SYKES ENTERPRISES INC, 10-K filed on 2/29/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Feb. 21, 2012
Jun. 30, 2011
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
SYKES ENTERPRISES INC 
 
 
Entity Central Index Key
0001010612 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 979,138,197 
Entity Common Stock, Shares Outstanding
 
44,097,423 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 211,122 
$ 189,829 
Receivables, net
229,702 
248,842 
Prepaid expenses
11,540 
10,704 
Other current assets
20,120 
22,913 
Assets held for sale, discontinued operations
9,590 
Total current assets
482,074 
472,288 
Property and equipment, net
91,080 
113,703 
Goodwill
121,342 
122,303 
Intangibles, net
44,472 
52,752 
Deferred charges and other assets
30,162 
33,554 
Total assets
769,130 
794,600 
Current liabilities:
 
 
Accounts payable
23,109 
30,635 
Accrued employee compensation and benefits
62,452 
65,267 
Current deferred income tax liabilities
663 
3,347 
Income taxes payable
423 
2,605 
Deferred revenue
34,319 
31,255 
Other accrued expenses and current liabilities
21,191 
25,621 
Liabilities held for sale, discontinued operations
7,128 
Total current liabilities
149,285 
158,730 
Deferred grants
8,563 
10,807 
Long-term income tax liabilities
26,475 
28,876 
Other long-term liabilities
11,241 
12,992 
Total liabilities
195,564 
211,405 
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; 44,306 and 47,066 shares issued, respectively
443 
471 
Additional paid-in capital
281,157 
302,911 
Retained earnings
291,803 
265,676 
Accumulated other comprehensive income
4,436 
15,108 
Treasury stock at cost: 299 shares and 81 shares, respectively
(4,273)
(971)
Total shareholders' equity
573,566 
583,195 
Total liabilities and shareholders' equity
$ 769,130 
$ 794,600 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [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
44,306 
47,066 
Treasury stock, shares
299 
81 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements of Operations [Abstract]
 
 
 
Revenues
$ 1,169,267 
$ 1,121,911 
$ 769,353 
Operating expenses:
 
 
 
Direct salaries and related costs
763,930 
715,571 
481,823 
General and administrative
341,586 
366,565 
214,255 
Net (gain) loss on disposal of property and equipment
(3,021)
143 
195 
Net (gain) on insurance settlement
(481)
(1,991)
 
Impairment of goodwill and intangibles
 
362 
1,908 
Impairment of long-lived assets
1,718 
3,280 
 
Total operating expenses
1,103,732 
1,083,930 
698,181 
Income from continuing operations
65,535 
37,981 
71,172 
Other income (expense):
 
 
 
Interest income
1,352 
1,201 
2,287 
Interest (expense)
(1,132)
(4,963)
(302)
Impairment (loss) on investment in SHPS
 
 
(2,089)
Other (expense)
(2,099)
(5,907)
(283)
Total other income (expense)
(1,879)
(9,669)
(387)
Income from continuing operations before income taxes
63,656 
28,312 
70,785 
Income taxes
11,342 
2,197 
26,118 
Income from continuing operations, net of taxes
52,314 
26,115 
44,667 
(Loss) from discontinued operations, net of taxes
(4,532)
(12,893)
(1,456)
Gain (loss) on sale of discontinued operations, net of taxes
559 
(23,495)
 
Net income (loss)
$ 48,341 
$ (10,273)
$ 43,211 
Basic:
 
 
 
Continuing operations
$ 1.15 
$ 0.57 
$ 1.10 
Discontinued operations
$ (0.09)
$ (0.79)
$ (0.04)
Net income (loss) per common share
$ 1.06 
$ (0.22)
$ 1.06 
Diluted:
 
 
 
Continuing operations
$ 1.15 
$ 0.57 
$ 1.09 
Discontinued operations
$ (0.09)
$ (0.79)
$ (0.04)
Net income (loss) per common share
$ 1.06 
$ (0.22)
$ 1.05 
Weighted average shares:
 
 
 
Basic
45,506 
46,030 
40,707 
Diluted
45,607 
46,133 
41,026 
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Beginning Balance at Dec. 31, 2008
$ 384,030 
$ 413 
$ 158,216 
$ 237,188 
$ (10,683)
$ (1,104)
Beginning Balance, shares at Dec. 31, 2008
 
41,271 
 
 
 
 
Issuance of common stock
3,168 
3,166 
 
 
 
Issuance of common stock, shares
 
291 
 
 
 
 
Stock-based compensation expense
5,158 
 
5,158 
 
 
 
Excess tax benefit (provision) from stock-based compensation
878 
 
878 
 
 
 
Vesting of common stock and restricted stock under equity award plans
(1,080)
(904)
 
 
(179)
Vesting of common stock and restricted stock under equity award plans, shares
 
255 
 
 
 
 
Repurchase of common stock
(3,193)
 
 
 
 
(3,193)
Comprehensive income (loss)
61,713 
 
 
43,211 
18,502 
 
Ending Balance at Dec. 31, 2009
450,674 
418 
166,514 
280,399 
7,819 
(4,476)
Ending Balance, shares at Dec. 31, 2009
 
41,817 
 
 
 
 
Issuance of common stock
37 
 
37 
 
 
 
Issuance of common stock, shares
 
 
 
 
 
Stock-based compensation expense
4,935 
 
4,935 
 
 
 
Excess tax benefit (provision) from stock-based compensation
354 
 
354 
 
 
 
Vesting of common stock and restricted stock under equity award plans
(1,282)
(1,083)
 
 
(201)
Vesting of common stock and restricted stock under equity award plans, shares
 
204 
 
 
 
 
Repurchase of common stock
(5,212)
 
 
 
 
(5,212)
Retirement of treasury stock
 
(6)
(4,462)
(4,450)
 
8,918 
Retirement of treasury stock, shares
 
(558)
 
 
 
 
Issuance of common stock for business acquisition
136,673 
57 
136,616 
 
 
 
Issuance of common stock for business acquisition, shares
 
5,601 
 
 
 
 
Comprehensive income (loss)
(2,984)
 
 
(10,273)
7,289 
 
Ending Balance at Dec. 31, 2010
583,195 
471 
302,911 
265,676 
15,108 
(971)
Ending 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 (provision) from stock-based compensation
(8)
 
(8)
 
 
 
Vesting of common stock and restricted stock under equity award plans
(1,190)
(979)
 
 
(214)
Vesting of common stock and restricted stock under equity award plans, 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 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities:
 
 
 
Net income (loss)
$ 48,341 
$ (10,273)
$ 43,211 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization, net
53,467 
57,932 
28,323 
Impairment losses
2,561 
4,324 
3,997 
Unrealized foreign currency transaction (gains) losses, net
1,216 
(4,918)
4,372 
Stock-based compensation expense
3,582 
4,935 
5,158 
Excess tax (benefit) provision from stock-based compensation
(354)
(878)
Deferred income tax (benefit) provision
(3,955)
(17,142)
10,165 
Net (gain) loss on disposal of property and equipment
(3,035)
232 
197 
Bad debt expense
532 
170 
1,022 
Unrealized (gains) losses on financial instruments, net
4,138 
(1,479)
(437)
(Recovery) of regulatory penalties
(407)
(418)
 
Increase (decrease) in valuation allowance on deferred tax assets
 
102 
(5,807)
Amortization of deferred loan fees
585 
2,918 
268 
Net (gain) on insurance settlement
(481)
(1,991)
 
(Gain) loss on sale of discontinued operations
(559)
29,901 
Other
773 
326 
441 
Changes in assets and liabilities, net of acquisition:
 
 
 
Receivables
8,927 
(10,716)
(9,262)
Prepaid expenses
(1,042)
3,465 
(719)
Other current assets
(3,442)
(4,797)
46 
Deferred charges and other assets
1,630 
2,740 
(2,045)
Accounts payable
(6,898)
(2,174)
(2,186)
Income taxes receivable / payable
(4,529)
(6,180)
6,462 
Accrued employee compensation and benefits
2,450 
(6,601)
2,654 
Other accrued expenses and current liabilities
(2,855)
9,329 
1,336 
Deferred revenue
4,243 
258 
(679)
Other long-term liabilities
(2,636)
(4,527)
1,973 
Net cash provided by operating activities
102,614 
45,062 
87,612 
Cash flows from investing activities:
 
 
 
Capital expenditures
(29,890)
(28,516)
(30,277)
Cash paid for business acquisition, net of cash acquired
 
(77,174)
 
Proceeds from sale of property and equipment
3,973 
49 
216 
Investment in restricted cash
(494)
(187)
(80,002)
Release of restricted cash
396 
80,000 
839 
Cash divested on sale of discontinued operations
 
(14,462)
 
Proceeds from insurance settlement
1,654 
1,991 
 
Net cash (used for) investing activities
(24,361)
(38,299)
(109,224)
Cash flows from financing activities:
 
 
 
Payment of long-term debt
 
(75,000)
 
Proceeds from issuance of long-term debt
 
75,000 
 
Proceeds from issuance of stock
311 
37 
3,168 
Excess tax benefit (provision) from stock-based compensation
(8)
354 
878 
Cash paid for repurchase of common stock
(49,993)
(5,212)
(3,193)
Proceeds from (refunds of) grants
(225)
148 
3,491 
Proceeds from short-term debt
 
 
75,000 
Payments on short-term debt
 
(85,000)
 
Shares repurchased for minimum tax withholding on equity awards
(1,190)
(1,282)
(1,080)
Cash paid for loan fees related to debt
 
(3,035)
(1,427)
Net cash (used for) provided by financing activities
(51,105)
(93,990)
76,837 
Effects of exchange rates on cash
(5,855)
(2,797)
5,578 
Net increase (decrease) in cash and cash equivalents
21,293 
(90,024)
60,803 
Cash and cash equivalents - beginning
189,829 
279,853 
219,050 
Cash and cash equivalents - ending
211,122 
189,829 
279,853 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during period for interest
1,065 
2,924 
1,008 
Cash paid during period for income taxes
24,631 
20,577 
14,660 
Non-cash transactions:
 
 
 
Property and equipment additions in accounts payable
2,434 
2,317 
1,612 
Unrealized gain on postretirement obligation in accumulated other comprehensive income (loss)
113 
70 
276 
Issuance of common stock for business acquisition
 
$ 136,673 
 
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 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, healthcare and other 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, Internet, 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, India 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.

AcquisitionOn February 2, 2010, the Company completed the acquisition of ICT Group, Inc. (“ICT”), pursuant to the Agreement and Plan of Merger, dated October 5, 2009. The Company has reflected the operating results in the Consolidated Statement of Operations since February 2, 2010. See Note 2, Acquisition of ICT, for additional information on the acquisition of this business.

Discontinued Operations — In November 2011, the Company, authorized by the Finance Committee of the Company’s Board of Directors, decided to pursue a buyer for its operations located in Spain (“Spanish operations”) as these operations are no longer consistent with the Company’s strategic direction. These operations met the held for sale criteria as of December 31, 2011, therefore, the Company reflected the assets and liabilities of the Spanish operations as “Assets held for sale, discontinued operations” and “Liabilities held for sale, discontinued operations” in the accompanying Balance Sheet as of December 31, 2011. 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, 2011, 2010 and 2009. Cash flows from discontinued operations are included in the Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009. See Note 3, Discontinued Operations, for additional information on the plan to sell the Spanish operations.

In December 2010, the Company sold its Argentine operations, pursuant to stock purchase agreements, dated December 16, 2010 and December 29, 2010. The Company reflected the operating results related to the Argentine operations as discontinued operations in the Consolidated Statements of Operations for the years ended December 31, 2010 and 2009. Cash flows from discontinued operations are included in the Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009. See Note 3, Discontinued Operations, for additional information on the sale of the Argentine 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 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 Consolidated Financial Statements.

Recognition of Revenue We recognize revenue in accordance with ASC 605 “Revenue Recognition”. We primarily recognize revenues from services as the services are performed, which is based on either a per minute, per call or per transaction 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.

In accordance with ASC 605-25 (“ASC 605-25”) “Revenue Recognition – Multiple-Element Arrangements”, revenue from contracts with multiple-deliverables is allocated to separate units of accounting based on their relative fair value, if the deliverables in the contract(s) meet the criteria for such treatment. Certain fulfillment services contracts contain multiple-deliverables. Separation criteria includes whether a delivered item has value to the customer on a stand-alone basis, whether there is objective and reliable evidence of the fair value of the undelivered items and, if the arrangement includes a general right of return related to a delivered item, whether delivery of the undelivered item is considered probable and in our control. Fair value is the price of a deliverable when it is regularly sold on a stand-alone basis, which generally consists of vendor-specific objective evidence of fair value. If there is no evidence of the fair value for a delivered product or service, revenue is allocated first to the fair value of the undelivered product or service and then the residual revenue is allocated to the delivered product or service. If there is no evidence of the fair value for an undelivered product or service, the contract(s) is accounted for as a single unit of accounting, resulting in delay of revenue recognition for the delivered product or service until the undelivered product or service portion of the contract is complete. We recognize revenues for delivered elements only when the fair values of undelivered elements are known, uncertainties regarding client acceptance are resolved, and there are no client-negotiated refund or return rights affecting the revenue recognized for delivered elements. Once we determine the allocation of revenues between deliverable elements, there are no further changes in the revenue allocation. If the separation criteria are met, revenues from these services are recognized as the services are performed under a fully executed contractual agreement. If the separation criteria are not met because there is insufficient evidence to determine fair value of one of the deliverables, all of the services are accounted for as a single combined unit of accounting. For deliverables with insufficient evidence to determine fair value, revenue is 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 of December 31, 2011, our fulfillment contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was accounted for accordingly. We have no other contracts that contain multiple-deliverables as of December 31, 2011.

In October 2009, the Financial Accounting Standards Board amended the accounting standards for certain multiple-deliverable revenue arrangements. We adopted this guidance on a prospective basis for applicable transactions originated or materially modified since January 1, 2011, the adoption date. Since there were no such transactions executed or materially modified since adoption on January 1, 2011, there was no impact on our financial condition, results of operations and cash flows. The amended standard:

 

   

updates guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

   

requires an entity to allocate revenue in an arrangement using the best estimated selling price of deliverables if a vendor does not have vendor-specific objective evidence of selling price or third-party evidence of selling price; and

   

eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling price method.

Cash and Cash Equivalents Cash and cash equivalents consist of cash and highly liquid short-term investments. Cash in the amount of $211.1 million and $189.8 million at December 31, 2011 and 2010, respectively, was primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash equivalents of $163.9 million and $173.9 million at December 31, 2011 and 2010, respectively, were held in international operations and may be subject to additional taxes if repatriated to the United States.

 

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 factors surrounding the credit risk of certain clients, historical collection experience and a review of the current status of trade accounts receivable. 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.

Assets and Liabilities Held for Sale The Company classifies its assets and related liabilities as held for sale when management commits to a plan to sell the assets, the assets are ready for immediate sale in their present condition, an active program to locate buyers and other actions required to complete the plan to sell the assets has been initiated, the sale of the assets is probable and expected to be completed within one year, the assets are marketed at reasonable prices in relation to their fair value and it is unlikely that significant changes will be made to the plan to sell the assets.

The Company measures the value of assets held for sale at the lower of the carrying amount or fair value, less costs to sell. Assets and the related liabilities held for sale in the accompanying Consolidated Balance Sheet as of December 31, 2011 pertain to the applicable assets and liabilities of the Company’s Spanish operations. See Note 3, Discontinued Operations, for additional information.

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. 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, 2011.

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.

Investment in SHPS The Company held a noncontrolling interest in SHPS, Inc. (“SHPS”), which was accounted for at cost of approximately $2.1 million as of December 31, 2008. In June 2009, the Company received notice from SHPS that the shareholders of SHPS had approved a merger agreement between SHPS and SHPS Acquisition, Inc., pursuant to which the common stock of SHPS, including the common stock owned by the Company, would be converted into the right to receive $0.000001 per share in cash. SHPS informed the Company that it believed the estimated fair value of the SHPS common stock to be equal to such per share amount. As a result of this transaction and evaluation of the Company’s legal options, the Company believed it was more likely than not that it would not be able to recover the $2.1 million carrying value of the investment in SHPS. Therefore, due to the decline in value that is other than temporary, management recorded a non-cash impairment loss of $2.1 million included in “Impairment loss on investment in SHPS” during 2009. Subsequent to the recording of the impairment loss, the Company liquidated its noncontrolling interest in SHPS by converting its SHPS common stock into cash for $0.000001 per share during 2009.

Investments Held in Rabbi Trust for Former ICT Chief Executive Officer — Securities held in a rabbi trust for a nonqualified plan trust agreement dated February 1, 2010 (the “Trust Agreement”) with respect to severance payable to John Brennan, the former chief executive officer of ICT, include the fair market value of debt securities, primarily United States (“U.S.”) Treasury Bills. See Note 13, Investments Held in Rabbi Trusts, for further information. The fair market value of these debt securities, classified as trading securities in accordance with ASC 320 “Investment – Debt and Equity Securities”, is determined by quoted market prices and is adjusted to the current market price at the end of each reporting period. The net realized and unrealized gains and losses on trading securities, which are included in “Other income and expense” in the accompanying Consolidated Statements of Operations, are not material for the years ended December 31, 2011 and 2010. For purposes of determining realized gains and losses, the cost of securities sold is based on specific identification.

The “Accrued employee compensation and benefits” in the accompanying Consolidated Balance Sheet as of December 31, 2010 includes a $0.1 million obligation for severance payable to the former executive due in varying installments in accordance with the Trust Agreement. Final payment was made in January 2011.

Goodwill The Company accounts for goodwill and other intangible assets under ASC 350 (“ASC 350”) “Intangibles – Goodwill and Other.” The Company expects to receive future benefits from previously acquired goodwill over an indefinite period of time. Goodwill and other intangible assets with indefinite lives are not subject to amortization, but instead must be reviewed at least annually, and more frequently in the presence of certain circumstances, for impairment by applying a fair value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values, as appropriate, and an analysis of our market capitalization. Under ASC 350, the carrying value of assets is calculated at the 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.

The Company completed its annual goodwill impairment test during the three months ended September 30, 2011, which included the consideration of certain economic factors and determined that the carrying amount of goodwill was not impaired, except as discussed in Note 5, Fair Value.

Intangible Assets — Intangible assets, primarily customer relationships, trade names, existing technologies and covenants not to compete, 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. The Company does not have intangible assets with indefinite lives. See Note 5, Fair Value, for further information regarding the impairment of intangible assets.

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 (“ASC 740”) “Income Taxes” 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 realizability of 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 of this self-insurance program are accrued at the projected settlements for known and anticipated claims. Amounts related to this self-insurance program 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 included within general and administrative costs 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 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), 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, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and treasury stock to satisfy stock option exercises or vesting of stock awards.

In accordance with ASC 718 (“ASC 718”) “Compensation – Stock Compensation”, the Company recognizes in its 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 Trusts and Accounts Payable – The carrying values for cash, short-term and other investments, investments held in rabbi trusts and accounts payable approximate their fair values.

   

Forward Currency Forward Contracts and Options – Forward 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.

Fair Value Measurements - ASC 820 (“ASC 820”) “Fair Value Measurements and Disclosures” 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 (“ASC 825”) “Financial Instruments” 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 fair value, 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 Trusts — The investment assets of the rabbi trusts 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 Trusts, and Note 26, Stock-Based Compensation.

Guaranteed Investment CertificatesGuaranteed 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 (“ASC 815”) “Derivatives and Hedging”. 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, the Company discontinues hedge accounting prospectively. At December 31, 2011 and 2010, 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.

New Accounting Standards Not Yet Adopted

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2011-04 (“ASU 2011-04”) “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments in ASU 2011-04 result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in ASU 2011-04 are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 as of January 1, 2012 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In June 2011, the FASB issued ASU 2011-05 (“ASU 2011-05”) “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income”. The amendments in ASU 2011-05 require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 are to be applied retrospectively and are effective during interim and annual periods beginning after December 15, 2011, and may be early adopted. As this standard impacts presentation only, the adoption of ASU 2011-05 as of January 1, 2012 did not impact the financial condition, results of operations and cash flows of the Company.

In September 2011, the FASB issued ASU 2011-08 (“ASU 2011-08”) “Intangibles – Goodwill and Other (Topic 350) Testing Goodwill for Impairment”. The amendments in ASU 2011-08 provide entities with 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, an entity 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 an entity 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 entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the amendments in ASU 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and may be early adopted. The adoption of ASU 2011-08 as of January 1, 2012 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In December 2011, the FASB issued ASU 2011-11 (“ASU 2011-11”) “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities”. The amendments in ASU 2011-11 will enhance 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 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 Company does not expect the adoption of ASU 2011-11 to materially impact its financial condition, results of operations and cash flows.

In December 2011, the FASB issued ASU 2011-12 (“ASU 2011-12”) “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”. The amendments in ASU 2011-12 defer the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. The amendments in ASU 2011-12 are effective at the same time as ASU 2011-05 so that entities will not be required to comply with the presentation requirements in ASU 2011-05 that ASU 2011-05 is deferring. The amendments in ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. As ASU 2011-12 impacts presentation only, the adoption of ASU 2011-12 as of January 1, 2012 did not impact the financial condition, results of operations and cash flows of the Company.

Acquisition of ICT
Acquisition of ICT

Note 2. Acquisition of ICT

On February 2, 2010, the Company acquired 100% of the outstanding common shares and voting interest of ICT through a merger of ICT with and into a subsidiary of the Company. ICT provided outsourced customer management and business process outsourcing solutions with its operations located in the United States, Canada, Europe, Latin America, India, Australia and The Philippines. The results of ICT’s operations have been included in the Company’s Consolidated Financial Statements since its acquisition on February 2, 2010. The Company acquired ICT to expand and complement its global footprint, provide entry into additional vertical markets, and increase revenues to enhance its ability to leverage the Company’s infrastructure to produce improved sustainable operating margins. This resulted in the Company paying a substantial premium for ICT resulting in recognition of goodwill.

The acquisition date fair value of the consideration transferred totaled $277.8 million, which consisted of the following (in thousands):

 

 

         
    Total  

Cash

    $ 141,161   

Common stock

    136,673   
   

 

 

 
      $         277,834   
   

 

 

 

The fair value of the 5.6 million common shares issued was determined based on the Company’s closing share price of $24.40 on the acquisition date.

The cash portion of the acquisition was funded through borrowings consisting of a $75 million short-term loan from KeyBank and a $75 million Term Loan, which were paid off in March 2010 and July 2010, respectively. 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 ICT based on their estimated fair values as of the closing date. The Company finalized its purchase price allocation during the three months ended December 31, 2010. The following table summarizes the estimated acquisition date fair values of the assets acquired and liabilities assumed, the measurement period adjustments that occurred during the three months ended December 31, 2010 and the final purchase price allocation as of February 2, 2010 (in thousands):

 

 

                         
    February 2,
2010 (As
initially
reported)
    Measurement
Period
Adjustments
    February 2,
2010 (As
adjusted)
 

Cash and cash equivalents

    $ 63,987        $       $ 63,987   

Receivables

    75,890              75,890   

Income tax receivable

    2,844        (1,941)       903   

Prepaid expenses

    4,846              4,846   

Other current assets

    4,950        149        5,099   
   

 

 

   

 

 

   

 

 

 

Total current assets

    152,517        (1,792)       150,725   

Property and equipment

    57,910              57,910   

Goodwill

    90,123        7,647        97,770   

Intangibles

    60,310              60,310   

Deferred charges and other assets

    7,978        (3,965)       4,013   
       

Short-term debt

    (10,000)             (10,000)  

Accounts payable

    (12,412)       (168)       (12,580)  

Accrued employee compensation and benefits

    (23,873)       (1,309)       (25,182)  

Income taxes payable

    (2,451)       2,013        (438)  

Other accrued expenses and current liabilities

    (10,951)       (464)       (11,415)  
   

 

 

   

 

 

   

 

 

 

Total current liabilities

    (59,687)       72        (59,615)  

Deferred grants

    (706)             (706)  

Long-term income tax liabilities

    (5,573)       (19,924)       (25,497)  

Other long-term liabilities (1)

    (25,038)       17,962        (7,076)  
   

 

 

   

 

 

   

 

 

 
      $           277,834        $       $         277,834   
   

 

 

   

 

 

   

 

 

 

 

  (1) 

Includes primarily long-term deferred tax liabilities.

The above fair values of assets acquired and liabilities assumed were based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The measurement period adjustments relate primarily to unrecognized tax benefits and related offsets, tax liabilities relating to the determination as of the date of the ICT acquisition that the Company intended to distribute a majority of the accumulated and undistributed earnings of the ICT Philippine subsidiary and its direct parent, ICT Group Netherlands B.V. to SYKES, its ultimate U.S. parent, and certain accrual adjustments related to labor and benefit costs in Argentina. The measurement period adjustments were completed as of December 31, 2010.

The $97.8 million of goodwill was assigned to the Company’s Americas and EMEA operating segments in the amount of $97.7 million and $0.1 million, respectively. The goodwill recognized is attributable primarily to synergies the Company expects to achieve as the acquisition increases the opportunity for sustained long-term operating margin expansion by leveraging general and administrative expenses over a larger revenue base. Pursuant to federal income tax regulations, the ICT acquisition was considered to be a non-taxable transaction; therefore, no amount of intangibles or goodwill from this acquisition will be deductible for tax purposes. The fair value of receivables acquired was $75.9 million, with the gross contractual amount being $76.4 million, of which $0.5 million was not expected to be collected.

 

Total net assets acquired (liabilities assumed) by operating segment as of February 2, 2010, the acquisition date, were as follows (in thousands):

 

 

      Consolidatedaa       Consolidatedaa       Consolidatedaa       Consolidatedaa  
    Americas     EMEA     Other     Consolidated  

Net assets (liabilities)

    $ 278,703        $ (869)       $       $ 277,834   
   

 

 

   

 

 

   

 

 

   

 

 

 

Fair values are 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 February 2, 2010, the acquisition date (in thousands):

 

 

      Period (years)aa       Period (years)aa  
    Amount
Assigned
    Weighted
Average
Amortization
Period (years)
 

Customer relationships

    $ 57,900         

Trade name

    1,000         

Proprietary software

    850         

Non-compete agreements

    560         
   

 

 

         
      $ 60,310         
   

 

 

         

After the ICT acquisition in February, 2010, the Company paid off the $10.0 million outstanding balance plus accrued interest of the ICT short-term debt assumed upon acquisition. The related interest expense included in “Interest expense” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2010 was not material.

The Company’s Consolidated Statement of Operations for the year ended December 31, 2010 includes ICT revenues from continuing operations of $362.7 million and the ICT loss from continuing operations, net of taxes, of $(26.9) million from the February 2, 2010 acquisition date through December 31, 2010.

The following table presents the unaudited pro forma combined revenues and net earnings as if ICT had been included in the consolidated results of the Company for the entire year for the years ended December 31, 2010 and 2009. 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, 2010 and 2009 (in thousands):

 

 

      $1,162,040aa       $1,162,040aa  
    Years Ended December 31,  
    2010     2009  

Revenues

    $ 1,162,040        $ 1,154,516   

Income from continuing operations, net of taxes

    $ 48,504        $ 44,571   

Income from continuing operations per common share:

               

Basic

    $ 1.04        $ 0.96   

Diluted

    $ 1.04        $ 0.96   

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, 2010, 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 consequential tax effects.

 

The following table presents acquisition-related costs included in “General and administrative” costs in the accompanying Consolidated Statements of Operations (in thousands):

 

 

                         
    Years Ended December 31,  
            2011                     2010                     2009          

Severance costs:

                       

Americas

    $ -          $ 1,234         $ -     

EMEA

    -          185         -     

Corporate

    126         14,928         -     
   

 

 

   

 

 

   

 

 

 
      126         16,347         -     

Lease termination and other costs: (1)

                       

Americas

    (277)        7,220         -     

EMEA

    (206)        1,654         -     
   

 

 

   

 

 

   

 

 

 
      (483)        8,874         -     

Transaction and integration costs:

                       

Corporate

    13         9,302         3,349    
   

 

 

   

 

 

   

 

 

 
      13         9,302         3,349    

Depreciation and amortization: (2)

                       

Americas

    12,168         11,770         -     

EMEA

    -          25         -     
   

 

 

   

 

 

   

 

 

 
      12,168         11,795         -     
   

 

 

   

 

 

   

 

 

 

Total acquisition-related costs

    $ 11,824         $ 46,318         $ 3,349    
   

 

 

   

 

 

   

 

 

 

 

(1)

Amounts related to the Third Quarter 2010 Exit Plan and the Fourth Quarter 2010 Exit Plan. See Note 4.

(2)

Depreciation resulted from the adjustment to fair values of the acquired property and equipment and amortization of the fair values of the acquired intangibles.

Discontinued Operations
Discontinued Operations

Note 3. Discontinued Operations

The results of discontinued operations, which consist of the Spanish and Argentine operations, were as follows (in thousands):

 

 

                         
    Years Ended December 31,  
            2011                     2010                     2009          

Revenues:

                       

Spain

    $ 39,341         $ 36,806         $ 44,221    

Argentina

    -          40,676         32,467    
   

 

 

   

 

 

   

 

 

 
      $ 39,341         $ 77,482         $ 76,688    
   

 

 

   

 

 

   

 

 

 
       

Income (loss) from discontinued operations before income taxes:

                       

Spain

    $ (4,532)         $ (6,417)        $ 1,475    

Argentina

    -          (6,476)        (2,931)   
   

 

 

   

 

 

   

 

 

 
      (4,532)         (12,893)        (1,456)   
   

 

 

   

 

 

   

 

 

 
       

Income taxes: (1)

                       

Spain

    -          -          -     

Argentina

    -          -          -     
   

 

 

   

 

 

   

 

 

 
      -          -          -     
   

 

 

   

 

 

   

 

 

 
       

Income (loss) from discontinued operations, net of taxes:

                       

Spain

    (4,532)        (6,417)        1,475    

Argentina

    -          (6,476)        (2,931)   
   

 

 

   

 

 

   

 

 

 
      $ (4,532)        $ (12,893)        $ (1,456)   
   

 

 

   

 

 

   

 

 

 

 

(1)

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

 

Spanish Operations Held for Sale

In November 2011, the Finance Committee of the Board of Directors of the Company authorized management to pursue the sale of the Company’s Spanish operations. Management concluded the operations were no longer consistent with the Company’s strategic direction. These operations met the held for sale criteria as of December 31, 2011; therefore, the Company reflected the assets and related liabilities of the Spanish operations as “Assets held for sale, discontinued operations” and “Liabilities held for sale, discontinued operations” in the accompanying Balance Sheet as of December 31, 2011. 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, 2011, 2010 and 2009. Cash flows from discontinued operations are included in the Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009. This business was historically reported by the Company as part of the EMEA segment.

The assets and liabilities of the Spanish operations in the accompanying Consolidated Balance Sheets were as follows (in thousands):

 

 

                 
    December 31,  
    2011     2010  

Assets (1)

               

Current assets:

               

Cash and cash equivalents

    $   -        $ 1,245   

Receivables, net

    8,970        15,397   

Prepaid expenses

    23         
   

 

 

   

 

 

 

Total current assets

    8,993        16,642   

Property and equipment, net

          1,183   

Deferred charges and other assets

    597        736   
   

 

 

   

 

 

 

Total assets (2)

    9,590        18,561   
   

 

 

   

 

 

 

Liabilities (1)

               

Current liabilities:

               

Accounts payable

    1,191        1,576   

Accrued employee compensation and benefits

    4,592        2,301   

Deferred revenue

    335        258   

Other accrued expenses and current liabilities

    1,010        1,993   
   

 

 

   

 

 

 

Total current liabilities (3)

    7,128        6,128   
   

 

 

   

 

 

 

Total net assets

    $   2,462        $   12,433   
   

 

 

   

 

 

 

 

(1) 

Classifed and included in the respective line items in the accompanying Consolidated Balance Sheet as of December 31, 2010.

(2) 

Classifed as current and included in “Assets held for sale, discontinued operations” in the accompanying Consolidated Balance Sheet as of December 31, 2011, as the Spanish operations are expected to be sold within the next 12 months.

(3) 

Classified as current and included in “Liabilities held for sale, discontinued operations” in the accompanying Consolidated Balance Sheet as of December 31, 2011, as the Spanish operations are expected to be sold within the next 12 months.

During the three months ended December 31, 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.

Sale of Argentine Operations in 2010

On December 16, 2010, the Board of Directors (the “Board”) of SYKES, upon the recommendation of its Finance Committee, sold its Argentina operations, which were operated through two Argentine subsidiaries: Centro Interaccion Multimedia S.A. (“CIMSA”) and ICT Services of Argentina, S.A. (“ICT Argentina”), together the “Argentine operations.” CIMSA and ICT Argentina were offshore contact centers providing contact center services through a total of three centers in Argentina to clients in the United States and in the Republic of Argentina. The decision to exit Argentina was made due to surging costs, primarily chronic wage increases, which dramatically reduced the appeal of the Argentina footprint among the Company’s existing and new global clients and thus the overall future profitability of the Argentine operations.

On December 13, 2010, the Company entered a stock purchase agreement, and pursuant thereto, the Company sold all of the shares of capital stock of CIMSA to individual purchasers for a nominal price. Pursuant to the CIMSA stock purchase agreement, immediately prior to closing, the Company made a capital contribution of $9.5 million to CIMSA to cover a portion of CIMSA’s liabilities. Immediately after closing, the purchasers made a capital contribution to CIMSA of $1.0 million, and CIMSA repaid a loan of $1.0 million to one of the Company’s subsidiaries. As this was a stock transaction, the Company has no future obligation with regard to CIMSA and there are no material post closing obligations.

Additionally, on December 22, 2010, the Company entered into a letter of intent (the “ICT Letter of Intent”) to sell all of the shares of capital stock of ICT Argentina to a group of individual purchasers for a nominal purchase price. Pursuant to the ICT Letter of Intent, immediately prior to closing, the Company funded ICT Argentina with a capital contribution of $3.5 million to cover a portion of ICT Argentina’s liabilities. Also on December 24, 2010, the Company entered into the stock purchase agreement, and pursuant thereto, completed the sale transaction. As this was a stock transaction, the Company has no future obligation with regard to ICT Argentina and there are no material post closing obligations.

The loss on the sale of the Argentine operations amounted to $29.9 million pre-tax and $23.5 million after tax at December 31, 2010. The sale of Argentine operations was a taxable transaction that resulted in a $6.4 million tax benefit. The effective tax rate on the loss on the sale of Argentina of 21.4% differs from the expected 35.0% statutory rate due to a valuation allowance established on the foreign deferred tax asset recognized as a result of the sale, partially offset by a reduction in U.S. taxes related to foreign earnings distributions and the write off of intercompany receivables resulting in tax benefits of $2.9 million and $3.5 million, respectively. During the three months 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.

As a result of the sale of the Argentine operations, the operating results related to the Argentine operations have been reflected as discontinued operations in the accompanying Consolidated Statements of Operations for the years ended December 31, 2010 and 2009. This business was historically reported by the Company as part of the Americas segment.

During 2010, the Company recorded an impairment of $0.7 million related to the write-down of long-lived assets in Argentina, primarily leasehold improvements and software, which were no longer recoverable. The impairment charge represented the amount by which the carrying value exceeded the fair value of these assets which cannot be redeployed to other locations and are included in discontinued operations in the accompanying Consolidated Statement of Operations for 2010.

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 the three months ended December 31, 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 the three months ended December 31, 2011, as part of an on-going effort to streamline excess capacity related to the integration of the ICT acquisition and align it with the needs of the market, the Company announced a plan to rationalize approximately 1,200 seats in the U.S., some of which are revenue generating, with plans to migrate the associated revenues to other locations within the U.S. Approximately 500 employees are expected to be affected and the Company expects to complete the actions associated with the Americas plan on or before October 31, 2012.

 

The major costs estimated to be 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 $1.0 million. 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 $0.5 million represents cash expenditures for program transfer and facility-related costs, including obligations under the leases, the last of which ends in January 2013. There is no accrual as no actions have taken place to transfer programs or close the facilities as of December 31, 2011. No cash has been paid through December 31, 2011 for the program transfer costs or facility-related costs.

EMEA

During the three months ended December 31, 2011, in an effort 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 plans to migrate approximately $3.2 million of annualized call volumes of the Ireland facility to other facilities within EMEA, the Company does not anticipate the remaining call volume in Ireland or any of the annualized revenue from the Netherlands or South Africa facilities, which was $18.8 million, will be captured and migrated to other facilities within the region. The number of seats anticipated for rationalization across the EMEA region approximates 900 with an anticipated total of approximately 500 employees affected by the actions. The Company expects to close these facilities by July 2012 and substantially complete the actions associated with the EMEA plan on or before September 30, 2012.

The major costs estimated to be 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 anticipated severance-related costs estimated at $7.6 million. 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 $7.1 million will be cash expenditures for severance-related costs and facility-related costs, primarily rent obligations to be paid through the remainder of the noncancelable term of the leases, the last of which ends in March 2013. The Company has paid $0.7 million in cash through December 31, 2011 of the severance-related and legal-related costs.

The following table summarizes the accrued liability associated with EMEA’s Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges (none in 2010 or 2009) (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
    Short-term  (3)     Long- term  

Lease obligations and facility exit costs

    $ -         $ 587         $ -         $ (10)        $ 577         $ 577         $ -    

Severance and related costs

    -         5,185         (653)        (62)        4,470         4,470         -    

Legal-related costs

    -         21         (8)        -         13         13         -    
      $ -         $ 5,793         $ (661)        $ (72)        $ 5,060         $ 5,060         $ -    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

During 2011, the Company recorded charges related to the initiation of the Fourth Quarter 2011 Exit Plan.

(2)

Effect of foreign currency translation.

(3)

Included in ‘Other accrued expenses and current liabilities’ in the accompanying Consolidated Balance Sheet.

Fourth Quarter 2010 Exit Plan

During the quarter ended December 31, 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 further enabled the Company to reduce operating costs by eliminating additional redundant space and to optimize capacity utilization rates where overlap exists. These actions were substantially completed by January 31, 2011. None of the revenues from the United Kingdom or Ireland facilities, which were approximately $1.3 million on an annualized basis, were captured and migrated to other facilities within the region. Loss from operations of the United Kingdom and Ireland are not material to the consolidated income (loss) from continuing operations; therefore, their results of operations have not been presented as discontinued operations in the accompanying Consolidated Statements of Operations.

 

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 $2.2 million as of December 31, 2011 ($2.1 million as of December 31, 2010). This increase of $0.1 million included in “General and administrative” costs in the accompanying Consolidated Statement of Operations during the year ended December 31, 2011 is primarily due to the change in estimate of lease termination costs. The Company recorded $0.2 million of the costs associated with the Fourth Quarter 2010 Exit Plan as non-cash impairment charges (see Note 3, Discontinued Operations, for further information). Approximately $1.8 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 $1.1 million in cash through December 31, 2011 of the facility-related and severance-related costs.

The following table summarizes the accrued liability associated with the Fourth Quarter 2010 Exit Plan’s exit or disposal activities and related charges (none in 2009) (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
    Short-term  (3)     Long-term  (4)  

Lease obligations and facility exit costs

    $ 1,711         $ 70         $ (886)       $ (60)       $ 835         $ 398         $ 437    

Severance and related costs

    -         -         -         -         -         -         -    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      $ 1,711         $ 70         $ (886)       $ (60)       $ 835         $ 398         $ 437    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                         
    Beginning
Accrual at
January 1,
2010
    Charges
(Reversals)
for the Year
Ended
December 31,
2010 (1)
    Cash
Payments
    Other Non-
Cash
Changes (2)
    Ending Accrual
at December 31,
2010
    Short-term  (3)     Long-term  (4)  

Lease obligations and facility exit costs

    $ -         $ 1,711         $ -         $ -         $ 1,711         $ 941         $ 770    

Severance and related costs

    -         185         (185)       -         -         -         -    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      $ -         $ 1,896         $ (185)       $ -         $ 1,711         $ 941         $ 770    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1)

During 2011, the Company recorded additional lease termination costs, which are included in “General and administrative” costs in the accompanying Consolidated Statement of Operations. During 2010, the Company recorded charges related to the initiation of the Fourth Quarter 2010 Exit Plan.

  (2)

Effect of foreign currency translation.

  (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.

See Note 3, Discontinued Operations, for impairment charges recorded in 2010 related to the Company’s Argentine operations, which were sold in December 2010.

Third Quarter 2010 Exit Plan

During the quarter ended September 30, 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 in response to the facilities consolidation and capacity rationalization related to the ICT acquisition, enabling the Company to reduce operating costs by eliminating redundant space and to optimize capacity utilization rates where overlap exists. There were no employees affected by 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, 2011 ($10.0 million as of December 31, 2010), all of which are in the Americas segment. The increase of $0.5 million during the year ended December 31, 2011 is primarily due to the change in assumptions related to the redeployment of property and equipment and a change in estimate of lease termination costs. The Company recorded $3.8 million of the costs associated with the Third Quarter 2010 Exit Plan as non-cash impairment charges, of which $0.7 million is included in “Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011 (see Note 5, Fair Value, for further information). The remaining $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 $3.2 million in cash through December 31, 2011 related to these facility-related costs.

The following table summarizes the accrued liability associated with the Third Quarter 2010 Exit Plan’s exit or disposal activities and related charges (none in 2009) (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
    Short- term  (3)     Long-term  (4)  

Lease obligations and facility exit costs

    $ 6,141         $ (276)       $ (2,443)       $ 5         $ 3,427         $ 843         $ 2,584    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                         
    Beginning
Accrual at
January 1,
2010
    Charges
(Reversals)
for the Year
Ended
December 31,
2010 (1)
    Cash
Payments
    Other Non-
Cash
Changes  (2)
    Ending Accrual
at December 31,

2010
    Short-term  (3)     Long-term  (4)  

Lease obligations and facility exit costs

    $ -         $ 6,944         $ (803)       $ -         $ 6,141         $ 2,199         $ 3,942    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

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. During 2010, the Company recorded charges related to the initiation of the Third Quarter 2010 Exit Plan.

(2)

Effect of foreign currency translation.

(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.

ICT Restructuring Plan

As of February 2, 2010, the Company assumed the liabilities of 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 related to the ICT Restructuring Plan.

The following tables summarize the accrued liability associated with the ICT Restructuring Plan’s exit or disposal activities (none in 2009) (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
    Short-term  (3)     Long-term  (4)  

Lease obligations and facility exit costs

    $ 1,462         $ (276)         $ (1,139)         $ (47)         $ -         $ -         $ -    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
               
    Beginning
Accrual at
January 1,
2010
    Accrual
assumed
upon
acquisition of
ICT on
February 2,
2010  (1)
    Cash
Payments
    Other Non-
Cash
Changes
    Ending Accrual
at December 31,
2010
    Short-term  (3)     Long-term  (4)  

Lease obligations and facility exit costs

    $ -         $ 2,197         $ (735)         $ -         $ 1,462         $ 1,462         $ -    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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. During 2010, upon acquisition of ICT on February 2, 2010, the Company assumed ICT’s restructuring accruals.

(2)

Effect of foreign currency translation.

(3)

Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet.

(4)

Included in “Other long-term liabilities” in the accompanying Consolidated Balance Sheet.

 

Fair Value
Fair Value

Note 5. Fair Value

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 subject to the requirements of ASC 820 consist of the following (in thousands):

 

 

    December 31     December 31       December 31       December 31       December 31  
        Fair Value Measurements at December 31, 2011 Using:  
        Balance at     Quoted Prices
in Active
Markets For
Identical Assets
    Significant
Other
Observable
Inputs
    Significant
Unobservable
Inputs
 
        December 31, 2011         Level (1)             Level (2)             Level (3)      

Assets:

                                   

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

 

(1)   

   $ 68,651        $ 68,651        $ -          $ -      

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

 

(1)   

    12         12         -           -      

Foreign currency forward contracts

 

(2)   

    536         -           536         -      

Foreign currency option contracts

 

(2)   

    174         -           174         -      

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

 

(3)   

    2,817         2,817         -           -      

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

 

(3)   

    1,365         1,365         -           -      

Guaranteed investment certificates

 

(4)   

    65         -           65         -      
       

 

 

   

 

 

   

 

 

   

 

 

 
         $ 73,620        $     72,845        $     775        $     -      
       

 

 

   

 

 

   

 

 

   

 

 

 
           

Liabilities:

                                   

Foreign currency forward contracts

 

(5)   

   $ 752        $ -          $ 752        $ -      
       

 

 

   

 

 

   

 

 

   

 

 

 
         $     752        $ -          $ 752        $ -      
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

In the accompanying Consolidated Balance Sheet.

(2)

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

(3)

Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13.

(4)

Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. See Note 15.

(5) 

Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 18.

 

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 subject to the requirements of ASC 820 consist of the following (in thousands):

 

 

                                 
    Fair Value Measurements at December 31, 2010 Using:  
    Balance at     Quoted Prices
in Active
Markets For
Identical Assets
    Significant
Other
Observable
Inputs
    Significant
Unobservable
Inputs
 
    December 31, 2010     Level (1)     Level (2)     Level (3)  

Assets:

                               

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

    $ 5,893         $ 5,893         $ -           $ -      

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

    747         747         -           -      

Foreign currency forward contracts (2)

    1,283         -           1,283         -      

Foreign currency option contracts (2)

    4,951         -           4,951         -      

Equity investments held in a rabbi trust for the Deferred Compensation Plan (3)

    2,647         2,647         -           -      

Debt investments held in a rabbi trust for the Deferred Compensation Plan (3)

    789         789         -           -      

U.S. Treasury Bills held in a rabbi trust for the former ICT chief executive officer (3)

    118         118         -           -      

Guaranteed investment certificates (4)

    53         -           53         -      
   

 

 

   

 

 

   

 

 

   

 

 

 
      $ 16,481         $ 10,194         $ 6,287         $ -      
   

 

 

   

 

 

   

 

 

   

 

 

 
         

Liabilities:

                               

Foreign currency forward contracts (5)

    $ 735         $ -           $ 735         $ -      
   

 

 

   

 

 

   

 

 

   

 

 

 
      $ 735         $ -           $ 735         $ -      
   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1)

In the accompanying Consolidated Balance Sheet.

  (2)

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

  (3)

Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13.

  (4)

Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. See Note 15.

  (5)

Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 18.

 

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 and 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 one or more of these assets was determined to be impaired. The following table summarizes the adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities) subject to the requirements of ASC 820 (in thousands):

 

 

                 
    December 31,  
    2011     2010  

Americas:

               

Goodwill

    $ 121,342        $ 122,303   

Intangibles, net

    44,472        52,752   

Investment in SHPS

           

Property and equipment, net

    79,874        99,089   
     

EMEA:

               

Goodwill

           

Intangibles, net

           

Property and equipment, net

    11,206        14,614   
     

Discontinued Operations:

               

Americas - Property and equipment, net

           

EMEA - Property and equipment, net

          1,183   

 

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):

 

 

                         
    Total Impairment (Losses)  
    Years Ended December 31,  
            2011                     2010                     2009          

Americas:

                       

Goodwill (1)

    $       $       $ (629)  

Intangibles, net (1)

                (1,279)  
   

 

 

   

 

 

   

 

 

 
                  (1,908)  

Investment in SHPS (2)

                (2,089)  

Property and equipment, net (3)

    (1,244)       (3,121)        

EMEA:

                       

Goodwill (3)

          (84)        

Intangibles, net (3)

          (278)        
   

 

 

   

 

 

   

 

 

 
            (362)        

Property and equipment, net (3) 

    (474)       (159)        
   

 

 

   

 

 

   

 

 

 
      (1,718)       (3,642)       (3,997)  

Discontinued Operations:

                       

Americas - Property and equipment, net (3), (4)

          (682)        

EMEA - Property and equipment, net (3), (4)

    (843)              
   

 

 

   

 

 

   

 

 

 
      $ (2,561)       $ (4,324)       $ (3,997)  
   

 

 

   

 

 

   

 

 

 

 

  (1) 

See this Note 5 for additional information regarding the KLA fair value measurement.

  (2) 

See Note 1 for additional information regarding the SHPS fair value measurement.

  (3) 

See Note 1 for additional information regarding the fair value measurement.

  (4) 

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

Impairment of Long-Lived Assets

During 2011, in connection with the Fourth Quarter 2011 Exit Plan, as discussed more fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded impairment charges of $0.5 million in the Americas segment and $0.5 million in the EMEA segment, related to the write-down of long-lived assets, primarily leasehold improvements and equipment.

During 2011, in connection with the Third Quarter 2010 Exit Plan within the Americas segment, as discussed more fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded an impairment charge of $0.7 million, resulting from a change in assumptions related to the redeployment of property and equipment.

During 2010, in connection with a plan to close and consolidate facilities within the EMEA segment, as discussed more fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded an impairment charge of $0.2 million, related to the impairment of long-lived assets for leasehold improvements and equipment in certain of its underutilized customer contact management centers in the United Kingdom and Ireland. In addition, during 2010, based on actual and forecasted operating results and deterioration of the related customer base in the Company’s United Kingdom operations, the EMEA segment recorded a $0.1 million impairment loss on goodwill and a $0.3 million impairment loss on intangibles (primarily customer relationships).

During 2010, in connection with a plan to close and consolidate facilities within the Americas segment, as discussed more fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded an impairment charge of $3.1 million, comprised of a $2.9 million impairment of long-lived assets for leasehold improvements in certain of its underutilized customer contact management centers in The Philippines and a $0.2 million impairment of long-lived assets for leasehold improvements related to a plan to consolidate corporate leased space in the United States.

During 2009, the Company committed to a plan to sell or close its Employee Assistance and Occupational Health operations in Calgary, Alberta, Canada, which was originally acquired on March 1, 2005 when the Company purchased the shares of Kelly, Luthmer & Associates Limited (“KLA”). As a result of KLA’s actual and forecasted operating results for 2009, deterioration of the KLA customer base and loss of key employees, the Company determined to sell or close the Calgary operations on or before December 31, 2009 for less than its current carrying value. This decline in value was other than temporary, therefore, the Company recorded a non-cash impairment loss of $1.3 million related to intangible assets (primarily customer relationships) and $0.6 million related to goodwill included in “Impairment loss on goodwill and intangibles” during 2009. The accompanying Consolidated Statement of Operations for 2009 includes “Impairment loss on goodwill and intangibles” of $1.9 million related to the Calgary operations (none in 2010 or 2008). As of December 31, 2010, $0.3 million and $0.2 million were included in “Other accrued expenses and current liabilities” and “Other long-term liabilities”, respectively, in the accompanying Consolidated Balance Sheet related to the lease obligation, net of the underlying sublease amounts. This lease obligation is expected to be paid through the remainder of the lease term ending July 2012. In addition, in 2009, the Company paid $0.1 million in one-time employee termination benefits. The loss from operations for KLA for 2009 was $3.4 million, which was not material to the consolidated income from continuing operations; therefore, the results of operations of KLA have not been presented as discontinued operations in the accompanying Consolidated Statement of Operations.

Additionally, during 2009 the Company recorded an impairment loss of $2.1 million on its investment in SHPS.

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, 2011 (in thousands):

 

 

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

Customer relationships

    $ 58,027         $ (14,056)       $ 43,971         8    

Trade name

    1,000         (639)       361         3    

Non-compete agreements

    560         (560)       -         1    

Proprietary software

    850         (710)       140         2    
   

 

 

   

 

 

   

 

 

         
      $         60,437         $         (15,965)       $         44,472         8    
   

 

 

   

 

 

   

 

 

         

The following table presents the Company’s purchased intangible assets as of December 31, 2010 (in thousands):

 

 

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

Customer relationships

    $ 58,471         $ (6,839)       $ 51,632         8    

Trade name

    1,000         (306)       694         3    

Non-compete agreements

    560         (513)       47         1    

Proprietary software

    850         (471)       379         2    
   

 

 

   

 

 

   

 

 

         
      $         60,881         $             (8,129)       $         52,752         8    
   

 

 

   

 

 

   

 

 

         

The following table presents amortization expense, related to the purchased intangible assets resulting from acquisitions (other than goodwill), included in “General and administrative” costs in the accompanying Consolidated Statements of Operations (in thousands):

 

 

      2011       2011       2011  
    Years Ended December 31,  
            2011                     2010                     2009          

Amortization expense

    $ 7,961         $ 7,879         $ 100    
   

 

 

   

 

 

   

 

 

 

 

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, 2011, is as follows (in thousands):

 

 

         
Years Ending December 31,   Amount  

 

 

2012

  $         7,684    

2013

    7,285    

2014

    7,223    

2015

    7,220    

2016

    7,220    

2017 and thereafter

    7,840    

Changes in goodwill for the year ended December 31, 2011 consist of the following (in thousands):

 

 

                         
    Gross Amount     Accumulated
Impairment
Losses
    Net Amount  

Americas:

                       

Balance at January 1, 2011

    $ 122,932        $ (629)       $ 122,303   

Foreign currency translation

    (961)             (961)  
   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    121,971        (629)       121,342   
   

 

 

   

 

 

   

 

 

 
       

EMEA:

                       

Balance at January 1, 2011

    84        (84)        

Foreign currency translation

                 
   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    84        (84)        
   

 

 

   

 

 

   

 

 

 
      $ 122,055        $ (713)       $         121,342   
   

 

 

   

 

 

   

 

 

 

Changes in goodwill for the year ended December 31, 2010 consist of the following (in thousands):

 

 

                         
    Gross Amount     Accumulated
Impairment
Losses
    Net Amount  

Americas:

                       

Balance at January 1, 2010

    $ 21,838        $ (629)       $ 21,209   

Acquisition of ICT (See Note 2)

    97,683              97,683   

Foreign currency translation

    3,411              3,411   
   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

    122,932        (629)       122,303   
   

 

 

   

 

 

   

 

 

 
       

EMEA:

                       

Balance at January 1, 2010

          -        

Acquisition of ICT (See Note 2)

    87        (87)        

Foreign currency translation

    (3)              
   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

    84        (84)        
   

 

 

   

 

 

   

 

 

 
      $ 123,016        $ (713)       $           122,303   
   

 

 

   

 

 

   

 

 

 

See Note 5, Fair Value, for additional information regarding the impairment of the Americas and EMEA goodwill.

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,  
            2011                     2010          

Trade accounts receivable

    $ 227,512         $ 249,719    

Income taxes receivable

    3,853         1,488    

Other

    2,641         1,574    
   

 

 

   

 

 

 
      234,006         252,781    

Less: Allowance for doubtful accounts

    4,304         3,939    
   

 

 

   

 

 

 
      $         229,702         $         248,842    
   

 

 

   

 

 

 
     

Allowance for doubtful accounts as a percent of trade receivables

    1.9%         1.6%    
   

 

 

   

 

 

 
Prepaid Expenses
Prepaid Expenses

Note 9. Prepaid Expenses

Prepaid expenses consist of the following (in thousands):

 

 

                 
    December 31,  
            2011                     2010          

Prepaid maintenance

    $ 4,191         $ 3,195    

Prepaid rent

    2,850         1,935    

Inventory, at cost

    508         1,706    

Prepaid insurance

    1,564         1,164    

Prepaid other

    2,427         2,704    
   

 

 

   

 

 

 
      $         11,540         $             10,704    
   

 

 

   

 

 

 
Other Current Assets
Other Current Assets

Note 10. Other Current Assets

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

 

 

                 
    December 31,  
            2011                     2010          

Deferred tax assets (Note 22)

    $ 8,044         $ 7,951    

Financial derivatives (Note 12)

    710         6,234    

Investments held in rabbi trust (Note 13)

    4,182         3,554    

Value added tax certificates (Note 11)

    2,386         2,030    

Other current assets

    4,798         3,144    
   

 

 

   

 

 

 
      $         20,120         $             22,913    
   

 

 

   

 

 

 
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,  
            2011                     2010          

VAT included in:

               

Other current assets (Note 10)

    $ 2,386         $ 2,030    

Deferred charges and other assets (Note 15)

    5,191         5,710    
   

 

 

   

 

 

 
      $         7,577         $                 7,740    
   

 

 

   

 

 

 

 

 

During the years ended December 31, 2011, 2010 and 2009, 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,  
    2011     2010     2009  

Write-down of value added tax receivables

    $     504         $     551         $     536    
   

 

 

   

 

 

   

 

 

 
Financial Derivatives
Financial Derivatives

Note 12. Financial Derivatives

Cash Flow Hedges – The Company had derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815, consisting of Philippine Peso contracts, Canadian Dollar contracts and Costa Rican Colones 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 and related taxes on the Company’s derivative instruments recorded in “Accumulated other comprehensive income (loss)” in the accompanying Consolidated Balance Sheets are as follows (in thousands):

 

 

                 
    December 31,  
    2011     2010  
     

Deferred gains (losses) in AOCI

    $     (670)       $     2,674   

Tax on deferred gains (losses) in AOCI

    232        (528)  
   

 

 

   

 

 

 

Deferred gains (losses), net of taxes in AOCI

    $ (438)       $ 2,146   
   

 

 

   

 

 

 

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

    $ (670)          
   

 

 

         

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 2010, the Company entered into foreign exchange forward contracts to hedge its net investment in a foreign operation, as defined under ASC 815, with an aggregate notional value of $26.1 million. These hedges settled in 2010 and the Company recorded deferred (losses) of $(2.6) million, net of taxes, for 2010 as a currency translation adjustment, a component of AOCI, offsetting foreign exchange losses attributable to the translation of the net investment. The Company did not hedge net investments in foreign operations during 2011.

Other 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 our 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 90 days in duration.

 

The Company had the following outstanding foreign currency forward contracts and options (in thousands):

 

 

      $00000000.00       $00000000.00       $00000000.00       $00000000.00  
    As of December 31, 2011     As of December 31, 2010  

Contract Type

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

Cash flow hedge: (1)

                               

Options:

                               

Philippine Pesos

  $ 85,500       September 2012     $ 81,100       December 2011  
         

Forwards:

                               

Philippine Pesos

    12,000       March 2012       28,000       September 2011  

Canadian Dollars

    -       -       7,200       December 2011  

Costa Rican Colones

    30,000       September 2012       -       -  
         

Not designated as hedge: (2)

                               

Forwards

    27,192       March 2012       57,791       February 2011  

 

(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)

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, 2011, the maximum amount of loss due to credit risk that, based on the gross fair value of the financial instruments, 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 is $0.7 million.

 

The following tables present the fair value of the Company’s derivative instruments as of December 31, 2011 and 2010 included in the accompanying Consolidated Balance Sheets (in thousands):

 

 

    00000000     00000000     00000000     00000000  
    Derivative Assets  
    December 31, 2011     December 31, 2010  
    Balance Sheet
Location
  Fair Value     Balance Sheet
Location
  Fair Value  

Derivatives designated as cash flow hedging

instruments under ASC 815:

                       

Foreign currency forward contracts

  Other current
assets
    $ 530     Other current
assets
    $ 1,009  

Foreign currency options

  Other current
assets
    174     Other current
assets
    4,951  
       

 

 

       

 

 

 
          704           5,960  

Derivatives not designated as hedging

instruments under ASC 815:

                       

Foreign currency forward contracts

  Other current
assets
    6     Other current
assets
    274  
       

 

 

       

 

 

 

Total derivative assets

        $ 710           $ 6,234  
       

 

 

       

 

 

 

 

    00000000     00000000     00000000     00000000  
    Derivative Liabilities  
    December 31, 2011     December 31, 2010  
    Balance Sheet
Location
  Fair Value     Balance Sheet
Location
  Fair Value  

Derivatives designated as cash flow hedging

instruments under ASC 815:

                       

Foreign currency forward contracts

  Other accrued
expenses and
current liabilities
    $ -             Other accrued

expenses and
current

liabilities

    $      27  
         

Foreign currency options

  Other accrued
expenses and
current liabilities
    485           -          
       

 

 

       

 

 

 
          485           27  

Derivatives not designated as hedging

instruments under ASC 815:

                       

Foreign currency forward contracts

  Other accrued
expenses and
current liabilities
    267     Other accrued
expenses and
current
liabilities
    708  
       

 

 

       

 

 

 

Total derivative liabilities

        $ 752           $ 735  
       

 

 

       

 

 

 

 

The following tables present the effect of the Company’s derivative instruments for the years ended December 31, 2011, 2010 and 2009 in the accompanying Consolidated Financial Statements (in thousands):

 

 

                                                                             
    Gain (Loss) Recognized in AOCI
on Derivatives (Effective  Portion)
    Statement of
Operations
Location
  Gain (Loss) Reclassified From
Accumulated AOCI Into Income
(Effective Portion)
    Gain (Loss) Recognized in Income
on Derivatives (Ineffective  Portion)
 
    December 31,         December 31,     December 31,  
    2011     2010     2009         2011     2010     2009     2011     2010     2009  

Derivatives designated as cash flow hedging instruments under ASC 815:

                                                                           
                     

Foreign currency forward contracts

    $ 920        $ 2,586        $ 5,082      Revenues     $ 1,365        $ 4,515        $ (9,257)        $       $ -           $ -      
                     

Foreign currency option contracts

    (2,403)       2,350        -         Revenues     488        658        -           -           -           -      
   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      (1,483)       4,936        5,082            1,853        5,173        (9,257)             -           -      
                     

Derivatives designated as a net investment hedge under ASC 815:

                                                                           
                     

Foreign currency forward contracts

    -           (3,955)       -               -           -           -           -           -           -      
   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                     
      $ (1,483)       $ 981        $ 5,082            $ 1,853        $ 5,173        $ (9,257)       $       $ -           $ -      
   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                             
      Statement of  
  Operations  
  Location   
  Gain (Loss) Recognized in Income on
Derivatives
 
    December 31,  
    2011     2010     2009  

Derivatives not designated as hedging instruments under ASC 815:

                           

Foreign currency forward contracts

  Other income
and (expense)
    $(1,444)       $(4,717)       $(1,928)  
         

Foreign currency forward contracts

  Revenues     -         -         (53)  
       

 

 

   

 

 

   

 

 

 
          $(1,444)       $(4,717)       $(1,981)  
       

 

 

   

 

 

   

 

 

 
Investments Held in Rabbi Trusts
Investments Held in Rabbi Trusts

Note 13. Investments Held in Rabbi Trusts

The Company’s investments held in rabbi trusts, 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):

 

 

                                 
    As of December 31, 2011     As of December 31, 2010  
        Cost             Fair Value             Cost             Fair Value      

Mutual funds

    $     3,938         $     4,182         $     3,058         $     3,436    

U.S. Treasury Bills (1)

    -         -         118         118    
   

 

 

   

 

 

   

 

 

   

 

 

 
      $ 3,938         $ 4,182         $ 3,176         $ 3,554    
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Matured in January 2011.

 

The mutual funds held in the rabbi trusts were 67% equity-based and 33% debt-based as of December 31, 2011. Investment income, included in “Other income (expense)” in the accompanying Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 consists of the following (in thousands):

 

 

                         
        Years Ended December 31,      
            2011                 2010                     2009          

Gross realized gains from sale of trading securities

    $ 201        $ 54        $ 41      

Gross realized (losses) from sale of trading securities

    (20)       (5)       (21)     

Dividend and interest income

    69        37        46      

Net unrealized holding gains (losses)

    (383)       313        341      
   

 

 

   

 

 

   

 

 

 

Net investment income (losses)

    $ (133)       $ 399       $ 407      
   

 

 

   

 

 

   

 

 

 
Property and Equipment
Property and Equipment

Note 14. Property and Equipment

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

 

 

                 
        December 31,      
            2011                     2010          

Land

    $ 4,191         $ 4,381    

Buildings and leasehold improvements

    74,221         79,504    

Equipment, furniture and fixtures

    231,789         249,319    

Capitalized software development costs

    2,903         3,005    

Transportation equipment

    716         764    

Construction in progress

    1,479         1,911    
   

 

 

   

 

 

 
      315,299         338,884    

Less: Accumulated depreciation

    224,219         225,181    
   

 

 

   

 

 

 
      $ 91,080         $ 113,703    
   

 

 

   

 

 

 

Depreciation expense included in “General and administrative” in the accompanying Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 was as follows (in thousands):

 

 

                         
        Years Ended December 31,      
            2011                     2010                     2009          

Depreciation expense

    $ 47,139         $ 47,902         $ 25,798    
   

 

 

   

 

 

   

 

 

 

Sale of Land and Building Located in Minot, North Dakota

On June 1, 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. These assets, previously classified as held and used with a carrying value of $0.9 million, were included in “Property and equipment” in the accompanying Consolidated Balance Sheet as of December 31, 2010. Related to these assets were deferred grants of $0.6 million, which were included in “Deferred grants” in the accompanying Consolidated Balance Sheet as of December 31, 2010.

Tornado Damage to the Ponca City, Oklahoma Customer Contact Management Center

In April 2011, the customer contact management center (the “facility”) located in Ponca City, Oklahoma experienced significant damage to its building and contents as a result of a tornado. The Company filed an insurance claim with its property insurance company to recover losses of $1.4 million. During 2011, the insurance company paid $1.2 million to the Company for costs to clean up and repair the facility of $0.9 million and for reimbursement of a portion of the Company’s out-of-pocket costs of $0.3 million. The Company completed the repairs to the facility during 2011 and collected the remaining $0.2 million in February 2012.

 

Typhoon Damage to the Marikina City, The Philippines Customer Contact Management Center

In September 2009, the building and contents of one of the Company’s customer contact management centers located in Marikina City, The Philippines (acquired as part of the ICT acquisition) was severely damaged by flooding from Typhoon Ondoy. Upon settlement with the insurer in November 2010, the Company recognized a net gain of $2.0 million in 2010. The damaged property and equipment had been written down by ICT prior to the ICT acquisition in February 2010. In August 2011, the Company received an additional $0.4 million from the insurer for rent payments made during the claim period and recognized a net gain on insurance settlement in 2011. This net gain on insurance settlement is included in “General and administrative” expenses in the accompanying Consolidated Statement of Operations in 2011. No additional funds are expected.

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,  
            2011                     2010          

Non-current deferred tax assets (Note 22)

    $ 20,389         $ 19,564    

Non-current value added tax certificates (Note 11)

    5,191         5,710    

Deposits

    2,278         5,118    

Other

    2,304         3,162    
   

 

 

   

 

 

 
      $ 30,162         $ 33,554    
   

 

 

   

 

 

 
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,  
            2011                     2010          

Accrued compensation

    $ 20,892         $ 27,063    

Accrued vacation

    13,965         13,700    

Accrued bonus and commissions

    12,566         11,227    

Accrued employment taxes

    9,757         10,061    

Other

    5,272         3,216    
   

 

 

   

 

 

 
      $ 62,452         $ 65,267    
   

 

 

   

 

 

 
Deferred Revenue
Deferred Revenue

Note 17. Deferred Revenue

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

 

 

                 
    December 31,  
            2011                     2010          

Future service

    $ 25,809         $ 23,919    

Estimated potential penalties and holdbacks

    8,510         7,336    
   

 

 

   

 

 

 
      $ 34,319         $ 31,255