SYKES ENTERPRISES INC, 10-K filed on 2/20/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Feb. 12, 2014
Jun. 28, 2013
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2013 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
Entity Registrant Name
SYKES ENTERPRISES INC 
 
 
Entity Central Index Key
0001010612 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
43,996,834 
 
Entity Public Float
 
 
$ 668,308,805 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 211,985 
$ 187,322 
Receivables, net
264,916 
247,633 
Prepaid expenses
15,710 
12,370 
Other current assets
20,672 
20,017 
Total current assets
513,283 
467,342 
Property and equipment, net
117,549 
101,295 
Goodwill, net
199,802 
204,231 
Intangibles, net
76,055 
92,037 
Deferred charges and other assets
43,572 
43,784 
Total assets
950,261 
908,689 
Current liabilities:
 
 
Accounts payable
25,540 
24,985 
Accrued employee compensation and benefits
81,064 
73,103 
Current deferred income tax liabilities
84 
92 
Income taxes payable
1,274 
800 
Deferred revenue
35,025 
34,283 
Other accrued expenses and current liabilities
30,393 
31,320 
Total current liabilities
173,380 
164,583 
Deferred grants
6,637 
7,607 
Long-term debt
98,000 
91,000 
Long-term income tax liabilities
24,647 
26,162 
Other long-term liabilities
11,893 
13,073 
Total liabilities
314,557 
302,425 
Commitments and loss contingency (Note 24)
   
   
Shareholders' equity:
 
 
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued and outstanding
   
   
Common stock, $0.01 par value, 200,000 shares authorized; 43,997 and 43,790 shares issued, respectively
440 
438 
Additional paid-in capital
279,513 
277,192 
Retained earnings
349,366 
315,187 
Accumulated other comprehensive income
7,997 
14,856 
Treasury stock at cost: 122 shares and 108 shares, respectively
(1,612)
(1,409)
Total shareholders' equity
635,704 
606,264 
Total liabilities and shareholders' equity
$ 950,261 
$ 908,689 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Statement Of Financial Position [Abstract]
 
 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000 
10,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
200,000 
200,000 
Common stock, shares issued
43,997 
43,790 
Treasury stock, shares
122 
108 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Income Statement [Abstract]
 
 
 
Revenues
$ 1,263,460 
$ 1,127,698 
$ 1,169,267 
Operating expenses:
 
 
 
Direct salaries and related costs
855,266 
737,952 
763,930 
General and administrative
297,519 
290,373 
287,033 
Depreciation, net
42,084 
40,369 
46,111 
Amortization of intangibles
14,863 
10,479 
7,961 
Net (gain) loss on disposal of property and equipment
201 
391 
(3,021)
Impairment of long-lived assets
 
355 
1,718 
Total operating expenses
1,209,933 
1,079,919 
1,103,732 
Income from continuing operations
53,527 
47,779 
65,535 
Other income (expense):
 
 
 
Interest income
866 
1,458 
1,352 
Interest (expense)
(2,307)
(1,547)
(1,132)
Other (expense)
(761)
(2,533)
(2,099)
Total other income (expense)
(2,202)
(2,622)
(1,879)
Income from continuing operations before income taxes
51,325 
45,157 
63,656 
Income taxes
14,065 
5,207 
11,342 
Income from continuing operations, net of taxes
37,260 
39,950 
52,314 
(Loss) from discontinued operations, net of taxes
 
(820)
(4,532)
Gain (loss) on sale of discontinued operations, net of taxes
 
(10,707)
559 
Net income
$ 37,260 
$ 28,423 
$ 48,341 
Basic:
 
 
 
Continuing operations
$ 0.87 
$ 0.93 
$ 1.15 
Discontinued operations
 
$ (0.27)
$ (0.09)
Net income (loss) per common share
$ 0.87 
$ 0.66 
$ 1.06 
Diluted:
 
 
 
Continuing operations
$ 0.87 
$ 0.93 
$ 1.15 
Discontinued operations
 
$ (0.27)
$ (0.09)
Net income (loss) per common share
$ 0.87 
$ 0.66 
$ 1.06 
Weighted average common shares outstanding:
 
 
 
Basic
42,877 
43,105 
45,506 
Diluted
42,925 
43,148 
45,607 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net income
$ 37,260 
$ 28,423 
$ 48,341 
Other comprehensive income (loss), net of taxes:
 
 
 
Foreign currency translation gain (loss), net of taxes
(3,332)
10,088 
(7,997)
Unrealized gain (loss) on net investment hedge, net of taxes
(1,118)
 
 
Unrealized actuarial gain (loss) related to pension liability, net of taxes
(263)
428 
(204)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes
(1,965)
(132)
(2,584)
Unrealized gain (loss) on postretirement obligation, net of taxes
(181)
36 
113 
Other comprehensive income (loss), net of taxes
(6,859)
10,420 
(10,672)
Comprehensive income (loss)
$ 30,401 
$ 38,843 
$ 37,669 
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2010
$ 583,195 
$ 471 
$ 302,911 
$ 265,676 
$ 15,108 
$ (971)
Beginning Balance, shares at Dec. 31, 2010
 
47,066 
 
 
 
 
Issuance of common stock
311 
 
311 
 
 
 
Issuance of common stock, shares
 
33 
 
 
 
 
Stock-based compensation expense
3,582 
 
3,582 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(8)
 
(8)
 
 
 
Vesting of common stock and restricted stock under equity award plans, net of forfeitures
(1,190)
(979)
 
 
(214)
Vesting of common stock and restricted stock under equity award plans, net of forfeitures, shares
 
293 
 
 
 
 
Repurchase of common stock
(49,993)
 
 
 
 
(49,993)
Retirement of treasury stock
 
(31)
(24,660)
(22,214)
 
46,905 
Retirement of treasury stock, shares
 
(3,086)
 
 
 
 
Comprehensive income (loss)
37,669 
 
 
48,341 
(10,672)
 
Ending Balance at Dec. 31, 2011
573,566 
443 
281,157 
291,803 
4,436 
(4,273)
Ending Balance, shares at Dec. 31, 2011
 
44,306 
 
 
 
 
Stock-based compensation expense
3,467 
 
3,467 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(292)
 
(292)
 
 
 
Vesting of common stock and restricted stock under equity award plans, net of forfeitures
(1,412)
(1,195)
 
 
(220)
Vesting of common stock and restricted stock under equity award plans, net of forfeitures, shares
 
229 
 
 
 
 
Repurchase of common stock
(7,908)
 
 
 
 
(7,908)
Retirement of treasury stock
 
(8)
(5,945)
(5,039)
 
10,992 
Retirement of treasury stock, shares
 
(745)
 
 
 
 
Comprehensive income (loss)
38,843 
 
 
28,423 
10,420 
 
Ending Balance at Dec. 31, 2012
606,264 
438 
277,192 
315,187 
14,856 
(1,409)
Ending Balance, shares at Dec. 31, 2012
 
43,790 
 
 
 
 
Issuance of common stock
59 
 
59 
 
 
 
Issuance of common stock, shares
 
10 
 
 
 
 
Stock-based compensation expense
4,873 
 
4,873 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(187)
 
(187)
 
 
 
Vesting of common stock and restricted stock under equity award plans, net of forfeitures
(227)
(29)
 
 
(203)
Vesting of common stock and restricted stock under equity award plans, net of forfeitures, shares
 
538 
 
 
 
 
Repurchase of common stock
(5,479)
 
 
 
 
(5,479)
Retirement of treasury stock
 
(3)
(2,395)
(3,081)
 
5,479 
Retirement of treasury stock, shares
 
(341)
 
 
 
 
Comprehensive income (loss)
30,401 
 
 
37,260 
(6,859)
 
Ending Balance at Dec. 31, 2013
$ 635,704 
$ 440 
$ 279,513 
$ 349,366 
$ 7,997 
$ (1,612)
Ending Balance, shares at Dec. 31, 2013
 
43,997 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities:
 
 
 
Net income
$ 37,260 
$ 28,423 
$ 48,341 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
43,094 
41,570 
47,806 
Amortization of intangibles
14,863 
10,479 
7,961 
Amortization of deferred grants
(1,148)
(1,201)
(2,300)
Impairment losses
 
355 
2,561 
Unrealized foreign currency transaction (gains) losses, net
6,302 
2,131 
1,216 
Stock-based compensation expense
4,873 
3,467 
3,582 
Deferred income tax provision (benefit)
(362)
(4,867)
(3,955)
Net (gain) loss on disposal of property and equipment
201 
391 
(3,035)
Bad debt expense
483 
1,115 
532 
Unrealized (gains) losses on financial instruments, net
(15)
(1,361)
4,138 
(Recovery) of regulatory penalties
 
 
(407)
Amortization of deferred loan fees
259 
368 
585 
(Gain) loss on sale of discontinued operations
 
10,707 
(559)
Other
(56)
294 
300 
Changes in assets and liabilities, net of acquisition:
 
 
 
Receivables
(22,062)
(6,771)
8,927 
Prepaid expenses
(3,931)
694 
(1,042)
Other current assets
(1,177)
1,705 
(3,442)
Deferred charges and other assets
(2,754)
(18,388)
1,630 
Accounts payable
(1,282)
(1,589)
(6,898)
Income taxes receivable / payable
804 
1,555 
(4,529)
Accrued employee compensation and benefits
9,140 
4,872 
2,450 
Other accrued expenses and current liabilities
(2,025)
11,476 
(2,855)
Deferred revenue
2,826 
(163)
4,243 
Other long-term liabilities
925 
1,252 
(2,636)
Net cash provided by operating activities
86,218 
86,514 
102,614 
Cash flows from investing activities:
 
 
 
Capital expenditures
(59,193)
(38,647)
(29,890)
Cash paid for business acquisition, net of cash acquired
 
(147,094)
 
Proceeds from sale of property and equipment
388 
240 
3,973 
Investment in restricted cash
(562)
(67)
(494)
Release of restricted cash
 
356 
396 
Cash divested on sale of discontinued operations
 
(9,100)
 
Proceeds from insurance settlement
 
228 
1,654 
Net cash (used for) investing activities
(59,367)
(194,084)
(24,361)
Cash flows from financing activities:
 
 
 
Payments of long-term debt
(25,000)
(22,000)
 
Proceeds from issuance of long-term debt
32,000 
113,000 
 
Proceeds from issuance of common stock
59 
 
311 
Cash paid for repurchase of common stock
(5,479)
(7,908)
(49,993)
Proceeds from grants
201 
88 
(225)
Shares repurchased for minimum tax withholding on equity awards
(227)
(1,412)
(1,190)
Cash paid for loan fees related to long-term debt
 
(857)
 
Other
 
 
(8)
Net cash provided by (used for) financing activities
1,554 
80,911 
(51,105)
Effects of exchange rates on cash
(3,742)
2,859 
(5,855)
Net increase (decrease) in cash and cash equivalents
24,663 
(23,800)
21,293 
Cash and cash equivalents - beginning
187,322 
211,122 
189,829 
Cash and cash equivalents - ending
211,985 
187,322 
211,122 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during period for interest
2,149 
2,239 
1,065 
Cash paid during period for income taxes
16,889 
28,822 
24,631 
Non-cash transactions:
 
 
 
Property and equipment additions in accounts payable
6,002 
3,782 
2,434 
Unrealized gain on postretirement obligation in accumulated other comprehensive income (loss)
$ (181)
$ 36 
$ 113 
Overview and Summary of Significant Accounting Policies
Overview and Summary of Significant Accounting Policies

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 multilingual sales order processing via the Internet and phone, 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 Statement 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 Statements of Operations for the years ended December 31, 2012 and 2011. Cash flows from discontinued operations are included in the Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011. 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 1.3%, 1.5% and 1.4% of total consolidated revenues for the years ended December 31, 2013, 2012 and 2011, 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.

As a result of the adoption of ASU 2009-13, 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, 2013, 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, 2013.

Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments. Cash in the amount of $212.0 million and $187.3 million at December 31, 2013 and 2012, respectively, was primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash equivalents of $195.0 million and $182.9 million at December 31, 2013 and 2012, 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, 2013.

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, 2013. 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, 2013, 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 Philippine government previously allowed companies to sell the certificates to third parties, but this option was eliminated during the three months ended September 30, 2011. 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, as of January 1, 2011, began self-funding 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, 2013 and 2012, 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 March 2013, the Financial Accounting Standards Board (“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 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

New Accounting Standards Recently Adopted

In December 2011, the FASB issued ASU 2011-11 “Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). The amendments in ASU 2011-11 enhanced disclosures by requiring improved information about financial and derivative instruments that are either 1) offset (netting assets and liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards Codification (“ASC”) or 2) subject to an enforceable master netting arrangement or similar agreement. The amendments in ASU 2011-11 are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company. See Note 12, Financial Derivatives, for further information.

In July 2012, the FASB issued ASU 2012-02 “Intangibles — Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). The amendments in ASU 2012-02 provide entities with the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. Under the amendments in ASU 2012-02, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU 2012-02 on January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company. See “Goodwill” in this Note 1 for further information.

In January 2013, the FASB issued ASU 2013-01 “Balance Sheet (Topic 210) Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). The amendments in ASU 2013-01 clarify which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. ASU 2013-01 addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to the financial statement users. In choosing to narrow the scope of the offsetting disclosures, the FASB determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under International Financial Reporting Standards (“IFRS”). The amendments in ASU 2013-01 are effective for fiscal years beginning on or after January 1, 2013. Retrospective application is required for any period presented that begins before the entity’s initial application of the new requirements. The adoption of ASU 2013-01 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company. See Note 12, Financial Derivatives, for further information.

 

In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income (Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company. See Note 21, Accumulated Other Comprehensive Income (Loss), for further information.

Acquisition of Alpine Access, Inc.
Acquisition of Alpine Access, Inc.

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 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 at-home 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 were 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 years ended December 31, 2012 and 2011. 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 and 2011 (in thousands):

 

     Years Ended December 31,  
     2012      2011  

Revenues

   $ 1,190,150       $ 1,272,890   

Income from continuing operations, net of taxes

   $ 37,352       $ 46,324   

Income from continuing operations per common share:

     

Basic

   $ 0.87       $ 1.06   

Diluted

   $ 0.87       $ 1.06   

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 and January 1, 2011, 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 2011) (in thousands):

 

     Years Ended December 31,  
     2013      2012  

Severance costs: (1)

     

Americas

   $ 526       $ —     
  

 

 

    

 

 

 
     526         —     

Severance costs: (2)

     

Americas

     985         591   

Corporate

     159         377   
  

 

 

    

 

 

 
     1,144         968   

Transaction and integration costs: (2)

     

Corporate

     444         3,793   
  

 

 

    

 

 

 
     444         3,793   
  

 

 

    

 

 

 

Total merger and integration costs

   $ 2,114       $ 4,761   
  

 

 

    

 

 

 

 

(1) 

Included in “Direct salaries and related costs” in the accompanying Consolidated Statements of Operations.

 

(2) 

Included in “General and administrative” costs in the accompanying Consolidated Statements of Operations.

Discontinued Operations
Discontinued Operations

Note 3. Discontinued Operations

The results of discontinued operations, which consist of the operations in Spain and Argentina, were as follows (none in 2013) (in thousands):

 

     Years Ended December 31,  
     2012     2011  

Revenues

   $ 10,102      $ 39,341   
  

 

 

   

 

 

 

(Loss) from discontinued operations before income taxes

   $ (820   $ (4,532

Income taxes (1) 

     —          —     
  

 

 

   

 

 

 

(Loss) from discontinued operations, net of taxes

   $ (820   $ (4,532
  

 

 

   

 

 

 

(Loss) on sale of discontinued operations before income taxes

   $ (10,707   $ 559   

Income taxes (1) 

     —          —     
  

 

 

   

 

 

 

(Loss) on sale of discontinued operations, net of taxes

   $ (10,707   $ 559   
  

 

 

   

 

 

 

 

(1) 

There were no income taxes as any tax benefit from the losses would be offset by a valuation allowance.

Sale of Spanish Operations in 2012

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, with annual revenues of approximately $39.3 million in 2011, 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 are no material post-closing obligations.

During 2011, the Company recorded an impairment of $0.8 million related to the write-down of property and equipment, primarily leasehold improvements and software, in conjunction with the classification of the Spanish operations as held for sale. The impairment charges represented the amount by which the carrying value exceeded the fair value of these assets, as defined in ASC 820, and are included in discontinued operations in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011.

The Company reflected the operating results related to the Spanish operations as discontinued operations in the accompanying Consolidated Statements of Operations for the years ended December 31, 2012 and 2011. Cash flows from discontinued operations are included in the accompanying Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011. This business was historically reported by the Company as part of the EMEA segment.

Sale of Argentine Operations in 2010

In December 2010, the Board, upon the recommendation of its Finance Committee, sold its operations in Argentina (the “Argentine operations”). During the year ended December 31, 2011, the Company reversed the accrued liability related to the expiration of the indemnification to the purchaser for the possible loss of a specific client business, which reduced the net loss on sale of the Argentine operations by $0.6 million. There was no related income tax effect.

Costs Associated with Exit or Disposal Activities
Costs Associated with Exit or Disposal Activities

Note 4. Costs Associated with Exit or Disposal Activities

Fourth Quarter 2011 Exit Plan

During 2011, the Company announced a plan to rationalize seats in certain U.S. sites and close certain locations in EMEA (the “Fourth Quarter 2011 Exit Plan”). The details are described below, by segment.

Americas

During 2011, as part of an on-going effort to streamline excess capacity related to the integration of the ICT Group, Inc. (“ICT”) acquisition and align it with the needs of the market, the Company announced a plan to rationalize approximately 900 seats in the U.S., some of which were revenue generating, with plans to migrate the associated revenues to other locations within the U.S. Approximately 300 employees were affected and the Company has completed the actions associated with the Fourth Quarter 2011 Exit Plan in the Americas.

The major costs incurred as a result of these actions are program transfer costs, facility-related costs (primarily consisting of those costs associated with the real estate leases), and impairments of long-lived assets (primarily leasehold improvements and equipment) estimated at $1.9 million as of December 31, 2013 ($1.9 million as of December 31, 2012). The Company recorded $0.5 million of the costs associated with these actions as non-cash impairment charges included in “Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011, while approximately $1.4 million represents cash expenditures for program transfer and facility-related costs, including obligations under the leases, the last of which ends in February 2017. The Company has paid $0.9 million in cash through December 31, 2013 under the Fourth Quarter 2011 Exit Plan in the Americas.

 

The following tables summarize the accrued liability associated with the Americas Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges for the years ended December 31, 2013 and 2012 (none in 2011) (in thousands):

 

     Beginning
Accrual at
January 1,
2013
     Charges (Reversals)
for the Year Ended
December 31,
2013
     Cash
Payments
    Other
Non-Cash
Changes
     Ending Accrual at
December 31,
2013
 

Lease obligations and facility exit costs

   $ 682       $ —         $ (170   $ —         $ 512   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     Beginning
Accrual at
January 1,
2012
     Charges (Reversals)
for the Year Ended
December 31,
2012 (1)
     Cash
Payments
    Other
Non-Cash
Changes
     Ending Accrual at
December 31,
2012
 

Lease obligations and facility exit costs

   $ —         $ 1,365       $ (683   $ —         $ 682   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

During 2012, the Company recorded lease obligations and facility exit costs, which are included in “General and administrative” costs in the accompanying Consolidated Statement of Operations.

EMEA

During 2011, to improve the Company’s overall profitability in the EMEA region, the Company committed to close a customer contact management center in South Africa and a customer contact management center in Ireland, as well as some capacity rationalization in the Netherlands, all components of the EMEA segment. Through these actions, the Company expects to improve its cost structure in the EMEA region by optimizing its capacity utilization. While the Company migrated approximately $3.2 million of annualized call volumes of the Ireland facility to other facilities within EMEA, the Company did not migrate the remaining call volume in Ireland or any of the annualized revenue from the Netherlands or South Africa facilities, which was $18.8 million for 2011, to other facilities within the region. The number of seats rationalized across the EMEA region approximated 900 with approximately 500 employees affected by the actions. The Company closed these facilities and substantially completed the actions associated with the Fourth Quarter 2011 Exit Plan in EMEA on September 30, 2012.

The major costs incurred as a result of these actions are facility-related costs (primarily consisting of those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and equipment) and severance-related costs estimated at $6.7 million as of December 31, 2013 ($6.7 million as of December 31, 2012). The Company recorded $0.5 million of the costs associated with these actions as non-cash impairment charges included in “Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011, while approximately $6.2 million represents cash expenditures for severance and related costs and facility-related costs, primarily rent obligations paid through the remainder of the noncancelable term of the leases, the last of which ended in March 2013. The Company has paid $5.9 million in cash through December 31, 2013 under the Fourth Quarter 2011 Exit Plan in EMEA.

 

The following tables summarize the accrued liability associated with EMEA’s Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges (in thousands):

 

     Beginning
Accrual at
January 1,
2013
     Charges
(Reversals)
for the Year
Ended
December 31,
2013 (1)
    Cash
Payments
    Other
Non-Cash
Changes (2)
     Ending
Accrual at
December 31,
2013
 

Lease obligations and facility exit costs

   $ —         $ —        $ —        $ —         $ —     

Severance and related costs

     187         (56     (8     8         131   

Legal-related costs

     10         —          (10     —           —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
   $ 197       $ (56   $ (18   $ 8       $ 131   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

     Beginning
Accrual at
January 1,
2012
     Charges
(Reversals)
for the Year
Ended
December 31,
2012 (1)
    Cash
Payments
    Other
Non-Cash
Changes (2)
    Ending
Accrual at
December 31,
2012
 

Lease obligations and facility exit costs

   $ 577       $ (568   $ (6   $ (3   $ —     

Severance and related costs

     4,470         857        (5,134     (6     187   

Legal-related costs

     13         89        (91     (1     10   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 5,060       $ 378      $ (5,231   $ (10   $ 197   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     Beginning
Accrual at
January 1,
2011
     Charges
(Reversals)
for the Year
Ended
December 31,
2011 (1)
     Cash
Payments
    Other
Non-Cash
Changes (2)
    Ending
Accrual at
December 31,
2011
 

Lease obligations and facility exit costs

   $ —         $ 587       $ —        $ (10   $ 577   

Severance and related costs

     —           5,185         (653     (62     4,470   

Legal-related costs

     —           21         (8     —          13   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
   $ —         $ 5,793       $ (661   $ (72   $ 5,060   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) 

During 2013, the Company reversed accruals related to the final settlement of severance and related costs and legal-related costs for the Netherlands site, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. During 2012, the Company reversed accruals related to the final settlement of lease obligations and facility exit costs for the Ireland site, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. Additionally, during 2012, the Company recorded additional severance and related costs and legal-related costs subsequent to the charges recorded in 2011 as part of the initiation of the Fourth Quarter 2011 Exit Plan in EMEA.

 

(2) 

Effect of foreign currency translation.

The Company charged $0.7 million to “Direct salaries and related costs” for severance and related costs and $(0.3) million to “General and administrative” costs for lease obligations and facility exit costs, severance and related costs and legal-related costs in the accompanying Consolidated Statement of Operations for the year ended December 31, 2012. The Company charged $3.5 million to “Direct salaries and related costs” for severance and related costs and $2.3 million to “General and administrative” costs for lease obligations and facility exit costs, severance and related costs and legal-related costs in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011.

Fourth Quarter 2010 Exit Plan

During 2010, in furtherance of the Company’s long-term goals to manage and optimize capacity utilization, the Company committed to and closed a customer contact management center in the United Kingdom and a customer contact management center in Ireland, both components of the EMEA segment (the “Fourth Quarter 2010 Exit Plan”). These actions were substantially completed by January 31, 2011.

The major costs incurred as a result of these actions were facility-related costs (primarily consisting of those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and equipment) and severance-related costs totaling $2.5 million as of December 31, 2013 ($2.2 million as of December 31, 2012). The Company recorded $0.2 million of the costs associated with these actions as non-cash impairment charges, while approximately $2.1 million represents cash expenditures for facility-related costs, primarily rent obligations to be paid through the remainder of the lease terms, the last of which ends in March 2014, and $0.2 million represents cash expenditures for severance-related costs. The Company has paid $1.7 million in cash through December 31, 2013 under the Fourth Quarter 2010 Exit Plan.

 

The following tables summarize the accrued liability associated with the Fourth Quarter 2010 Exit Plan’s exit or disposal activities and related charges (in thousands):

 

     Beginning
Accrual at
January 1,
2013
     Charges
(Reversals)
for the Year
Ended
December 31,
2013 (1)
     Cash
Payments
    Other
Non-Cash
Changes (2)
    Ending
Accrual at
December 31,
2013
 

Lease obligations and facility exit costs

   $ 539       $ 318       $ (339   $ 20      $ 538   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     Beginning
Accrual at
January 1,
2012
     Charges
(Reversals)
for the Year
Ended
December 31,
2012
     Cash
Payments
    Other
Non-Cash
Changes (2)
    Ending
Accrual at
December 31,
2012
 

Lease obligations and facility exit costs

   $ 835       $ —         $ (300   $ 4      $ 539   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     Beginning
Accrual at
January 1,
2011
     Charges
(Reversals)
for the Year
Ended
December 31,
2011 (1)
     Cash
Payments
    Other
Non-Cash
Changes  (2)
    Ending
Accrual at
December 31,
2011
 

Lease obligations and facility exit costs

   $ 1,711       $ 70       $ (886   $ (60   $ 835   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) 

During 2013, the Company recorded additional lease obligations and facility exit costs for the Ireland site’s lease restoration. During 2011, the Company recorded additional lease obligations and facility exit costs. These costs are included in “General and administrative” costs in the accompanying Consolidated Statements of Operations.

 

(2) 

Effect of foreign currency translation.

Third Quarter 2010 Exit Plan

During 2010, consistent with the Company’s long-term goals to manage and optimize capacity utilization, the Company closed or committed to close four customer contact management centers in The Philippines and consolidated or committed to consolidate leased space in our Wilmington, Delaware and Newtown, Pennsylvania locations (the “Third Quarter 2010 Exit Plan”). These actions were substantially completed by January 31, 2011.

The major costs incurred as a result of these actions were impairments of long-lived assets (primarily leasehold improvements) and facility-related costs (primarily consisting of those costs associated with the real estate leases) estimated at $10.5 million as of December 31, 2013 ($10.5 million as of December 31, 2012), all of which are in the Americas segment. The Company recorded $3.8 million of the costs associated with these actions as non-cash impairment charges, while approximately $6.7 million represents cash expenditures for facility-related costs, primarily rent obligations to be paid through the remainder of the lease terms, the last of which ends in February 2017. The Company has paid $4.9 million in cash through December 31, 2013 under the Third Quarter 2010 Exit Plan.

 

The following tables summarize the accrued liability associated with the Third Quarter 2010 Exit Plan’s exit or disposal activities and related charges (in thousands):

 

     Beginning
Accrual at
January 1,
2013
     Charges
(Reversals)
for the Year
Ended
December 31,
2013
    Cash
Payments
    Other
Non-Cash
Changes (2)
    Ending
Accrual at
December 31,
2013
 

Lease obligations and facility exit costs

   $ 2,551       $ —        $ (755   $ (3   $ 1,793   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Beginning
Accrual at
January 1,
2012
     Charges
(Reversals)
for the Year
Ended
December 31,
2012 (1)
    Cash
Payments
    Other
Non-Cash
Changes
    Ending
Accrual at
December 31,
2012
 

Lease obligations and facility exit costs

   $ 3,427       $ 61      $ (937   $ —        $ 2,551   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Beginning
Accrual at
January 1,
2011
     Charges
(Reversals)
for the Year
Ended
December 31,
2011 (1)
    Cash
Payments
    Other
Non-Cash
Changes (2)
    Ending
Accrual at
December 31,
2011
 

Lease obligations and facility exit costs

   $ 6,141       $ (276   $ (2,443   $ 5      $ 3,427   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

During 2012, the Company recorded additional lease obligations due to an unanticipated lease termination penalty, which are included in “General and administrative” costs in the accompanying Consolidated Statement of Operations. During 2011, the Company reversed accruals related to lease termination costs due to an unanticipated sublease at one of the sites, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. This amount was partially offset by additional lease termination costs for one of the sites.

 

(2) 

Effect of foreign currency translation.

ICT Restructuring Plan

As of February 2, 2010, the Company assumed the liabilities of ICT Group, Inc. (“ICT”), including restructuring accruals in connection with ICT’s plans to reduce its overall cost structure and adapt to changing economic conditions by closing various customer contact management centers in Europe and Canada prior to the end of their existing lease terms (the “ICT Restructuring Plan”). These remaining restructuring accruals, which related to ongoing lease and other contractual obligations, were paid in December 2011. Since acquiring ICT in February 2010, the Company has paid $1.9 million in cash through December 31, 2011, the date at which the ICT Restructuring Plan concluded.

The following table summarizes the accrued liability associated with the ICT Restructuring Plan’s exit or disposal activities (none in 2013 and 2012) (in thousands):

 

     Beginning
Accrual at
January 1,
2011
     Charges
(Reversals)
for the Year
Ended
December 31,
2011 (1)
    Cash
Payments
    Other
Non-Cash
Changes (2)
    Ending
Accrual at
December 31,
2011
 

Lease obligations and facility exit costs

   $ 1,462       $ (276   $ (1,139   $ (47   $ —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

During 2011, the Company reversed accruals related to the final settlement of termination costs, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations.

 

(2) 

Effect of foreign currency translation.

 

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, 2013 and 2012 (in thousands):

 

    Americas
Fourth
Quarter 2011
Exit Plan
    EMEA
Fourth
Quarter 2011
Exit Plan
    Fourth
Quarter
2010 Exit
Plan
    Third
Quarter
2010 Exit
Plan
    ICT
Restructuring
Plan
    Total  

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2012

           

Short-term accrued restructuring liability (1) 

  $ 138      $ 197      $ 448      $ 618      $ —        $ 1,401   

Long-term accrued restructuring liability (2)

    544        —          91        1,933        —          2,568   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending accrual at December 31, 2012

  $ 682      $ 197      $ 539      $ 2,551      $ —        $ 3,969   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

Fair Value
Fair Value

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, 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 in “Deferred charges and other assets” (1)

     11         11         —           —     

Foreign currency forward and option contracts (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 (6)

     5,063         —           5,063         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 103,063       $ —         $ 103,063       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

In the accompanying Consolidated Balance Sheet.

 

(2) 

Included in “Other current assets” 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.

 

(6) 

Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.

 

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, 2012 Using:  
     Balance at      Quoted Prices
in Active
Markets For
Identical Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
 
     December 31, 2012      Level (1)      Level (2)      Level (3)  

Assets:

           

Money market funds and open-end mutual funds included in “Cash and cash equivalents” (1)

   $ 7,598       $ 7,598       $ —         $ —     

Money market funds and open-end mutual funds in “Deferred charges and other assets” (1)

     11         11         —           —     

Foreign currency forward and option contracts (2)

     1,994         —           1,994         —     

Foreign currency forward and option contracts (3)

     14         —           14         —     

Equity investments held in a rabbi trust for the Deferred Compensation Plan (4)

     3,212         3,212         —           —     

Debt investments held in a rabbi trust for the Deferred Compensation Plan (4)

     2,049         2,049         —           —     

Guaranteed investment certificates (5)

     80         —           80         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 14,958       $ 12,870       $ 2,088       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Long-term debt (6)

   $ 91,000       $ —         $ 91,000       $ —     

Foreign currency forward and option contracts (7)

     974         —           974         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 91,974       $ —         $ 91,974       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

In the accompanying Consolidated Balance Sheet.

 

(2) 

Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.

 

(3) 

Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.

 

(4) 

Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13, Investments Held in Rabbi Trust.

 

(5) 

Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet.

 

(6) 

The carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. See Note 20, Borrowings.

 

(7) 

Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.

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, 2012 (none in 2013).

The following table summarizes the total impairment losses related to nonrecurring fair value measurements of certain assets (no liabilities) subject to the requirements of ASC 820 (in thousands) (none in 2013):

 

     Total Impairment (Loss)  
     Years Ended December 31,  
     2012     2011  

Americas:

    

Property and equipment, net (1)

   $ (355   $ (1,244

EMEA:

    

Property and equipment, net (1)

     —          (474
  

 

 

   

 

 

 
     (355     (1,718

Discontinued Operations:

    

EMEA — Property and equipment, net (1), (2)

     —          (843
  

 

 

   

 

 

 
   $ (355   $ (2,561
  

 

 

   

 

 

 

 

(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.

 

(2) 

See Note 3, Discontinued Operations, for additional information regarding the impairments related to discontinued operations.

 

During 2012, the Company determined that certain long-lived assets were no longer being used and were disposed of resulting in an impairment charge of $0.4 million.

During 2011, in connection with the closure of certain customer contact management centers under the Third Quarter 2010 and the Fourth Quarter 2010 Exit Plans as discussed more fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded impairment charges of $1.7 million.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

Note 6. Goodwill and Intangible Assets

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 following table presents the Company’s purchased intangible assets as of December 31, 2012 (in thousands):

 

     Gross Intangibles      Accumulated
Amortization
    Net Intangibles      Weighted Average
Amortization
Period (years)
 

Customer relationships

   $ 104,483       $ (23,552   $ 80,931         8   

Trade name

     11,600         (1,451     10,149         8   

Non-compete agreements

     1,229         (681     548         2   

Proprietary software

     850         (810     40         2   

Favorable lease agreement

     450         (81     369         2   
  

 

 

    

 

 

   

 

 

    
   $ 118,612       $ (26,575   $ 92,037         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, 2013, is as follows (in thousands):

 

Years Ending December 31,

   Amount  

2014

   $ 14,495   

2015

     14,138   

2016

     14,138   

2017

     14,138   

2018

     7,640   

2019 and thereafter

     11,506   

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Changes in goodwill for the year ended December 31, 2012 consist of the following (in thousands):

 

     January 1, 2012      Acquisitions (1)      Impairments      Effect of Foreign
Currency
     December 31,
2012
 

Americas

   $ 121,342       $ 80,766       $ —         $ 2,123       $ 204,231   

EMEA

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 121,342       $ 80,766       $ —         $ 2,123       $ 204,231   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

See Note 2, Acquisition of Alpine Access, Inc., for further information.

Concentrations of Credit Risk
Concentrations of Credit Risk

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.

Receivables, Net
Receivables, Net

Note 8. Receivables, Net

Receivables, net consist of the following (in thousands):

 

     December 31,  
     2013     2012  

Trade accounts receivable

   $ 266,048      $ 248,281   

Income taxes receivable

     1,377        2,143   

Other

     2,478        2,290   
  

 

 

   

 

 

 
     269,903        252,714   

Less: Allowance for doubtful accounts

     4,987        5,081   
  

 

 

   

 

 

 
   $ 264,916      $ 247,633   
  

 

 

   

 

 

 

Allowance for doubtful accounts as a percent of trade receivables

     1.9     2.0
  

 

 

   

 

 

 
Prepaid Expenses
Prepaid Expenses

Note 9. Prepaid Expenses

Prepaid expenses consist of the following (in thousands):

 

     December 31,  
     2013      2012  

Prepaid maintenance

   $ 5,852       $ 4,625   

Prepaid rent

     3,009         2,306   

Prepaid insurance

     2,631         1,402   

Prepaid other

     4,218         4,037   
  

 

 

    

 

 

 
   $ 15,710       $ 12,370   
  

 

 

    

 

 

 
Other Current Assets
Other Current Assets

Note 10. Other Current Assets

Other current assets consist of the following (in thousands):

 

     December 31,  
     2013      2012  

Deferred tax assets (Note 22)

   $ 7,961       $ 8,143   

Financial derivatives (Note 12)

     2,240         1,994   

Investments held in rabbi trust (Note 13)

     6,421         5,261   

Value added tax certificates (Note 11)

     2,066         2,548   

Other current assets

     1,984         2,071   
  

 

 

    

 

 

 
   $ 20,672       $ 20,017   
  

 

 

    

 

 

 
Value Added Tax Receivables
Value Added Tax Receivables

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,  
     2013      2012  

VAT included in:

     

Other current assets (Note 10)

   $ 2,066       $ 2,548   

Deferred charges and other assets (Note 15)

     5,406         7,214   
  

 

 

    

 

 

 
   $ 7,472       $ 9,762   
  

 

 

    

 

 

 

During the years ended December 31, 2013, 2012 and 2011, 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,  
     2013      2012      2011  

Write-down of value added tax receivables

   $ 143       $ 546       $ 504   
  

 

 

    

 

 

    

 

 

 
Financial Derivatives
Financial Derivatives

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)” (“AOCI”) in the accompanying Consolidated Balance Sheets are as follows (in thousands):

 

      December 31, 2013     December 31, 2012  

Deferred gains (losses) in AOCI

   $ (2,704   $ (512

Tax on deferred gains (losses) in AOCI

     169        (58
  

 

 

   

 

 

 

Deferred gains (losses) in AOCI, net of taxes

   $ (2,535   $ (570
  

 

 

   

 

 

 

Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months

   $ (2,704  
  

 

 

   

 

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 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 and 2011. 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, 2013      As of December 31, 2012  

Contract Type

   Notional
Amount in
USD
     Settle Through
Date
     Notional
Amount in
USD
     Settle Through
Date
 

Cash flow hedges: (1)

           

Options:

           

Philippine Pesos

   $ 59,000         December 2014       $ 71,000         September 2013   

Forwards:

           

Philippine Pesos

     63,300         July 2014         5,000         August 2013   

Costa Rican Colones

     41,600         October 2014         60,750         December 2013   

Hungarian Forints

     550         January 2014         4,744         January 2014   

Romanian Leis

     619         January 2014         6,895         January 2014   

Net investment hedges: (2)

           

Forwards:

           

Euros

     32,657         September 2014         —           —     

Non-designated hedges: (3)

           

Forwards

     59,207         June 2014         41,799         June 2013   

 

(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.

As of December 31, 2013, the maximum amount of loss due to credit risk that the Company would incur if parties to the financial instruments that make up the concentration failed to perform according to the terms of the contracts was $2.2 million, based on the gross fair value of the financial instruments.

 

Master netting agreements exist with each respective counterparty used to transact foreign exchange derivatives. These agreements allow the Company to net settle transactions of the same currency in a single transaction. 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. However, 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, 2013      December 31, 2012  
     Fair Value      Fair Value  

Derivatives designated as cash flow hedging instruments under ASC 815:

     

Foreign currency forward and option contracts (1) 

   $ 862       $ 1,080   

Foreign currency forward and option contracts (2)

     —           14   
  

 

 

    

 

 

 
     862         1,094   

Derivatives not designated as hedging instruments under ASC 815:

     

Foreign currency forward contracts (1)

     1,378         914   
  

 

 

    

 

 

 

Total derivative assets

   $ 2,240       $ 2,008   
  

 

 

    

 

 

 

 

     Derivative Liabilities  
     December 31, 2013      December 31, 2012  
     Fair Value      Fair Value  

Derivatives designated as cash flow hedging instruments under ASC 815:

     

Foreign currency forward and option contracts (3) 

   $ 2,997       $ 904   

Foreign currency forward and option contracts (4)

     —           8   
  

 

 

    

 

 

 
     2,997         912   

Derivatives designated as a net investment hedge under ASC 815:

     

Foreign currency forward contracts (3)

   $ 1,720       $ —     
  

 

 

    

 

 

 
     4,717         912   

Derivatives not designated as hedging instruments under ASC 815:

     

Foreign currency forward contracts (3)

     346         62   
  

 

 

    

 

 

 

Total derivative liabilities

   $ 5,063       $ 974   
  

 

 

    

 

 

 

 

(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.

 

(4) 

Included in “Other long-term 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, 2013, 2012 and 2011 (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,  
    2013     2012     2011     2013     2012     2011     2013     2012     2011  

Derivatives designated as cash flow hedging instruments under ASC 815:

                 

Foreign currency forward and option contracts

  $ (2,823   $ 4,400      $ (1,483   $ (666   $ 4,156      $ 1,853      $ 119      $ 17      $ 2   

Derivatives designated as net investment hedging instruments under ASC 815:

                 

Foreign currency forward contracts

    (1,720     —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency forward and option contracts

  $ (4,543   $ 4,400      $ (1,483   $ (666   $ 4,156      $ 1,853      $ 119      $ 17      $ 2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Gain (Loss) Recognized  in
“Other income and (expense)”
on Derivatives
 
     December 31,  
     2013      2012     2011  

Derivatives not designated as hedging instruments under ASC 815:

       

Foreign currency forward contracts

   $ 4,216       $ (295   $ (1,444
  

 

 

    

 

 

   

 

 

 
Investments Held in Rabbi Trust
Investments Held in Rabbi Trust

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, 2013      December 31, 2012  
     Cost      Fair Value      Cost      Fair Value  

Mutual funds

   $ 4,749       $ 6,421       $ 4,812       $ 5,261   
  

 

 

    

 

 

    

 

 

    

 

 

 

The mutual funds held in the rabbi trust were 82% equity-based and 18% debt-based as of December 31, 2013. Net investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011 consists of the following (in thousands):

 

     Years Ended
December  31,
 
     2013     2012     2011  

Gross realized gains from sale of trading securities

   $ 160      $ 163      $ 201   

Gross realized (losses) from sale of trading securities

     (10     (1     (20

Dividend and interest income

     279        129        69   

Net unrealized holding gains (losses)

     568        312        (383
  

 

 

   

 

 

   

 

 

 

Net investment income (losses)

   $ 997      $ 603      $ (133
  

 

 

   

 

 

   

 

 

Property and Equipment
Property and Equipment

Note 14. Property and Equipment

Property and equipment consist of the following (in thousands):

 

     December 31,  
     2013      2012  

Land

   $ 4,144       $ 4,217   

Buildings and leasehold improvements

     92,652         75,002   

Equipment, furniture and fixtures

     287,728         269,069   

Capitalized software development costs

     7,752         7,274   

Transportation equipment

     624         698   

Construction in progress

     1,909         4,035   
  

 

 

    

 

 

 
     394,809         360,295   

Less: Accumulated depreciation

     277,260         259,000   
  

 

 

    

 

 

 
   $ 117,549       $ 101,295   
  

 

 

    

 

 

 

Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the accompanying Consolidated Balance Sheets as of December 31, 2013 and 2012 was as follows (in thousands):

 

     December 31,  
     2013      2012  

Capitalized internally developed software costs, net

   $   2,599       $   1,361   
  

 

 

    

 

 

 

Sale of Land and Building Located in Minot, North Dakota

In June 2011, the Company sold the land and building located in Minot, North Dakota, which were held for sale, for cash of $3.9 million (net of selling costs of $0.2 million) resulting in a net gain on sale of $3.7 million. The carrying value of these assets of $0.8 million was offset by the related deferred grants of $0.6 million. The net gain on the sale of $3.7 million is included in “Net gain on disposal of property and equipment” in the accompanying Consolidated Statement of Operations for 2011.

Deferred Charges and Other Assets
Deferred Charges and Other Assets

Note 15. Deferred Charges and Other Assets

Deferred charges and other assets consist of the following (in thousands):

 

     December 31,  
     2013      2012  

Non-current deferred tax assets (Note 22)

   $   13,048       $   13,923   

Non-current mandatory tax security deposits (Note 22)

     17,317         14,989   

Non-current value added tax certificates (Note 11)

     5,406         7,214   

Deposits

     3,169         3,408   

Other

     4,632         4,250   
  

 

 

    

 

 

 
   $ 43,572       $ 43,784   
  

 

 

    

 

 

 
Accrued Employee Compensation and Benefits
Accrued Employee Compensation and Benefits

Note 16. Accrued Employee Compensation and Benefits

Accrued employee compensation and benefits consist of the following (in thousands):

 

     December 31,  
     2013      2012  

Accrued compensation

   $ 32,003       $ 25,258   

Accrued vacation

     17,055         14,709   

Accrued bonus and commissions

     14,265         16,374   

Accrued employment taxes

     12,448         10,225   

Other

     5,293         6,537   
  

 

 

    

 

 

 
   $ 81,064       $ 73,103   
  

 

 

    

 

 

 
Deferred Revenue
Deferred Revenue

Note 17. Deferred Revenue

The components of deferred revenue consist of the following (in thousands):

 

     December 31,  
     2013      2012  

Future service

   $ 25,102       $ 25,074   

Estimated potential penalties and holdbacks

     9,923         9,209   
  

 

 

    

 

 

 
   $ 35,025       $ 34,283   
  

 

 

    

 

 

 
Other Accrued Expenses and Current Liabilities
Other Accrued Expenses and Current Liabilities

Note 18. Other Accrued Expenses and Current Liabilities

Other accrued expenses and current liabilities consist of the following (in thousands):

 

     December 31,  
     2013      2012  

Customer deposits

   $ 2,418       $ 7,350   

Accrued restructuring (Note 4)

     1,245         1,401   

Accrued legal and professional fees

     3,220         4,231   

Accrued telephone charges

     1,475         1,943   

Accrued roadside assistance claim costs

     2,341         2,288   

Accrued rent

     2,057         1,367   

Foreign currency forward and option contracts (Note 12)

     5,063         966   

Other

     12,574         11,774   
  

 

 

    

 

 

 
   $ 30,393       $ 31,320   
  

 

 

    

 

 

 
Deferred Grants
Deferred Grants

Note 19. Deferred Grants

The components of deferred grants consist of the following (in thousands):

 

     December 31,  
     2013     2012  

Property grants

   $ 6,643      $ 7,270   

Employment grants

     146        337   
  

 

 

   

 

 

 

Total deferred grants

     6,789        7,607   

Less: Property grants — short-term (1) 

     (6     —     

Less: Employment grants — short-term (1)

     (146     —     
  

 

 

   

 

 

 

Total long-term deferred grants (2) 

   $ 6,637      $ 7,607   
  

 

 

   

 

 

 

 

(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
Borrowings

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 (the “2010 Credit Agreement”) 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 Company borrowed $108.0 million under the 2012 Credit Agreement’s revolving credit facility on August 20, 2012 in connection with the acquisition of Alpine on such date. See Note 2, Acquisition of Alpine Access, Inc., for further information.

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,  
     2013      2012  

Revolving credit facility

   $ 98,000       $ 91,000   

Less: Current portion

     —           —     
  

 

 

    

 

 

 

Total long-term debt

   $ 98,000       $ 91,000   
  

 

 

    

 

 

 

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. In addition, the Company pays a quarterly commitment fee on the 2012 Credit Agreement.

 

The 2012 Credit Agreement had an average daily utilization of $102.5 million during 2013 and $96.8 million for the outstanding period during 2012 (none in 2011). During the years ended December 31, 2013 and 2012, the related interest expense, excluding amortization of deferred loan fees, under our credit agreements was $1.5 million and $0.5 million, respectively, which represented weighted average interest rates of 1.5% and 1.5%, respectively (none in 2011).

Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

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
(Loss) on Net
Investment
Hedge
    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, 2011

   $ 13,992      $ (2,565   $ 1,189      $ 2,146      $ 346      $ 15,108   

Pre-tax amount

     (7,613     —          (184     (1,482     153        (9,126

Tax (provision) benefit

     —          —          34        759        —          793   

Reclassification of (gain) loss to net income

     (389     —          (55     (1,855     (40     (2,339

Foreign currency translation

     5        —          1        (6     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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):

 

     Year Ended
December 31, 2013
   

Statement of Operations Location

Actuarial Gain (Loss) Related to Pension Liability: (1)

    

Pre-tax amount

   $ 60      Direct salaries and related costs

Tax (provision) benefit

     (19   Income taxes
  

 

 

   

Reclassification to net income

     41     

Gain (Loss) on Cash Flow Hedging Instruments: (2)

    

Pre-tax amount

     (547   Revenues

Tax (provision) benefit

     226      Income taxes
  

 

 

   

Reclassification to net income

     (321  

Gain (Loss) on Post Retirement Obligation: (1)

    

Pre-tax amount

     54      General and administrative

Tax (provision) benefit

     —        Income taxes
  

 

 

   

Reclassification to net income

     54     
  

 

 

   

Total reclassification of gain (loss) to net income

   $ (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 subsidiaries are considered to be indefinitely invested and no provision for income taxes on those earnings or translation adjustments have been provided.

Income Taxes
Income Taxes

Note 22. Income Taxes

The income from continuing operations before income taxes includes the following components (in thousands):

 

     Years Ended December 31,  
     2013      2012     2011  

Domestic (U.S., state and local)

   $ 5,544       $ (10,430