SYKES ENTERPRISES INC, 10-K filed on 3/1/2013
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Feb. 21, 2013
Jun. 29, 2012
Entity Information [Line Items]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
SYKE 
 
 
Entity Registrant Name
SYKES ENTERPRISES INC 
 
 
Entity Central Index Key
0001010612 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
43,778,918 
 
Entity Public Float
 
 
$ 679,850,254 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Assets
 
 
Cash and cash equivalents
$ 187,322 
$ 211,122 
Receivables, net
247,633 
229,702 
Prepaid expenses
12,370 
11,540 
Other current assets
20,017 
20,120 
Assets held for sale, discontinued operations
 
9,590 
Total current assets
467,342 
482,074 
Property and equipment, net
101,295 
91,080 
Goodwill
204,231 
121,342 
Intangibles, net
92,037 
44,472 
Deferred charges and other assets
43,784 
30,162 
Total assets
908,689 
769,130 
Current liabilities:
 
 
Accounts payable
24,985 
23,109 
Accrued employee compensation and benefits
73,103 
62,452 
Current deferred income tax liabilities
92 
663 
Income taxes payable
800 
423 
Deferred revenue
34,283 
34,319 
Other accrued expenses and current liabilities
31,320 
21,191 
Liabilities held for sale, discontinued operations
 
7,128 
Total current liabilities
164,583 
149,285 
Deferred grants
7,607 
8,563 
Long-term debt
91,000 
 
Long-term income tax liabilities
26,162 
26,475 
Other long-term liabilities
13,073 
11,241 
Total liabilities
302,425 
195,564 
Commitments and loss contingency (Note 25)
   
   
Shareholders' equity:
 
 
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued and outstanding
   
   
Common stock, $0.01 par value, 200,000 shares authorized; 43,790 and 44,306 shares issued, respectively
438 
443 
Additional paid-in capital
277,192 
281,157 
Retained earnings
315,187 
291,803 
Accumulated other comprehensive income
14,856 
4,436 
Treasury stock at cost: 108 shares and 299 shares, respectively
(1,409)
(4,273)
Total shareholders' equity
606,264 
573,566 
Total liabilities and shareholders' equity
$ 908,689 
$ 769,130 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000 
10,000 
Preferred stock, shares issued
   
   
Preferred stock, shares outstanding
   
   
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
200,000 
200,000 
Common stock, shares issued
43,790 
44,306 
Treasury stock, shares
108 
299 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenues
$ 1,127,698 
$ 1,169,267 
$ 1,121,911 
Operating expenses:
 
 
 
Direct salaries and related costs
737,952 
763,930 
715,571 
General and administrative
341,354 
341,586 
366,565 
Net (gain) loss on disposal of property and equipment
391 
(3,021)
143 
Net (gain) on insurance settlement
(133)
(481)
(1,991)
Impairment of goodwill and intangibles
 
 
362 
Impairment of long-lived assets
355 
1,718 
3,280 
Total operating expenses
1,079,919 
1,103,732 
1,083,930 
Income from continuing operations
47,779 
65,535 
37,981 
Other income (expense):
 
 
 
Interest income
1,458 
1,352 
1,201 
Interest (expense)
(1,547)
(1,132)
(4,963)
Other (expense)
(2,533)
(2,099)
(5,907)
Total other income (expense)
(2,622)
(1,879)
(9,669)
Income from continuing operations before income taxes
45,157 
63,656 
28,312 
Income taxes
5,207 
11,342 
2,197 
Income from continuing operations, net of taxes
39,950 
52,314 
26,115 
(Loss) from discontinued operations, net of taxes
(820)
(4,532)
(12,893)
Gain (loss) on sale of discontinued operations, net of taxes
(10,707)
559 
(23,495)
Net income (loss)
$ 28,423 
$ 48,341 
$ (10,273)
Basic:
 
 
 
Continuing operations
$ 0.93 
$ 1.15 
$ 0.57 
Discontinued operations
$ (0.27)
$ (0.09)
$ (0.79)
Net income (loss) per common share
$ 0.66 
$ 1.06 
$ (0.22)
Diluted:
 
 
 
Continuing operations
$ 0.93 
$ 1.15 
$ 0.57 
Discontinued operations
$ (0.27)
$ (0.09)
$ (0.79)
Net income (loss) per common share
$ 0.66 
$ 1.06 
$ (0.22)
Weighted average common shares:
 
 
 
Basic
43,105 
45,506 
46,030 
Diluted
43,148 
45,607 
46,133 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Net income (loss)
$ 28,423 
$ 48,341 
$ (10,273)
Other comprehensive income (loss), net of taxes:
 
 
 
Foreign currency translation gain (loss), net of taxes
10,088 
(7,997)
9,675 
Unrealized (loss) on net investment hedge, net of taxes
 
 
(2,565)
Unrealized actuarial gain (loss) related to pension liability, net of taxes
428 
(204)
(18)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes
(132)
(2,584)
127 
Unrealized gain (loss) on postretirement obligation, net of taxes
36 
113 
70 
Other comprehensive income (loss), net of taxes
10,420 
(10,672)
7,289 
Comprehensive income (loss)
$ 38,843 
$ 37,669 
$ (2,984)
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Thousands
Total
Common stock [Member]
Additional paid-in capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2009
$ 450,674 
$ 418 
$ 166,514 
$ 280,399 
$ 7,819 
$ (4,476)
Beginning Balance, shares at Dec. 31, 2009
 
41,817 
 
 
 
 
Issuance of common stock
37 
 
37 
 
 
 
Issuance of common stock, shares
 
 
 
 
 
Stock-based compensation expense
4,935 
 
4,935 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
354 
 
354 
 
 
 
Vesting of common stock and restricted stock under equity award plans, net of forfeitures
(1,282)
(1,083)
 
 
(201)
Vesting of common stock and restricted stock under equity award plans, shares
 
204 
 
 
 
 
Repurchase of common stock
(5,212)
 
 
 
 
(5,212)
Retirement of treasury stock
 
(6)
(4,462)
(4,450)
 
8,918 
Retirement of treasury stock, shares
 
(558)
 
 
 
 
Issuance of common stock for business acquisition
136,673 
57 
136,616 
 
 
 
Issuance of common stock for business acquisition, shares
 
5,601 
 
 
 
 
Comprehensive income (loss)
(2,984)
 
 
(10,273)
7,289 
 
Ending Balance at Dec. 31, 2010
583,195 
471 
302,911 
265,676 
15,108 
(971)
Ending Balance, shares at Dec. 31, 2010
 
47,066 
 
 
 
 
Issuance of common stock
311 
 
311 
 
 
 
Issuance of common stock, shares
 
33 
 
 
 
 
Stock-based compensation expense
3,582 
 
3,582 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(8)
 
(8)
 
 
 
Vesting of common stock and restricted stock under equity award plans, net of forfeitures
(1,190)
(979)
 
 
(214)
Vesting of common stock and restricted stock under equity award plans, shares
 
293 
 
 
 
 
Repurchase of common stock
(49,993)
 
 
 
 
(49,993)
Retirement of treasury stock
 
(31)
(24,660)
(22,214)
 
46,905 
Retirement of treasury stock, shares
 
(3,086)
 
 
 
 
Comprehensive income (loss)
37,669 
 
 
48,341 
(10,672)
 
Ending Balance at Dec. 31, 2011
573,566 
443 
281,157 
291,803 
4,436 
(4,273)
Ending Balance, shares at Dec. 31, 2011
 
44,306 
 
 
 
 
Stock-based compensation expense
3,467 
 
3,467 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(292)
 
(292)
 
 
 
Vesting of common stock and restricted stock under equity award plans, net of forfeitures
(1,412)
(1,195)
 
 
(220)
Vesting of common stock and restricted stock under equity award plans, shares
 
229 
 
 
 
 
Repurchase of common stock
(7,908)
 
 
 
 
(7,908)
Retirement of treasury stock
 
(8)
(5,945)
(5,039)
 
10,992 
Retirement of treasury stock, shares
 
(745)
 
 
 
 
Comprehensive income (loss)
38,843 
 
 
28,423 
10,420 
 
Ending Balance at Dec. 31, 2012
$ 606,264 
$ 438 
$ 277,192 
$ 315,187 
$ 14,856 
$ (1,409)
Ending Balance, shares at Dec. 31, 2012
 
43,790 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:
 
 
 
Net income (loss)
$ 28,423 
$ 48,341 
$ (10,273)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization, net
50,848 
53,467 
57,932 
Impairment losses
355 
2,561 
4,324 
Unrealized foreign currency transaction (gains) losses, net
2,131 
1,216 
(4,918)
Stock-based compensation expense
3,467 
3,582 
4,935 
Excess tax (benefit) from stock-based compensation
 
 
(354)
Deferred income tax provision (benefit)
(4,867)
(3,955)
(17,142)
Net (gain) loss on disposal of property and equipment
391 
(3,035)
232 
Bad debt expense
1,115 
532 
170 
Unrealized (gains) losses on financial instruments, net
(1,361)
4,138 
(1,479)
(Recovery) of regulatory penalties
 
(407)
(418)
Amortization of deferred loan fees
368 
585 
2,918 
Net (gain) on insurance settlement
(133)
(481)
(1,991)
(Gain) loss on sale of discontinued operations
10,707 
(559)
29,901 
Other
427 
781 
428 
Changes in assets and liabilities, net of acquisition:
 
 
 
Receivables
(6,771)
8,927 
(10,716)
Prepaid expenses
694 
(1,042)
3,465 
Other current assets
1,705 
(3,442)
(4,797)
Deferred charges and other assets
(18,388)
1,630 
2,740 
Accounts payable
(1,589)
(6,898)
(2,174)
Income taxes receivable / payable
1,555 
(4,529)
(6,180)
Accrued employee compensation and benefits
4,872 
2,450 
(6,601)
Other accrued expenses and current liabilities
11,476 
(2,855)
9,329 
Deferred revenue
(163)
4,243 
258 
Other long-term liabilities
1,252 
(2,636)
(4,527)
Net cash provided by operating activities
86,514 
102,614 
45,062 
Cash flows from investing activities:
 
 
 
Capital expenditures
(38,647)
(29,890)
(28,516)
Cash paid for business acquisition, net of cash acquired
(147,094)
 
(77,174)
Proceeds from sale of property and equipment
240 
3,973 
49 
Investment in restricted cash
(67)
(494)
(187)
Release of restricted cash
356 
396 
80,000 
Cash divested on sale of discontinued operations
(9,100)
 
(14,462)
Proceeds from insurance settlement
228 
1,654 
1,991 
Net cash (used for) investing activities
(194,084)
(24,361)
(38,299)
Cash flows from financing activities:
 
 
 
Payment of long-term debt
(22,000)
 
(75,000)
Proceeds from issuance of long-term debt
113,000 
 
75,000 
Proceeds from issuance of stock
 
311 
37 
Excess tax benefit from stock-based compensation
 
 
354 
Cash paid for repurchase of common stock
(7,908)
(49,993)
(5,212)
Proceeds from (refunds of) grants
88 
(225)
148 
Payment of short-term debt
 
 
(85,000)
Shares repurchased for minimum tax withholding on equity awards
(1,412)
(1,190)
(1,282)
Cash paid for loan fees related to debt
(857)
 
(3,035)
Other
 
(8)
 
Net cash provided by (used for) financing activities
80,911 
(51,105)
(93,990)
Effects of exchange rates on cash
2,859 
(5,855)
(2,797)
Net increase (decrease) in cash and cash equivalents
(23,800)
21,293 
(90,024)
Cash and cash equivalents - beginning
211,122 
189,829 
279,853 
Cash and cash equivalents - ending
187,322 
211,122 
189,829 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during period for interest
2,239 
1,065 
2,924 
Cash paid during period for income taxes
28,822 
24,631 
20,577 
Non-cash transactions:
 
 
 
Property and equipment additions in accounts payable
3,782 
2,434 
2,317 
Unrealized gain on postretirement obligation in accumulated other comprehensive income (loss)
36 
113 
70 
Issuance of common stock for business acquisition
 
 
$ 136,673 
Overview and Summary of Significant Accounting Policies
Overview and Summary of Significant Accounting Policies

Note 1. Overview and Summary of Significant Accounting Policies

Business Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides comprehensive outsourced customer contact management solutions and services in the business process outsourcing arena to companies, primarily within the communications, financial services, technology/consumer, transportation and leisure, and healthcare industries. SYKES provides flexible, high-quality outsourced customer contact management services (with an emphasis on inbound technical support and customer service), which includes customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels encompassing phone, e-mail, 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.

Acquisitions In August 2012, the Company completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated July 27, 2012. The Company has reflected the operating results in the Consolidated Statement of Operations since August 20, 2012. See Note 2, Acquisition of Alpine Access, Inc., for additional information on the acquisition of this business.

In February 2010, the Company completed the acquisition of ICT Group, Inc. (“ICT”), pursuant to the Agreement and Plan of Merger, dated October 5, 2009. The Company has reflected the operating results in the Consolidated Statements of Operations since February 2, 2010. See Note 3, Acquisition of ICT, for additional information on the acquisition of this business.

Discontinued Operations — In March 2012, 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. The Company reflected the operating results related to the Spanish operations as discontinued operations in the Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010. Cash flows from discontinued operations are included in the Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010. See Note 4, Discontinued Operations, for additional information on the sale of the Spanish operations.

In December 2010, the Company sold its operations in Argentina (the “Argentine operations”), pursuant to stock purchase agreements, dated December 16, 2010 and December 29, 2010. The Company reflected the operating results related to the Argentine operations as discontinued operations in the Consolidated Statement of Operations for the year ended December 31, 2010. Cash flows from discontinued operations are included in the Consolidated Statement of Cash Flows for the year ended December 31, 2010. See Note 4, Discontinued Operations, for additional information on the sale of the Argentine operations.

Principles of Consolidation The consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance of the consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the consolidated financial statements.

Recognition of Revenue The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition” (“ASC 605”). The Company primarily recognizes revenues from services as the services are performed, which is based on either a per minute, per call, per transaction or per time and material basis, under a fully executed contractual agreement and record reductions to revenues for contractual penalties and holdbacks for failure to meet specified minimum service levels and other performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future product or service or meeting other specified performance conditions. Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.

Revenues from fulfillment services account for 1.5%, 1.4% and 1.5% of total consolidated revenues for the years ended December 31, 2012, 2011 and 2010, respectively, some of which contain multiple-deliverables. The service offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 “Revenue Recognition — Multiple-Element Arrangements” (“ASC 605-25”) [as amended by Accounting Standards Update (“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”)], the Company determines if the services provided under these contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value, and where return rights exist, delivery or performance of the undelivered items is considered probable and substantially within our control. If those deliverables are determined to be separate units of accounting, revenues from these services are recognized as the services are performed under a fully executed contractual agreement. If those deliverables are not determined to be separate units of accounting, revenue for the delivered services are bundled into a single unit of accounting and recognized on the proportional performance method using the straight-line basis over the contract period, or the actual number of operational seats used to serve the client, as appropriate.

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

Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments. Cash in the amount of $187.3 million and $211.1 million at December 31, 2012 and 2011, respectively, was primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash equivalents of $182.9 million and $163.9 million at December 31, 2012 and 2011, respectively, were held in international operations and may be subject to additional taxes if repatriated to the United States.

Restricted Cash Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations. Restricted cash is included in “Other current assets” and “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets.

Allowance for Doubtful Accounts The Company maintains allowances for doubtful accounts on trade account receivables for estimated losses arising from the inability of its customers to make required payments. The Company’s estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and methodologies using the publicly available credit and capital market information, a review of the current status of the Company’s trade accounts receivable and historical collection experience of the Company’s clients. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments.

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

The Company measures the value of assets held for sale at the lower of the carrying amount or fair value, less costs to sell. Assets and the related liabilities held for sale in the accompanying Consolidated Balance Sheet as of December 31, 2011 pertain to the applicable assets and liabilities of the Company’s Spanish operations. See Note 4, Discontinued Operations, for additional information.

Property and Equipment Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop software upon the establishment of technological feasibility. Costs incurred prior to the establishment of technological feasibility are expensed as incurred.

The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment.” For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets 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 6, Fair Value, the Company determined that its property and equipment were not impaired as of December 31, 2012.

Rent Expense The Company has entered into operating lease agreements, some of which contain provisions for future rent increases, rent free periods, or periods in which rent payments are reduced. The total amount of the rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease in accordance with ASC 840 “Leases.

Goodwill The Company accounts for goodwill and other intangible assets under ASC 350 “Intangibles — Goodwill and Other” (“ASC 350”). The Company expects to receive future benefits from previously acquired goodwill over an indefinite period of time. For goodwill and other intangible assets with indefinite lives not subject to amortization, the Company reviews goodwill and intangible assets for impairment at least annually in the third quarter, and more frequently in the presence of certain circumstances. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if the Company concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the Company is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values, as appropriate, and an analysis of our market capitalization. Under ASC 350, the carrying value of assets is calculated at the reporting unit. If the fair value of the reporting unit is less than its carrying value, goodwill is considered impaired and an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value.

The Company bypassed the option to first assess qualitative factors and completed its annual two-step goodwill impairment test during the three months ended September 30, 2012, which included the consideration of certain economic factors, and determined that the carrying amount of goodwill was not impaired.

Intangible Assets — Intangible assets, primarily customer relationships and trade names, are amortized using the straight-line method over their estimated useful lives which approximate the pattern in which the economic benefits of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or appraised values, as appropriate.

Value Added Tax Receivables — The Philippine operations are subject to value added tax (“VAT”) which is usually applied to all goods and services purchased throughout The Philippines. Upon validation and certification of the VAT receivables by the Philippine government, the resulting value added tax certificates (“certificates”) can be either used to offset current tax obligations or offered for sale to the Philippine government. The Philippine government previously allowed companies to sell the certificates to third parties, but this option was eliminated during the three months ended September 30, 2011. The VAT receivables balance is recorded at its net realizable value.

Income Taxes The Company accounts for income taxes under ASC 740 “Income Taxes” (“ASC 740”) which requires recognition of deferred tax assets and liabilities to reflect tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the accompanying consolidated financial statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions.

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

Self-Insurance Programs The Company self-insures for certain levels of workers’ compensation and, as of January 1, 2011, began self-funding the medical, prescription drug and dental benefit plans in the United States. Estimated costs of this self-insurance program are accrued at the projected settlements for known and anticipated claims. Amounts related to this self-insurance program are included in “Accrued employee compensation and benefits” and “Other long-term liabilities” in the accompanying Consolidated Balance Sheets.

Deferred Grants Recognition of income associated with grants for land and the acquisition of property, buildings and equipment (together, “property grants”) is deferred until after the completion and occupancy of the building and title has passed to the Company, and the funds have been released from escrow. The deferred amounts for both land and building are amortized and recognized as a reduction of depreciation expense included within general and administrative costs over the corresponding useful lives of the related assets. Amounts received in excess of the cost of the building are allocated to the cost of equipment and, only after the grants are released from escrow, recognized as a reduction of depreciation expense over the weighted average useful life of the related equipment, which approximates five years. Upon sale of the related facilities, any deferred grant balance is recognized in full and is included in the gain on sale of property and equipment.

The Company receives government employment grants as an incentive to create and maintain permanent employment positions for a specified time period. The grants are repayable, under certain terms and conditions, if the Company’s relevant employment levels do not meet or exceed the employment levels set forth in the grant agreements. Accordingly, grant monies received are deferred and amortized using the proportionate performance model over the required employment period.

Deferred Revenue The Company receives up-front fees in connection with certain contracts. The deferred revenue is earned over the service periods of the respective contracts, which range from 30 days to seven years. Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets includes the up-front fees associated with services to be provided over the next ensuing twelve month period and the up-front fees associated with services to be provided over multiple years in connection with contracts that contain cancellation and refund provisions, whereby the manufacturers or customers can terminate the contracts and demand pro-rata refunds of the up-front fees with short notice. Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets also includes estimated penalties and holdbacks for failure to meet specified minimum service levels in certain contracts and other performance based contingencies.

Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees). All of these plans are discussed more fully in Note 27, Stock-Based Compensation. Stock-based awards under these plans may consist of common stock, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and uses treasury stock to satisfy stock option exercises or vesting of stock awards.

In accordance with ASC 718 “Compensation — Stock Compensation” (“ASC 718”), the Company recognizes in its accompanying Consolidated Statements of Operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is re-measured to fair value at each balance sheet date until the awards are settled.

Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

 

   

Cash, Short-Term and Other Investments, Investments Held in Rabbi Trust and Accounts Payable The carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts payable approximate their fair values.

 

   

Foreign Currency Forward Contracts and Options Foreign currency forward contracts and options, including premiums paid on options, are recognized at fair value based on quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk.

Fair Value Measurements — ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820-10-20 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

ASC 825 “Financial Instruments” (“ASC 825”) permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are not already recorded at fair value.

A description of the Company’s policies regarding fair value measurement is summarized below.

Fair Value Hierarchy — ASC 820-10-35 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:

 

   

Level 1 Quoted prices for identical instruments in active markets.

 

   

Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

   

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Determination of Fair Value The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

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

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

Investments Held in Rabbi Trust The investment assets of the rabbi trust are valued using quoted market prices in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the deferred compensation plan, refer to Note 14, Investments Held in Rabbi Trust, and Note 27, Stock-Based Compensation.

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

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

Foreign Currency and Derivative Instruments The Company accounts for financial derivative instruments under ASC 815 “Derivatives and Hedging” (“ASC 815”). The Company generally utilizes non-deliverable forward contracts and options expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional foreign currencies and net investments in foreign operations. In using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.

The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net investment in a foreign operation; or (3) a derivative that does not qualify for hedge accounting. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge.

Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in AOCI, until the forecasted underlying transactions occur. Any realized gains or losses resulting from the cash flow hedges are recognized together with the hedged transaction within “Revenues”. Changes in the fair value of derivatives that are highly effective and designated as a net investment hedge are recorded in cumulative translation adjustment in AOCI, offsetting the change in cumulative translation adjustment attributable to the hedged portion of the Company’s net investment in the foreign operation. Any realized gains and losses from settlements of the net investment hedge remain in AOCI until partial or complete liquidation of the net investment. Ineffectiveness is measured based on the change in fair value of the forward contracts and options and the fair value of the hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is recognized within “Revenues” for cash flow hedges and within “Other income (expense)” for net investment hedges. Cash flows from the derivative contracts are classified within the operating section in the accompanying Consolidated Statements of Cash Flows.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging activities. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. Hedges of a net investment in a foreign operation are linked to the specific foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring, or if the Company de-designates a derivative as a hedge, the Company discontinues hedge accounting prospectively. At December 31, 2012 and 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 13, Financial Derivatives, for further information on financial derivative instruments.

New Accounting Standards Not Yet Adopted

In December 2011, the FASB issued ASU 2011-11 “Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). The amendments in ASU 2011-11 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 adoption of ASU 2011-11 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

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

 

In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income (Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The Company does not expect the adoption of ASU 2013-02 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 ASU 2011-04 “Fair Value Measurement (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). 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 “Comprehensive Income (Topic 220) — Presentation of Comprehensive Income” (“ASU 2011-05”). 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. 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 “Intangibles — Goodwill and Other (Topic 350) Testing Goodwill for Impairment” (“ASU 2011-08”). 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. 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 “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” (“ASU 2011-12”). The amendments in ASU 2011-12 defer the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. The amendments in ASU 2011-12 are effective at the same time as ASU 2011-05 so that entities will not be required to comply with the presentation requirements in ASU 2011-05 that ASU 2011-05 is deferring. The amendments in ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. As ASU 2011-12 impacts presentation only, the adoption of ASU 2011-12 as of January 1, 2012 did not impact the financial condition, results of operations and cash flows of the Company.

Acquisition

Note 2. Acquisition of Alpine Access, Inc.

On August 20, 2012, the Company acquired 100% of the outstanding common shares and voting interest of Alpine, pursuant to the terms of the merger agreement. Alpine, an industry leader in the at-home agent space, provides award-winning customer contact management services through a secured and proprietary virtual call center environment with its operations located in the United States and Canada. The results of Alpine’s operations have been included in the Company’s consolidated financial statements since its acquisition on August 20, 2012. The Company acquired Alpine to: create significant competitive differentiation for quality, speed to market, scalability and flexibility driven by proprietary, internally-developed software, systems, processes and other intellectual property which uniquely overcome the challenges of the at-home delivery model; strengthen the Company’s current service portfolio and go-to-market offering while expanding the breadth of clients with minimal client overlap; broaden the addressable market opportunity within existing and new verticals as well as clients; expand the addressable pool of skilled labor; leverage operational best practices across the Company’s global platform, with the potential to convert more of its fixed cost to variable cost; and to further enhance the growth and margin profile of the Company to drive shareholder value. This resulted in the Company paying a substantial premium for Alpine resulting in the recognition of goodwill.

The acquisition date fair value of the consideration transferred totaled $149.0 million, which was funded through cash on hand of $41.0 million and borrowings of $108.0 million under the Company’s credit agreement, dated May 3, 2012. See Note 21, Borrowings, for further information.

The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations” (“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from Alpine based on their estimated fair values as of the closing date. During the three months ended December 31, 2012, the final working capital adjustment was approved by the authorized representative of Alpine’s shareholders. The Company finalized its purchase price allocation during the three months ended December 31, 2012, resulting in no changes from the estimated acquisition date fair values previously reported.

 

The following table summarizes the final purchase price allocation of the fair values of the assets acquired and liabilities assumed, all included in the Americas segment (in thousands):

 

     Amount  

Cash and cash equivalents

   $ 1,859   

Receivables

     11,831   

Prepaid expenses

     617   
  

 

 

 

Total current assets

     14,307   

Property and equipment

     11,326   

Goodwill

     80,766   

Intangibles

     57,720   

Deferred charges and other assets

     916   

Accounts payable

     (880

Accrued employee compensation and benefits

     (3,774

Income taxes payable

     (141

Deferred revenue

     (94

Other accrued expenses and current liabilities

     (601
  

 

 

 

Total current liabilities

     (5,490

Other long-term liabilities (1)

     (10,592
  

 

 

 
   $ 148,953   
  

 

 

 

 

(1)

Primarily includes long-term deferred tax liabilities.

Fair values are based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach.

The following table presents the Company’s purchased intangibles assets as of August 20, 2012, the acquisition date (in thousands):

 

     Amount
Assigned
     Weighted
Average
Amortization
Period (years)
 

Customer relationships

   $ 46,000         8   

Trade names

     10,600         8   

Non-compete agreements

     670         2   

Favorable lease agreement

     450         2   
  

 

 

    
   $ 57,720         8   
  

 

 

    

The $80.8 million of goodwill was assigned to the Company’s Americas operating segment. Pursuant to Federal income tax regulations, no amount of intangibles or goodwill from this acquisition will be deductible for tax purposes.

The fair value of receivables acquired is $11.8 million, with the gross contractual amount of $11.8 million.

 

The amount of Alpine’s revenues and net loss since the August 20, 2012 acquisition date, included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2012 were as follows (in thousands):

 

     From August 20,
2012 Through
December 31,
2012
 

Revenues

   $ 40,635   

(Loss) from continuing operations before income taxes

   $ (3,201

(Loss) from continuing operations, net of taxes

   $ (2,166

The loss from continuing operations before income taxes of $3.2 million includes $3.6 million in severance costs, depreciation resulting from the adjustment to fair value of the acquired property and equipment and amortization of the fair values of the acquired intangibles.

The following table presents the unaudited pro forma combined revenues and net earnings as if Alpine had been included in the consolidated results of the Company for the entire year for the years ended December 31, 2012 and 2011. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2012 and 2011 (in thousands):

 

     Years Ended December 31,  
     2012      2011  

Revenues

   $ 1,190,150       $ 1,272,890   

Income from continuing operations, net of taxes

   $ 37,352       $ 46,324   

Income from continuing operations per common share:

     

Basic

   $ 0.87       $ 1.06   

Diluted

   $ 0.87       $ 1.06   

These amounts have been calculated to reflect the additional depreciation, amortization and interest expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2012 and January 1, 2011, together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies’ operating results. Included in these costs are severance, advisory and legal costs, net of the tax effects.

Acquisition-related costs associated with Alpine, comprised of severance costs and transaction and integration costs, and included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations for the year ended December 31, 2012 were as follows (none in 2011 and 2010) (in thousands):

 

     Year Ended
December 31, 2012
 

Severance costs:

  

Americas

   $ 591   

Corporate

     377   
  

 

 

 
     968   

Transaction and integration costs:

  

Corporate

     3,793   
  

 

 

 
     3,793   
  

 

 

 

Total acquisition-related costs

   $ 4,761   
  

 

 

 

Note 3. Acquisition of ICT

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

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

 

     Total  

Cash

   $ 141,161   

Common stock

     136,673   
  

 

 

 
   $ 277,834   
  

 

 

 

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

The cash portion of the acquisition was funded through borrowings consisting of a $75 million short-term loan from KeyBank and a $75 million Term Loan, which were paid off in March 2010 and July 2010, respectively. See Note 21, Borrowings, for further information.

The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations”, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from ICT based on their estimated fair values as of the closing date. The Company finalized its purchase price allocation during the three months ended December 31, 2010.

 

The following table summarizes the estimated acquisition date fair values of the assets acquired and liabilities assumed, the measurement period adjustments that occurred during the three months ended December 31, 2010 and the final purchase price allocation as of February 2, 2010 (in thousands):

 

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

Cash and cash equivalents

   $ 63,987      $ —        $ 63,987   

Receivables

     75,890        —          75,890   

Income tax receivable

     2,844        (1,941     903   

Prepaid expenses

     4,846        —          4,846   

Other current assets

     4,950        149        5,099   
  

 

 

   

 

 

   

 

 

 

Total current assets

     152,517        (1,792     150,725   

Property and equipment

     57,910        —          57,910   

Goodwill

     90,123        7,647        97,770   

Intangibles

     60,310        —          60,310   

Deferred charges and other assets

     7,978        (3,965     4,013   

Short-term debt

     (10,000     —          (10,000

Accounts payable

     (12,412     (168     (12,580

Accrued employee compensation and benefits

     (23,873     (1,309     (25,182

Income taxes payable

     (2,451     2,013        (438

Other accrued expenses and current liabilities

     (10,951     (464     (11,415
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     (59,687     72        (59,615

Deferred grants

     (706     —          (706

Long-term income tax liabilities

     (5,573     (19,924     (25,497

Other long-term liabilities (1)

     (25,038     17,962        (7,076
  

 

 

   

 

 

   

 

 

 
   $ 277,834      $ —        $ 277,834   
  

 

 

   

 

 

   

 

 

 

 

(1)

Includes primarily long-term deferred tax liabilities.

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

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

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

 

     Americas      EMEA     Other      Consolidated  

Net assets (liabilities)

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

 

 

    

 

 

   

 

 

    

 

 

 

 

Fair values are based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach. The following table presents the Company’s purchased intangibles assets as of February 2, 2010, the acquisition date (in thousands):

 

     Amount Assigned      Weighted
Average
Amortization
Period (years)
 

Customer relationships

   $ 57,900         8   

Trade names

     1,000         3   

Proprietary software

     850         2   

Non-compete agreements

     560         1   
  

 

 

    
   $ 60,310         8   
  

 

 

    

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

The amount of ICT’s revenues and net loss since the February 2, 2010 acquisition date, included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2010 were as follows (in thousands):

 

     From February 2,
2010 Through
December 31,
2010
 

Revenues

   $ 362,573   

(Loss) from continuing operations, net of taxes

   $ (26,919

The following table presents the unaudited pro forma combined revenues and net earnings as if ICT had been included in the consolidated results of the Company for the entire year ended December 31, 2010. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2010 (in thousands):

 

     Year Ended
December 31,
2010
 

Revenues

   $ 1,162,040   

Income from continuing operations, net of taxes

   $ 48,504   

Income from continuing operations per common share:

  

Basic

   $ 1.04   

Diluted

   $ 1.04   

These amounts have been calculated to reflect the additional depreciation, amortization, and interest expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2010, together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies operating results. Included in these costs are severance, advisory and legal costs, net of the consequential tax effects.

 

The following table presents acquisition-related costs included in “General and administrative” costs in the accompanying Consolidated Statements of Operations (none in 2012) (in thousands):

 

     Years Ended December 31,  
     2011     2010  

Severance costs:

    

Americas

   $ —        $ 1,234   

EMEA

     —          185   

Corporate

     126        14,928   
  

 

 

   

 

 

 
     126        16,347   

Lease termination and other costs: (1)

    

Americas

     (277     7,220   

EMEA

     (206     1,654   
  

 

 

   

 

 

 
     (483     8,874   

Transaction and integration costs:

    

Corporate

     13        9,302   
  

 

 

   

 

 

 
     13        9,302   
  

 

 

   

 

 

 

Total acquisition-related costs

   $ (344   $ 34,523   
  

 

 

   

 

 

 

 

(1)

Amounts related to the Third Quarter 2010 Exit Plan and the Fourth Quarter 2010 Exit Plan. See Note 5.

Discontinued Operations
Discontinued Operations

Note 4. Discontinued Operations

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

 

     Years Ended December 31,  
     2012     2011     2010  

Revenues:

      

Spain

   $ 10,102      $ 39,341      $ 36,806   

Argentina

     —          —          40,676   
  

 

 

   

 

 

   

 

 

 
   $ 10,102      $ 39,341      $ 77,482   
  

 

 

   

 

 

   

 

 

 

(Loss) from discontinued operations, net of taxes: (1)

      

Spain

   $ (820   $ (4,532   $ (6,417

Argentina

     —          —          (6,476
  

 

 

   

 

 

   

 

 

 
   $ (820   $ (4,532   $ (12,893
  

 

 

   

 

 

   

 

 

 

 

(1)

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

Sale of Spanish Operations in 2012

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

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

 

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

The loss on the sale of the Spanish operations amounted to $10.7 million for the year ended December 31, 2012. There were no income taxes on the sale of the Spanish operations as any tax benefit from the loss would be offset by a valuation allowance.

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 all periods presented. Cash flows from discontinued operations are included in the accompanying Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010. This business was historically reported by the Company as part of the EMEA segment.

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

 

     December 31, 2011  

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 Consolidated Balance Sheet as of December 31, 2011.

(2) 

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

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

Sale of Argentine Operations in 2010

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

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

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

The loss on the sale of the Argentine operations amounted to $29.9 million pre-tax and $23.5 million after tax for the year ended December 31, 2010. The sale of Argentine operations was a taxable transaction that resulted in a $6.4 million tax benefit. The effective tax rate on the loss on the sale of Argentina of 21.4% differs from the expected 35.0% statutory rate due to a valuation allowance established on the foreign deferred tax asset recognized as a result of the sale, partially offset by a reduction in U.S. taxes related to foreign earnings distributions and the write off of intercompany receivables resulting in tax benefits of $2.9 million and $3.5 million, respectively. During the three months ended December 31, 2011, the Company reversed the accrued liability related to the expiration of the indemnification to the purchaser for the possible loss of a specific client business, which reduced the net loss on sale of the Argentine operations by $0.6 million. There was no related income tax effect.

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

During 2010, the Company recorded an impairment of $0.7 million related to the write-down of long-lived assets in Argentina, primarily leasehold improvements and software, which were no longer recoverable. The impairment charge represented the amount by which the carrying value exceeded the fair value of these assets which cannot be redeployed to other locations and are included in discontinued operations in the accompanying Consolidated Statement of Operations for the year ended December 31, 2010.

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

Note 5. 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 acquisition and align it with the needs of the market, the Company announced a plan to rationalize approximately 900 seats in the U.S., some of which were revenue generating, with plans to migrate the associated revenues to other locations within the U.S. Approximately 300 employees were affected and the Company has completed the actions associated with the Americas plan.

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 $1.9 million as of December 31, 2012 ($1.0 million as of December 31, 2011). This increase of $0.9 million included in “General and administrative” costs included in the accompanying Consolidated Statement of Operations during the year ended December 31, 2012 is primarily due to a change in estimate in lease obligations and additional lease obligation costs. The Company recorded $0.5 million of the costs associated with these actions as non-cash impairment charges included in “Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011, while approximately $1.4 million represents cash expenditures for program transfer and facility-related costs, including obligations under the leases, the last of which ends in February 2017. The Company has paid $0.7 million in cash through December 31, 2012 under the Fourth Quarter 2011 Exit Plan in the Americas.

The following table summarizes the accrued liability associated with the Americas Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges for the year ended December 31, 2012 (none in 2011 or 2010) (in thousands):

 

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

Lease obligations and facility exit costs

  $ —        $ 1,365      $ (683   $ —        $ 682      $ 138      $ 544   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

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

 

(2)

Effect of foreign currency translation.

 

(3)

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

 

(4)

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

EMEA

During 2011, to improve the Company’s overall profitability in the EMEA region, the Company committed to close a customer contact management center in South Africa and a customer contact management center in Ireland, as well as some capacity rationalization in the Netherlands, all components of the EMEA segment. Through these actions, the Company expects to improve its cost structure in the EMEA region by optimizing its capacity utilization. While the Company migrated approximately $3.2 million of annualized call volumes of the Ireland facility to other facilities within EMEA, the Company did not migrate the remaining call volume in Ireland or any of the annualized revenue from the Netherlands or South Africa facilities, which was $18.8 million for 2011, to other facilities within the region. The number of seats rationalized across the EMEA region approximated 900 with approximately 500 employees affected by the actions. The Company closed these facilities and substantially completed the actions associated with the EMEA plan on 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 $6.7 million as of December 31, 2012 ($7.6 million as of December 31, 2011). This decrease of $0.9 million included in “General and administrative” costs included in the accompanying Consolidated Statement of Operations during the year ended December 31, 2012 is due to the change in estimated lease termination costs and lower estimated severance and related costs. The Company recorded $0.5 million of the costs associated with these actions as non-cash impairment charges included in “Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011, while approximately $6.2 million will be cash expenditures for severance and related costs and facility-related costs, primarily rent obligations paid through the remainder of the noncancelable term of the leases. The Company has paid $5.9 million in cash through December 31, 2012 under the Fourth Quarter 2011 Exit Plan in EMEA.

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

 

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 2010) (in thousands):

 

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

Lease obligations and facility exit costs

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

Severance and related costs

     4,470         857        (5,134     (6     187         187         —     

Legal-related costs

     13         89        (91     (1     10         10         —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

     Beginning
Accrual at
January 1,
2011
     Charges
(Reversals)
for the Year
Ended
December 31,
2011 (1)
     Cash
Payments
    Other
Non-Cash
Changes  (2)
    Ending
Accrual at
December 31,
2011
     Short-term  (3)      Long-term  (4)  

Lease obligations and facility exit costs

   $ —         $ 587       $ —        $ (10   $ 577       $ 577       $ —     

Severance and related costs

     —           5,185         (653     (62     4,470         4,470         —     

Legal-related costs

     —           21         (8     (0     13         13         —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) 

During 2012, the Company recorded additional severance and related costs and legal-related costs and reversed accruals related to the final settlement of termination costs at one of the sites. During 2011, the Company recorded charges related to the initiation of the Fourth Quarter 2011 Exit Plan.

 

(2) 

Effect of foreign currency translation.

 

(3) 

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

 

(4) 

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

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

The major costs incurred as a result of these actions were facility-related costs (primarily consisting of those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and equipment) and severance-related costs totaling $2.2 million as of December 31, 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 $1.4 million in cash through December 31, 2012 under the Fourth Quarter 2010 Exit Plan.

 

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

 

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

Lease obligations and facility exit costs

   $ 835       $ —         $ (300   $ 4      $ 539       $ 448       $ 91   

Severance and related costs

     —           —           —          —          —           —           —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   $ 835       $ —         $ (300   $ 4      $ 539       $ 448       $ 91   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
     Beginning
Accrual at
January 1,
2011
     Charges
(Reversals)
for the Year
Ended
December 31,
2011 (1)
     Cash
Payments
    Other
Non-Cash
Changes  (2)
    Ending
Accrual at
December 31,
2011
     Short-term  (3)      Long-term  (4)  

Lease obligations and facility exit costs

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

Severance and related costs

     —           —           —          —          —           —           —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

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

Lease obligations and facility exit costs

   $ —         $ 1,711       $ —        $ —        $ 1,711       $ 941       $ 770   

Severance and related costs

     —           185         (185     —          —           —           —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   $ —         $ 1,896       $ (185   $ —        $ 1,711       $ 941       $ 770   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) 

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

 

(2) 

Effect of foreign currency translation.

 

(3) 

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

 

(4) 

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

See Note 4, Discontinued Operations, for impairment charges recorded in 2010 related to the Company’s Argentine operations, which were sold in December 2010.

Third Quarter 2010 Exit Plan

During 2010, consistent with the Company’s long-term goals to manage and optimize capacity utilization, the Company closed or committed to close four customer contact management centers in The Philippines and consolidated or committed to consolidate leased space in our Wilmington, Delaware and Newtown, Pennsylvania locations (the “Third Quarter 2010 Exit Plan”). These actions were in response to the facilities consolidation and capacity rationalization related to the ICT acquisition, enabling the Company to reduce operating costs by eliminating redundant space and to optimize capacity utilization rates where overlap existed. There were no employees affected by the Third Quarter 2010 Exit Plan. These actions were substantially completed by January 31, 2011.

The major costs incurred as a result of these actions were impairments of long-lived assets (primarily leasehold improvements) and facility-related costs (primarily consisting of those costs associated with the real estate leases) estimated at $10.5 million as of December 31, 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 and $3.1 million are included in “Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations for the years ended December 31, 2011 and 2010, respectively (see Note 6, 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 $4.2 million in cash through December 31, 2012 under the Third Quarter 2010 Exit Plan.

 

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

 

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

Lease obligations and facility exit costs

   $ 3,427       $ 61      $ (937   $ —         $ 2,551       $ 618       $ 1,933   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
     Beginning
Accrual at
January 1,
2011
     Charges
(Reversals)
for the Year
Ended
December 31,
2011 (1)
    Cash
Payments
    Other
Non-Cash
Changes  (2)
     Ending
Accrual at
December 30,
2011
     Short-term  (3)      Long-term  (4)  

Lease obligations and facility exit costs

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

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

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

Lease obligations and facility exit costs

   $ —         $ 6,944      $ (803   $ —         $ 6,141       $ 2,199       $ 3,942   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

During 2012, the Company recorded additional lease obligations due to an unanticipated lease termination penalty, which are included in “General and administrative” costs in the accompanying Consolidated Statement of Operations. During 2011, the Company reversed accruals related to lease termination costs due to an unanticipated sublease at one of the sites, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. This amount was partially offset by additional lease termination costs for one of the sites. During 2010, the Company recorded charges related to the initiation of the Third Quarter 2010 Exit Plan.

 

(2) 

Effect of foreign currency translation.

 

(3) 

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

 

(4) 

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

ICT Restructuring Plan

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

The following tables summarize 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 Year
Ended
December 31,
2011 (1)
    Cash
Payments
    Other
Non-Cash
Changes  (2)
    Ending
Accrual at
December 31,
2011
     Short-term  (3)      Long-term  (4)  

Lease obligations and facility exit costs

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
     Beginning
Accrual at
January 1,
2010
     Accrual
Assumed
Upon
Acquisition
of ICT on
February 2,
2010 (1)
    Cash
Payments
    Other
Non-Cash
Changes  (2)
    Ending
Accrual at
December 31,
2010
     Short-term      Long-term  

Lease obligations and facility exit costs

   $ —         $ 2,197      $ (735   $
 

  
 
  
  $ 1,462       $ 1,462       $ —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) 

During 2011, the Company reversed accruals related to the final settlement of termination costs, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations. During 2010, upon acquisition of ICT on February 2, 2010, the Company assumed ICT’s restructuring accruals.

 

(2) 

Effect of foreign currency translation.

 

(3) 

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

 

(4) 

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

Fair Value
Fair Value

Note 6. Fair Value

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

 

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

Assets:

           

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

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

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

     11         11         —           —     

Foreign currency forward and option contracts (2)

     2,008         —           2,008         —     

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

     3,212         3,212         —           —     

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

     2,049         2,049         —           —     

Guaranteed investment certificates (4)

     80         —           80         —     
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Foreign currency forward and option contracts (5)

   $ 974       $ —         $ 974       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 974       $ —         $ 974       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

In the accompanying Consolidated Balance Sheet.

(2) 

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

(3) 

Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 14.

(4) 

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

(5) 

Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 13.

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

Assets:

           

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

   $ 68,651       $ 68,651       $ —         $ —     

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

     12         12         —           —     

Foreign currency forward and option contracts (2)

     710         —           710         —     

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 and option contracts (5)

   $ 752       $ —         $ 752       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 752       $ —         $ 752       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

In the accompanying Consolidated Balance Sheet.

(2) 

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

(3) 

Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 14.

(4) 

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

(5) 

Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 13.

 

Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with acquired businesses, including goodwill, other intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be impaired. The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities) subject to the requirements of ASC 820 were not material at December 31, 2012 and 2011.

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)  
     Years Ended December 31,  
     2012     2011     2010  

Americas:

      

Property and equipment, net (1) 

   $ (355   $ (1,244   $ (3,121

EMEA:

      

Goodwill (1) 

     —          —          (84

Intangibles, net (1) 

     —          —          (278
  

 

 

   

 

 

   

 

 

 
     —          —          (362

Property and equipment, net (1) 

     —          (474     (159
  

 

 

   

 

 

   

 

 

 
     (355     (1,718     (3,642

Discontinued Operations:

      

Americas - Property and equipment, net (1), (2) 

     —          —          (682

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

     —          (843     —     
  

 

 

   

 

 

   

 

 

 
   $ (355   $ (2,561   $ (4,324
  

 

 

   

 

 

   

 

 

 

 

(1) 

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

(2) 

See Note 4 for additional information regarding the impairments related to discontinued operations.

Impairment of Long-Lived Assets

During 2012, the Company determined that the carrying value of certain long-lived assets, primarily software licenses, were no longer being used and were disposed of resulting in an impairment charge of $0.3 million in the U.S. and Canada (a component of the Americas segment). Also, during 2012 in 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 its customer contact management centers in Costa Rica (a component of the Americas segment), and recorded an impairment charge of $0.1 million for the carrying value of the long-lived assets that could not be redeployed to other locations.

During 2011, in connection with the closure of certain customer contact management centers under the Third Quarter 2010 and the Fourth Quarter 2010 Exit Plans as discussed more fully in Note 5, Costs Associated with Exit or Disposal Activities, the Company recorded impairment charges of $1.2 million in the U.S. and The Philippines (within the Americas segment) and $0.5 million in South Africa, Ireland and Amsterdam (within the EMEA segment), relating to leasehold improvements which were not recoverable and equipment that could not be redeployed to other locations.

During 2010, in connection with the closure of certain customer contact management centers under the Third Quarter 2010 and the Fourth Quarter 2010 Exit Plans as discussed more fully in Note 5, Costs Associated with Exit or Disposal Activities, the Company recorded impairment charges of $3.1 million (within the Americas segment) and $0.5 million (within the EMEA segment). The Americas $3.1 million impairment charge is comprised primarily of leasehold improvements in The Philippines which were not recoverable. The EMEA $0.5 million impairment charge is comprised of $0.1 million relating to leasehold improvements and equipment in the United Kingdom and Ireland which were not recoverable and $0.4 million relating to impairment of goodwill and intangibles in the United Kingdom based on its actual and forecasted results and deterioration of the related customer base.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

Note 7. Goodwill and Intangible Assets

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

 

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

Customer relationships

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

Trade names

     11,600         (1,451     10,149         8   

Non-compete agreements

     1,229         (681     548         2   

Proprietary software

     850         (810     40         2   

Favorable lease agreement

     450         (81     369         2   
  

 

 

    

 

 

   

 

 

    
   $ 118,612       $ (26,575   $ 92,037         8   
  

 

 

    

 

 

   

 

 

    

The following table presents the Company’s purchased intangible assets as of December 31, 2011 (in thousands):

 

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

Customer relationships

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

Trade names

     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 Consolidated Statements of Operations (in thousands):

 

     Years Ended December 31,  
     2012      2011      2010  

Amortization expense

   $ 10,479       $ 7,961       $ 7,879   
  

 

 

    

 

 

    

 

 

 

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

 

Years Ending December 31,

   Amount  

2013

     14,977   

2014

     14,713   

2015

     14,353   

2016

     14,353   

2017

     14,353   

2018 and thereafter

     19,288   

 

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

 

            Accumulated        
            Impairment        
     Gross Amount      Losses     Net Amount  

Americas:

       

Balance at January 1, 2012

   $ 121,971       $ (629   $ 121,342   

Acquisition of Alpine (1)

     80,766         —          80,766   

Foreign currency translation

     2,123         —          2,123   
  

 

 

    

 

 

   

 

 

 

Balance at December 31, 2012

     204,860         (629     204,231   
  

 

 

    

 

 

   

 

 

 

EMEA:

       

Balance at January 1, 2012

     84         (84     —     

Foreign currency translation

     —           —          —     
  

 

 

    

 

 

   

 

 

 

Balance at December 31, 2012

     84         (84     —     
  

 

 

    

 

 

   

 

 

 
   $ 204,944       $ (713   $ 204,231   
  

 

 

    

 

 

   

 

 

 

 

(1)

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

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

 

           Accumulated        
           Impairment        
     Gross Amount     Losses     Net Amount  

Americas:

      

Balance at January 1, 2011

   $ 122,932      $ (629   $ 122,303   

Foreign currency translation

     (961     —          (961
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     121,971        (629     121,342   
  

 

 

   

 

 

   

 

 

 

EMEA:

      

Balance at January 1, 2011

     84        (84     —     

Foreign currency translation

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     84        (84     —     
  

 

 

   

 

 

   

 

 

 
   $ 122,055      $ (713   $ 121,342   
  

 

 

   

 

 

   

 

 

 
Concentrations of Credit Risk
Concentrations of Credit Risk

Note 8. Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets in which the Company’s services are sold. See Note 13, Financial Derivatives, for a discussion of the Company’s credit risk relating to financial derivative instruments, and Note 28, Segments and Geographic Information, for a discussion of the Company’s customer concentration.

Receivables, Net
Receivables, Net

Note 9. Receivables, Net

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

 

     December 31,  
     2012     2011  

Trade accounts receivable

   $ 248,281      $ 227,512   

Income taxes receivable

     2,143        3,853   

Other

     2,290        2,641   
  

 

 

   

 

 

 
     252,714        234,006   

Less: Allowance for doubtful accounts

     5,081        4,304   
  

 

 

   

 

 

 
   $ 247,633      $ 229,702   
  

 

 

   

 

 

 

Allowance for doubtful accounts as a percent of trade receivables

     2.0     1.9
  

 

 

   

 

 

 
Prepaid Expenses
Prepaid Expenses

Note 10. Prepaid Expenses

Prepaid expenses consist of the following (in thousands):

 

     December 31,  
     2012      2011  

Prepaid maintenance

   $ 4,625       $ 4,191   

Prepaid rent

     2,306         2,850   

Prepaid insurance

     1,402         1,564   

Prepaid other

     4,037         2,935   
  

 

 

    

 

 

 
   $ 12,370       $ 11,540   
  

 

 

    

 

 

 
Other Current Assets
Other Current Assets

Note 11. Other Current Assets

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

 

     December 31,  
     2012      2011  

Deferred tax assets (Note 23)

   $ 8,143       $ 8,044   

Financial derivatives (Note 13)

     1,994         710   

Investments held in rabbi trust (Note 14)

     5,261         4,182   

Value added tax certificates (Note 12)

     2,548         2,386   

Other current assets

     2,071         4,798   
  

 

 

    

 

 

 
   $ 20,017       $ 20,120   
  

 

 

    

 

 

 
Value Added Tax Receivables
Value Added Tax Receivables

Note 12. Value Added Tax Receivables

The VAT receivables balances, and the respective locations in the accompanying Consolidated Balance Sheets, are presented below (in thousands):

 

     December 31,  
     2012      2011  

VAT included in:

     

Other current assets (Note 11)

   $ 2,548       $ 2,386   

Deferred charges and other assets (Note 16)

     7,214         5,191   
  

 

 

    

 

 

 
   $ 9,762       $ 7,577   
  

 

 

    

 

 

 

During the years ended December 31, 2012, 2011 and 2010, the Company wrote down the VAT receivables balances by the following amounts, which are reflected in the accompanying Consolidated Statements of Operations (in thousands):

 

     Years Ended December 31,  
     2012      2011      2010  

Write-down of value added tax receivables

   $ 546       $ 504       $ 551   
  

 

 

    

 

 

    

 

 

 
Financial Derivatives
Financial Derivatives

Note 13. 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, Costa Rican Colon, Hungarian Forint and Romanian Leu contracts. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.

 

The deferred gains (losses) and related taxes on the Company’s derivative instruments recorded in “Accumulated other comprehensive income (loss)” in the accompanying Consolidated Balance Sheets are as follows (in thousands):

 

     December 31, 2012     December 31, 2011  

Deferred gains (losses) in AOCI

   $ (512   $ (670

Tax on deferred gains (losses) in AOCI

     (58     232   
  

 

 

   

 

 

 

Deferred gains (losses) in AOCI, net of taxes

   $ (570   $ (438
  

 

 

   

 

 

 

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

   $ (517  
  

 

 

   

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

Net Investment Hedge — During 2010, the Company entered into foreign exchange forward contracts to hedge its net investment in a foreign operation, as defined under ASC 815, with an aggregate notional value of $26.1 million. These hedges settled in 2010 and the Company recorded deferred (losses) of $(2.6) million, net of taxes, for 2010 as a currency translation adjustment, a component of AOCI, offsetting foreign exchange currency fluctuations attributable to the translation of the net investment. The Company did not hedge net investments in foreign operations during 2012 and 2011.

Other Hedges — The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect our interests against adverse foreign currency moves pertaining to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries functional currencies. These contracts generally do not exceed 90 days in duration.

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

 

     As of December 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

   $ 71,000         September 2013       $ 85,500         September 2012   

Forwards:

           

Philippine Pesos

     5,000         August 2013         12,000         March 2012   

Costa Rican Colones

     60,750         December 2013         30,000         September 2012   

Hungarian Forints

     4,744         January 2014         —           —     

Romanian Leis

     6,895         January 2014         —           —     

Non-designated hedges: (2)

           

Forwards

     41,799         June 2013         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 December 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 was $2.0 million.

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

 

     Derivative Assets  
     December 31, 2012      December 31, 2011  
     Fair Value      Fair Value  

Derivatives designated as cash flow hedging instruments under ASC 815:

     

Foreign currency forward and option contracts (1) 

   $ 1,080       $ 704   

Foreign currency forward and option contracts (2)

     14         —     
  

 

 

    

 

 

 
     1,094         704   

Derivatives not designated as hedging instruments under ASC 815:

     

Foreign currency forward contracts (1)

     914         6   
  

 

 

    

 

 

 

Total derivative assets

   $ 2,008       $ 710   
  

 

 

    

 

 

 

 

     Derivative Liabilities  
     December 31, 2012      December 31, 2011  
     Fair Value      Fair Value  

Derivatives designated as cash flow hedging instruments under ASC 815:

     

Foreign currency forward and option contracts (3) 

   $ 904       $ 485   

Foreign currency forward and option contracts (4)

     8         —     
  

 

 

    

 

 

 
     912         485   

Derivatives not designated as hedging instruments under ASC 815:

     

Foreign currency forward contracts (3)

     62         267   
  

 

 

    

 

 

 

Total derivative liabilities

   $ 974       $ 752   
  

 

 

    

 

 

 

 

(1) 

Included in “Other current assets” in the accompanying Consolidated Balance Sheets.

(2) 

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

(3) 

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

(4) 

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

 

The following tables present the effect of the Company’s derivative instruments included in the accompanying Consolidated Financial Statements for the years ended December 31, 2012, 2011 and 2010 (in thousands):

 

     Gain (Loss) Recognized in AOCI
on Derivatives (Effective  Portion)
    Gain (Loss) Reclassified From
Accumulated AOCI Into
“Revenues” (Effective Portion)
     Gain (Loss) Recognized in
“Revenues” on Derivatives

(Ineffective Portion)
 
     December 31,     December 31,      December 31,  
     2012      2011     2010     2012      2011      2010      2012      2011      2010  

Derivatives designated as cash flow hedging instruments under ASC 815:

                        

Foreign currency forward and option contracts

   $ 4,400       $ (1,483   $ 4,936      $ 4,156       $ 1,853       $ 5,173       $ 17       $ 2       $ —     

Derivatives designated as a net investment hedge under ASC 815:

                        

Foreign currency forward contracts

     —           —          (3,955     —           —           —           —           —           —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Foreign currency forward and option contracts

   $ 4,400       $ (1,483   $ 981      $ 4,156       $ 1,853       $ 5,173       $ 17       $ 2       $ —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Gain (Loss) Recognized in “Other
income and (expense)”  on Derivatives
 
     December 31,  
     2012     2011     2010  

Derivatives not designated as hedging instruments under ASC 815:

      

Foreign currency forward contracts

   $ (295   $ (1,444   $ (4,717
  

 

 

   

 

 

   

 

 

 
Investments Held in Rabbi Trust
Investments Held in Rabbi Trust

Note 14. Investments Held in Rabbi Trust

The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets” in the accompanying Consolidated Balance Sheets, at fair value, consist of the following (in thousands):

 

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

Mutual funds

   $ 4,812       $ 5,261       $ 3,938       $ 4,182   
  

 

 

    

 

 

    

 

 

    

 

 

 

The mutual funds held in the rabbi trust were 61% equity-based and 39% debt-based as of December 31, 2012. Net investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010 consists of the following (in thousands):

 

     Years Ended December 31,  
     2012     2011     2010  

Gross realized gains from sale of trading securities

   $ 163      $ 201      $ 54   

Gross realized (losses) from sale of trading securities

     (1     (20     (5

Dividend and interest income

     129        69        37   

Net unrealized holding gains (losses)

     312        (383     313   
  

 

 

   

 

 

   

 

 

 

Net investment income (losses)

   $ 603      $ (133   $ 399   
  

 

 

   

 

 

   

 

 

 
Property and Equipment
Property and Equipment

Note 15. Property and Equipment

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

 

     December 31,  
     2012      2011  

Land

   $ 4,217       $ 4,191   

Buildings and leasehold improvements

     75,002         74,221   

Equipment, furniture and fixtures

     269,069         231,789   

Capitalized software development costs

     7,274         2,903   

Transportation equipment

     698         716   

Construction in progress

     4,035         1,479   
  

 

 

    

 

 

 
     360,295         315,299   

Less: Accumulated depreciation

     259,000         224,219   
  

 

 

    

 

 

 
   $ 101,295       $ 91,080   
  

 

 

    

 

 

 

Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 was as follows (in thousands):

 

     December 31,  
     2012      2011  

Capitalized internally developed software costs, net

   $ 1,361       $ —     
  

 

 

    

 

 

 

Depreciation expense included in “General and administrative” in the accompanying Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010 was as follows (in thousands):

 

     Years Ended December 31,  
     2012      2011      2010  

Depreciation expense

   $ 41,571       $ 47,139       $ 47,902   
  

 

 

    

 

 

    

 

 

 

Sale of Land and Building Located in Minot, North Dakota

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

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.

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

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

are expected.

Deferred Charges and Other Assets
Deferred Charges and Other Assets

Note 16. Deferred Charges and Other Assets

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

 

     December 31,  
     2012      2011  

Non-current deferred tax assets (Note 23)

   $ 13,923       $ 20,389   

Non-current mandatory tax security deposits (Note 23)

     14,989         —     

Non-current value added tax certificates (Note 12)

     7,214         5,191   

Deposits

     3,408         2,278   

Other

     4,250         2,304   
  

 

 

    

 

 

 
   $ 43,784       $ 30,162   
  

 

 

    

 

 

 
Accrued Employee Compensation and Benefits
Accrued Employee Compensation and Benefits

Note 17. Accrued Employee Compensation and Benefits

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

 

     December 31,  
     2012      2011  

Accrued compensation

   $ 25,258       $ 20,892   

Accrued vacation

     14,709         13,965   

Accrued bonus and commissions

     16,374         12,566   

Accrued employment taxes

     10,225         9,757   

Other

     6,537         5,272   
  

 

 

    

 

 

 
   $ 73,103       $ 62,452   
  

 

 

    

 

 

 
Deferred Revenue
Deferred Revenue

Note 18. Deferred Revenue

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

 

     December 31,  
     2012      2011  

Future service

   $ 25,074       $ 25,809   

Estimated potential penalties and holdbacks

     9,209         8,510   
  

 

 

    

 

 

 
   $ 34,283       $ 34,319   
  

 

 

    

 

 

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

Note 19. Other Accrued Expenses and Current Liabilities

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

 

     December 31,  
     2012      2011  

Customer deposits

   $ 7,350       $ 796   

Accrued restructuring (Note 5)

     1,401         6,301   

Accrued legal and professional fees

     4,231         2,623   

Accrued telephone charges

     1,943         518   

Accrued roadside assistance claim costs

     2,288         1,691   

Accrued rent

     1,367         1,297   

Foreign currency forward and option contracts (Note 13)

     966         752   

Other

     11,774         7,213   
  

 

 

    

 

 

 
   $ 31,320       $ 21,191   
  

 

 

    

 

 

 
Deferred Grants
Deferred Grants

Note 20. Deferred Grants

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

 

     December 31,  
     2012      2011  

Property grants

   $ 7,270       $ 8,210   

Employment grants

     337         1,123   
  

 

 

    

 

 

 

Total deferred grants

     7,607         9,333   

Less: Employment grants — short-term (1)

     —           (770
  

 

 

    

 

 

 

Total long-term deferred grants (2)

   $ 7,607       $ 8,563   
  

 

 

    

 

 

 

 

(1) 

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

 

(2) 

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

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 Consolidated Statements of Operations consist of the following (in thousands):

 

     Years Ended December 31,  
     2012      2011      2010  

Amortization of property grants

   $ 940       $ 956       $ 1,047   

Amortization of employment grants

     261         1,344         58   
  

 

 

    

 

 

    

 

 

 
   $ 1,201       $ 2,300       $ 1,105   
  

 

 

    

 

 

    

 

 

 
Borrowings
Borrowings

Note 21. Borrowings

On May 3, 2012, the Company entered into a $245 million revolving credit facility (the “2012 Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent (“KeyBank”). The 2012 Credit Agreement replaced the Company’s previous $75 million revolving credit facility (the “2010 Credit Agreement”) dated February 2, 2010, as amended, which agreement was terminated simultaneous with entering into the 2012 Credit Agreement. The 2012 Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants. The Company borrowed $108.0 million under the 2012 Credit Agreement’s revolving credit facility on August 20, 2012 in connection with the acquisition of Alpine on such date. See Note 2, Acquisition of Alpine Access, Inc., for further information.

The 2012 Credit Agreement includes a $184 million alternate-currency sub-facility, a $10 million swingline sub-facility and a $35 million letter of credit sub-facility, and may be used for general corpor