SYKES ENTERPRISES INC, 10-K filed on 2/29/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Feb. 10, 2016
Jun. 30, 2015
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
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
 
42,784,966 
 
Entity Public Float
 
 
$ 1,008,374,946 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 235,358 
$ 215,137 
Receivables, net
277,096 
290,397 
Prepaid expenses
17,321 
14,896 
Other current assets
33,262 
29,656 
Total current assets
563,037 
550,086 
Property and equipment, net
111,962 
109,880 
Goodwill, net
195,733 
193,831 
Intangibles, net
50,896 
60,620 
Deferred charges and other assets
26,144 
30,083 
Total assets
947,772 
944,500 
Current liabilities:
 
 
Accounts payable
23,255 
25,523 
Accrued employee compensation and benefits
77,246 
82,072 
Current deferred income tax liabilities
1,120 
144 
Income taxes payable
1,959 
3,662 
Deferred revenue
28,119 
34,245 
Other accrued expenses and current liabilities
21,476 
22,216 
Total current liabilities
153,175 
167,862 
Deferred grants
4,810 
5,110 
Long-term debt
70,000 
75,000 
Long-term income tax liabilities
18,512 
20,630 
Other long-term liabilities
22,595 
17,680 
Total liabilities
269,092 
286,282 
Commitments and loss contingency (Note 22)
   
   
Shareholders' equity:
 
 
Preferred stock, $0.01 par value per share, 10,000 shares authorized; no shares issued and outstanding
   
   
Common stock, $0.01 par value per share, 200,000 shares authorized; 42,785 and 43,291 shares issued, respectively
428 
433 
Additional paid-in capital
275,380 
279,288 
Retained earnings
458,325 
400,514 
Accumulated other comprehensive income (loss)
(53,662)
(20,561)
Treasury stock at cost: 113 and 132 shares, respectively
(1,791)
(1,456)
Total shareholders' equity
678,680 
658,218 
Total liabilities and shareholders' equity
$ 947,772 
$ 944,500 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
 
 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
200,000,000 
200,000,000 
Common stock, shares issued
42,785,000 
43,291,000 
Treasury stock, shares
113,000 
132,000 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Income Statement [Abstract]
 
 
 
Revenues
$ 1,286,340 
$ 1,327,523 
$ 1,263,460 
Operating expenses:
 
 
 
Direct salaries and related costs
836,516 
892,110 
855,266 
General and administrative
297,257 
298,129 
297,519 
Depreciation, net
43,752 
45,363 
42,084 
Amortization of intangibles
14,170 
14,396 
14,863 
Net (gain) loss on disposal of property and equipment
381 
(2,030)
201 
Total operating expenses
1,192,076 
1,247,968 
1,209,933 
Income from operations
94,264 
79,555 
53,527 
Other income (expense):
 
 
 
Interest income
668 
958 
866 
Interest (expense)
(2,465)
(2,011)
(2,307)
Other income (expense)
(2,484)
(1,343)
(761)
Total other income (expense)
(4,281)
(2,396)
(2,202)
Income before income taxes
89,983 
77,159 
51,325 
Income taxes
21,386 
19,368 
14,065 
Net income
$ 68,597 
$ 57,791 
$ 37,260 
Net income per common share:
 
 
 
Basic
$ 1.64 
$ 1.36 
$ 0.87 
Diluted
$ 1.62 
$ 1.35 
$ 0.87 
Weighted average common shares outstanding:
 
 
 
Basic
41,899 
42,609 
42,877 
Diluted
42,447 
42,814 
42,925 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
Net income
$ 68,597 
$ 57,791 
$ 37,260 
Other comprehensive income (loss), net of taxes:
 
 
 
Foreign currency translation gain (loss), net of taxes
(36,525)
(34,827)
(3,332)
Unrealized gain (loss) on net investment hedges, net of taxes
3,894 
3,959 
(1,118)
Unrealized actuarial gain (loss) related to pension liability, net of taxes
21 
(142)
(263)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes
(416)
2,424 
(1,965)
Unrealized gain (loss) on postretirement obligation, net of taxes
(75)
28 
(181)
Other comprehensive income (loss), net of taxes
(33,101)
(28,558)
(6,859)
Comprehensive income (loss)
$ 35,496 
$ 29,233 
$ 30,401 
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, 2012
$ 606,264 
$ 438 
$ 277,192 
$ 315,187 
$ 14,856 
$ (1,409)
Beginning Balance, shares at Dec. 31, 2012
 
43,790 
 
 
 
 
Issuance of common stock
59 
 
59 
 
 
 
Issuance of common stock, shares
 
10 
 
 
 
 
Stock-based compensation expense
4,873 
 
4,873 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(187)
 
(187)
 
 
 
Issuance of common stock under equity award plans, net of shares withheld for employee taxes
(227)
(29)
 
 
(203)
Issuance of common stock under equity award plans, net of shares withheld for employee taxes, shares
 
538 
 
 
 
 
Repurchase of common stock
(5,479)
 
 
 
 
(5,479)
Retirement of treasury stock
 
(3)
(2,395)
(3,081)
 
5,479 
Retirement of treasury stock, shares
 
(341)
 
 
 
 
Comprehensive income (loss)
30,401 
 
 
37,260 
(6,859)
 
Ending Balance at Dec. 31, 2013
635,704 
440 
279,513 
349,366 
7,997 
(1,612)
Ending Balance, shares at Dec. 31, 2013
 
43,997 
 
 
 
 
Stock-based compensation expense
6,381 
 
6,381 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
(82)
 
(82)
 
 
 
Issuance of common stock under equity award plans, net of shares withheld for employee taxes
(437)
(1)
(592)
 
 
156 
Issuance of common stock under equity award plans, net of shares withheld for employee taxes, shares
 
(76)
 
 
 
 
Repurchase of common stock
(12,581)
 
 
 
 
(12,581)
Retirement of treasury stock
 
(6)
(5,932)
(6,643)
 
12,581 
Retirement of treasury stock, shares
 
(630)
 
 
 
 
Comprehensive income (loss)
29,233 
 
 
57,791 
(28,558)
 
Ending Balance at Dec. 31, 2014
658,218 
433 
279,288 
400,514 
(20,561)
(1,456)
Ending Balance, shares at Dec. 31, 2014
 
43,291 
 
 
 
 
Stock-based compensation expense
8,749 
 
8,749 
 
 
 
Excess tax benefit (deficiency) from stock-based compensation
422 
 
422 
 
 
 
Issuance of common stock under equity award plans, net of shares withheld for employee taxes
(3,326)
(3,159)
 
 
(171)
Issuance of common stock under equity award plans, net of shares withheld for employee taxes, shares
 
348 
 
 
 
 
Repurchase of common stock
(20,879)
 
 
 
 
(20,879)
Retirement of treasury stock
 
(9)
(9,920)
(10,786)
 
20,715 
Retirement of treasury stock, shares
 
(854)
 
 
 
 
Comprehensive income (loss)
35,496 
 
 
68,597 
(33,101)
 
Ending Balance at Dec. 31, 2015
$ 678,680 
$ 428 
$ 275,380 
$ 458,325 
$ (53,662)
$ (1,791)
Ending Balance, shares at Dec. 31, 2015
 
42,785 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Cash flows from operating activities:
 
 
 
Net income
$ 68,597 
$ 57,791 
$ 37,260 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
44,515 
46,255 
43,094 
Amortization of intangibles
14,170 
14,396 
14,863 
Amortization of deferred grants
(973)
(1,348)
(1,148)
Unrealized foreign currency transaction (gains) losses, net
318 
119 
6,302 
Stock-based compensation expense
8,749 
6,381 
4,873 
Excess tax (benefit) from stock-based compensation
(422)
 
 
Deferred income tax provision (benefit)
2,515 
4,865 
(362)
Net (gain) loss on disposal of property and equipment
381 
(2,030)
201 
Bad debt expense (reversals)
278 
(181)
483 
Write-downs (recoveries) of value added tax receivables
 
(638)
143 
Unrealized (gains) losses on financial instruments, net
1,028 
2,352 
(15)
Foreign exchange (gain) loss on liquidation of foreign entities
720 
113 
(83)
Amortization of deferred loan fees
403 
259 
259 
Net (gain) on insurance settlement
(919)
 
 
Proceeds from business interruption insurance settlement
156 
 
 
Imputed interest expense and fair value adjustments to contingent consideration
408 
 
 
Other
(106)
(10)
(116)
Changes in assets and liabilities, net of acquisition:
 
 
 
Receivables
2,499 
(40,276)
(22,062)
Prepaid expenses
(3,040)
336 
(3,931)
Other current assets
(6,972)
(6,673)
(1,177)
Deferred charges and other assets
1,951 
3,545 
(2,754)
Accounts payable
(124)
2,029 
(1,282)
Income taxes receivable / payable
(5,666)
2,609 
804 
Accrued employee compensation and benefits
(1,481)
5,179 
9,140 
Other accrued expenses and current liabilities
(1,564)
(5,026)
(2,025)
Deferred revenue
(2,559)
2,147 
2,826 
Other long-term liabilities
(2,398)
2,070 
925 
Net cash provided by operating activities
120,464 
94,264 
86,218 
Cash flows from investing activities:
 
 
 
Capital expenditures
(49,662)
(44,683)
(59,193)
Cash paid for business acquisition, net of cash acquired
(9,370)
 
 
Proceeds from sale of property and equipment
616 
3,639 
388 
Investment in restricted cash
(45)
(7)
(562)
Release of restricted cash
13 
160 
 
Proceeds from property and equipment insurance settlement
1,490 
 
 
Net cash (used for) investing activities
(56,958)
(40,891)
(59,367)
Cash flows from financing activities:
 
 
 
Payments of long-term debt
(10,000)
(23,000)
(25,000)
Proceeds from issuance of long-term debt
5,000 
 
32,000 
Proceeds from issuance of common stock
 
 
59 
Excess tax benefit from stock-based compensation
422 
 
 
Cash paid for repurchase of common stock
(20,879)
(12,581)
(5,479)
Proceeds from grants
670 
256 
201 
Payments on short-term debt
(323)
 
 
Shares repurchased for minimum tax withholding on equity awards
(3,326)
(437)
(227)
Cash paid for loan fees related to long-term debt
(962)
 
 
Net cash provided by (used for) financing activities
(29,398)
(35,762)
1,554 
Effects of exchange rates on cash and cash equivalents
(13,887)
(14,459)
(3,742)
Net increase (decrease) in cash and cash equivalents
20,221 
3,152 
24,663 
Cash and cash equivalents - beginning
215,137 
211,985 
187,322 
Cash and cash equivalents - ending
235,358 
215,137 
211,985 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during period for interest
1,476 
1,716 
2,149 
Cash paid during period for income taxes
30,467 
16,560 
16,889 
Non-cash transactions:
 
 
 
Property and equipment additions in accounts payable
4,941 
5,512 
6,002 
Unrealized gain (loss) on postretirement obligation in accumulated other comprehensive income (loss)
$ (75)
$ 28 
$ (181)
Overview and Summary of Significant Accounting Policies
Overview and Summary of Significant Accounting Policies

Note 1. Overview and Summary of Significant Accounting Policies

Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides comprehensive outsourced customer contact management solutions and services in the business process outsourcing arena to companies, primarily within the communications, financial services, technology/consumer, transportation and leisure, and healthcare industries. SYKES provides flexible, high-quality outsourced customer contact management services (with an emphasis on inbound technical support and customer service), which includes customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels encompassing phone, e-mail, social media, text messaging, chat and digital self-service. 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, which includes order processing, payment processing, inventory control, product delivery and product returns handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and Africa.

Acquisition — In July 2015, the Company completed the acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”), pursuant to definitive Share Sale and Purchase Agreement, dated July 2, 2015. The Company has reflected the operating results in the Consolidated Statements of Operations since July 2, 2015. See Note 2, Acquisitions, for additional information on the acquisition.

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

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

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

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

Revenues from fulfillment services account for 1.6%, 1.4% and 1.3% of total consolidated revenues for the years ended December 31, 2015, 2014 and 2013, respectively, some of which contain multiple-deliverables. The service offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 “Revenue Recognition — Multiple-Element Arrangements” (“ASC 605-25”) [as amended by Accounting Standards Update (“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”)], the Company determines if the services provided under these contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value, and where return rights exist, delivery or performance of the undelivered items is considered probable and substantially within our control. If those deliverables are determined to be separate units of accounting, revenues from these services are recognized as the services are performed under a fully executed contractual agreement. If those deliverables are not determined to be separate units of accounting, revenue for the delivered services are bundled into a single unit of accounting and recognized on the proportional performance method using the straight-line basis over the contract period, or the actual number of operational seats used to serve the client, as appropriate.

The Company allocates revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated selling price is based on the Company’s best estimate of what the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, service offerings, and customer classifications. Once the Company allocates revenue to each deliverable, the Company recognizes revenue when all revenue recognition criteria are met. As of December 31, 2015, 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, 2015.

Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments. Cash in the amount of $235.4 million and $215.1 million at December 31, 2015 and 2014, respectively, was primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash equivalents of $221.7 million and $194.4 million at December 31, 2015 and 2014, respectively, were held in international operations and may be subject to additional taxes if repatriated to the United States (“U.S.”).

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

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

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

The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment.” For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets or independent third party offers. Occasionally, the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the carrying amount of these assets. The Company determined that its property and equipment were not impaired as of December 31, 2015.

 

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 Accounting Standards Codification (“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.

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.

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

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

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

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

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

The Company receives government lease grants as an incentive for leasing space at specific locations or locating call centers in a government’s jurisdiction. These grants are repayable, under certain terms and conditions, as set forth in the grant agreements. Accordingly, grant monies received are deferred and amortized primarily as a reduction to rent expense included in “General and administrative” over the required lease 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 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 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 24, Stock-Based Compensation. Stock-based awards under these plans may consist of common stock, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and uses treasury stock to satisfy stock option exercises or vesting of stock awards.

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

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

 

   

Cash, short-term and other investments, investments held in rabbi trust and accounts payable  The carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts payable approximate their fair values.

 

   

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

 

   

Long-term debt  The carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates.

 

   

Contingent consideration  Contingent consideration is recognized at fair value based on the discounted cash flow method.

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. These items 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 11, Investments Held in Rabbi Trust, and Note 24, 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.

 

Contingent consideration  The Company uses significant unobservable inputs to determine the fair value of contingent consideration, which is classified in Level 3 of the fair value hierarchy. The contingent consideration was recognized at fair value using a discounted cash flow methodology and a discount rate of 14.0%. The discount rate is dependent on the specific risks of the acquisition including the country of operation, the nature of services and complexity of the acquired business, and other similar factors, all of which are significant inputs not observable in the market. Significant increases or decreases in any of the inputs in isolation would result in a significantly higher or lower fair value measurement.

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, 2015 and 2014, 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. Changes in the fair value of the derivative instruments are included in “Revenues” or “Other income (expense)”, depending on the underlying risk exposure. See Note 10, Financial Derivatives, for further information on financial derivative instruments.

 

Reclassifications — Certain balances in prior years have been reclassified to conform to current year presentation.

New Accounting Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The amendments in ASU 2014-09 outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and indicate that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity should identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date” (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. An entity should apply the amendments using either the full retrospective approach or retrospectively with a cumulative effect of initially applying the amendments recognized at the date of initial application. The Company is currently evaluating the methods of adoption and the impact that the adoption of ASU 2014-09 may have on its financial condition, results of operations and cash flows.

In June 2014, the FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation” (“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; early adoption is permitted. Entities may apply the amendments either (1) prospective to all awards granted or modified after the effective date or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 on January 1, 2016 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). This amendment eliminates from U.S. GAAP the concept of extraordinary items as part of the FASB’s initiative to reduce complexity in accounting standards. These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015; early adoption is permitted. Entities may apply the amendments either prospectively or retrospectively to all prior periods presented in the financial statements. The adoption of ASU 2015-01 on January 1, 2016 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810) Amendments to the Consolidation Analysis)” (“ASU 2015-02”). These amendments are intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations and securitization structures. These amendments affect the consolidation evaluation for reporting organizations. In addition, the amendments simplify and improve current U.S. GAAP by reducing the number of consolidation models. The amendments are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015; early adoption is permitted. Entities may apply the amendments using either a modified retrospective approach or retrospectively. The adoption of ASU 2015-02 on January 1, 2016 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. These amendments are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the amendments retrospectively. The adoption of ASU 2015-03 on January 1, 2016 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”). These amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. These amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015; early adoption is permitted. Entities can adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. The adoption of ASU 2015-05 on January 1, 2016 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In September 2015, the FASB issued ASC 2015-16, “Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). These amendments eliminate the requirement for an acquirer to retrospectively adjust provisional amounts recorded in a business combination to reflect new information about the facts and circumstances that existed as of the acquisition date and that, if known, would have affected measurement or recognition of amounts initially recognized. As an alternative, the amendment requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the financial statements of the period in which adjustments to provisional amounts are determined, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. These amendments are effective prospectively for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2015-16 on January 1, 2016 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In November 2015, the FASB issued ASC 2015-17, “Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). These amendments require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The existing requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by these amendments. These amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. These amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted as of the beginning of the interim or annual reporting period. The Company has not yet determined whether to early adopt ASU 2015-17, or selected a transition method, and is currently evaluating the impact the guidance will have on its financial condition, results of operations and cash flows.

In January 2016, the FASB issued ASC 2016-01, “Financial Instruments — Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). These amendments modify how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurements, and as such, these investments may be measured at cost. These amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of ASU 2016-01 to materially impact its financial condition, results of operations and cash flows.

In February 2016, the FASB issued ASC 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). These amendments require the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840 “Leases”. These amendments also require qualitative disclosures along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its financial condition, results of operations and cash flows.

 

New Accounting Standards Recently Adopted

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). The amendments in ASU 2014-08 indicate that only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results will be reported as discontinued operations in the financial statements. Currently, a component of an entity that is a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group is eligible for discontinued operations presentation. The amendments will be applied to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08 on January 1, 2015 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

In August 2015, the FASB issued ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” (“ASU 2015-15”). These amendments provide additional guidance to ASU 2015-03, which did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 noted that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of ASU 2015-15 on August 18, 2015 did not have a material impact on the financial condition, results of operations and cash flows of the Company.

Acquisitions
Acquisitions

Note 2. Acquisitions

Qelp Acquisition

On July 2, 2015, the Company’s wholly-owned subsidiaries, Sykes Enterprises Incorporated B.V. and Sykes Enterprises Incorporated Holdings B.V., both Netherlands companies, entered into a definitive Share Sale and Purchase Agreement (the “Purchase Agreement”) with MobileTimes B.V., Yarra B.V., From The Mountain Consultancy B.V. and Sticting Administratiekantoor Qelp (the “Sellers”), all of which are Netherlands companies, to acquire all of the outstanding shares of Qelp B.V. and its wholly owned subsidiary (together, known as “Qelp”.) The strategic acquisition of Qelp (the “Qelp acquisition”) was to further broaden and strengthen the Company’s service portfolio around digital self-service customer support and extend its reach into adjacent, but complementary, markets. Pursuant to Federal income tax regulations, no amount of intangibles or goodwill from this acquisition will be deductible for tax purposes. The results of Qelp’s operations have been included in the Company’s consolidated financial statements since its acquisition on July 2, 2015 (the “acquisition date”).

The consideration consists of an initial purchase price and a contingent purchase price. The initial purchase price of $9.8 million, including certain post-closing adjustments relating to Qelp’s working capital, was funded through cash on hand upon the closing of the transaction on July 2, 2015. The contingent purchase price to be paid over a three-year period is based on achieving targets tied to revenues and earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the years ended December 31, 2016, 2017 and 2018, not to exceed EUR 10.0 million.

As of the acquisition date, the total consideration paid or to be paid by the Company for the Qelp acquisition is summarized below (in thousands):

 

     Total  

Cash

   $ 9,885   

Contingent consideration

     6,000   

Working capital adjustment

     (65
  

 

 

 
   $ 15,820   
  

 

 

 

The fair value of the contingent consideration was estimated using the discounted cash flow method, and was included in “Other long-term liabilities” in the accompanying Consolidated Balance Sheet (see Note 4, Fair Value, for further information). As part of the discounted cash flow method, the Company calculated an adjusted weighted average cost of capital (“WACC”) specifically attributable to the future payments of the contingent consideration. Based on the forecasted revenue and profitability scenarios and their respective probabilities of occurrence, the Company estimated the present value of the probability-adjusted future payments utilizing an adjusted WACC for the potential future payments. The Company believes that its estimates and assumptions are reasonable, but there is significant judgment involved. Changes in the fair value of the contingent consideration liabilities subsequent to the acquisition will be recorded in the Company’s Consolidated Statements of Operations.

The Company accounted for the Qelp acquisition in accordance with ASC 805 (“ASC 805”) “Business Combinations,” whereby the fair value of the purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from Qelp based on their estimated fair values as of the closing date. The Company completed its analysis of the purchase price allocation during the fourth quarter of 2015.

The following table summarizes the estimated acquisition date fair values of the assets acquired and liabilities assumed, all included in the EMEA segment (in thousands):

 

     July 2, 2015
(As Initially
Reported)
    Measurement
Period
Adjustments
    July 2, 2015
(As Adjusted)
 

Cash and cash equivalents

   $ 450      $ —        $ 450   

Receivables (1)

     1,541        (70     1,471   

Prepaid expenses

     24        —          24   
  

 

 

   

 

 

   

 

 

 

Total current assets

     2,015        (70     1,945   

Property and equipment

     2,168        —          2,168   

Goodwill

     9,574        480        10,054   

Intangibles

     6,000        —          6,000   

Deferred charges and other assets

     55        —          55   

Short-term debt

     (323     —          (323

Accrued employee compensation and benefits

     (207     —          (207

Income taxes payable

     (62     (32     (94

Deferred revenue

     (967     —          (967

Other accrued expenses and current liabilities

     (1,030     —          (1,030
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     (2,589     (32     (2,621

Other long-term liabilities (2)

     (1,403     (378     (1,781
  

 

 

   

 

 

   

 

 

 
   $ 15,820      $ —        $ 15,820   
  

 

 

   

 

 

   

 

 

 

 

(1)

The fair value equals the gross contractual value of the receivables.

 

(2)

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 July 2, 2015, the acquisition date (in thousands):

 

     Amount
Assigned
     Weighted
Average
Amortization
Period (years)
 

Customer relationships

   $ 5,400         7   

Trade name and trademarks

     100         3   

Content library

     500         2   
  

 

 

    
   $ 6,000         7   
  

 

 

    

 

The amount of Qelp’s revenues and net (loss) since the July 2, 2015 acquisition date, included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2015 were as follows (in thousands):

 

     From
July 2,
2015 Through
December 31,
2015
 

Revenues

   $ 2,661   

Net (loss)

   $ (162

Merger and integration costs associated with Qelp included in “General and administrative” costs in the accompanying Consolidated Statement of Operations in the Other segment for the year ended December 31, 2015 were as follows (none in 2014 and 2013) (in thousands):

 

     Year Ended
December 31, 2015
 

Transaction costs

   $ 455   
  

 

 

 

Alpine Acquisition

The Company acquired 100% of the outstanding common shares and voting interest of Alpine Access, Inc. (“Alpine”) in August 2012.

Merger and integration costs associated with Alpine were as follows (none in 2015 and 2014) (in thousands):

 

     Year Ended
December 31,  2013
 

Severance costs included in “Direct salaries and related costs”: (1)

  

Americas

   $ 526   
  

 

 

 
     526   

Severance costs included in “General and administrative”: (1)

  

Americas

     985   

Other

     159   
  

 

 

 
     1,144   

Transaction and integration costs included in “General and administrative”: (1)

  

Other

     444   
  

 

 

 
     444   
  

 

 

 

Total merger and integration costs

   $ 2,114   
  

 

 

 

 

(1)

In the accompanying Consolidated Statements of Operations.

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

Note 3. Costs Associated with Exit or Disposal Activities

During 2011 and 2010, the Company announced several initiatives to streamline excess capacity through targeted seat reductions (the “Exit Plans”) in an on-going effort to manage and optimize capacity utilization. These Exit Plans included, but were not limited to, closing customer contact management centers in The Philippines, the United Kingdom, Ireland and South Africa and consolidating leased space in various locations in the U.S. and the Netherlands. These Exit Plans impacted approximately 800 employees. The Company has paid $15.3 million in cash through December 31, 2015 under these Exit Plans.

The cumulative costs expected and incurred as a result of the Exit Plans were as follows as of December 31, 2015 (in thousands):

 

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

Lease obligations and facility exit costs

   $ 1,365       $ 19       $ 1,914       $ 6,729       $ 10,027   

Severance and related costs

     —           5,857         185         —           6,042   

Legal-related costs

     —           110         —           —           110   

Non-cash impairment charges

     480         474         159         3,847         4,960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,845       $ 6,460       $ 2,258       $ 10,576       $ 21,139   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes the accrued liability associated with the Exit Plans’ exit or disposal activities and related charges (reversals) for the years ended December 31, 2015, 2014 and 2013 (in thousands):

 

     Lease Obligation
and Facility Exit
Costs
    Severance and
Related Costs
    Legal-Related
Costs
    Total  

Balance at January 1, 2013

   $ 3,772      $ 187      $ 10      $ 3,969   

Charges (reversals) (1)

     318        (56     —          262   

Cash payments

     (1,264     (8     (10     (1,282

Other non-cash changes (3)

     17        8        —          25   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     2,843        131        —          2,974   

Charges (reversals) (2)

     (185     (129     —          (314

Cash payments

     (1,095     —          —          (1,095

Other non-cash changes (3)

     (5     (2     —          (7
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

     1,558        —          —          1,558   

Charges (reversals)

     —          —          —          —     

Cash payments

     (825     —          —          (825

Other non-cash changes (3)

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

   $ 733      $ —        $ —        $ 733   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

During 2013, the Company recorded additional lease obligations and facility exit costs in EMEA for one of the Ireland site’s lease restoration, which increased “General and administrative” costs in the accompanying Consolidated Statement of Operations. Also during 2013, the Company reversed accruals related to the final settlement of severance and related costs in EMEA for the Netherlands site, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations.

 

(2)

During 2014, the Company reversed accruals related to the final settlement of lease obligations and facility exit costs as well as severance and related costs in EMEA for the Ireland sites, which reduced “General and administrative” costs in the accompanying Consolidated Statement of Operations.

 

(3)

Effect of foreign currency translation.

 

Restructuring Liability Classification

The following table summarizes the Company’s short-term and long-term accrued liabilities associated with its exit and disposal activities, by plan, as of December 31, 2015 and 2014 (in thousands):

 

     Americas
Fourth
Quarter 2011
Exit Plan
     Americas
Third
Quarter 2010
Exit Plan
     Total  

December 31, 2015

        

Short-term accrued restructuring liability (1)

   $ 144       $ 487       $ 631   

Long-term accrued restructuring liability (2)

     22         80         102   
  

 

 

    

 

 

    

 

 

 

Ending accrual at December 31, 2015

   $ 166       $ 567       $ 733   
  

 

 

    

 

 

    

 

 

 

December 31, 2014

        

Short-term accrued restructuring liability (1)

   $ 109       $ 521       $ 630   

Long-term accrued restructuring liability (2)

     203         725         928   
  

 

 

    

 

 

    

 

 

 

Ending accrual at December 31, 2014

   $ 312       $ 1,246       $ 1,558   
  

 

 

    

 

 

    

 

 

 

 

(1)

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

 

(2)

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

The remaining restructuring liability relates to future rent obligations to be paid through the remainder of the lease terms, the last of which ends in February 2017. The EMEA Fourth Quarter 2011 and EMEA Fourth Quarter 2010 Exit Plans were settled during 2014.

Fair Value
Fair Value

Note 4. Fair Value

The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following as of December 31, 2015 (in thousands):

 

            Fair Value Measurements at December 31, 2015 Using:  
     Balance at      Quoted Prices
in Active
Markets For
Identical Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
 
     December 31, 2015      Level (1)      Level (2)      Level (3)  

Assets:

           

Foreign currency forward and option contracts included in “Other current assets” (1)

   $ 10,962       $ —         $ 10,962       $ —     

Equity investments held in a rabbi trust for the Deferred Compensation Plan (2)

     6,229         6,229         —           —     

Debt investments held in a rabbi trust for the Deferred Compensation Plan (2)

     1,622         1,622         —           —     

Guaranteed investment certificates (3)

     86         —           86         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 18,899       $ 7,851       $ 11,048       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Long-term debt (4)

   $ 70,000       $ —         $ 70,000       $ —     

Foreign currency forward and option contracts included in “Other accrued expenses and current liabilities” (1)

     835         —           835         —     

Contingent consideration included in “Other long-term liabilities” (5)

     6,280         —           —           6,280   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 77,115       $ —         $ 70,835       $ 6,280   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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 as of December 31, 2014 (in thousands):

 

            Fair Value Measurements at December 31, 2014 Using:  
     Balance at      Quoted Prices
in Active
Markets For
Identical Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
 
     December 31, 2014      Level (1)      Level (2)      Level (3)  

Assets:

           

Money market funds and open-end mutual funds included in “Cash and cash equivalents” (5)

   $ 100,915       $ 100,915       $ —         $ —     

Money market funds and open-end mutual funds included in “Deferred charges and other assets” (5)

     10         10         —           —     

Foreign currency forward and option contracts included in “Other current assets” (1)

     1,489         —           1,489         —     

Foreign currency forward contracts included in “Deferred charges and other assets” (1)

     4,060         —           4,060         —     

Equity investments held in a rabbi trust for the Deferred Compensation Plan (2)

     5,589         5,589         —           —     

Debt investments held in a rabbi trust for the Deferred Compensation Plan (2)

     1,363         1,363         —           —     

Guaranteed investment certificates (3)

     79         —           79         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 113,505       $ 107,877       $ 5,628       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Long-term debt (4)

   $ 75,000       $ —         $ 75,000       $ —     

Foreign currency forward and option contracts included in “Other accrued expenses and current liabilities” (1)

     1,261         —           1,261         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 76,261       $ —         $ 76,261       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

In the accompanying Consolidated Balance Sheets. See Note 10, Financial Derivatives.

 

(2)

Included in “Other current assets” in the accompanying Consolidated Balance Sheets. See Note 11, Investments Held in Rabbi Trust.

 

(3)

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

 

(4)

The carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. See Note 18, Borrowings.

 

(5) 

In the accompanying Consolidated Balance Sheets.

A rollforward of the activity in the Company’s fair value of the contingent consideration is as follows (in thousands):

 

     Fair Value  

Balance at January 1, 2015

   $ —     

Acquisition (1)

     6,000   

Payments

     —     

Imputed interest/adjustments

     408   

Effect of foreign currency

     (128
  

 

 

 

Balance at December 31, 2015

   $ 6,280   
  

 

 

 

 

(1)

Related to the Qelp acquisition on July 2, 2015. See Note 2, Acquisitions.

The Company did not record any fair value adjustments to the contingent consideration as the key assumptions used to calculate the fair value at the acquisition date remained consistent at December 31, 2015. Should the assumptions regarding probability of achievement of certain revenue and EBITDA targets change in future periods, the change in fair value of the contingent consideration will be recognized in the accompanying Consolidated Statements of Operations. The Company accretes interest expense each period using the effective interest method until the contingent consideration reaches the estimated future value of $9.1 million. Interest expense related to the contingent consideration is included in “Interest (expense)” in the accompanying Consolidated Statements of Operations.

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, 2015 and 2014.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

Note 5. Goodwill and Intangible Assets

Intangible Assets

The following table presents the Company’s purchased intangible assets as of December 31, 2015 (in thousands):

 

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

Customer relationships

   $ 102,594       $ (58,294   $ 44,300         8   

Trade names and trademarks

     11,698         (5,470     6,228         8   

Non-compete agreements

     1,190         (1,190     —           2   

Proprietary software

     850         (850     —           2   

Favorable lease agreement

     449         (449     —           2   

Content library

     491         (123     368         2   
  

 

 

    

 

 

   

 

 

    
   $ 117,272       $ (66,376   $ 50,896         8   
  

 

 

    

 

 

   

 

 

    

The following table presents the Company’s purchased intangible assets as of December 31, 2014 (in thousands):

 

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

Customer relationships

   $ 100,719       $ (47,571   $ 53,148         8   

Trade names and trademarks

     11,600         (4,128     7,472         8   

Non-compete agreements

     1,209         (1,209     —           2   

Proprietary software

     850         (850     —           2   

Favorable lease agreement

     449         (449     —           2   
  

 

 

    

 

 

   

 

 

    
   $ 114,827       $ (54,207   $ 60,620         8   
  

 

 

    

 

 

   

 

 

    

The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to December 31, 2015, is as follows (in thousands):

 

Years Ending December 31,

   Amount  

2016

   $ 14,489   

2017

     14,366   

2018

     8,198   

2019

     7,605   

2020

     5,104   

2021 and thereafter

     1,134   

Goodwill

Changes in goodwill for the year ended December 31, 2015 consist of the following (in thousands):

 

     January 1, 2015      Acquisition  (1)      Effect of Foreign
Currency
    December 31,
2015
 

Americas

   $ 193,831       $ —         $ (7,782   $ 186,049   

EMEA

     —           10,054         (370     9,684   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 193,831       $ 10,054       $ (8,152   $ 195,733   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

See Note 2, Acquisitions, for further information.

 

Changes in goodwill for the year ended December 31, 2014 consist of the following (in thousands):

 

     January 1, 2014      Acquisition      Effect of Foreign
Currency
    December 31,
2014
 

Americas

   $ 199,802       $ —         $ (5,971   $ 193,831   

EMEA

     —           —           —          —     
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 199,802       $ —         $ (5,971   $ 193,831   
  

 

 

    

 

 

    

 

 

   

 

 

 

The Company has five reporting units with goodwill and performs its annual goodwill impairment test during the third quarter, or more frequently, if indicators of impairment exist.

For the annual goodwill impairment test, the Company elected to forgo the option to first assess qualitative factors and performed its annual two-step goodwill impairment test as of July 31, 2015. Under ASC 350, the carrying value of assets is calculated at the reporting unit level. The quantitative assessment of goodwill includes comparing a reporting unit’s calculated fair value to its carrying value. The calculation of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth, the useful life over which cash flows will occur and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. If the fair value of the reporting unit is less than its carrying value, goodwill is considered impaired and an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value.

The process of evaluating the fair value of the reporting units is highly subjective and requires significant judgment and estimates as the reporting units operate in a number of markets and geographical regions. The Company used an average of the income and market approaches to determine its best estimates of fair value which incorporated the following significant assumptions:

 

   

Revenue projections, including revenue growth during the forecast periods;

 

   

EBITDA margin projections over the forecast periods;

 

   

Estimated income tax rates;

 

   

Estimated capital expenditures; and

 

   

Discount rates based on various inputs, including the risks associated with the specific reporting units as well as their revenue growth and EBITDA margin assumptions.

As of July 31, 2015, the Company concluded that goodwill was not impaired for all five of the reporting units. While the fair values of four of the reporting units were substantially in excess of their carrying value, the Qelp reporting unit’s fair value approximated its carrying value due to the proximity to the acquisition date of July 2, 2015. The newly acquired Qelp reporting unit’s carrying value was $15.6 million at July 31, 2015, including $9.9 million of goodwill.

The Qelp reporting unit is at considerable risk for future impairment if projected operating results are not met or other inputs into the fair value measurement change. However, as of December 31, 2015, there is no impairment as the fair value of the reporting unit exceeds its carrying value by a small margin. The Company will continue to review the calculated fair value of this reporting unit until the fair value is substantially in excess of its carrying value.

Concentrations of Credit Risk
Concentrations of Credit Risk

Note 6. 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 10, Financial Derivatives, for a discussion of the Company’s credit risk relating to financial derivative instruments, and Note 25, Segments and Geographic Information, for a discussion of the Company’s customer concentration.

Receivables, Net
Receivables, Net

Note 7. Receivables, Net

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

 

     December 31,  
     2015     2014  

Trade accounts receivable

   $ 271,729      $ 290,711   

Income taxes receivable

     4,976        993   

Other

     3,965        3,354   
  

 

 

   

 

 

 
     280,670        295,058   

Less: Allowance for doubtful accounts

     3,574        4,661   
  

 

 

   

 

 

 
   $ 277,096      $ 290,397   
  

 

 

   

 

 

 

Allowance for doubtful accounts as a percent of trade receivables

     1.3     1.6
  

 

 

   

 

 

 
Prepaid Expenses
Prepaid Expenses

Note 8. Prepaid Expenses

Prepaid expenses consist of the following (in thousands):

 

     December 31,  
     2015      2014  

Prepaid maintenance

   $ 7,509       $ 5,315   

Prepaid insurance

     4,207         3,112   

Prepaid rent

     1,919         3,147   

Prepaid other

     3,686         3,322   
  

 

 

    

 

 

 
   $ 17,321       $ 14,896   
  

 

 

    

 

 

Other Current Assets
Other Current Assets

Note 9. Other Current Assets

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

 

     December 31,  
     2015      2014  

Deferred tax assets (Note 20)

   $ 12,009       $ 13,703   

Financial derivatives (Note 10)

     10,962         1,489   

Investments held in rabbi trust (Note 11)

     7,851         6,952   

Value added tax certificates

     —           6,303   

Other current assets

     2,440         1,209   
  

 

 

    

 

 

 
   $ 33,262       $ 29,656   
  

 

 

    

 

 

 
Financial Derivatives
Financial Derivatives

Note 10. Financial Derivatives

Cash Flow Hedges — The Company has derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815 “Derivatives and Hedging” (“ASC 815”), consisting of Philippine Peso, Costa Rican Colon and Romanian Leu contracts. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.

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

 

     December 31,  
     2015     2014  

Deferred gains (losses) in AOCI

   $ (558   $ (157

Tax on deferred gains (losses) in AOCI

     31        46   
  

 

 

   

 

 

 

Deferred gains (losses) in AOCI, net of taxes

   $ (527   $ (111
  

 

 

   

 

 

 

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

   $ (558  
  

 

 

   

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 — The Company enters into foreign exchange forward contracts to hedge its net investment in certain foreign operations, as defined under ASC 815. The purpose of these derivative instruments is to protect the Company’s interests against the risk that the net assets of certain foreign subsidiaries will be adversely affected by changes in exchange rates and economic exposures related to the Company’s foreign currency-based investments in these subsidiaries.

Non-Designated Hedges — The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect the Company’s interests against adverse foreign currency moves relating primarily to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries’ functional currencies. These contracts generally do not exceed 180 days in duration. See Note 1, Overview and Summary of Significant Accounting Policies, for additional information on the Company’s purpose for entering into derivatives not designated as hedging instruments and its overall risk management strategies.

 

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

 

     As of December 31, 2015      As of December 31, 2014  

Contract Type

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

Cash flow hedges:

           

Options:

           

Philippine Pesos

   $ 71,750         December 2016       $ 73,000         December 2015   

Forwards:

           

Costa Rican Colones

     34,500         November 2016         51,600         October 2015   

Romanian Leis

     —           —           10,414         December 2015   

Philippine Pesos

     —           —           9,000         March 2015   

Net investment hedges:

           

Forwards:

           

Euros

     63,470         March 2016         51,648         March 2016   

Non-designated hedges:

           

Forwards

     50,603         March 2016         64,541         March 2015   

Master netting agreements exist with each respective counterparty to reduce credit risk by permitting net settlement of derivative positions. In the event of default by the Company or one of its counterparties, these agreements include a set-off clause that provides the non-defaulting party the right to net settle all derivative transactions, regardless of the currency and settlement date. The maximum amount of loss due to credit risk that, based on gross fair value, the Company would incur if parties to the derivative transactions that make up the concentration failed to perform according to the terms of the contracts was $11.0 million and $5.5 million as of December 31, 2015 and 2014, respectively. After consideration of these netting arrangements and offsetting positions by counterparty, the total net settlement amount as it relates to these positions are asset positions of $10.2 million and $4.4 million, and liability positions of $0.1 million and $0.1 million as of December 31, 2015 and 2014, respectively.

Although legally enforceable master netting arrangements exist between the Company and each counterparty, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in the accompanying Consolidated Balance Sheets. Additionally, the Company is not required to pledge, nor is it entitled to receive, cash collateral related to these derivative transactions.

 

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

 

    Derivative Assets  
    December 31, 2015     December 31, 2014  
    Fair Value     Fair Value  

Derivatives designated as cash flow hedging instruments under ASC 815:

   

Foreign currency forward and option contracts (1)

  $ 544      $ 974   

Derivatives designated as net investment hedging instruments under ASC 815:

   

Foreign currency forward contracts (1)

    10,161        —     

Foreign currency forward contracts (2)

    —          4,060   
 

 

 

   

 

 

 
    10,705        5,034   

Derivatives not designated as hedging instruments under ASC 815:

   

Foreign currency forward contracts (1)

    257        515   
 

 

 

   

 

 

 

Total derivative assets

  $ 10,962      $ 5,549   
 

 

 

   

 

 

 
    Derivative Liabilities  
    December 31, 2015     December 31, 2014  
    Fair Value     Fair Value  

Derivatives designated as cash flow hedging instruments under ASC 815:

   

Foreign currency forward and option contracts (3)

  $ 396      $ 406   

Derivatives not designated as hedging instruments under ASC 815:

   

Foreign currency forward contracts (3)

    439        855   
 

 

 

   

 

 

 

Total derivative liabilities

  $ 835      $ 1,261   
 

 

 

   

 

 

 

 

(1)

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

 

(2)

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

 

(3)

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

 

The following tables present the effect of the Company’s derivative instruments included in the accompanying Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013 (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
and Amount

Excluded from Effectiveness
Testing)
 
    December 31,     December 31,     December 31,  
    2015     2014     2013     2015     2014     2013     2015     2014     2013  

Derivatives designated as cash flow hedging instruments under ASC 815:

                 

Foreign currency forward and option contracts

  $ 1,696      $ (2,787   $ (2,823   $ 2,138      $ (5,339   $ (666   $ 12      $ (3   $ 119   

Derivatives designated as net investment hedging instruments under ASC 815:

                 

Foreign currency forward contracts

    6,101        6,344        (1,720     —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency forward and option contracts

  $ 7,797      $ 3,557      $ (4,543   $ 2,138      $ (5,339   $ (666   $ 12      $ (3   $ 119   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Gain (Loss) Recognized  in
“Other income (expense)”
on Derivatives
 
     December 31,  
     2015      2014     2013  

Derivatives not designated as hedging instruments under ASC 815:

       

Foreign currency forward contracts

   $ 1,374       $ (44   $ 4,216   
  

 

 

    

 

 

   

 

 

 

Investments Held in Rabbi Trust
Investments Held in Rabbi Trust

Note 11. 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, 2015      December 31, 2014  
     Cost      Fair Value      Cost      Fair Value  

Mutual funds

   $ 6,217       $ 7,851       $ 5,160       $ 6,952   
  

 

 

    

 

 

    

 

 

    

 

 

 

The mutual funds held in the rabbi trust were 79% equity-based and 21% debt-based as of December 31, 2015. Net investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of Operations consists of the following (in thousands):

 

     Years Ended
December  31,
 
     2015     2014     2013  

Gross realized gains from sale of trading securities

   $ 356      $ 586      $ 160   

Gross realized (losses) from sale of trading securities

     (1     —          (10

Dividend and interest income

     79        58        279   

Net unrealized holding gains (losses)

     (597     (276     568   
  

 

 

   

 

 

   

 

 

 

Net investment income (losses)

   $ (163   $ 368      $ 997   
  

 

 

   

 

 

   

 

 

 

Property and Equipment
Property and Equipment

Note 12. Property and Equipment

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

 

     December 31,  
     2015      2014  

Land

   $ 3,447       $ 3,600   

Buildings and leasehold improvements

     96,926         94,786   

Equipment, furniture and fixtures

     291,993         293,857   

Capitalized internally developed software costs

     17,299         7,963   

Transportation equipment

     546         531   

Construction in progress

     8,703         8,071   
  

 

 

    

 

 

 
     418,914         408,808   

Less: Accumulated depreciation

     306,952         298,928   
  

 

 

    

 

 

 
   $ 111,962       $ 109,880   
  

 

 

    

 

 

 

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

 

     December 31,  
     2015      2014  

Capitalized internally developed software costs, net

   $ 8,135       $ 1,270   
  

 

 

    

 

 

 

Winter Storm Damage

In February 2015, customer contact management centers (the “facilities”) located in Perry County, Kentucky, Buchanan County, Virginia and Wise, Virginia experienced damage to the buildings and contents as a result of winter storms. The Company filed an insurance claim with its property insurance company to recover losses of $1.6 million. The Company received $0.5 million and $1.1 million in April 2015 and July 2015, respectively, for costs to clean up and repair the facilities and business interruption. The Company completed the necessary clean up and repairs. The claim was finalized during the third quarter of 2015, resulting in a $0.9 million net gain on insurance settlement included in “General and administrative” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2015.

Sale of Fixed Assets, Land and Building Located in Bismarck, North Dakota

In November 2014, the Company sold the fixed assets, land and building located in Bismarck, North Dakota, with a net carrying value of $0.5 million, for cash of $3.1 million (net of selling costs of $0.2 million). This resulted in a net gain on disposal of property and equipment of $2.6 million, which is included in “Net gain (loss) on disposal of property and equipment” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2014.

Deferred Charges and Other Assets
Deferred Charges and Other Assets

Note 13. Deferred Charges and Other Assets

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

 

     December 31,  
     2015      2014  

Non-current mandatory tax security deposits (Note 20)

   $ 13,418       $ 15,906   

Rent and other deposits

     3,803         3,215   

Non-current deferred tax assets (Note 20)

     1,899         1,681   

Non-current value added tax receivables

     673         856   

Foreign currency forward contracts (Note 10)

     —           4,060   

Other

     6,351         4,365   
  

 

 

    

 

 

 
   $ 26,144       $ 30,083   
  

 

 

    

 

 

Accrued Employee Compensation and Benefits
Accrued Employee Compensation and Benefits

Note 14. Accrued Employee Compensation and Benefits

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

 

     December 31,  
     2015      2014  

Accrued compensation

   $ 28,215       $ 32,786   

Accrued bonus and commissions

     17,754         18,590   

Accrued vacation

     16,439         16,613   

Accrued employment taxes

     8,465         9,362   

Other

     6,373         4,721   
  

 

 

    

 

 

 
   $ 77,246       $ 82,072   
  

 

 

    

 

 

Deferred Revenue
Deferred Revenue

Note 15. Deferred Revenue

Deferred revenue consists of the following (in thousands):

 

     December 31,  
     2015      2014  

Future service

   $ 22,112       $ 25,222   

Estimated potential penalties and holdbacks

     6,007         9,023   
  

 

 

    

 

 

 
   $ 28,119       $ 34,245   
  

 

 

    

 

 

 

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

Note 16. Other Accrued Expenses and Current Liabilities

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

 

     December 31,  
     2015      2014  

Accrued legal and professional fees

   $ 3,079       $ 4,508   

Accrued rent

     1,812         640   

Accrued roadside assistance claim costs

     1,405         1,878   

Accrued telephone charges

     1,381         1,068   

Accrued utilities

     1,097         1,329   

Accrued equipment and software

     935         2,196   

Foreign currency forward and option contracts (Note 10)

     835         1,261   

Customer deposits

     714         793   

Accrued restructuring (Note 3)

     631         630   

Other

     9,587         7,913   
  

 

 

    

 

 

 
   $ 21,476       $ 22,216   
  

 

 

    

 

 

Deferred Grants
Deferred Grants

Note 17. Deferred Grants

Deferred grants consist of the following (in thousands):

 

     December 31,  
     2015     2014  

Property grants

   $ 4,377      $ 5,110   

Lease grants

     513        —     

Employment grants

     149        207   
  

 

 

   

 

 

 

Total deferred grants

     5,039        5,317   

Less: Property grants — short-term (1)

     —          —     

Less: Lease grants — short-term (1)

     (80     —     

Less: Employment grants — short-term (1)

     (149     (207
  

 

 

   

 

 

 

Total long-term deferred grants

   $ 4,810      $ 5,110   
  

 

 

   

 

 

 

 

(1)

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

Borrowings
Borrowings

Note 18. Borrowings

On May 12, 2015, the Company entered into a $440 million revolving credit facility (the “2015 Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner, Administrative Agent, Swing Line Lender and Issuing Lender (“KeyBank”). The 2015 Credit Agreement replaced the Company’s previous $245 million revolving credit facility dated May 3, 2012 (the “2012 Credit Agreement”), as amended, which agreement was terminated simultaneous with entering into the 2015 Credit Agreement. The 2015 Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants.

The 2015 Credit Agreement includes a $200 million alternate-currency sub-facility, a $10 million swingline sub-facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be available to the Company, even though it is a binding commitment of the financial institutions.

Borrowings consist of the following (in thousands):

 

     December 31,  
     2015      2014  

Revolving credit facility

   $ 70,000       $ 75,000   

Less: Current portion

     —           —     
  

 

 

    

 

 

 

Total long-term debt

   $ 70,000       $ 75,000   
  

 

 

    

 

 

 

The 2015 Credit Agreement matures on May 12, 2020 and has no varying installments due.

Borrowings under the 2015 Credit Agreement will bear interest at either LIBOR or the base rate plus, in each case, an applicable margin based on the Company’s leverage ratio. The applicable interest rate will be determined quarterly based on the Company’s leverage ratio at such time. The base rate is a rate per annum equal to the greatest of (i) the rate of interest established by KeyBank, from time to time, as its “prime rate”; (ii) the Federal Funds effective rate in effect from time to time, plus 1/2 of 1% per annum; and (iii) the then-applicable LIBOR rate for one month interest periods, plus 1.00%. Swingline loans will bear interest only at the base rate plus the base rate margin.

In addition, the Company is required to pay certain customary fees, including a commitment fee of 0.125%, which is due quarterly in arrears and calculated on the average unused amount of the 2015 Credit Agreement.

 

The 2015 Credit Agreement is guaranteed by all of the Company’s existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the direct foreign subsidiaries of the Company and those of the guarantors.

In May 2015, the Company paid an underwriting fee of $0.9 million for the 2015 Credit Agreement, which is deferred and amortized over the term of the loan, along with the deferred loan fees of $0.4 million related to the 2012 Credit Agreement. The Company expensed $0.1 million of the remaining deferred loan fees related to the 2012 Credit Agreement.

The following table presents information related to our credit agreements (dollars in thousands):

 

     Years Ended December 31,  
     2015     2014     2013  

Average daily utilization

   $ 69,964      $ 85,874      $ 102,512   

Interest expense, including commitment fee (1)

   $ 1,307      $ 1,425      $ 1,765   

Weighted average interest rate

     1.9     1.7     1.7

 

(1)

Excludes the amortization of deferred loan fees.

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

Note 19. Accumulated Other Comprehensive Income (Loss)

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

 

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

Balance at January 1, 2013

   $ 16,083      $ (2,565   $ 1,413      $ (570   $ 495      $ 14,856   

Pre-tax amount

     (3,465     (1,720     (136     (2,704     (127     (8,152

Tax (provision) benefit

     —          602        16        449        —          1,067   

Reclassification of (gain) loss to net income

     —          —          (41     321        (54     226   

Foreign currency translation

     133        —          (102     (31     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     12,751        (3,683     1,150        (2,535     314        7,997   

Pre-tax amount

     (34,947     6,344        (50     (2,790     77        (31,366

Tax (provision) benefit

     —          (2,385     57        (17     —          (2,345

Reclassification of (gain) loss to net income

     —          —          (35     5,237        (49     5,153   

Foreign currency translation

     120        —          (114     (6     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

     (22,076     276        1,008        (111     342        (20,561

Pre-tax amount

     (37,178     6,101        121        1,708        (12     (29,260

Tax (provision) benefit

     —          (2,207     (2     32        —          (2,177

Reclassification of (gain) loss to net income

     647        —          (53     (2,195     (63     (1,664

Foreign currency translation

     6        —          (45     39        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

   $ (58,601   $ 4,170      $ 1,029      $ (527   $ 267      $ (53,662
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following table summarizes the amounts reclassified to net income from accumulated other comprehensive income (loss) and the associated line item in the accompanying Consolidated Statements of Operations (in thousands):

 

     Years Ended December 31,    

Statements of Operations Location

     2015     2014     2013      

Foreign Currency Translation Gain (Loss): (1)

        

Pre-tax amount

   $ (647   $ —        $ —        Other income (expense)

Tax (provision) benefit

     —          —          —        Income taxes
  

 

 

   

 

 

   

 

 

   

Reclassification to net income

     (647     —          —       

Actuarial Gain (Loss) Related to Pension Liability: (2)

        

Pre-tax amount

     41        50        60      Direct salaries and related costs

Tax (provision) benefit

     12        (15     (19   Income taxes
  

 

 

   

 

 

   

 

 

   

Reclassification to net income

     53        35        41     

Gain (Loss) on Cash Flow Hedging Instruments: (3)

        

Pre-tax amount

     2,150        (5,342     (547   Revenues

Tax (provision) benefit

     45        105        226      Income taxes
  

 

 

   

 

 

   

 

 

   

Reclassification to net income

     2,195        (5,237     (321  

Gain (Loss) on Post Retirement Obligation: (2)

        

Pre-tax amount

     63        49        54      General and administrative

Tax (provision) benefit

     —          —          —        Income taxes
  

 

 

   

 

 

   

 

 

   

Reclassification to net income

     63        49        54     
  

 

 

   

 

 

   

 

 

   

Total reclassification of gain (loss) to net income

   $ 1,664      $ (5,153   $ (226  
  

 

 

   

 

 

   

 

 

   

 

(1) 

See Note 26, Other Income (Expense), for further information.

 

(2) 

See Note 23, Defined Benefit Pension Plan and Postretirement Benefits, for further information.

 

(3) 

See Note 10, Financial Derivatives, for further information.

Except as discussed in Note 20, Income Taxes, earnings associated with the Company’s investments in its foreign subsidiaries are considered to be indefinitely reinvested and no provision for income taxes on those earnings or translation adjustments have been provided.

Income Taxes
Income Taxes

Note 20. Income Taxes

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

 

     Years Ended December 31,  
     2015      2014      2013  

Domestic (U.S., state and local)

   $ 41,178       $ 28,563       $ 5,544   

Foreign

     48,805         48,596         45,781   
  

 

 

    

 

 

    

 

 

 

Total income before income taxes

   $ 89,983       $ 77,159       $ 51,325   
  

 

 

    

 

 

    

 

 

 

Significant components of the income tax provision are as follows (in thousands):

 

     Years Ended December 31,  
     2015     2014     2013  

Current:

      

U.S. federal

   $ 7,374      $ 2,579      $ 881   

State and local

     1,051        542        82   

Foreign

     10,446        11,382        13,464   
  

 

 

   

 

 

   

 

 

 

Total current provision for income taxes

     18,871        14,503        14,427   
  

 

 

   

 

 

   

 

 

 

Deferred:

      

U.S. federal

     3,873        5,437        866   

State and local

     (1,227     (446     —     

Foreign

     (131     (126     (1,228
  

 

 

   

 

 

   

 

 

 

Total deferred provision (benefit) for income taxes

     2,515        4,865        (362
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 21,386      $ 19,368      $ 14,065   
  

 

 

   

 

 

   

 

 

 

 

The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as follows (in thousands):

 

     Years Ended December 31,  
     2015     2014     2013  

Net operating loss and tax credit carryforwards

   $ 3,564      $ 19,335      $ 8,029   

Accrued expenses/liabilities

     2,856        (4,505     954   

Depreciation and amortization

     (2,231     (6,220     (5,030

Valuation allowance

     (1,958     (3,706     (1,887

Deferred statutory income

     266        (29     (2,425

Other

     18        (10     (3
  

 

 

   

 

 

   

 

 

 

Total deferred provision (benefit) for income taxes

   $ 2,515      $ 4,865      $ (362
  

 

 

   

 

 

   

 

 

 

The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s effective income tax provision is as follows (in thousands):

 

     Years Ended December 31,  
     2015     2014     2013  

Tax at U.S. federal statutory tax rate

   $ 31,494      $ 27,005      $ 17,964   

State income taxes, net of federal tax benefit

     (177     934        82   

Foreign rate differential

     (14,030     (13,164     (9,319

Tax holidays

     (4,031     (2,749     (4,686

Permanent differences

     11,737        10,170        9,051   

Tax credits

     (4,102     (4,894     (5,020

Foreign withholding and other taxes

     2,321        2,541        4,643   

Change in valuation allowance, net of related adjustments

     (631     (7     1,354   

Changes in uncertain tax positions

     (1,858     (468     (4

Other

     663        —          —     
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 21,386      $ 19,368      $ 14,065   
  

 

 

   

 

 

   

 

 

 

Withholding taxes on offshore cash movements assessed by certain foreign governments of $1.7 million, $1.8 million and $4.1 million were included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013, respectively.

Earnings associated with the investments in the Company’s foreign subsidiaries of $399.0 million at December 31, 2015 are considered to be indefinitely reinvested outside of the U.S. Therefore, a U.S. provision for income taxes on those earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740 “Income Taxes.” Determination of any unrecognized deferred tax liability related to these investments in foreign subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates.

The Company has been granted tax holidays in The Philippines, Colombia, Costa Rica and El Salvador. The tax holidays have various expiration dates ranging from 2016 through 2028. In some cases, the tax holidays expire without possibility of renewal. In other cases, the Company expects to renew these tax holidays, but there are no assurances from the respective foreign governments that they will renew them. This could potentially result in future adverse tax consequences in the local jurisdiction, the impact of which is not practicable to estimate due to the inherent complexity of estimating critical variables such as long-term future profitability, tax regulations and rates in the multi-national tax environment in which the Company operates. The Company’s tax holidays decreased the provision for income taxes by $4.0 million ($0.09 per diluted share), $2.7 million ($0.06 per diluted share) and $4.7 million ($0.11 per diluted share) for the years ended December 31, 2015, 2014 and 2013, respectively.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):

 

     December 31,  
     2015     2014  

Deferred tax assets:

    

Net operating loss and tax credit carryforwards

   $ 32,328      $ 35,400   

Valuation allowance

     (30,065     (34,146

Accrued expenses

     24,276        25,694   

Deferred revenue

     3,193        3,757   

Depreciation and amortization

     953        835   

Other

     54        —     
  

 

 

   

 

 

 
     30,739        31,540   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Depreciation and amortization

     (19,826     (20,172

Deferred statutory income

     (579     (772

Accrued liabilities

     (1,104     (141

Other

     (119     (1
  

 

 

   

 

 

 
     (21,628     (21,086
  

 

 

   

 

 

 

Net deferred tax assets

   $ 9,111      $ 10,454   
  

 

 

   

 

 

 
     December 31,  
     2015     2014  

Classified as follows:

    

Other current assets (Note 9)

   $ 12,009      $ 13,703   

Deferred charges and other assets (Note 13)

     1,899        1,681   

Current deferred income tax liabilities

     (1,120     (144

Other long-term liabilities

     (3,677     (4,786
  

 

 

   

 

 

 

Net deferred tax assets

   $ 9,111      $ 10,454   
  

 

 

   

 

 

 

There are approximately $153.5 million of income tax loss carryforwards as of December 31, 2015, with varying expiration dates, approximately $113.6 million relating to foreign operations and $39.9 million relating to U.S. state operations. With respect to foreign operations, $94.4 million of the net operating loss carryforwards have an indefinite expiration date and the remaining $19.2 million net operating loss carryforwards have varying expiration dates through December 2036. Regarding the U.S. state and foreign aforementioned tax loss carryforwards, no benefit has been recognized for $14.0 million and $104.0 million, respectively, as the Company does not anticipate that the losses will more likely than not be fully utilized.

The Company has accrued $8.1 million and $13.3 million as of December 31, 2015 and 2014, respectively, excluding penalties and interest, for the liability for unrecognized tax benefits. The decrease is primarily due to the recognition of $2.2 million of tax benefits resulting from the expiration of the statute of limitations, as previously mentioned, and the effects of foreign exchange rate adjustments. As of December 31, 2014, $2.7 million of unrecognized tax benefits were recorded to “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets in accordance with ASU 2013-11 “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The $8.1 million and the remaining $10.6 million of the unrecognized tax benefits at December 31, 2015 and 2014, respectively, are recorded in “Long-term income tax liabilities” in the accompanying Consolidated Balance Sheets. Had the Company recognized these tax benefits, approximately $8.1 million and $13.3 million, and the related interest and penalties, would have favorably impacted the effective tax rate in 2015 and 2014, respectively. The Company does not anticipate that any of the unrecognized tax benefits will be recognized in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company had $10.4 million and $10.1 million accrued for interest and penalties as of December 31, 2015 and 2014, respectively. Of the accrued interest and penalties at December 31, 2015 and 2014, $3.4 million and $3.3 million, respectively, relate to statutory penalties. The amount of interest and penalties, net, included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 was $0.3 million, $(0.5) million and $0.4 million, respectively.

 

The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):

 

     Years Ended December 31,