 “Compensation – Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic 718, “Compensation — Stock Compensation” (“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not expect the adoption of ASU 2014-12 to materially impact its financial condition, results of operations and cash flows.
In January 2015, the FASB issued ASU 2015-01 “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). This amendment eliminates from U.S. GAAP the concept of extraordinary items as part of the FASB’s initiative to reduce complexity in accounting standards. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-01 to materially impact its financial condition, results of operations and cash flows.
New Accounting Standards Recently Adopted
In March 2013, the FASB issued ASU 2013-05 “Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The amendments in ASU 2013-05 indicate that a cumulative translation adjustment (“CTA”) is attached to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, a loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or a step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). ASU 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. The adoption of ASU 2013-05 on January 1, 2014 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In July 2013, the FASB issued ASU 2013-11 “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The amendments in ASU 2013-11 indicate that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of ASU 2013-11 on January 1, 2014 resulted in a $3.1 million reclassification of a portion of the Company’s unrecognized tax benefits from “Long-term income tax liabilities” to “Deferred charges and other assets.” See Note 22, Income Taxes, for further information.
Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the respective periods and the further dilutive effect, if any, from stock appreciation rights, restricted stock, restricted stock units and shares held in a rabbi trust using the treasury stock method.
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.
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The following table summarizes the final purchase price allocation of the fair values of the assets acquired and liabilities assumed, all included in the Americas segment (in thousands):
Amount | ||||
Cash and cash equivalents |
$ | 1,859 | ||
Receivables |
11,831 | |||
Prepaid expenses |
617 | |||
|
|
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Total current assets |
14,307 | |||
Property and equipment |
11,326 | |||
Goodwill |
80,766 | |||
Intangibles |
57,720 | |||
Deferred charges and other assets |
916 | |||
Accounts payable |
(880 | ) | ||
Accrued employee compensation and benefits |
(3,774 | ) | ||
Income taxes payable |
(141 | ) | ||
Deferred revenue |
(94 | ) | ||
Other accrued expenses and current liabilities |
(601 | ) | ||
|
|
|||
Total current liabilities |
(5,490 | ) | ||
Other long-term liabilities (1) |
(10,592 | ) | ||
|
|
|||
$ | 148,953 | |||
|
|
(1) |
Primarily includes long-term deferred tax liabilities. |
The following table presents the Company’s purchased intangibles assets as of August 20, 2012, the acquisition date (in thousands):
Amount Assigned |
Weighted Average Amortization Period (years) |
|||||||
Customer relationships |
$ | 46,000 | 8 | |||||
Trade names |
10,600 | 8 | ||||||
Non-compete agreements |
670 | 2 | ||||||
Favorable lease agreement |
450 | 2 | ||||||
|
|
|||||||
$ | 57,720 | 8 | ||||||
|
|
The amount of Alpine’s revenues and net loss since the August 20, 2012 acquisition date, included in the Company’s accompanying Consolidated Statement of Operations for the year ended December 31, 2012 was as follows (in thousands):
From August 20, 2012 Through December 31, 2012 |
||||
Revenues |
$ | 40,635 | ||
(Loss) from continuing operations before income taxes |
$ | (3,201 | ) | |
(Loss) from continuing operations, net of taxes |
$ | (2,166 | ) |
The following table presents the unaudited pro forma combined revenues and net earnings as if Alpine had been included in the consolidated results of the Company for the entire year for the year ended December 31, 2012. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2012 (in thousands):
Year Ended December 31, 2012 |
||||
Revenues |
$ | 1,190,150 | ||
Income from continuing operations, net of taxes |
$ | 37,352 | ||
Income from continuing operations per common share: |
||||
Basic |
$ | 0.87 | ||
Diluted |
$ | 0.87 |
Merger and integration costs associated with Alpine were as follows (none in 2014) (in thousands):
Years Ended December 31, | ||||||||
2013 | 2012 | |||||||
Severance costs included in “Direct salaries and related costs”: (1) |
||||||||
Americas |
$ | 526 | $ | — | ||||
|
|
|
|
|||||
526 | — | |||||||
Severance costs included in “General and administrative”: (1) |
||||||||
Americas |
985 | 591 | ||||||
Corporate |
159 | 377 | ||||||
|
|
|
|
|||||
1,144 | 968 | |||||||
Transaction and integration costs included in “General and administrative”: (1) |
||||||||
Corporate |
444 | 3,793 | ||||||
|
|
|
|
|||||
444 | 3,793 | |||||||
|
|
|
|
|||||
Total merger and integration costs |
$ | 2,114 | $ | 4,761 | ||||
|
|
|
|
(1) |
In the accompanying Consolidated Statements of Operations. |
|
The results of discontinued operations were as follows (none in 2014 and 2013) (in thousands):
Year Ended December 31, 2012 |
||||
Revenues |
$ | 10,102 | ||
|
|
|||
(Loss) from discontinued operations before income taxes |
$ | (820 | ) | |
Income taxes (1) |
— | |||
|
|
|||
(Loss) from discontinued operations, net of taxes |
$ | (820 | ) | |
|
|
|||
(Loss) on sale of discontinued operations before income taxes |
$ | (10,707 | ) | |
Income taxes (1) |
— | |||
|
|
|||
(Loss) on sale of discontinued operations, net of taxes |
$ | (10,707 | ) | |
|
|
(1) |
There were no income taxes as any tax benefit from the losses would be offset by a valuation allowance. |
|
The cumulative costs expected and incurred as a result of the Exit Plans were as follows as of December 31, 2014 (in thousands):
Americas Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2010 Exit Plan |
Americas Third Quarter 2010 Exit Plan |
Total | ||||||||||||||||
Lease obligations and facility exit costs |
$ | 1,365 | $ | 19 | $ | 1,914 | $ | 6,729 | $ | 10,027 | ||||||||||
Severance and related costs |
— | 5,857 | 185 | — | 6,042 | |||||||||||||||
Legal-related costs |
— | 110 | — | — | 110 | |||||||||||||||
Non-cash impairment charges |
480 | 474 | 159 | 3,847 | 4,960 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,845 | $ | 6,460 | $ | 2,258 | $ | 10,576 | $ | 21,139 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Restructuring charges in the Company’s Consolidated Statements of Operations are summarized as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
By Type: |
||||||||||||
Lease obligations and facility exit costs |
$ | (185 | ) | $ | 318 | $ | 858 | |||||
Severance and related costs |
(129 | ) | (56 | ) | 857 | |||||||
Legal-related costs |
— | — | 89 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (314 | ) | $ | 262 | $ | 1,804 | |||||
|
|
|
|
|
|
|||||||
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
By Statements of Operations Caption: |
||||||||||||
Direct salaries and related costs |
$ | — | $ | — | $ | 715 | ||||||
General and administrative |
(314 | ) | 262 | 1,089 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (314 | ) | $ | 262 | $ | 1,804 | |||||
|
|
|
|
|
|
|||||||
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
By Segment: |
||||||||||||
Americas |
$ | — | $ | — | $ | 1,426 | ||||||
EMEA |
(314 | ) | 262 | 378 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (314 | ) | $ | 262 | $ | 1,804 | |||||
|
|
|
|
|
|
The following table summarizes the accrued liability associated with the Exit Plans’ exit or disposal activities and related charges for the years ended December 31, 2014, 2013 and 2012 (in thousands):
Lease Obligation and Facility Exit Costs |
Severance and Related Costs |
Legal-Related Costs |
Total | |||||||||||||
Balance at January 1, 2012 |
$ | 4,839 | $ | 4,470 | $ | 13 | $ | 9,322 | ||||||||
Charges (reversals) (1) |
858 | 857 | 89 | 1,804 | ||||||||||||
Cash payments |
(1,926 | ) | (5,134 | ) | (91 | ) | (7,151 | ) | ||||||||
Other non-cash changes (4) |
1 | (6 | ) | (1 | ) | (6 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2012 |
3,772 | 187 | 10 | 3,969 | ||||||||||||
Charges (reversals) (2) |
318 | (56 | ) | — | 262 | |||||||||||
Cash payments |
(1,264 | ) | (8 | ) | (10 | ) | (1,282 | ) | ||||||||
Other non-cash changes (4) |
17 | 8 | — | 25 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2013 |
2,843 | 131 | — | 2,974 | ||||||||||||
Charges (reversals) (3) |
(185 | ) | (129 | ) | — | (314 | ) | |||||||||
Cash payments |
(1,095 | ) | — | — | (1,095 | ) | ||||||||||
Other non-cash changes (4) |
(5 | ) | (2 | ) | — | (7 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2014 |
$ | 1,558 | $ | — | $ | — | $ | 1,558 | ||||||||
|
|
|
|
|
|
|
|
(1) |
During 2012, the Company recorded lease obligations and facility exit costs due to the initiation of one of the Exit Plans, recorded additional severance and related costs and legal-related costs due to a change in estimates and recorded additional lease obligations due to an unanticipated lease termination penalty, all of which were included in “General and administrative” costs in the accompanying Consolidated Statement of Operations. Also, during 2012, the Company reversed accruals related to the final settlement of lease obligations and facility exit costs for one of the Ireland sites, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. |
(2) |
During 2013, the Company recorded additional lease obligations and facility exit costs for one of the Ireland site’s lease restoration. Also during 2013, the Company reversed accruals related to the final settlement of severance and related costs for the Netherlands site, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. |
(3) |
During 2014, the Company reversed accruals related to the final settlement of lease obligations and facility exit costs as well as severance and related costs for the Ireland sites, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. |
(4) |
Effect of foreign currency translation. |
The following table summarizes the Company’s short-term and long-term accrued liabilities associated with its exit and disposal activities, by plan, as of December 31, 2014 and 2013 (in thousands):
Americas Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2010 Exit Plan |
Americas Third Quarter 2010 Exit Plan |
Total | ||||||||||||||||
December 31, 2014 |
||||||||||||||||||||
Short-term accrued restructuring liability (1) |
$ | 109 | $ | — | $ | — | $ | 521 | $ | 630 | ||||||||||
Long-term accrued restructuring liability (2) |
203 | — | — | 725 | 928 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending accrual at December 31, 2014 |
$ | 312 | $ | — | $ | — | $ | 1,246 | $ | 1,558 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2013 |
||||||||||||||||||||
Short-term accrued restructuring liability (1) |
$ | 136 | $ | 131 | $ | 538 | $ | 440 | $ | 1,245 | ||||||||||
Long-term accrued restructuring liability (2) |
376 | — | — | 1,353 | 1,729 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending accrual at December 31, 2013 |
$ | 512 | $ | 131 | $ | 538 | $ | 1,793 | $ | 2,974 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheets. |
(2) |
Included in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. |
|
The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2014 Using: | ||||||||||||||||
Balance at | Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||
December 31, 2014 | Level (1) | Level (2) | Level (3) | |||||||||||||
Assets: |
||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” (1) |
$ | 100,915 | $ | 100,915 | $ | — | $ | — | ||||||||
Money market funds and open-end mutual funds included in “Deferred charges and other assets” (1) |
10 | 10 | — | — | ||||||||||||
Foreign currency forward and option contracts included in “Other current assets” (2) |
1,489 | — | 1,489 | — | ||||||||||||
Foreign currency forward contracts included in “Deferred charges and other assets” (2) |
4,060 | — | 4,060 | — | ||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan (3) |
5,589 | 5,589 | — | — | ||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan (3) |
1,363 | 1,363 | — | — | ||||||||||||
Guaranteed investment certificates (4) |
79 | — | 79 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 113,505 | $ | 107,877 | $ | 5,628 | $ | — | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Long-term debt (5) |
$ | 75,000 | $ | — | $ | 75,000 | $ | — | ||||||||
Foreign currency forward and option contracts included in “Other accrued expenses and current liabilities” (2) |
1,261 | — | 1,261 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 76,261 | $ | — | $ | 76,261 | $ | — | |||||||||
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013 Using: | ||||||||||||||||
Balance at | Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||
December 31, 2013 | Level (1) | Level (2) | Level (3) | |||||||||||||
Assets: |
||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” (1) |
$ | 50,627 | $ | 50,627 | $ | — | $ | — | ||||||||
Money market funds and open-end mutual funds included in “Deferred charges and other assets” (1) |
11 | 11 | — | — | ||||||||||||
Foreign currency forward and option contracts included in “Other current assets” (2) |
2,240 | — | 2,240 | — | ||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan (3) |
5,251 | 5,251 | — | — | ||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan (3) |
1,170 | 1,170 | — | — | ||||||||||||
Guaranteed investment certificates (4) |
80 | — | 80 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 59,379 | $ | 57,059 | $ | 2,320 | $ | — | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Long-term debt (5) |
$ | 98,000 | $ | — | $ | 98,000 | $ | — | ||||||||
Foreign currency forward and option contracts included in “Other accrued expenses and current liabilities” (2) |
5,063 | — | 5,063 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 103,063 | $ | — | $ | 103,063 | $ | — | |||||||||
|
|
|
|
|
|
|
|
(1) |
In the accompanying Consolidated Balance Sheet. |
(2) |
In the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives. |
(3) |
Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13, Investments Held in Rabbi Trust. |
(4) |
Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. |
(5) |
The carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. See Note 20, Borrowings. |
The table below summarizes impairment losses resulting from nonrecurring fair value measurements of certain assets (no liabilities), primarily long-lived assets that the Company determined were no longer being used and were disposed of, as follows (in thousands):
Total Impairment (Loss) | ||||||||||||
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Americas: |
||||||||||||
Property and equipment, net (1) |
$ | (89 | ) | $ | — | $ | (355 | ) | ||||
EMEA: |
||||||||||||
Property and equipment, net (1) |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
$ | (89 | ) | $ | — | $ | (355 | ) | |||||
|
|
|
|
|
|
(1) |
See Note 1, Overview and Summary of Significant Accounting Policies, for additional information regarding the fair value measurement as outlined in Property and Equipment. |
|
The following table presents the Company’s purchased intangible assets as of December 31, 2014 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted
Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 100,719 | $ | (47,571 | ) | $ | 53,148 | 8 | ||||||||
Trade name |
11,600 | (4,128 | ) | 7,472 | 8 | |||||||||||
Non-compete agreements |
1,209 | (1,209 | ) | — | 2 | |||||||||||
Proprietary software |
850 | (850 | ) | — | 2 | |||||||||||
Favorable lease agreement |
449 | (449 | ) | — | 2 | |||||||||||
|
|
|
|
|
|
|||||||||||
$ | 114,827 | $ | (54,207 | ) | $ | 60,620 | 8 | |||||||||
|
|
|
|
|
|
The following table presents the Company’s purchased intangible assets as of December 31, 2013 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted
Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 102,774 | $ | (35,873 | ) | $ | 66,901 | 8 | ||||||||
Trade name |
11,600 | (2,803 | ) | 8,797 | 8 | |||||||||||
Non-compete agreements |
1,220 | (1,009 | ) | 211 | 2 | |||||||||||
Proprietary software |
850 | (847 | ) | 3 | 2 | |||||||||||
Favorable lease agreement |
449 | (306 | ) | 143 | 2 | |||||||||||
|
|
|
|
|
|
|||||||||||
$ | 116,893 | $ | (40,838 | ) | $ | 76,055 | 8 | |||||||||
|
|
|
|
|
|
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to December 31, 2014, is as follows (in thousands):
Years Ending December 31, |
Amount | |||
2015 |
13,884 | |||
2016 |
13,884 | |||
2017 |
13,884 | |||
2018 |
7,565 | |||
2019 |
6,961 | |||
2020 and thereafter |
4,442 |
Changes in goodwill for the year ended December 31, 2014 consist of the following (in thousands):
January 1, 2014 | Acquisitions | Impairments | Effect of Foreign Currency |
December 31, 2014 |
||||||||||||||||
Americas |
$ | 199,802 | $ | — | $ | — | $ | (5,971 | ) | $ | 193,831 | |||||||||
EMEA |
— | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 199,802 | $ | — | $ | — | $ | (5,971 | ) | $ | 193,831 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Changes in goodwill for the year ended December 31, 2013 consist of the following (in thousands):
January 1, 2013 | Acquisitions | Impairments | Effect of Foreign Currency |
December 31, 2013 |
||||||||||||||||
Americas |
$ | 204,231 | $ | — | $ | — | $ | (4,429 | ) | $ | 199,802 | |||||||||
EMEA |
— | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 204,231 | $ | — | $ | — | $ | (4,429 | ) | $ | 199,802 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
Receivables, net consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Trade accounts receivable |
$ | 290,711 | $ | 266,048 | ||||
Income taxes receivable |
993 | 1,377 | ||||||
Other |
3,354 | 2,478 | ||||||
|
|
|
|
|||||
295,058 | 269,903 | |||||||
Less: Allowance for doubtful accounts |
4,661 | 4,987 | ||||||
|
|
|
|
|||||
$ | 290,397 | $ | 264,916 | |||||
|
|
|
|
|||||
Allowance for doubtful accounts as a percent of trade receivables |
1.6 | % | 1.9 | % | ||||
|
|
|
|
|
Prepaid expenses consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Prepaid maintenance |
$ | 5,315 | $ | 5,852 | ||||
Prepaid rent |
3,147 | 3,009 | ||||||
Prepaid insurance |
3,112 | 2,631 | ||||||
Prepaid other |
3,322 | 4,218 | ||||||
|
|
|
|
|||||
$ | 14,896 | $ | 15,710 | |||||
|
|
|
|
|
Other current assets consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Deferred tax assets (Note 22) |
$ | 13,703 | $ | 7,961 | ||||
Financial derivatives (Note 12) |
1,489 | 2,240 | ||||||
Investments held in rabbi trust (Note 13) |
6,952 | 6,421 | ||||||
Value added tax certificates (Note 11) |
6,303 | 2,066 | ||||||
Other current assets |
1,209 | 1,984 | ||||||
|
|
|
|
|||||
$ | 29,656 | $ | 20,672 | |||||
|
|
|
|
|
The VAT receivables balances, and the respective locations in the accompanying Consolidated Balance Sheets, are presented below (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
VAT included in: |
||||||||
Other current assets (Note 10) |
$ | 6,303 | $ | 2,066 | ||||
Deferred charges and other assets (Note 15) |
856 | 5,406 | ||||||
|
|
|
|
|||||
$ | 7,159 | $ | 7,472 | |||||
|
|
|
|
During the years ended December 31, 2014, 2013 and 2012, the Company wrote down the VAT receivables balances by the following amounts, which are reflected in the accompanying Consolidated Statements of Operations (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Write-downs (recoveries) of value added tax receivables |
$ | (638 | ) | $ | 143 | $ | 546 | |||||
|
|
|
|
|
|
|
The deferred gains (losses) and related taxes on the Company’s cash flow hedges recorded in “Accumulated other comprehensive income (loss)” in the accompanying Consolidated Balance Sheets are as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Deferred gains (losses) in AOCI |
$ | (157 | ) | $ | (2,704 | ) | ||
Tax on deferred gains (losses) in AOCI |
46 | 169 | ||||||
|
|
|
|
|||||
Deferred gains (losses) in AOCI, net of taxes |
$ | (111 | ) | $ | (2,535 | ) | ||
|
|
|
|
|||||
Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months |
$ | (157 | ) | |||||
|
|
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
As of December 31, 2014 | As of December 31, 2013 | |||||||||||||||
Contract Type |
Notional Amount in USD |
Settle Through Date |
Notional Amount in USD |
Settle Through Date |
||||||||||||
Cash flow hedges: (1) |
||||||||||||||||
Options: |
||||||||||||||||
Philippine Pesos |
$ | 73,000 | December 2015 | $ | 59,000 | December 2014 | ||||||||||
Forwards: |
||||||||||||||||
Philippine Pesos |
9,000 | March 2015 | 63,300 | July 2014 | ||||||||||||
Costa Rican Colones |
51,600 | October 2015 | 41,600 | October 2014 | ||||||||||||
Hungarian Forints |
— | |
— |
|
550 | January 2014 | ||||||||||
Romanian Leis |
10,414 | December 2015 | 619 | January 2014 | ||||||||||||
Net investment hedges: (2) |
||||||||||||||||
Forwards: |
||||||||||||||||
Euros |
51,648 | March 2016 | 32,657 | September 2014 | ||||||||||||
Non-designated hedges: (3) |
||||||||||||||||
Forwards |
64,541 | March 2015 | 59,207 | June 2014 |
(1) |
Cash flow hedge as defined under ASC 815. Purpose is to protect against the risk that eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates. |
(2) |
Net investment hedge as defined under ASC 815. Purpose is to protect against the risk that the net assets of certain of our international subsidiaries will be adversely affected by changes in exchange rates and economic exposures related to our foreign currency-based investments in these subsidiaries. |
(3) |
Foreign currency hedge contract not designated as a hedge as defined under ASC 815. Purpose is to reduce the effects on the Company’s operating results and cash flows from fluctuations caused by volatility in currency exchange rates, primarily related to intercompany loan payments and cash held in non-functional currencies. See Note 1, Overview and Summary of Significant Accounting Policies, for additional information on the Company’s purpose for entering into derivatives not designated as hedging instruments and its overall risk management strategies. |
The following tables present the fair value of the Company’s derivative instruments included in the accompanying Consolidated Balance Sheets (in thousands):
Derivative Assets | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (1) |
$ | 974 | $ | 862 | ||||
Derivatives designated as net investment hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (2) |
4,060 | — | ||||||
|
|
|
|
|||||
5,034 | 862 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (1) |
515 | 1,378 | ||||||
|
|
|
|
|||||
Total derivative assets |
$ | 5,549 | $ | 2,240 | ||||
|
|
|
|
Derivative Liabilities | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (3) |
$ | 406 | $ | 2,997 | ||||
Derivatives designated as net investment hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (3) |
— | 1,720 | ||||||
|
|
|
|
|||||
406 | 4,717 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (3) |
855 | 346 | ||||||
|
|
|
|
|||||
Total derivative liabilities |
$ | 1,261 | $ | 5,063 | ||||
|
|
|
|
(1) |
Included in “Other current assets” in the accompanying Consolidated Balance Sheets. |
(2) |
Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. |
(3) |
Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheets. |
The following tables present the effect of the Company’s derivative instruments included in the accompanying Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012 (in thousands):
Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) |
Gain (Loss) Reclassified From Accumulated AOCI Into “Revenues” (Effective Portion) |
Gain (Loss) Recognized in “Revenues” on Derivatives (Ineffective Portion) |
||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||||||||||||||||||||||||||||||
Foreign currency forward and option contracts |
$ | (2,787 | ) | $ | (2,823 | ) | $ | 4,400 | $ | (5,339 | ) | $ | (666 | ) | $ | 4,156 | $ | (3 | ) | $ | 119 | $ | 17 | |||||||||||||
Derivatives designated as net investment hedging instruments under ASC 815: |
||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts |
6,344 | (1,720 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Foreign currency forward and option contracts |
$ | 3,557 | $ | (4,543 | ) | $ | 4,400 | $ | (5,339 | ) | $ | (666 | ) | $ | 4,156 | $ | (3 | ) | $ | 119 | $ | 17 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in “Other income and (expense)” on Derivatives |
||||||||||||
December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||||||
Foreign currency forward contracts |
$ | (44 | ) | $ | 4,216 | $ | (295 | ) | ||||
|
|
|
|
|
|
|
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets” in the accompanying Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
December 31, 2014 | December 31, 2013 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Mutual funds |
$ | 5,160 | $ | 6,952 | $ | 4,749 | $ | 6,421 | ||||||||
|
|
|
|
|
|
|
|
The mutual funds held in the rabbi trust were 80% equity-based and 20% debt-based as of December 31, 2014. Net investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of Operations consists of the following (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Gross realized gains from sale of trading securities |
$ | 586 | $ | 160 | $ | 163 | ||||||
Gross realized (losses) from sale of trading securities |
— | (10 | ) | (1 | ) | |||||||
Dividend and interest income |
58 | 279 | 129 | |||||||||
Net unrealized holding gains (losses) |
(276 | ) | 568 | 312 | ||||||||
|
|
|
|
|
|
|||||||
Net investment income (losses) |
$ | 368 | $ | 997 | $ | 603 | ||||||
|
|
|
|
|
|
|
Property and equipment consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Land |
$ | 3,600 | $ | 4,144 | ||||
Buildings and leasehold improvements |
94,786 | 92,652 | ||||||
Equipment, furniture and fixtures |
293,857 | 287,728 | ||||||
Capitalized internally developed software costs |
7,963 | 7,752 | ||||||
Transportation equipment |
531 | 624 | ||||||
Construction in progress |
8,071 | 1,909 | ||||||
|
|
|
|
|||||
408,808 | 394,809 | |||||||
Less: Accumulated depreciation |
298,928 | 277,260 | ||||||
|
|
|
|
|||||
$ | 109,880 | $ | 117,549 | |||||
|
|
|
|
Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the accompanying Consolidated Balance Sheets as of December 31, 2014 and 2013 was as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Capitalized internally developed software costs, net |
$ | 1,270 | $ | 2,599 | ||||
|
|
|
|
|
Deferred charges and other assets consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Non-current deferred tax assets (Note 22) |
$ | 1,681 | $ | 13,048 | ||||
Non-current mandatory tax security deposits (Note 22) |
15,906 | 17,317 | ||||||
Non-current value added tax certificates (Note 11) |
856 | 5,406 | ||||||
Foreign currency forward contracts (Note 12) |
4,060 | — | ||||||
Rent and other deposits |
3,215 | 3,169 | ||||||
Other |
4,365 | 4,632 | ||||||
|
|
|
|
|||||
$ | 30,083 | $ | 43,572 | |||||
|
|
|
|
|
Accrued employee compensation and benefits consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Accrued compensation |
$ | 32,786 | $ | 32,003 | ||||
Accrued bonus and commissions |
18,590 | 14,265 | ||||||
Accrued vacation |
16,613 | 17,055 | ||||||
Accrued employment taxes |
9,362 | 12,448 | ||||||
Other |
4,721 | 5,293 | ||||||
|
|
|
|
|||||
$ | 82,072 | $ | 81,064 | |||||
|
|
|
|
|
The components of deferred revenue consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Future service |
$ | 25,222 | $ | 25,102 | ||||
Estimated potential penalties and holdbacks |
9,023 | 9,923 | ||||||
|
|
|
|
|||||
$ | 34,245 | $ | 35,025 | |||||
|
|
|
|
|
Other accrued expenses and current liabilities consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Accrued legal and professional fees |
$ | 4,508 | $ | 3,220 | ||||
Accrued equipment and software |
2,196 | 1,779 | ||||||
Accrued roadside assistance claim costs |
1,878 | 2,341 | ||||||
Accrued utilities |
1,329 | 1,425 | ||||||
Foreign currency forward and option contracts (Note 12) |
1,261 | 5,063 | ||||||
Accrued telephone charges |
1,068 | 1,475 | ||||||
Customer deposits |
793 | 2,418 | ||||||
Accrued rent |
640 | 2,057 | ||||||
Accrued restructuring (Note 4) |
630 | 1,245 | ||||||
Other |
7,913 | 9,370 | ||||||
|
|
|
|
|||||
$ | 22,216 | $ | 30,393 | |||||
|
|
|
|
|
The components of deferred grants consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Property grants |
$ | 5,110 | $ | 6,643 | ||||
Employment grants |
207 | 146 | ||||||
|
|
|
|
|||||
Total deferred grants |
5,317 | 6,789 | ||||||
Less: Property grants — short-term (1) |
— | (6 | ) | |||||
Less: Employment grants — short-term (1) |
(207 | ) | (146 | ) | ||||
|
|
|
|
|||||
Total long-term deferred grants (2) |
$ | 5,110 | $ | 6,637 | ||||
|
|
|
|
(1) |
Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheets. |
(2) |
Included in “Deferred grants” in the accompanying Consolidated Balance Sheets. |
|
Borrowings consist of the following (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Revolving credit facility |
$ | 75,000 | $ | 98,000 | ||||
Less: Current portion |
— | — | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 75,000 | $ | 98,000 | ||||
|
|
|
|
|
The Company presents data in the Consolidated Statements of Changes in Shareholders’ Equity in accordance with ASC 220 “Comprehensive Income” (“ASC 220”). ASC 220 establishes rules for the reporting of comprehensive income (loss) and its components. The components of accumulated other comprehensive income (loss) consist of the following (in thousands):
Foreign Currency Translation Gain (Loss) |
Unrealized Gain (Loss) on Net Investment Hedges |
Unrealized Actuarial Gain (Loss) Related to Pension Liability |
Unrealized Gain (Loss) on Cash Flow Hedging Instruments |
Unrealized Gain (Loss) on Post Retirement Obligation |
Total | |||||||||||||||||||
Balance at January 1, 2012 |
$ | 5,995 | $ | (2,565 | ) | $ | 985 | $ | (438 | ) | $ | 459 | $ | 4,436 | ||||||||||
Pre-tax amount |
9,516 | — | 499 | 4,417 | 92 | 14,524 | ||||||||||||||||||
Tax (provision) benefit |
— | — | (90 | ) | (306 | ) | — | (396 | ) | |||||||||||||||
Reclassification of (gain) loss to net income |
570 | — | (48 | ) | (4,174 | ) | (56 | ) | (3,708 | ) | ||||||||||||||
Foreign currency translation |
2 | — | 67 | (69 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2012 |
16,083 | (2,565 | ) | 1,413 | (570 | ) | 495 | 14,856 | ||||||||||||||||
Pre-tax amount |
(3,465 | ) | (1,720 | ) | (136 | ) | (2,704 | ) | (127 | ) | (8,152 | ) | ||||||||||||
Tax (provision) benefit |
— | 602 | 16 | 449 | — | 1,067 | ||||||||||||||||||
Reclassification of (gain) loss to net income |
— | — | (41 | ) | 321 | (54 | ) | 226 | ||||||||||||||||
Foreign currency translation |
133 | — | (102 | ) | (31 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2013 |
12,751 | (3,683 | ) | 1,150 | (2,535 | ) | 314 | 7,997 | ||||||||||||||||
Pre-tax amount |
(34,947 | ) | 6,344 | (50 | ) | (2,790 | ) | 77 | (31,366 | ) | ||||||||||||||
Tax (provision) benefit |
— | (2,385 | ) | 57 | (17 | ) | — | (2,345 | ) | |||||||||||||||
Reclassification of (gain) loss to net income |
— | — | (35 | ) | 5,237 | (49 | ) | 5,153 | ||||||||||||||||
Foreign currency translation |
120 | — | (114 | ) | (6 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2014 |
$ | (22,076 | ) | $ | 276 | $ | 1,008 | $ | (111 | ) | $ | 342 | $ | (20,561 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the amounts reclassified to net income from accumulated other comprehensive income (loss) and the associated line item in the accompanying Consolidated Statement of Operations (in thousands):
Years Ended December 31, |
Statements of Operations Location |
|||||||||
2014 | 2013 | |||||||||
Actuarial Gain (Loss) Related to Pension Liability: (1) |
||||||||||
Pre-tax amount |
$ | 50 | $ | 60 | Direct salaries and related costs | |||||
Tax (provision) benefit |
(15 | ) | (19 | ) | Income taxes | |||||
|
|
|
|
|||||||
Reclassification to net income |
35 | 41 | ||||||||
Gain (Loss) on Cash Flow Hedging Instruments: (2) |
||||||||||
Pre-tax amount |
(5,342 | ) | (547 | ) | Revenues | |||||
Tax (provision) benefit |
105 | 226 | Income taxes | |||||||
|
|
|
|
|||||||
Reclassification to net income |
(5,237 | ) | (321 | ) | ||||||
Gain (Loss) on Post Retirement Obligation: (1) |
||||||||||
Pre-tax amount |
49 | 54 | General and administrative | |||||||
Tax (provision) benefit |
— | — | Income taxes | |||||||
|
|
|
|
|||||||
Reclassification to net income |
49 | 54 | ||||||||
|
|
|
|
|||||||
Total reclassification of gain (loss) to net income |
$ | (5,153 | ) | $ | (226 | ) | ||||
|
|
|
|
(1) |
See Note 25, Defined Benefit Pension Plan and Postretirement Benefits, for further information. |
(2) |
See Note 12, Financial Derivatives, for further information. |
|
The income from continuing operations before income taxes includes the following components (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Domestic (U.S., state and local) |
$ | 28,563 | $ | 5,544 | $ | (10,430 | ) | |||||
Foreign |
48,596 | 45,781 | 55,587 | |||||||||
|
|
|
|
|
|
|||||||
Total income from continuing operations before income taxes |
$ | 77,159 | $ | 51,325 | $ | 45,157 | ||||||
|
|
|
|
|
|
Significant components of the income tax provision are as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Current: |
||||||||||||
U.S. federal |
$ | 2,579 | $ | 881 | $ | 236 | ||||||
State and local |
542 | 82 | (61 | ) | ||||||||
Foreign |
11,382 | 13,464 | 9,899 | |||||||||
|
|
|
|
|
|
|||||||
Total current provision for income taxes |
14,503 | 14,427 | 10,074 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
U.S. federal |
5,437 | 866 | (2,846 | ) | ||||||||
State and local |
(446 | ) | — | — | ||||||||
Foreign |
(126 | ) | (1,228 | ) | (2,021 | ) | ||||||
|
|
|
|
|
|
|||||||
Total deferred provision (benefit) for income taxes |
4,865 | (362 | ) | (4,867 | ) | |||||||
|
|
|
|
|
|
|||||||
Total provision for income taxes |
$ | 19,368 | $ | 14,065 | $ | 5,207 | ||||||
|
|
|
|
|
|
The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net operating loss and tax credit carryforwards |
$ | 19,335 | $ | 8,029 | $ | (4,113 | ) | |||||
Depreciation and amortization |
(6,220 | ) | (5,030 | ) | (5,684 | ) | ||||||
Accrued expenses/liabilities |
(4,505 | ) | 954 | (1,274 | ) | |||||||
Valuation allowance |
(3,706 | ) | (1,887 | ) | 4,120 | |||||||
Deferred statutory income |
(29 | ) | (2,425 | ) | 2,084 | |||||||
Other |
(10 | ) | (3 | ) | — | |||||||
|
|
|
|
|
|
|||||||
Total deferred provision (benefit) for income taxes |
$ | 4,865 | $ | (362 | ) | $ | (4,867 | ) | ||||
|
|
|
|
|
|
The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s effective income tax provision is as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Tax at U.S. federal statutory tax rate |
$ | 27,005 | $ | 17,964 | $ | 15,805 | ||||||
State income taxes, net of federal tax benefit |
934 | 82 | (61 | ) | ||||||||
Foreign rate differential |
(13,164 | ) | (9,319 | ) | (7,078 | ) | ||||||
Tax holidays |
(2,749 | ) | (4,686 | ) | (6,450 | ) | ||||||
Permanent differences |
10,170 | 9,051 | 3,531 | |||||||||
Tax credits |
(4,894 | ) | (5,020 | ) | (699 | ) | ||||||
Foreign withholding and other taxes |
2,541 | 4,643 | 1,263 | |||||||||
Change in valuation allowance, net of related adjustments |
(7 | ) | 1,354 | (538 | ) | |||||||
Changes in uncertain tax positions |
(468 | ) | (4 | ) | (613 | ) | ||||||
Change of assertion related to foreign earnings distribution |
— | — | 47 | |||||||||
|
|
|
|
|
|
|||||||
Total provision for income taxes |
$ | 19,368 | $ | 14,065 | $ | 5,207 | ||||||
|
|
|
|
|
|
The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Deferred tax assets: |
||||||||
Net operating loss and tax credit carryforwards |
$ | 35,400 | $ | 61,626 | ||||
Valuation allowance |
(34,146 | ) | (42,664 | ) | ||||
Accrued expenses |
25,694 | 21,305 | ||||||
Deferred revenue |
3,757 | 4,045 | ||||||
Depreciation and amortization |
835 | 559 | ||||||
Other |
— | 104 | ||||||
|
|
|
|
|||||
31,540 | 44,975 | |||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Depreciation and amortization |
(20,172 | ) | (26,379 | ) | ||||
Deferred statutory income |
(772 | ) | (241 | ) | ||||
Accrued liabilities |
(141 | ) | (79 | ) | ||||
Other |
(1 | ) | (114 | ) | ||||
|
|
|
|
|||||
(21,086 | ) | (26,813 | ) | |||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 10,454 | $ | 18,162 | ||||
|
|
|
|
|||||
December 31, | ||||||||
2014 | 2013 | |||||||
Classified as follows: |
||||||||
Other current assets (Note 10) |
$ | 13,703 | $ | 7,961 | ||||
Other long-term liabilities |
(4,786 | ) | (2,763 | ) | ||||
Deferred charges and other assets (Note 15) |
1,681 | 13,048 | ||||||
Current deferred income tax liabilities |
(144 | ) | (84 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 10,454 | $ | 18,162 | ||||
|
|
|
|
The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Gross unrecognized tax benefits as of January 1, |
$ | 14,991 | $ | 16,897 | $ | 17,136 | ||||||
Prior period tax position increases (decreases) (1) |
— | — | 321 | |||||||||
Decreases from settlements with tax authorities |
— | — | (426 | ) | ||||||||
Decreases due to lapse in applicable statute of limitations |
— | (390 | ) | (561 | ) | |||||||
Foreign currency translation increases (decreases) |
(1,706 | ) | (1,516 | ) | 427 | |||||||
|
|
|
|
|
|
|||||||
Gross unrecognized tax benefits as of December 31, |
$ | 13,285 | $ | 14,991 | $ | 16,897 | ||||||
|
|
|
|
|
|
(1) |
Includes amounts assumed upon acquisition of Alpine on August 20, 2012. |
The significant tax jurisdictions currently under audit are as follows:
Tax Jurisdiction |
Tax Year Ended |
|
Canada |
2003 to 2009 | |
The Philippines |
2009 and 2010 |
The following table presents the major tax jurisdictions and tax years that are open and subject to examination by the respective tax authorities as of December 31, 2014:
Tax Jurisdiction |
Tax Year Ended |
|
Canada |
2003 to present | |
The Philippines |
2009 to present | |
United States |
2002 to 2010 (1) and 2011 to present |
(1) |
These tax years are open to the extent of the net operating loss and tax credit carryforward amounts. |
|
Rental expense under operating leases was as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Rental expense |
$ | 44,916 | $ | 47,365 | $ | 43,626 | ||||||
|
|
|
|
|
|
The following is a schedule of future minimum rental payments required under operating leases that have noncancelable lease terms as of December 31, 2014 (in thousands):
Amount | ||||
2015 |
$ | 33,287 | ||
2016 |
24,907 | |||
2017 |
21,586 | |||
2018 |
20,325 | |||
2019 |
15,617 | |||
2020 and thereafter |
35,801 | |||
|
|
|||
Total minimum payments required |
$ | 151,523 | ||
|
|
The following is a schedule of future minimum purchases remaining under the agreements as of December 31, 2014 (in thousands):
Amount | ||||
2015 |
$ | 33,039 | ||
2016 |
21,025 | |||
2017 |
10,448 | |||
2018 |
1,485 | |||
2019 |
1,483 | |||
2020 and thereafter |
1,600 | |||
|
|
|||
Total minimum payments required |
$ | 69,080 | ||
|
|
|
The following table provides a reconciliation of the change in the benefit obligation for the Pension Plans and the net amount recognized, included in “Other long-term liabilities”, in the accompanying Consolidated Balance Sheets (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Beginning benefit obligation |
$ | 2,481 | $ | 1,997 | ||||
Service cost |
387 | 392 | ||||||
Interest cost |
104 | 137 | ||||||
Actuarial (gains) losses |
50 | 136 | ||||||
Effect of foreign currency translation |
78 | (181 | ) | |||||
|
|
|
|
|||||
Ending benefit obligation |
$ | 3,100 | $ | 2,481 | ||||
|
|
|
|
|||||
Unfunded status |
$ | (3,100 | ) | $ | (2,481 | ) | ||
|
|
|
|
|||||
Net amount recognized |
$ | (3,100 | ) | $ | (2,481 | ) | ||
|
|
|
|
The actuarial assumptions used to determine the benefit obligations and net periodic benefit cost for the Pension Plans were as follows:
Years Ended December 31, | ||||||
2014 | 2013 | 2012 | ||||
Discount rate |
4.5% - 4.9% | 4.3% - 5.2% | 5.9% | |||
Rate of compensation increase |
2.0% | 2.0% | 2.0% |
The following table provides information about the net periodic benefit cost and other accumulated comprehensive income for the Pension Plans (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Service cost |
$ | 387 | $ | 392 | $ | 372 | ||||||
Interest cost |
104 | 137 | 120 | |||||||||
Recognized actuarial (gains) |
(50 | ) | (60 | ) | (46 | ) | ||||||
|
|
|
|
|
|
|||||||
Net periodic benefit cost |
441 | 469 | 446 | |||||||||
Unrealized net actuarial (gains), net of tax |
(1,008 | ) | (1,150 | ) | (1,413 | ) | ||||||
|
|
|
|
|
|
|||||||
Total amount recognized in net periodic benefit cost and other accumulated comprehensive income (loss) |
$ | (567 | ) | $ | (681 | ) | $ | (967 | ) | |||
|
|
|
|
|
|
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in thousands):
Years Ending December 31, |
Amount | |||
2015 |
$ | 28 | ||
2016 |
133 | |||
2017 |
77 | |||
2018 |
58 | |||
2019 |
303 | |||
2020 - 2024 |
963 |
participant compensation. The Company’s contributions included in the accompanying Consolidated Statements of Operations were as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
401(k) plan contributions |
$ | 870 | $ | 895 | $ | 1,221 | ||||||
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|
|
|
|
|
policy to the extent of the premiums paid by the Company. The postretirement benefit obligation included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other comprehensive income” in the accompanying Consolidated Balance Sheets were as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Postretirement benefit obligation |
$ | 46 | $ | 81 | ||||
Unrealized gains (losses) in AOCI (1) |
342 | 314 |
(1) |
Unrealized gains (losses) are due to changes in discount rates related to the postretirement obligation. |
|
The following table summarizes the stock-based compensation expense (primarily in the Americas), income tax benefits related to the stock-based compensation and excess tax benefits (deficiencies) (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Stock-based compensation (expense) (1) |
$ | (6,381 | ) | $ | (4,873 | ) | $ | (3,467 | ) | |||
Income tax benefit (2) |
2,233 | 1,706 | 1,213 | |||||||||
Excess tax benefit (deficiency) from stock-based compensation (3) |
(82 | ) | (187 | ) | (292 | ) |
(1) |
Included in “General and administrative” costs in the accompanying Consolidated Statements of Operations. |
(2) |
Included in “Income taxes” in the accompanying Consolidated Statements of Operations. |
(3) |
Included in “Additional paid-in capital” in the accompanying Consolidated Statements of Changes in Shareholders’ Equity . |
The following table summarizes the assumptions used to estimate the fair value of SARs granted:
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Expected volatility |
38.9 | % | 45.2 | % | 47.1 | % | ||||||
Weighted-average volatility |
38.9 | % | 45.2 | % | 47.1 | % | ||||||
Expected dividend rate |
0.0 | % | 0.0 | % | 0.0 | % | ||||||
Expected term (in years) |
5.0 | 5.0 | 4.7 | |||||||||
Risk-free rate |
1.7 | % | 0.8 | % | 0.8 | % |
The following table summarizes SARs activity as of December 31, 2014 and for the year then ended:
Stock Appreciation Rights |
Shares (000s) | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (000s) |
||||||||||||
Outstanding at January 1, 2014 |
963 | $ | — | |||||||||||||
Granted |
246 | $ | — | |||||||||||||
Exercised |
(77 | ) | $ | — | ||||||||||||
Forfeited or expired |
(173 | ) | $ | — | ||||||||||||
|
|
|||||||||||||||
Outstanding at December 31, 2014 |
959 | $ | — | 7.0 | $ | 5,171 | ||||||||||
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|
|
|
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|
|||||||||
Vested or expected to vest at December 31, 2014 |
959 | $ | — | 7.0 | $ | 5,171 | ||||||||||
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|
|
|
|
|
|||||||||
Exercisable at December 31, 2014 |
548 | $ | — | 5.8 | $ | 2,700 | ||||||||||
|
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|
|
|
|
|
|
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of SARs granted |
246 | 318 | 259 | |||||||||
Weighted average grant-date fair value per SAR |
$ | 7.20 | $ | 6.08 | $ | 5.97 | ||||||
Intrinsic value of SARs exercised |
$ | 391 | $ | 488 | $ | — | ||||||
Fair value of SARs vested |
$ | 1,553 | $ | 1,298 | $ | 1,388 |
The following table summarizes nonvested SARs activity as of December 31, 2014 and for the year then ended:
Nonvested Stock Appreciation Rights |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
535 | $ | 6.17 | |||||
Granted |
246 | $ | 7.20 | |||||
Vested |
(246 | ) | $ | 6.31 | ||||
Forfeited or expired |
(124 | ) | $ | 6.48 | ||||
|
|
|||||||
Nonvested at December 31, 2014 |
411 | $ | 6.61 | |||||
|
|
The following table summarizes nonvested restricted shares/RSUs activity as of December 31, 2014 and for the year then ended:
Nonvested Restricted Shares and RSUs |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
1,367 | $ | 15.96 | |||||
Granted |
500 | $ | 19.77 | |||||
Vested |
(57 | ) | $ | 15.67 | ||||
Forfeited or expired |
(616 | ) | $ | 17.45 | ||||
|
|
|||||||
Nonvested at December 31, 2014 |
1,194 | $ | 16.80 | |||||
|
|
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands, except per restricted share/RSU amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of restricted shares/RSUs granted |
500 | 706 | 420 | |||||||||
Weighted average grant-date fair value per restricted share/RSU |
$ | 19.77 | $ | 15.25 | $ | 15.21 | ||||||
Fair value of restricted shares/RSUs vested |
$ | 895 | $ | 366 | $ | 3,845 |
The following table summarizes nonvested common stock share award activity as of December 31, 2014 and for the year then ended:
Nonvested Common Stock Share Awards |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
9 | $ | 16.01 | |||||
Granted |
36 | $ | 20.15 | |||||
Vested |
(33 | ) | $ | 18.95 | ||||
Forfeited or expired |
— | $ | — | |||||
|
|
|||||||
Nonvested at December 31, 2014 |
12 | $ | 20.24 | |||||
|
|
The following table summarizes information regarding common stock share awards granted and vested (in thousands, except per share award amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of share awards granted |
36 | 37 | 42 | |||||||||
Weighted average grant-date fair value per share award |
$ | 20.15 | $ | 16.01 | $ | 16.15 | ||||||
Fair value of share awards vested |
$ | 630 | $ | 669 | $ | 771 |
The following table summarizes nonvested common stock activity as of December 31, 2014 and for the year then ended:
Nonvested Common Stock |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2014 |
6 | $ | 16.89 | |||||
Granted |
10 | $ | 20.54 | |||||
Vested |
(10 | ) | $ | 20.13 | ||||
Forfeited or expired |
(1 | ) | $ | 16.30 | ||||
|
|
|||||||
Nonvested at December 31, 2014 |
5 | $ | 17.88 | |||||
|
|
The following table summarizes information regarding shares of common stock granted and vested (in thousands, except per common stock amounts):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Number of shares of common stock granted |
10 | 13 | 15 | |||||||||
Weighted average grant-date fair value per common stock |
$ | 20.54 | $ | 16.76 | $ | 15.27 | ||||||
Fair value of common stock vested |
$ | 212 | $ | 257 | $ | 195 | ||||||
Cash used to settle the obligation |
$ | 1,493 | $ | 1,014 | $ | 459 |
|
Information about the Company’s reportable segments was as follows (in thousands):
Americas | EMEA | Other (1) | Consolidated | |||||||||||||
Year Ended December 31, 2014: |
||||||||||||||||
Revenues (2) |
$ | 1,070,824 | $ | 256,699 | $ | 1,327,523 | ||||||||||
Percentage of revenues |
80.7 | % | 19.3 | % | 100.0 | % | ||||||||||
Depreciation, net (2) |
$ | 40,557 | $ | 4,806 | $ | 45,363 | ||||||||||
Amortization of intangibles (2) |
$ | 14,396 | $ | — | $ | 14,396 | ||||||||||
Income (loss) from continuing operations |
$ | 113,549 | $ | 16,208 | $ | (50,202 | ) | $ | 79,555 | |||||||
Other (expense), net |
(2,396 | ) | (2,396 | ) | ||||||||||||
Income taxes |
(19,368 | ) | (19,368 | ) | ||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
57,791 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | — | $ | — | — | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 57,791 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of December 31, 2014 |
$ | 1,080,010 | $ | 1,373,590 | $ | (1,509,100 | ) | $ | 944,500 | |||||||
|
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|
|
|
|
|
|
|||||||||
Year Ended December 31, 2013: |
||||||||||||||||
Revenues (2) |
$ | 1,050,813 | $ | 212,647 | $ | 1,263,460 | ||||||||||
Percentage of revenues |
83.2 | % | 16.8 | % | 100.0 | % | ||||||||||
Depreciation, net (2) |
$ | 37,818 | $ | 4,266 | $ | 42,084 | ||||||||||
Amortization of intangibles (2) |
$ | 14,863 | $ | — | $ | 14,863 | ||||||||||
Income (loss) from continuing operations |
$ | 94,006 | $ | 6,052 | $ | (46,531 | ) | $ | 53,527 | |||||||
Other (expense), net |
(2,202 | ) | (2,202 | ) | ||||||||||||
Income taxes |
(14,065 | ) | (14,065 | ) | ||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
37,260 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | — | $ | — | — | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 37,260 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of December 31, 2013 |
$ | 1,097,788 | $ | 1,409,185 | $ | (1,556,712 | ) | $ | 950,261 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Year Ended December 31, 2012: |
||||||||||||||||
Revenues (2) |
$ | 947,147 | $ | 180,551 | $ | 1,127,698 | ||||||||||
Percentage of revenues |
84.0 | % | 16.0 | % | 100.0 | % | ||||||||||
Depreciation, net (2) |
$ | 36,494 | $ | 3,875 | $ | 40,369 | ||||||||||
Amortization of intangibles (2) |
$ | 10,479 | $ | — | $ | 10,479 | ||||||||||
Income (loss) from continuing operations |
$ | 93,580 | $ | 5,488 | $ | (51,289 | ) | $ | 47,779 | |||||||
Other (expense), net |
(2,622 | ) | (2,622 | ) | ||||||||||||
Income taxes |
(5,207 | ) | (5,207 | ) | ||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
39,950 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | (10,707 | ) | $ | (820 | ) | (11,527 | ) | ||||||||
|
|
|||||||||||||||
Net income |
$ | 28,423 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of December 31, 2012 |
$ | 1,265,119 | $ | 1,100,938 | $ | (1,457,368 | ) | $ | 908,689 | |||||||
|
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|
|
|
|
|
(1) |
Other items (including corporate costs, other income and expense, and income taxes) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the years ended December 31, 2014, 2013 and 2012. The accounting policies of the reportable segments are the same as those described in Note 1 to the accompanying Consolidated Financial Statements. Inter-segment revenues are not material to the Americas and EMEA segment results. The Company evaluates the performance of its geographic segments based on revenues and income (loss) from continuing operations, and does not include segment assets or other income and expense items for management reporting purposes. |
(2) |
Revenues, depreciation and amortization include results from continuing operations only. |
(3) |
Includes both the (loss) from discontinued operations, net of taxes, and the (loss) on sale of discontinued operations, net of taxes, if any. |
Information about the Company’s operations by geographic location was as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Revenues: (1) |
||||||||||||
United States |
$ | 425,746 | $ | 388,775 | $ | 302,046 | ||||||
The Philippines |
205,332 | 213,132 | 225,629 | |||||||||
Canada |
195,739 | 210,463 | 198,585 | |||||||||
Costa Rica |
97,295 | 101,888 | 100,101 | |||||||||
El Salvador |
52,609 | 46,301 | 46,910 | |||||||||
Australia |
33,126 | 36,725 | 24,633 | |||||||||
China |
32,167 | 25,478 | 21,614 | |||||||||
Mexico |
20,439 | 23,701 | 23,315 | |||||||||
Other |
8,371 | 4,350 | 4,314 | |||||||||
|
|
|
|
|
|
|||||||
Total Americas |
1,070,824 | 1,050,813 | 947,147 | |||||||||
|
|
|
|
|
|
|||||||
Germany |
88,887 | 77,950 | 73,380 | |||||||||
Sweden |
68,057 | 49,953 | 22,229 | |||||||||
United Kingdom |
42,328 | 33,750 | 35,833 | |||||||||
Romania |
18,288 | 14,856 | 10,773 | |||||||||
Hungary |
8,723 | 8,525 | 7,619 | |||||||||
Netherlands |
3,126 | 3,073 | 6,511 | |||||||||
Other |
27,290 | 24,540 | 24,206 | |||||||||
|
|
|
|
|
|
|||||||
Total EMEA |
256,699 | 212,647 | 180,551 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,327,523 | $ | 1,263,460 | $ | 1,127,698 | |||||||
|
|
|
|
|
|
(1) |
Revenues are attributed to countries based on location of customer, except for revenues for Costa Rica, The Philippines, China and India which are primarily comprised of customers located in the U.S., but serviced by centers in those respective geographic locations. |
December 31, | ||||||||
2014 | 2013 | |||||||
Long-Lived Assets: (1) |
||||||||
United States |
$ | 108,030 | $ | 120,759 | ||||
Canada |
16,257 | 23,164 | ||||||
The Philippines |
14,656 | 17,197 | ||||||
Costa Rica |
5,625 | 4,759 | ||||||
El Salvador |
3,298 | 2,552 | ||||||
Australia |
2,923 | 3,799 | ||||||
Mexico |
1,575 | 1,902 | ||||||
Other |
6,998 | 6,695 | ||||||
|
|
|
|
|||||
Total Americas |
159,362 | 180,827 | ||||||
|
|
|
|
|||||
United Kingdom |
3,871 | 4,158 | ||||||
Sweden |
2,478 | 3,676 | ||||||
Germany |
2,310 | 2,097 | ||||||
Romania |
682 | 679 | ||||||
Slovakia |
496 | 666 | ||||||
Norway |
490 | 603 | ||||||
Hungary |
442 | 564 | ||||||
Other |
369 | 334 | ||||||
|
|
|
|
|||||
Total EMEA |
11,138 | 12,777 | ||||||
|
|
|
|
|||||
$ | 170,500 | $ | 193,604 | |||||
|
|
|
|
(1) |
Long-lived assets include property and equipment, net, and intangibles, net. |
Goodwill by segment was as follows (in thousands):
December 31, | ||||||||
2014 | 2013 | |||||||
Americas |
$ | 193,831 | $ | 199,802 | ||||
EMEA |
— | — | ||||||
|
|
|
|
|||||
$ | 193,831 | $ | 199,802 | |||||
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Revenues for the Company’s products and services were as follows (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Outsourced customer contract management services |
$ | 1,303,607 | $ | 1,240,328 | $ | 1,104,442 | ||||||
Fulfillment services |
18,392 | 16,953 | 16,357 | |||||||||
Enterprise support services |
5,524 | 6,179 | 6,899 | |||||||||
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|
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|
|||||||
$ | 1,327,523 | $ | 1,263,460 | $ | 1,127,698 | |||||||
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Total revenues by segment from AT&T Corporation, a major provider of communication services for which the Company provides various customer support services, were as follows (in thousands):
Years Ended December 31, | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||||
Americas |
$ | 212,607 | 19.9 | % | $ | 162,888 | 15.5 | % | $ | 130,072 | 13.7 | % | ||||||||||||
EMEA |
3,519 | 1.4 | % | 3,513 | 1.7 | % | 3,018 | 1.7 | % | |||||||||||||||
|
|
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|
|
|
|||||||||||||||||||
$ | 216,126 | 16.3 | % | $ | 166,401 | 13.2 | % | $ | 133,090 | 11.8 | % | |||||||||||||
|
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|
|
|
Total revenues by segment from the Company’s next largest client, which was in the financial services vertical market in each of the years, were as follows (in thousands):
Years Ended December 31, | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||||
Americas |
$ | 70,255 | 6.6 | % | $ | 73,226 | 7.0 | % | $ | 70,311 | 7.4 | % | ||||||||||||
EMEA |
— | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||||||
|
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|
|
|
|||||||||||||||||||
$ | 70,255 | 5.3 | % | $ | 73,226 | 5.8 | % | $ | 70,311 | 6.2 | % | |||||||||||||
|
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|
Other income (expense) consists of the following (in thousands):
Years Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Foreign currency transaction gains (losses) |
$ | (1,740 | ) | $ | (5,962 | ) | $ | (2,856 | ) | |||
Gains (losses) on foreign currency derivative instruments not designated as hedges |
(44 | ) | 4,216 | (295 | ) | |||||||
Gains (losses) on liquidation of foreign subsidiaries |
— | — | (582 | ) | ||||||||
Other miscellaneous income (expense) |
441 | 985 | 1,200 | |||||||||
|
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|
|
|
|
|||||||
$ | (1,343 | ) | $ | (761 | ) | $ | (2,533 | ) | ||||
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