SYKES ENTERPRISES INC, 10-Q filed on 5/10/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2012
May 2, 2012
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
SYKES ENTERPRISES INC 
 
Entity Central Index Key
0001010612 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2012 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
43,937,450 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 196,037 
$ 211,122 
Receivables, net
248,398 
229,702 
Prepaid expenses
16,417 
11,540 
Other current assets
21,371 
20,120 
Assets held for sale, discontinued operations
 
9,590 
Total current assets
482,223 
482,074 
Property and equipment, net
87,028 
91,080 
Goodwill
122,803 
121,342 
Intangibles, net
42,943 
44,472 
Deferred charges and other assets
32,001 
30,162 
Total assets
766,998 
769,130 
Current liabilities:
 
 
Accounts payable
21,880 
23,109 
Accrued employee compensation and benefits
64,180 
62,452 
Current deferred income tax liabilities
353 
663 
Income taxes payable
1,727 
423 
Deferred revenue
34,116 
34,319 
Other accrued expenses and current liabilities
22,579 
21,191 
Liabilities held for sale, discontinued operations
 
7,128 
Total current liabilities
144,835 
149,285 
Deferred grants
8,313 
8,563 
Long-term income tax liabilities
27,173 
26,475 
Other long-term liabilities
11,353 
11,241 
Total liabilities
191,674 
195,564 
Commitments and contingency (Note 15)
   
   
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 44,069 and 44,306 shares issued, respectively
441 
443 
Additional paid-in capital
276,694 
281,157 
Retained earnings
287,703 
291,803 
Accumulated other comprehensive income
13,722 
4,436 
Treasury stock at cost: 222 shares and 299 shares, respectively
(3,236)
(4,273)
Total shareholders' equity
575,324 
573,566 
Total liabilities and shareholders' equity
$ 766,998 
$ 769,130 
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Condensed 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
44,069 
44,306 
Treasury stock, shares
222 
299 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Condensed Consolidated Statements of Operations [Abstract]
 
 
Revenues
$ 278,098 
$ 299,450 
Operating expenses:
 
 
Direct salaries and related costs
178,500 
194,091 
General and administrative
84,759 
88,720 
Impairment of long-lived assets
149 
726 
Total operating expenses
263,408 
283,537 
Income from continuing operations
14,690 
15,913 
Other income (expense):
 
 
Interest income
364 
280 
Interest (expense)
(316)
(267)
Other (expense)
(601)
(1,565)
Total other income (expense)
(553)
(1,552)
Income from continuing operations before income taxes
14,137 
14,361 
Income taxes
3,367 
572 
Income from continuing operations, net of taxes
10,770 
13,789 
(Loss) from discontinued operations, net of taxes
(820)
(611)
(Loss) on sale of discontinued operations, net of taxes
(10,707)
 
Net income (loss)
$ (757)
$ 13,178 
Basic:
 
 
Continuing operations
$ 0.25 
$ 0.29 
Discontinued operations
$ (0.27)
$ (0.01)
Net income (loss) per common share
$ (0.02)
$ 0.28 
Diluted:
 
 
Continuing operations
$ 0.25 
$ 0.29 
Discontinued operations
$ (0.27)
$ (0.01)
Net income (loss) per common share
$ (0.02)
$ 0.28 
Weighted average common shares:
 
 
Basic
43,309 
46,409 
Diluted
43,409 
46,577 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Condensed Consolidated Statements of Comprehensive Income [Abstract]
 
 
Net income (loss)
$ (757)
$ 13,178 
Other comprehensive income (loss), net of taxes:
 
 
Foreign currency translation adjustment, net of taxes
7,129 
6,534 
Unrealized actuarial gain (loss) related to pension liability, net of taxes
85 
Unrealized gain (loss) on cash flow hedging instruments, net of taxes
2,133 
(626)
Unrealized gain (loss) on postretirement obligation, net of taxes
15 
17 
Other comprehensive income (loss), net of taxes
9,286 
6,010 
Comprehensive income
$ 8,529 
$ 19,188 
Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $)
In Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Beginning Balance at Dec. 31, 2010
$ 583,195 
$ 471 
$ 302,911 
$ 265,676 
$ 15,108 
$ (971)
Beginning Balance, shares at Dec. 31, 2010
 
47,066 
 
 
 
 
Stock-based compensation expense
1,750 
 
1,750 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
32 
 
32 
 
 
 
Vesting of common stock and restricted stock under equity award plans
(1,190)
(1,070)
 
 
(123)
Vesting of common stock and restricted stock under equity award plans, shares
 
264 
 
 
 
 
Repurchase of common stock
(5,512)
 
 
 
 
(5,512)
Retirement of treasury stock
 
(3)
(2,400)
(3,109)
 
5,512 
Retirement of treasury stock, shares
 
(300)
 
 
 
 
Comprehensive income (loss)
19,188 
 
 
13,178 
6,010 
 
Ending Balance at Mar. 31, 2011
597,463 
471 
301,223 
275,745 
21,118 
(1,094)
Ending Balance, shares at Mar. 31, 2011
 
47,030 
 
 
 
 
Issuance of common stock
311 
 
311 
 
 
 
Issuance of common stock, shares
 
33 
 
 
 
 
Stock-based compensation expense
1,832 
 
1,832 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(40)
 
(40)
 
 
 
Vesting of common stock and restricted stock under equity award plans
 
 
91 
 
 
(91)
Vesting of common stock and restricted stock under equity award plans, shares
 
29 
 
 
 
 
Repurchase of common stock
(44,481)
 
 
 
 
(44,481)
Retirement of treasury stock
 
(28)
(22,260)
(19,105)
 
41,393 
Retirement of treasury stock, shares
 
(2,786)
 
 
 
 
Comprehensive income (loss)
18,481 
 
 
35,163 
(16,682)
 
Ending Balance at Dec. 31, 2011
573,566 
443 
281,157 
291,803 
4,436 
(4,273)
Ending Balance, shares at Dec. 31, 2011
 
44,306 
 
 
 
 
Stock-based compensation expense
1,119 
 
1,119 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(278)
 
(278)
 
 
 
Vesting of common stock and restricted stock under equity award plans
(1,412)
(1,309)
 
 
(106)
Vesting of common stock and restricted stock under equity award plans, shares
 
263 
 
 
 
 
Repurchase of common stock
(6,200)
 
 
 
 
(6,200)
Retirement of treasury stock
 
(5)
(3,995)
(3,343)
 
7,343 
Retirement of treasury stock, shares
 
(500)
 
 
 
 
Comprehensive income (loss)
8,529 
 
 
(757)
9,286 
 
Ending Balance at Mar. 31, 2012
$ 575,324 
$ 441 
$ 276,694 
$ 287,703 
$ 13,722 
$ (3,236)
Ending Balance, shares at Mar. 31, 2012
 
44,069 
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Cash flows from operating activities:
 
 
Net income (loss)
$ (757)
$ 13,178 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization, net
12,495 
14,232 
Impairment losses
149 
726 
Unrealized foreign currency transaction (gains) losses, net
80 
(1,439)
Stock-based compensation expense
1,119 
1,750 
Excess tax (benefit) from stock-based compensation
 
(32)
Deferred income tax provision (benefit)
(303)
113 
Net (gain) loss on disposal of property and equipment
(51)
150 
Bad debt expense
733 
51 
Unrealized (gains) losses on financial instruments, net
(577)
1,750 
Amortization of deferred loan fees
146 
146 
(Loss) on sale of discontinued operations
10,707 
 
Other
(101)
522 
Changes in assets and liabilities:
 
 
Receivables
(16,076)
(3,738)
Prepaid expenses
(4,269)
(3,444)
Other current assets
706 
(382)
Deferred charges and other assets
(1,929)
(13)
Accounts payable
(1,604)
(5,909)
Income taxes receivable / payable
(21)
(3,437)
Accrued employee compensation and benefits
17 
9,728 
Other accrued expenses and current liabilities
3,939 
(2,609)
Deferred revenue
(143)
(807)
Other long-term liabilities
(142)
(507)
Net cash provided by operating activities
4,118 
20,029 
Cash flows from investing activities:
 
 
Capital expenditures
(6,818)
(6,175)
Proceeds from sale of property and equipment
100 
Investment in restricted cash
(63)
(6)
Release of restricted cash
356 
 
Cash divested on sale of discontinued operations
(9,100)
 
Other
227 
 
Net cash (used for) investing activities
(15,298)
(6,172)
Cash flows from financing activities:
 
 
Excess tax benefit from stock-based compensation
 
32 
Cash paid for repurchase of common stock
(6,200)
(5,512)
Shares repurchased for minimum tax withholding on equity awards
(1,412)
(1,190)
Net cash (used for) financing activities
(7,612)
(6,670)
Effects of exchange rates on cash
3,707 
2,885 
Net increase (decrease) in cash and cash equivalents
(15,085)
10,072 
Cash and cash equivalents - beginning
211,122 
189,829 
Cash and cash equivalents - ending
196,037 
199,901 
Supplemental disclosures of cash flow information:
 
 
Cash paid during period for interest
306 
261 
Cash paid during period for income taxes
5,374 
6,821 
Non-cash transactions:
 
 
Property and equipment additions in accounts payable
1,671 
1,690 
Unrealized gain on postretirement obligation in accumulated other comprehensive income (loss)
$ 15 
$ 17 
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.

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 (the “Spanish operations”) as these operations were no longer consistent with the Company’s strategic direction. The Company sold its Spanish operations, pursuant to an asset purchase agreement dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. See Note 2, Discontinued Operations, for additional information on the sale of the Spanish operations.

Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2012. For further information, refer to the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (“SEC”).

Principles of Consolidation The condensed 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 condensed 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 condensed consolidated financial statements. Other than the credit agreement entered into on May 3, 2012 disclosed in Note 11, Borrowings, there were no material subsequent events that required recognition or disclosure in the accompanying condensed consolidated financial statements.

 

Recognition of Revenue The Company recognizes revenue in accordance with Accounting Standards Codification “ASC” 605 “Revenue Recognition”. The Company primarily recognizes 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.

Revenues from fulfillment services account for 1.2% and 1.5% of total consolidated revenues for the three months ended March 31, 2012 and 2011, respectively, some of which contain multiple-deliverables. The service offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 (“ASC 605-25”) “Revenue Recognition — Multiple-Element Arrangements” (as amended by Accounting Standards Update “ASU” 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force”), the Company determines if the services provided under these contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value, and where return rights exist, delivery or performance of the undelivered items is considered probable and substantially within our control. If those deliverables are determined to be separate units of accounting, revenues from these services are recognized as the services are performed under a fully executed contractual agreement. If those deliverables are not determined to be separate units of accounting, revenue for the delivered services are bundled into a single unit of accounting and recognized on the proportional performance method using the straight-line basis over the contract period, or the actual number of operational seats used to serve the client, as appropriate.

As a result of the adoption of ASU 2009-13, the Company allocates revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated selling price is based on the Company’s best estimate of what the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, service offerings, and customer classifications. Once the Company allocates revenue to each deliverable, the Company recognizes revenue when all revenue recognition criteria are met. As of March 31, 2012, the Company’s fulfillment contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was accounted for accordingly. The Company has no other contracts that contain multiple-deliverables as of March 31, 2012.

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.

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, sales prices of comparable assets or independent third party offers. Occasionally, the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the carrying amount of these assets. Except as discussed in Note 4, Fair Value, the Company determined that its property and equipment were not impaired as of March 31, 2012.

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. For goodwill and other intangible assets with indefinite lives not subject to amortization, the Company reviews goodwill and intangible assets at least annually in the third quarter, 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.

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.

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 condensed consolidated financial statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions.

The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying condensed consolidated financial statements.

Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees). All of these plans are discussed more fully in Note 17, 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 accompanying Condensed 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 assets and liabilities at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

 

Money Market and Open-End Mutual Funds The Company uses quoted market prices in active markets to determine the fair value of money market and open-end mutual funds, which are classified in Level 1 of the fair value hierarchy.

Foreign Currency Forward Contracts and Options The Company enters into foreign currency forward contracts and options over the counter and values such contracts using quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.

Investments Held in Rabbi 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 7, Investments Held in Rabbi Trusts, and Note 17, Stock-Based Compensation.

Guaranteed Investment Certificates Guaranteed investment certificates, with variable interest rates linked to the prime rate, approximate fair value due to the automatic ability to re-price with changes in the market; such items are classified in Level 2 of the fair value hierarchy.

Foreign Currency Translation The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income and expenses are translated at the weighted average exchange rate during the period. The net effect of translation gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency transactional gains and losses are included in “Other income (expense)” in the accompanying Condensed 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 Condensed 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 March 31, 2012 and December 31, 2011, 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 6, Financial Derivatives, for further information on financial derivative instruments.

New Accounting Standards Not Yet Adopted

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.

New Accounting Standards Recently 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 2011-12 (“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.

Discontinued Operations
Discontinued Operations

Note 2. Discontinued Operations

In November 2011, the Finance Committee of the Board of Directors of the Company approved a plan to sell its Spanish operations, which are operated through its Spanish subsidiary, Sykes Enterprises, Incorporated S.L. (“Sykes Spain”). Sykes Spain operates customer contact management centers, with annual revenues of approximately $39.3 million in 2011, providing contact center services through a total of three customer contact management centers in Spain to clients in Spain. The decision to sell the Spanish operations was made in 2011 after management completed a strategic review of the Spanish market and determined the operations were no longer consistent with the Company’s strategic direction.

On March 29, 2012, Sykes Spain entered into the asset purchase agreement, by and between Sykes Spain and Iberphone, S.A.U., and pursuant thereto, on March 29, 2012, Sykes Spain completed the sale of fixed assets located in Ponferrada, Spain, which were previously written down to zero, cash of $4.1 million, and certain contracts and licenses relating to the business of Sykes Spain, to Iberphone, S.A.U. Under the asset purchase agreement, Ponferrada, Spain employees were transferred to Iberphone S.A.U. who assumed certain payroll liabilities in the approximate amount of $1.7 million, and paid a nominal purchase price for the assets.

On March 30, 2012, the Company entered into a stock purchase agreement with a former member of Sykes Spain’s management, and pursuant thereto, on March 30, 2012, the Company completed the sale of all of the shares of capital stock of Sykes Spain to the purchaser for a nominal price. Pursuant to the stock purchase agreement, immediately prior to closing, the Company made a cash capital contribution of $8.6 million to Sykes Spain to cover a portion of Sykes Spain’s liabilities and to fund the $4.1 million of cash sold pursuant to the asset purchase agreement with Iberphone, S.A.U. discussed above. As this was a stock transaction, the Company anticipates no future obligation with regard to Sykes Spain and there are no material post closing obligations.

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

 

The results of the Spanish operations included in discontinued operations were as follows (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Revenues

  $ 10,102     $ 10,706  
   

 

 

   

 

 

 

(Loss) from discontinued operations before income taxes

  $ (820   $ (611

Income taxes (1) 

    —         —    
   

 

 

   

 

 

 

(Loss) from discontinued operations, net of taxes

  $ (820   $ (611
   

 

 

   

 

 

 

(Loss) on sale of discontinued operations before income taxes

  $ (10,707   $ —    

Income taxes (1) 

    —         —    
   

 

 

   

 

 

 

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

  $ (10,707   $ —    
   

 

 

   

 

 

 

 

(1)

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

The assets and liabilities of the Spanish operations in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2011 were as follows (in thousands):

 

         

Assets

       

Current assets:

       

Receivables, net

  $ 8,970  

Prepaid expenses

    23  
   

 

 

 

Total current assets

    8,993  

Deferred charges and other assets

    597  
   

 

 

 

Total assets (1)

    9,590  
   

 

 

 

Liabilities

       

Current liabilities:

       

Accounts payable

    1,191  

Accrued employee compensation and benefits

    4,592  

Deferred revenue

    335  

Other accrued expenses and current liabilities

    1,010  
   

 

 

 

Total current liabilities (2)

    7,128  
   

 

 

 

Total net assets

  $ 2,462  
   

 

 

 

 

(1)

Classified as current and included in “Assets held for sale, discontinued operations” in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2011.

(2)

Classified as current and included in “Liabilities held for sale, discontinued operations” in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2011.

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

Note 3. Costs Associated with Exit or Disposal Activities

Fourth Quarter 2011 Exit Plan

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

Americas

During 2011, as part of an on-going effort to streamline excess capacity related to the integration of the ICT Group, Inc. (“ICT”) acquisition and align it with the needs of the market, the Company announced a plan to rationalize approximately 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, 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 March 31, 2012. No cash has been paid through March 31, 2012 for the program transfer costs or facility-related costs.

EMEA

During 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, 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 $1.1 million in cash through March 31, 2012 for severance-related and legal-related costs.

 

The following tables summarize the accrued liability associated with EMEA’s Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges (none in 2011) (in thousands):

 

                                                         
    Beginning
Accrual at
January 1, 2012
    Charges (Reversals)
for the Three Months
Ended March 31,  2012 (1)
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual at
March 31, 2012
    Short-term  (3)     Long-term  

Lease obligations and
facility exit costs

  $ 577     $ —       $ —       $ 18     $ 595     $ 595     $ —    

Severance and related
costs

    4,470       948       (367     168       5,219       5,219       —    

Legal-related costs

    13       51       (51     1       14       14       —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 5,060     $ 999     $ (418   $ 187     $ 5,828     $ 5,828     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

During the three months ended March 31, 2012, the Company recorded additional severance and related costs and legal-related costs, which are included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations.

(2)

Effect of foreign currency translation.

(3)

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

Fourth Quarter 2010 Exit Plan

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

The major costs incurred as a result of these actions were facility-related costs (primarily consisting of those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and equipment) and severance-related costs totaling $2.2 million as of March 31, 2012 ($2.2 million as of December 31, 2011). The Company recorded $0.2 million of the costs associated with the Fourth Quarter 2010 Exit Plan as non-cash impairment charges. 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 $1.2 million in cash through March 31, 2012 for facility-related and severance-related costs.

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

 

                                                         
    Beginning
Accrual at
January 1, 2012
    Charges (Reversals)
for the Three Months
Ended March 31,  2012
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual  at
March 31, 2012
    Short-term  (3)     Long-term  (4)  

Lease obligations and
facility exit costs

  $ 835     $ —       $ (96   $ 25     $ 764     $ 402     $ 362  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
               
    Beginning
Accrual at
January 1, 2011
    Charges (Reversals)
for the Three Months
Ended March 31,  2011 (1)
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual at
March 31, 2011
    Short-term     Long-term  

Lease obligations and
facility exit costs

  $ 1,711     $ 70     $ (387   $ 58     $ 1,452     $ 567     $ 885  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

During the three months ended March 31, 2011, the Company recorded additional lease termination costs related to the Ireland customer contact management center, which is included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations.

(2)

Effect of foreign currency translation.

(3)

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

(4)

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

Third Quarter 2010 Exit Plan

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

The major costs incurred as a result of these actions were impairments of long-lived assets (primarily leasehold improvements) and facility-related costs (primarily consisting of those costs associated with the real estate leases) estimated at $10.5 million as of March 31, 2012 ($10.5 million as of December 31, 2011), all of which are in the Americas segment. 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 Condensed Consolidated Statement of Operations for the three months ended March 31, 2011 (see Note 4, 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 $3.8 million in cash through March 31, 2012 related to these facility-related costs.

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

 

                                                         
    Beginning
Accrual at
January 1, 2012
    Charges (Reversals)
for the Three Months
Ended March 31,  2012
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual at
March 31, 2012
    Short-term  (3)     Long-term  (4)  

Lease obligations and
facility exit costs

  $ 3,427     $ —       $ (477   $ —       $ 2,950     $ 523     $ 2,427  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
               
    Beginning
Accrual at
January 1, 2011
    Charges (Reversals)
for the Three Months
Ended March 31, 2011  (1)
    Cash
Payments
    Other Non-Cash
Changes (2)
    Ending Accrual
at March 31, 2011
    Short-term     Long-term  

Lease obligations and
facility exit costs

  $ 6,141     $ 220     $ (742   $ —       $ 5,619     $ 1,953     $ 3,666  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

During the three months ended March 31, 2011, the Company recorded additional lease termination costs related to one of the Philippine customer contact management centers, which is included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations.

(2)

Effect of foreign currency translation.

(3)

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

(4)

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

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 paid $1.9 million in cash related to the ICT Restructuring Plan through December 31, 2011, the date at which the ICT Restructuring Plan concluded.

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

 

                                                         
    Beginning
Accrual at
January 1, 2011
    Charges (Reversals)
for the Three Months

Ended March 31, 2011 (1)
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual at
March  31, 2011
    Short-term     Long-term  

Lease obligations and
facility exit costs

  $ 1,462     $ (262   $ (426   $ 43     $ 817     $ 817       —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

During the three months ended March 31, 2011, the Company reversed accruals related to the final settlement of termination costs, which reduced “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations.

(2)

Effect of foreign currency translation.

 

Fair Value
Fair Value

Note 4. Fair Value

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

 

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

Assets:

                               

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

  $ 62,409     $ 62,409     $ —       $  —    

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

    12       12       —         —    

Foreign currency forward contracts (2)

    1,839       —         1,839       —    

Foreign currency option contracts (2)

    779       —         779       —    

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

    3,502       3,502       —         —    

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

    1,329       1,329       —         —    

Guaranteed investment certificates (4)

    65       —         65       —    
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 69,935     $ 67,252     $ 2,683     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

                               

Foreign currency forward contracts (5)

  $ 1     $ —       $ 1     $ —    

Foreign currency option contracts (5)

    6       —         6       —    
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 7     $ —       $ 7     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

In the accompanying Condensed Consolidated Balance Sheet.

(2) 

Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 6.

(3) 

Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7.

(4) 

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

(5) 

Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet. See Note 6.

 

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

 

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

  $ 267     $ —       $ 267     $ —    

Foreign currency option contracts (5)

    485       —         485       —    
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 752     $ —       $ 752     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

In the accompanying Condensed Consolidated Balance Sheet.

(2) 

Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 6.

(3) 

Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7.

(4) 

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

(5) 

Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet. See Note 6.

Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with acquired businesses, including goodwill, other intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be impaired. The 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):

 

                 
    March 31, 2012     December 31, 2011  

Americas:

               

Property and equipment, net

  $ 75,930     $ 79,874  
   

 

 

   

 

 

 

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 (Loss)  
    Three Months Ended March 31,  
    2012     2011  

Americas:

               

Property and equipment, net (1)

  $ (149 )    $ (726
   

 

 

   

 

 

 

 

(1)

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

 

Impairment of Long-Lived Assets

During the three months ended March 31, 2012, 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 closed one of the customer contact management centers in Costa Rica and recorded an impairment charge of $0.1 million within the Americas segment as these assets were unable to be redeployed. The amount of the impairment charge was measured as the amount by which the carrying value of the assets exceeded the estimated fair value, which was based on an independent third party offer less estimated selling costs.

During the three months ended March 31, 2011, in connection with the Third Quarter 2010 Exit Plan within the Americas segment, as discussed more fully in Note 3, 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. The amount of the impairment charge was measured as the amount by which the carrying value of the assets exceeded the estimated fair value, which was based on an independent third party offer less estimated selling costs.

Intangible Assets
Intangible Assets

Note 5. Intangible Assets

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

 

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

Customer relationships

  $ 58,465     $ (15,990   $ 42,475       8  

Trade name

    1,000       (639     361       3  

Non-compete agreements

    560       (560     —         1  

Proprietary software

    850       (743     107       2  
   

 

 

   

 

 

   

 

 

         
    $ 60,875     $ (17,932   $ 42,943       8  
   

 

 

   

 

 

   

 

 

         

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

 

                 
    Three Months Ended March 31,  
    2012     2011  

Amortization expense

  $ 1,861     $ 2,047  
   

 

 

   

 

 

 

 

 

The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to March 31, 2012, is as follows (in thousands):

 

         

Years Ending December 31,

  Amount  

2012 (remaining nine months)

  $ 5,877  

2013

    7,340  

2014

    7,278  

2015

    7,275  

2016

    7,275  

2017

    7,275  

2018 and thereafter

    623  
Financial Derivatives
Financial Derivatives

Note 6. 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 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 Condensed Consolidated Balance Sheets are as follows (in thousands):

 

                 
    March 31, 2012     December 31, 2011  

Deferred gains (losses) in AOCI

  $ 1,740     $ (670

Tax on deferred gains (losses) in AOCI

    (45     232  
   

 

 

   

 

 

 

Deferred gains (losses), net of taxes in AOCI

  $ 1,695     $ (438
   

 

 

   

 

 

 

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

  $ 1,740          
   

 

 

         

Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts and options.

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):

 

                                 
    As of March 31, 2012     As of December 31, 2011  

Contract Type

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

Cash flow hedges: (1)

                               

Options:

                               

Philippine Pesos

  $ 65,500       November 2012     $ 85,500       September 2012  
         

Forwards:

                               

Philippine Pesos

  $ 4,500       June 2012     $ 12,000       March 2012  

Costa Rican Colones

  $ 31,500       December 2012     $ 30,000       September 2012  
         

Non-designated hedges: (2)

                               

Forwards

  $ 26,539       June 2012     $ 27,192       March 2012  

 

(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 March 31, 2012, 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 $2.6 million.

 

The following tables present the fair value of the Company’s derivative instruments included in the accompanying Condensed Consolidated Balance Sheets (in thousands):

 

                         
    Derivative Assets  
    March 31, 2012     December 31, 2011  
    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
  $ 1,677     Other current
assets
  $ 530  

Foreign currency options

  Other current
assets
    779     Other current
assets
    174  
       

 

 

       

 

 

 
          2,456           704  

Derivatives not designated as hedging instruments under ASC 815:

                       

Foreign currency forward contracts

  Other current
assets
    162     Other current
assets
    6  
       

 

 

       

 

 

 

Total derivative assets

      $ 2,618         $ 710  
       

 

 

       

 

 

 
   
    Derivative Liabilities  
    March 31, 2012     December 31, 2011  
    Balance Sheet
Location
  Fair Value     Balance Sheet
Location
  Fair Value  

Derivatives designated as cash flow hedging instruments under ASC 815:

                       

Foreign currency options

  Other accrued
expenses and
current liabilities
  $ 6     Other accrued
expenses and
current liabilities
  $ 485  
       

 

 

       

 

 

 
          6           485  

Derivatives not designated as hedging instruments under ASC 815:

                       

Foreign currency forward contracts

  Other accrued

expenses and

current liabilities

    1     Other accrued
expenses and
current liabilities
    267  
       

 

 

       

 

 

 

Total derivative liabilities

      $ 7         $ 752  
       

 

 

       

 

 

 

 

The following tables present the effect of the Company’s derivative instruments included in the accompanying condensed 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)
 
    March 31,           March 31,     March 31,  
    2012     2011           2012     2011     2012     2011  

Derivatives designated as cash flow hedging instruments under ASC 815:

                                                       

Foreign currency forward contracts

  $ 1,689     $ 378       Revenues     $ 546     $ 34     $ 14     $ —    

Foreign currency option contracts

    985       (650     Revenues       (306     498       —         —    
   

 

 

   

 

 

           

 

 

   

 

 

   

 

 

   

 

 

 
    $ 2,674     $ (272           $ 240     $ 532     $ 14     $ —    
   

 

 

   

 

 

           

 

 

   

 

 

   

 

 

   

 

 

 

 

                     
        Gain (Loss) Recognized  
    Statement of   in Income on Derivatives  
    Operations   March 31,  
    Location   2012     2011  

Derivatives not designated as hedging instruments under ASC 815:

                   
    Other income                

Foreign currency forward contracts

  and (expense)   $ 153     $ (2,289
       

 

 

   

 

 

 
        $ 153     $ (2,289
       

 

 

   

 

 

 
Investments Held in Rabbi Trusts
Investments Held in Rabbi Trusts

Note 7. 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 Condensed Consolidated Balance Sheets, at fair value, consist of the following (in thousands):

 

                                 
    March 31, 2012     December 31, 2011  
    Cost     Fair Value     Cost     Fair Value  

Mutual funds

  $ 4,303     $ 4,831     $ 3,938     $ 4,182  
   

 

 

   

 

 

   

 

 

   

 

 

 

The mutual funds held in the rabbi trusts were 72% equity-based and 28% debt-based as of March 31, 2012. Net investment income (losses), included in “Other income (expense)” in the accompanying Condensed Consolidated Statements of Operations consists of the following (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Gross realized gains from sale of trading securities

  $ 81     $ 2  

Gross realized (losses) from sale of trading securities

    (1     —    

Dividend and interest income

    7       5  

Net unrealized holding gains (losses)

    359       154  
   

 

 

   

 

 

 

Net investment income (losses)

  $ 446     $ 161  
   

 

 

   

 

 

 

 

Property and Equipment
Property and Equipment

Note 8. Property and Equipment

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. No additional funds are expected.

Deferred Revenue
Deferred Revenue

Note 9. Deferred Revenue

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

 

                 
    March 31, 2012     December 31, 2011  

Future service

  $ 25,716     $ 25,809  

Estimated potential penalties and holdbacks

    8,400       8,510  
   

 

 

   

 

 

 
    $ 34,116     $ 34,319  
   

 

 

   

 

 

 
Deferred Grants
Deferred Grants

Note 10. Deferred Grants

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

 

                 
    March 31, 2012     December 31, 2011  

Property grants

  $ 7,975     $ 8,210  

Employment grants

    1,132       1,123  
   

 

 

   

 

 

 

Total deferred grants

    9,107       9,333  

Less: Property grants - short-term (1) 

    —         —    

Less: Employment grants - short-term (1)

    (794     (770
   

 

 

   

 

 

 

Total long-term deferred grants (2)

  $ 8,313     $ 8,563  
   

 

 

   

 

 

 

 

(1)

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

(2)

Included in “Deferred grants” in the accompanying Condensed Consolidated Balance Sheets.

Amortization of the Company’s property grants included as a reduction to “General and administrative” costs and amortization of the Company’s employment grants included as a reduction to “Direct salaries and related costs” in the accompanying Condensed Consolidated Statements of Operations consist of the following (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Amortization of property grants

  $ 235     $  253  

Amortization of employment grants

    18       18  
   

 

 

   

 

 

 
    $ 253     $ 271  
   

 

 

   

 

 

 

 

Borrowings
Borrowings

Note 11. Borrowings

The Company had no outstanding borrowings as of March 31, 2012 and December 31, 2011.

On May 3, 2012, the Company entered into a $245 million revolving credit facility (the “New Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent (“KeyBank”). The New Credit Agreement replaces the Company’s previous $75 million revolving credit facility dated February 2, 2010, as amended, which agreement was terminated simultaneous with entering into the New Credit Agreement. The New Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants.

The New Credit Agreement includes a $184 million alternate-currency sub-facility, a $10 million swingline sub-facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be available to the Company, even though it is a binding commitment of the financial institutions. The New Credit Agreement will mature on May 2, 2017.

Borrowings under the New Credit Agreement will bear interest at either LIBOR or the base rate plus, in each case, an applicable margin based on the Company’s leverage ratio. The applicable interest rate will be determined quarterly based on the Company’s leverage ratio at such time. The base rate is a rate per annum equal to the greatest of (i) the rate of interest established by KeyBank, from time to time, as its “prime rate”; (ii) the Federal Funds effective rate in effect from time to time, plus 1/2 of 1% per annum; and (iii) the then-applicable LIBOR rate for one month interest periods, plus 1.00%. Swingline loans will bear interest only at the base rate plus the base rate margin. In addition, the Company is required to pay certain customary fees, including a commitment fee of 0.175%, which is due quarterly in arrears and calculated on the average unused amount of the New Credit Agreement.

The New Credit Agreement is guaranteed by all of the Company’s existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the direct foreign subsidiaries of the Company and those of the guarantors.

Interest expense and amortization of deferred loan fees on the Company’s previous $75 million revolving credit facility of $0.3 million are included in “Interest expense” in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011.

 

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

Note 12. Accumulated Other Comprehensive Income (Loss)

The Company presents data in the Condensed Consolidated Statements of Changes in Shareholders’ Equity in accordance with ASC 220 (“ASC 220”) “Comprehensive Income”. ASC 220 establishes rules for the reporting of comprehensive income (loss) and its components. The components of accumulated other comprehensive income (loss) consist of the following (in thousands):

 

                                                 
    Foreign
Currency
Translation
Adjustment
    Unrealized
(Loss) on Net
Investment
Hedge
    Unrealized
Actuarial Gain
(Loss) Related
to Pension
Liability
    Unrealized
Gain (Loss) on
Cash Flow
Hedging
Instruments
    Unrealized
Gain (Loss) on
Post
Retirement
Obligation
    Total  

Balance at January 1, 2011

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

Pre-tax amount

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

Tax benefit

    —         —         34       759       —         793  

Reclassification to net loss

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

Foreign currency translation

    5       —         1       (6     —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    5,995       (2,565     985       (438     459       4,436  

Pre-tax amount

    7,105       —         —         2,688       28       9,821  

Tax benefit

    —         —         —         (281     —         (281

Reclassification to net income

    25       —         (12     (254     (13     (254

Foreign currency translation

    (1     —         21       (20     —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

  $ 13,124     $ (2,565   $ 994     $ 1,695     $ 474     $ 13,722  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Except as discussed in Note 13, Income Taxes, earnings associated with the Company’s investments in its subsidiaries are considered to be indefinitely invested and no provision for income taxes on those earnings or translation adjustments have been provided.

Income Taxes
Income Taxes

Note 13. Income Taxes

The Company’s effective tax rate was 23.8% and 4.0% for the three months ended March 31, 2012 and 2011, respectively. The quarter-over-quarter variance in the effective tax rate is primarily due to tax benefits recognized in the 2011 comparable period principally resulting from a favorable resolution of a tax audit. The difference between the Company’s effective tax rate of 23.8% as compared to the U.S. statutory federal income tax rate of 35.0% was primarily due to the recognition of tax benefits resulting from income earned in certain tax holiday jurisdictions, foreign tax rate differentials and tax credits, offset by the tax impact of permanent differences, adjustments of valuation allowances and foreign withholding taxes.

The liability for unrecognized tax benefits is recorded as “Long-term income tax liabilities” in the accompanying Condensed Consolidated Balance Sheets. The Company has accrued $17.6 million at March 31, 2012, and $17.1 million at December 31, 2011, excluding penalties and interest. The $0.5 million increase relates primarily to unfavorable foreign exchange rate fluctuations.

Generally, earnings associated with the investments in the Company’s foreign subsidiaries are considered to be indefinitely invested outside of the U.S. Therefore, a U.S. provision for income taxes on those earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740. Determination of any unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in nature is not practicable.

In addition, the U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals” in February 2012. These proposals represent a significant shift in international tax policy, which may materially impact U.S. taxation of international earnings. The Company continues to monitor these proposals and is currently evaluating their potential impact on its financial condition, results of operations, and cash flows.

 

The Company is currently under audit in several tax jurisdictions. Although the outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved for these audits and that resolutions of them are not expected to have a material impact on its financial condition and results of operations. The significant tax jurisdictions currently under audit are as follows:

 

         

Tax Jurisdiction

  Tax Year Ended  

Canada

    2003 to 2009  

Philippines

    2007 to 2010  
Earnings Per Share
Earnings Per Share

Note 14. Earnings Per Share

Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the respective periods and the further dilutive effect, if any, from stock options, stock appreciation rights, restricted stock, restricted stock units and shares held in a rabbi trusts using the treasury stock method.

The numbers of shares used in the earnings per share computation are as follows (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Basic:

               

Weighted average common shares outstanding

    43,309       46,409  

Diluted:

               

Dilutive effect of stock options, stock appreciation rights, restricted stock, restricted stock units and shares held in a rabbi trust

    100       168  
   

 

 

   

 

 

 

Total weighted average diluted shares outstanding

    43,409       46,577  
   

 

 

   

 

 

 

Anti-dilutive shares excluded from the diluted earnings per share calculation

    340       167  
   

 

 

   

 

 

 

On August 18, 2011, the Company’s Board authorized the Company to purchase up to 5.0 million shares of its outstanding common stock (the “2011 Share Repurchase Program”). A total of 2.9 million shares have been repurchased under the 2011 Share Repurchase Program since inception. The shares are purchased, from time to time, through open market purchases or in negotiated private transactions, and the purchases are based on factors, including but not limited to, the stock price and general market conditions. The 2011 Share Repurchase Program has no expiration date. The Company’s Board previously authorized the Company on August 5, 2002 to purchase up to 3.0 million shares of its outstanding common stock, the last of which were repurchased during 2011.

The shares repurchased under the Company’s share repurchase programs were as follows (in thousands, except per share amounts):

 

                                 
    Total Number
of Shares
Repurchased
          Total Cost of
Shares
Repurchased
 
      Range of Prices Paid Per Share    
      Low     High    

Three Months Ended:

                               

March 31, 2012

    423     $ 13.85     $ 15.00     $ 6,200  

March 31, 2011

    300     $ 18.24     $ 18.53     $ 5,512  

 

Commitments and Contingency
Commitments and Contingency

Note 15. Commitments and Contingency

Commitments

There have not been any material changes to the outstanding contractual obligations from the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2011.

Contingency

The Company from time to time is involved in legal actions arising in the ordinary course of business. With respect to these matters, management believes that it has adequate legal defenses and/or when possible and appropriate, provided adequate accruals related to those matters such that the ultimate outcome will not have a material adverse effect on the Company’s financial position or results of operations.

Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plan and Postretirement Benefits

Note 16. Defined Benefit Pension Plan and Postretirement Benefits

Defined Benefit Pension Plans

The following table provides information about the net periodic benefit cost for the pension plans (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Service cost

  $ 93     $ 19  

Interest cost

    30       25  

Recognized actuarial (gains)

    (12     (14
   

 

 

   

 

 

 

Net periodic benefit cost

  $ 111     $ 30  
   

 

 

   

 

 

 

Employee Retirement Savings Plans

The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements. Under the plan provisions, the Company matches 50% of participant contributions to a maximum matching amount of 2% of participant compensation. The Company’s contributions included in the accompanying Condensed Consolidated Statement of Operations were as follows (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

401(k) plan contributions

  $ 409     $ 294  
   

 

 

   

 

 

 

Split-Dollar Life Insurance Arrangement

In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands):

 

                 
    March 31, 2012     December 31, 2011  

Postretirement benefit obligation

  $ 99     $ 114  

Unrealized gains (losses) in AOCI (1)

    474       459  

 

(1)

Unrealized gains (losses) are due to changes in discount rates related to the postretirement obligation.

Stock-Based Compensation
Stock-Based Compensation

Note 17. Stock-Based Compensation

The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the 2004 Non-Employee Director Fee Plan and the Deferred Compensation Plan. The following table summarizes the stock-based compensation expense (primarily in the Americas), income tax benefits related to the stock-based compensation and excess tax benefits (deficiency) (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Stock-based compensation (expense) (1)

  $ (1,119   $ (1,750

Income tax benefit (2)

    436       683  

Excess tax benefit (deficiency) from stock-based compensation (3)

    (278     32  

 

(1) 

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

(2) 

Included in “Income taxes” in the accompanying Condensed Consolidated Statements of Operations.

(3) 

Included in “Additional paid-in capital” in the accompanying Condensed Consolidated Statements of Changes in Shareholder’s Equity.

There were no capitalized stock-based compensation costs as of March 31, 2012 and December 31, 2011.

2011 Equity Incentive Plan The Board adopted the Sykes Enterprises, Incorporated 2011 Equity Incentive Plan (the “2011 Plan”) on March 23, 2011, as amended on May 11, 2011 to reduce the number of shares of common stock available to 4.0 million shares. The 2011 Plan was approved by the shareholders at the May 2011 Annual Meeting. The 2011 Plan replaced and superseded the Company’s 2001 Equity Incentive Plan (the “2001 Plan”), which expired on March 14, 2011. The outstanding awards granted under the 2001 Plan will remain in effect until their exercise, expiration or termination. The 2011 Plan permits the grant of stock options, stock appreciation rights and other stock-based awards to certain employees of the Company, and certain non-employees who provide services to the Company in order to encourage them to remain in the employment of or to faithfully provide services to the Company and to increase their interest in the Company’s success.

Stock OptionsStock options are granted at fair market value on the date of the grant and generally vest over one to four years. All stock options granted under the 2001 Plan expire if not exercised by the tenth anniversary of their grant date (none granted under the 2011 Plan). The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses various assumptions.

The following table summarizes stock option activity as of March 31, 2012 and for the three months then ended:

 

                                 

Stock Options

  Shares (000s)     Weighted
Average Exercise
Price
    Weighted
Average
Remaining
Contractual
Term (in years)
    Aggregate
Intrinsic Value
(000s)
 

Outstanding at January 1, 2012

    10     $ 5.89                  

Granted

    —       $ —                    

Exercised

    —       $ —                    

Forfeited or expired

    —       $ —                    
   

 

 

                         

Outstanding at March 31, 2012

    10     $ 5.89       1.3     $ 99  
   

 

 

   

 

 

   

 

 

   

 

 

 

Vested or expected to vest at March 31, 2012

    10     $ 5.89       1.3     $ 99  
   

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable at March 31, 2012

    10     $ 5.89       1.3     $ 99  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following table summarizes information regarding stock options granted and exercised (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Number of stock options granted

    —         —    

Number of stock options exercised

    —         —    

Intrinsic value of stock options exercised

  $ —       $ —    

Cash received upon exercise of stock options

  $ —       $ —    

All stock options were fully vested as of December 31, 2006 and there is no unrecognized compensation cost as of March 31, 2012 related to the stock options (the effect of estimated forfeitures is not material).

Stock Appreciation RightsStock appreciation rights (“SARs”) represent the right to receive, without payment to the Company, a certain number of shares of common stock, as determined by the Committee, equal to the amount by which the fair market value of a share of common stock at the time of exercise exceeds the grant price. The SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date. The SARs have a term of 10 years from the date of grant. The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses various assumptions.

The following table summarizes the assumptions used to estimate the fair value of SARs granted:

 

                 
    Three Months Ended March 31,  
    2012     2011  

Expected volatility

    47.1     44.3

Weighted-average volatility

    47.1     44.3

Expected dividend rate

    0.0     0.0

Expected term (in years)

    4.7       4.6  

Risk-free rate

    0.8     2.0

The following table summarizes SARs activity as of March 31, 2012 and for the three months then ended:

 

                                 

Stock Appreciation Rights

  Shares (000s)     Weighted
Average Exercise
Price
    Weighted
Average
Remaining
Contractual
Term (in years)
    Aggregate
Intrinsic Value
(000s)
 

Outstanding at January 1, 2012

    657     $ —                    

Granted

    259     $ —                    

Exercised

    —       $ —                    

Forfeited or expired

    —       $ —                    
   

 

 

                         

Outstanding at March 31, 2012

    916     $ —         8.1     $ 186  
   

 

 

   

 

 

   

 

 

   

 

 

 

Vested or expected to vest at March 31, 2012

    916     $ —         8.1     $ 186  
   

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable at March 31, 2012

    470     $ —         6.8     $ 33  
   

 

 

   

 

 

   

 

 

   

 

 

 

The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR amounts):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Number of SARs granted

    259       215  

Weighted average grant-date fair value per SAR

  $ 5.97     $ 7.10  

Intrinsic value of SARs exercised

  $ —       $ 591  

Fair value of SARs vested

  $ 1,388     $ —    

 

The following table summarizes nonvested SARs activity as of March 31, 2012 and for the three months then ended:

 

                 

Nonvested Stock Appreciation Rights

  Shares (000s)     Weighted
Average Grant-
Date Fair Value
 

Nonvested at January 1, 2012

    362     $ 7.90  

Granted

    259     $ 5.97  

Vested

    (175   $ 7.98  

Forfeited or expired

    —       $ —    
   

 

 

         

Nonvested at March 31, 2012

    446     $ 6.74  
   

 

 

         

As of March 31, 2012, there was $2.8 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested SARs granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period of 2.3 years.

Restricted SharesThe Company’s Board of Directors approves awards of performance and employment-based restricted shares (“restricted shares”) for eligible participants. In some instances, where the issuance of restricted shares has adverse tax consequences to the recipient, the Board will instead issue restricted stock units (“RSUs”). The restricted shares are shares of the Company’s common stock (or in the case of RSUs, represent an equivalent number of shares of the Company’s common stock) which are issued to the participant subject to (a) restrictions on transfer for a period of time and (b) forfeiture under certain conditions. The performance goals, including revenue growth and income from operations targets, provide a range of vesting possibilities from 0% to 100% and will be measured at the end of the performance period. If the performance conditions are met for the performance period, the shares will vest and all restrictions on the transfer of the restricted shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common stock will be issued to the recipient). The Company recognizes compensation cost, net of estimated forfeitures based on the fair value (which approximates the current market price) of the restricted shares (and RSUs) on the date of grant ratably over the requisite service period based on the probability of achieving the performance goals.

Changes in the probability of achieving the performance goals from period to period will result in corresponding changes in compensation expense. The employment-based restricted shares vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date.

The following table summarizes nonvested restricted shares/RSUs activity as of March 31, 2012 and for the three months then ended:

 

                 

Nonvested Restricted Shares and RSUs

  Shares (000s)     Weighted
Average Grant-
Date Fair Value
 

Nonvested at January 1, 2012

    793     $ 20.39  

Granted

    420     $ 15.21  

Vested

    (195   $ 19.74  

Forfeited or expired

    (64   $ 19.78  
   

 

 

         

Nonvested at March 31, 2012

    954     $ 18.27  
   

 

 

         

The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands, except per restricted share/RSU amounts):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Number of restricted shares/RSUs granted

    420       328  

Weighted average grant-date fair value per restricted share/RSU

  $ 15.21     $ 18.67  

Fair value of restricted shares/RSUs vested

  $ 3,845     $ 3,839  

As of March 31, 2012, based on the probability of achieving the performance goals, there was $17.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted shares/RSUs granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period of 2.7 years.

2004 Non-Employee Director Fee Plan The Company’s 2004 Non-Employee Director Fee Plan (the “2004 Fee Plan”), as amended on May 20, 2011, provides that all new non-employee directors joining the Board will receive an initial grant of shares of common stock on the date the new director is elected or appointed, the number of which will be determined by dividing $60,000 by the closing price of the Company’s common stock on the trading day immediately preceding the date a new director is elected or appointed, rounded to the nearest whole number of shares. The initial grant of shares vests in twelve equal quarterly installments, one-twelfth on the date of grant and an additional one-twelfth on each successive third monthly anniversary of the date of grant. The award lapses with respect to all unvested shares in the event the non-employee director ceases to be a director of the Company, and any unvested shares are forfeited.

The 2004 Fee Plan also provides that each non-employee director will receive, on the day after the annual shareholders meeting, an annual retainer for service as a non-employee director (the “Annual Retainer”). The Annual Retainer is $95,000, of which $50,000 is payable in cash, and the remainder paid in stock. The annual grant of cash vests in four equal quarterly installments, one-fourth on the day following the annual meeting of shareholders, and an additional one-fourth on each successive third monthly anniversary of the date of grant. The annual grant of shares paid to non-employee directors vests in eight equal quarterly installments, one-eighth on the day following the annual meeting of shareholders, and an additional one-eighth on each successive third monthly anniversary of the date of grant. The award lapses with respect to all unpaid cash and unvested shares in the event the non-employee director ceases to be a director of the company, and any unvested shares and unpaid cash are forfeited.

Prior to 2008, the grants were comprised of CSUs rather than shares of common stock. A CSU is a bookkeeping entry on the Company’s books that records the equivalent of one share of common stock.

The following table summarizes nonvested CSUs and share awards activity as of March 31, 2012 and for the three months then ended:

 

                 
          Weighted  
          Average Grant-  

Nonvested Common Stock Units and Share Awards

  Shares (000s)     Date Fair Value  

Nonvested at January 1, 2012

    16     $ 21.08  

Granted

    —       $ —    

Vested

    (6   $ 20.38  

Forfeited or expired

    —       $ —    
   

 

 

         

Nonvested at March 31, 2012

    10     $ 21.83  
   

 

 

         

The following table summarizes information regarding CSUs/share awards granted and vested (in thousands, except per CSU/share award amounts):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Number of CSUs/share awards granted

    —         —    

Weighted average grant-date fair value per CSU/share award

  $ —       $ —    

Fair value of CSUs/share awards vested

  $ 113     $ 112  

As of March 31, 2012, there was $0.2 million of total unrecognized compensation costs, net of estimated forfeitures, related to nonvested CSUs granted since March 2008 under the Plan. This cost is expected to be recognized over a weighted average period of 0.9 years.

Deferred Compensation Plan The Board adopted the Sykes Enterprises, Incorporated non-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) on December 17, 1998, which was amended on May 23, 2006. The Deferred Compensation Plan, which was not shareholder-approved, provides certain eligible employees the ability to defer any portion of their compensation until the participant’s retirement, termination, disability or death, or a change in control of the Company. Using the Company’s common stock, the Company matches 50% of the amounts deferred by certain senior management participants on a quarterly basis up to a total of $12,000 per year for the president and senior vice presidents and $7,500 per year for vice presidents (participants below the level of vice president are not eligible to receive matching contributions from the Company). Matching contributions and the associated earnings vest over a seven year service period. Deferred compensation amounts used to pay benefits, which are held in a rabbi trust, include investments in various mutual funds and shares of the Company’s common stock (See Note 7, Investments Held in Rabbi Trusts.) As of March 31, 2012 and December 31, 2011, liabilities of $4.8 million and $4.2 million, respectively, of the Deferred Compensation Plan were recorded in “Accrued employee compensation and benefits” in the accompanying Condensed Consolidated Balance Sheets.

Additionally, the Company’s common stock match associated with the Deferred Compensation Plan, with a carrying value of approximately $1.3 million and $1.2 million at March 31, 2012 and December 31, 2011, respectively, is included in “Treasury stock” in the accompanying Condensed Consolidated Balance Sheets.

The following table summarizes nonvested common stock activity as of March 31, 2012 and for the three months then ended:

 

                 
          Weighted  
          Average Grant-  

Nonvested Common Stock

  Shares (000s)     Date Fair Value  

Nonvested at January 1, 2012

    8     $ 18.30  

Granted

    7     $ 15.80  

Vested

    (7   $ 16.11  

Forfeited or expired

    (1   $ 18.92  
   

 

 

         

Nonvested at March 31, 2012

    7     $ 17.74  
   

 

 

         

The following table summarizes information regarding shares of common stock granted and vested (in thousands, except per common stock amounts):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Number of shares of common stock granted

    7       6  

Weighted average grant-date fair value per common stock

  $ 15.80     $ 19.77  

Fair value of common stock vested

  $ 76     $ 107  

Cash used to settle the obligation

  $ 161     $ —    

As of March 31, 2012, there was $0.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected to be recognized over a weighted average period of 3.1 years.

Segments and Geographic Information
Segments and Geographic Information

Note 18. Segments and Geographic Information

The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.

The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, and provides outsourced customer contact management solutions (with an emphasis on technical support and customer service) and technical staffing and (2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer contact management solutions (with an emphasis on technical support and customer service) and fulfillment services. The sites within Latin America, India and the Asia Pacific Rim are included in the Americas segment given the nature of the business and client profile, which is primarily made up of U.S.-based companies that are using the Company’s services in these locations to support their customer contact management needs.

 

Information about the Company’s reportable segments is as follows (in thousands):

 

                                 
    Americas     EMEA     Other (1)     Consolidated  

Three Months Ended March 31, 2012:

                               

Revenues (2) 

  $ 230,087     $ 48,011             $ 278,098  

Percentage of revenues

    82.7     17.3             100.0
         

Depreciation and amortization (2)

  $ 11,506     $ 989             $ 12,495  
         

Income (loss) from continuing operations

  $ 26,956     $ 388     $ (12,654   $ 14,690  

Other (expense), net

                    (553     (553

Income taxes

                    (3,367     (3,367
                           

 

 

 

Income from continuing operations, net of taxes

                            10,770  

(Loss) from discontinued operations, net of taxes (3)

  $ (6,302   $ (5,225             (11,527
                           

 

 

 

Net (loss)

                          $ (757
                           

 

 

 

Total assets as of March 31, 2012

  $ 919,288     $ 1,085,278     $ (1,237,568   $ 766,998  
   

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended March 31, 2011:

                               

Revenues (2) 

  $ 246,535     $ 52,915             $ 299,450  

Percentage of revenues

    82.3     17.7             100.0
         

Depreciation and amortization (2)

  $ 12,817     $ 1,252             $ 14,069  
         

Income (loss) from continuing operations

  $ 27,025     $ 1,068     $ (12,180   $ 15,913  

Other (expense), net

                    (1,552     (1,552

Income taxes

                    (572     (572
                           

 

 

 

Income from continuing operations, net of taxes

                            13,789  

(Loss) from discontinued operations, net of taxes (3)

  $ —       $ (611             (611
                           

 

 

 

Net income

                          $ 13,178  
                           

 

 

 

Total assets as of March 31, 2011

  $ 1,207,912     $ 1,228,809     $ (1,625,037   $ 811,684  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Other items (including corporate costs, impairment costs, other income and expense, and income taxes) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the three months ended March 31, 2012 and 2011. The accounting policies of the reportable segments are the same as those described in Note 1 to the accompanying Condensed Consolidated Financial Statements. Inter-segment revenues are not material to the Americas and EMEA segment results. The Company evaluates the performance of its geographic segments based on revenue and income (loss) from operations, and does not include segment assets or other income and expense items for management reporting purposes.

(2) 

Revenues and depreciation and amortization include results from continuing operations only.

(3) 

Includes the (loss) from discontinued operations, net of taxes, as well as the (loss) on sale of discontinued operations, net of taxes, if any.

Other (Expense)
Other (Expense)

Note 19. Other (Expense)

Gains and losses resulting from foreign currency transactions are recorded in “Other (expense)” in the accompanying Condensed Consolidated Statements of Operations during the period in which they occur. Other (expense) consists of the following (in thousands):

 

                 
    Three Months Ended March 31,  
    2012     2011  

Foreign currency transaction gains (losses)

  $ (638   $ 472  

Gains (losses) on foreign currency derivative instruments not designated as hedges

    (472     (2,289

Other miscellaneous income (expense)

    509       252  
   

 

 

   

 

 

 
    $ (601   $ (1,565
   

 

 

   

 

 

 

 

Related Party Transactions
Related Party Transactions

Note 20. Related Party Transactions

In January 2008, the Company entered into a lease for a customer contact management center located in Kingstree, South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes. The lease payments on the 20 year lease were negotiated at or below market rates, and the lease is cancellable at the option of the Company. There are significant penalties for early cancellation which decrease over time. The Company paid $0.1 million to the landlord during the three months ended March 31, 2012 and 2011 under the terms of the lease.

Overview and Summary of Significant Accounting Policies (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.

Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2012. For further information, refer to the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (“SEC”).

Principles of Consolidation The condensed 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 condensed 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 condensed consolidated financial statements. Other than the credit agreement entered into on May 3, 2012 disclosed in Note 11, Borrowings, there were no material subsequent events that required recognition or disclosure in the accompanying condensed consolidated financial statements.

Recognition of Revenue The Company recognizes revenue in accordance with Accounting Standards Codification “ASC” 605 “Revenue Recognition”. The Company primarily recognizes 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.

Revenues from fulfillment services account for 1.2% and 1.5% of total consolidated revenues for the three months ended March 31, 2012 and 2011, respectively, some of which contain multiple-deliverables. The service offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 (“ASC 605-25”) “Revenue Recognition — Multiple-Element Arrangements” (as amended by Accounting Standards Update “ASU” 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force”), the Company determines if the services provided under these contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value, and where return rights exist, delivery or performance of the undelivered items is considered probable and substantially within our control. If those deliverables are determined to be separate units of accounting, revenues from these services are recognized as the services are performed under a fully executed contractual agreement. If those deliverables are not determined to be separate units of accounting, revenue for the delivered services are bundled into a single unit of accounting and recognized on the proportional performance method using the straight-line basis over the contract period, or the actual number of operational seats used to serve the client, as appropriate.

As a result of the adoption of ASU 2009-13, the Company allocates revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated selling price is based on the Company’s best estimate of what the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, service offerings, and customer classifications. Once the Company allocates revenue to each deliverable, the Company recognizes revenue when all revenue recognition criteria are met. As of March 31, 2012, the Company’s fulfillment contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was accounted for accordingly. The Company has no other contracts that contain multiple-deliverables as of March 31, 2012.

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.

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, sales prices of comparable assets or independent third party offers. Occasionally, the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the carrying amount of these assets. Except as discussed in Note 4, Fair Value, the Company determined that its property and equipment were not impaired as of March 31, 2012.

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. For goodwill and other intangible assets with indefinite lives not subject to amortization, the Company reviews goodwill and intangible assets at least annually in the third quarter, 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.

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.

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 condensed consolidated financial statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions.

The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying condensed consolidated financial statements.

Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees). All of these plans are discussed more fully in Note 17, 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 accompanying Condensed 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 assets and liabilities at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

 

Money Market and Open-End Mutual Funds The Company uses quoted market prices in active markets to determine the fair value of money market and open-end mutual funds, which are classified in Level 1 of the fair value hierarchy.

Foreign Currency Forward Contracts and Options The Company enters into foreign currency forward contracts and options over the counter and values such contracts using quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.

Investments Held in Rabbi 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 7, Investments Held in Rabbi Trusts, and Note 17, Stock-Based Compensation.

Guaranteed Investment Certificates Guaranteed investment certificates, with variable interest rates linked to the prime rate, approximate fair value due to the automatic ability to re-price with changes in the market; such items are classified in Level 2 of the fair value hierarchy.

Foreign Currency Translation The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income and expenses are translated at the weighted average exchange rate during the period. The net effect of translation gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency transactional gains and losses are included in “Other income (expense)” in the accompanying Condensed 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 Condensed 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 March 31, 2012 and December 31, 2011, 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 6, Financial Derivatives, for further information on financial derivative instruments.

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 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 2011-12 (“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.

Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the respective periods and the further dilutive effect, if any, from stock options, stock appreciation rights, restricted stock, restricted stock units and shares held in a rabbi trusts using the treasury stock method.

The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.

Discontinued Operations (Tables)
                 
    Three Months Ended March 31,  
    2012     2011  

Revenues

  $ 10,102     $ 10,706  
   

 

 

   

 

 

 

(Loss) from discontinued operations before income taxes

  $ (820   $ (611

Income taxes (1) 

    —         —    
   

 

 

   

 

 

 

(Loss) from discontinued operations, net of taxes

  $ (820   $ (611
   

 

 

   

 

 

 

(Loss) on sale of discontinued operations before income taxes

  $ (10,707   $ —    

Income taxes (1) 

    —         —    
   

 

 

   

 

 

 

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

  $ (10,707   $ —    
   

 

 

   

 

 

 
         

Assets

       

Current assets:

       

Receivables, net

  $ 8,970  

Prepaid expenses

    23  
   

 

 

 

Total current assets

    8,993  

Deferred charges and other assets

    597  
   

 

 

 

Total assets (1)

    9,590  
   

 

 

 

Liabilities

       

Current liabilities:

       

Accounts payable

    1,191  

Accrued employee compensation and benefits

    4,592  

Deferred revenue

    335  

Other accrued expenses and current liabilities

    1,010  
   

 

 

 

Total current liabilities (2)

    7,128  
   

 

 

 

Total net assets

  $ 2,462  
   

 

 

 

 

(1)

Classified as current and included in “Assets held for sale, discontinued operations” in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2011.

(2)

Classified as current and included in “Liabilities held for sale, discontinued operations” in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2011.

Costs Associated with Exit or Disposal Activities (Tables)
                                                         
    Beginning
Accrual at
January 1, 2012
    Charges (Reversals)
for the Three Months
Ended March 31,  2012
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual at
March 31, 2012
    Short-term  (3)     Long-term  (4)  

Lease obligations and
facility exit costs

  $ 3,427     $ —       $ (477   $ —       $ 2,950     $ 523     $ 2,427  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
               
    Beginning
Accrual at
January 1, 2011
    Charges (Reversals)
for the Three Months
Ended March 31, 2011  (1)
    Cash
Payments
    Other Non-Cash
Changes (2)
    Ending Accrual
at March 31, 2011
    Short-term     Long-term  

Lease obligations and
facility exit costs

  $ 6,141     $ 220     $ (742   $ —       $ 5,619     $ 1,953     $ 3,666  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

During the three months ended March 31, 2011, the Company recorded additional lease termination costs related to one of the Philippine customer contact management centers, which is included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations.

(2)

Effect of foreign currency translation.

(3)

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

(4)

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

                                                         
    Beginning
Accrual at
January 1, 2012
    Charges (Reversals)
for the Three Months
Ended March 31,  2012
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual  at
March 31, 2012
    Short-term  (3)     Long-term  (4)  

Lease obligations and
facility exit costs

  $ 835     $ —       $ (96   $ 25     $ 764     $ 402     $ 362  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
               
    Beginning
Accrual at
January 1, 2011
    Charges (Reversals)
for the Three Months
Ended March 31,  2011 (1)
    Cash
Payments
    Other Non-
Cash Changes
(2)
    Ending Accrual at
March 31, 2011
    Short-term     Long-term  

Lease obligations and
facility exit costs

  $ 1,711     $ 70     $ (387   $ 58     $ 1,452     $ 567     $ 885