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Note 1. Overview and Basis of Presentation
Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides comprehensive outsourced customer contact management solutions and services in the business process outsourcing arena to companies, primarily within the communications, financial services, technology/consumer, transportation and leisure, and healthcare industries. SYKES provides flexible, high-quality outsourced customer contact management services (with an emphasis on inbound technical support and customer service), which includes customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels encompassing phone, e-mail, Internet, text messaging and chat. SYKES complements its outsourced customer contact management services with various enterprise support services in the United States that encompass services for a company’s internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services including multilingual sales order processing via the Internet and phone, payment processing, inventory control, product delivery and product returns handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the United States, Canada, Latin America, India and the Asia Pacific Rim, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and Africa.
Acquisition — In August 2012, the Company completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated July 27, 2012. The Company has reflected the operating results in the Condensed Consolidated Statements of Operations since August 20, 2012. See Note 2, Acquisition of Alpine Access, Inc., for additional information on the acquisition of this business.
Discontinued Operations — In March 2012, the Company sold its operations in Spain (the “Spanish operations”), pursuant to an asset purchase agreement dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. The Company reflected the operating results related to the Spanish operations as discontinued operations in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2012. Cash flows from discontinued operations are included in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012. See Note 3, Discontinued Operations, for additional information on the sale of the Spanish operations.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2013. For further information, refer to the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (“SEC”).
Principles of Consolidation — The condensed consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates — The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance of the condensed consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the accompanying condensed consolidated financial statements.
New Accounting Standards Not Yet Adopted
In March 2013, the FASB issued ASU 2013-05 “Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The amendments in ASU 2013-05 indicates that a cumulative translation adjustment (“CTA”) is attached to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, a loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or a step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). ASU 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. The Company does not expect the adoption of ASU 2013-05 to materially impact its financial condition, results of operations and cash flows.
New Accounting Standards Recently Adopted
In December 2011, the FASB issued ASU 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). The amendments in ASU 2011-11 will enhance disclosures by requiring improved information about financial and derivative instruments that are either 1) offset (netting assets and liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards Codification or 2) subject to an enforceable master netting arrangement or similar agreement. The amendments in ASU 2011-11 are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In July 2012, the FASB issued ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). The amendments in ASU 2012-02 provide entities with the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. Under the amendments in ASU 2012-02, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU 2012-02 on January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In January 2013, the FASB issued ASU 2013-01 “Balance Sheet (Topic 210) Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). The amendments in ASU 2013-01 clarify which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. ASU 2013-01 addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to the financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Financial Accounting Standards Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under International Financial Reporting Standards (IFRS). The amendments in ASU 2013-01 are effective for fiscal years beginning on or after January 1, 2013. Retrospective application is required for any period presented that begins before the entity’s initial application of the new requirements. The adoption of ASU 2013-01 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income (Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
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Note 2. Acquisition of Alpine Access, Inc.
On August 20, 2012, the Company acquired 100% of the outstanding common shares and voting interest of Alpine, pursuant to the terms of the merger agreement. Alpine, an industry leader in the at-home agent space, provides award-winning customer contact management services through a secured and proprietary virtual call center environment with its operations located in the United States and Canada. The results of Alpine’s operations have been included in the Company’s consolidated financial statements since its acquisition on August 20, 2012. The Company acquired Alpine to: create significant competitive differentiation for quality, speed to market, scalability and flexibility driven by proprietary, internally-developed software, systems, processes and other intellectual property, which uniquely overcome the challenges of the at-home delivery model; strengthen the Company’s current service portfolio and go-to-market offering while expanding the breadth of clients with minimal client overlap; broaden the addressable market opportunity within existing and new verticals as well as clients; expand the addressable pool of skilled labor; leverage operational best practices across the Company’s global platform, with the potential to convert more of its fixed cost to variable cost; and further enhance the growth and margin profile of the Company to drive shareholder value. This resulted in the Company paying a substantial premium for Alpine resulting in the recognition of goodwill.
The acquisition date fair value of the consideration transferred totaled $149.0 million, which was funded through cash on hand of $41.0 million and borrowings of $108.0 million under the Company’s credit agreement, dated May 3, 2012. See Note 11, Borrowings, for further information.
The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations” (“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from Alpine based on their estimated fair values as of the closing date. During the three months ended December 31, 2012, the final working capital adjustment was approved by the authorized representative of Alpine’s shareholders. The Company finalized its purchase price allocation during the three months ended December 31, 2012, resulting in no changes from the estimated acquisition date fair values previously reported.
The following table summarizes the final purchase price allocation of the fair values of the assets acquired and liabilities assumed, all included in the Americas segment (in thousands):
Amount | ||||
Cash and cash equivalents |
$ | 1,859 | ||
Receivables |
11,831 | |||
Prepaid expenses |
617 | |||
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Total current assets |
14,307 | |||
Property and equipment |
11,326 | |||
Goodwill |
80,766 | |||
Intangibles |
57,720 | |||
Deferred charges and other assets |
916 | |||
Accounts payable |
(880) | |||
Accrued employee compensation and benefits |
(3,774) | |||
Income taxes payable |
(141) | |||
Deferred revenue |
(94) | |||
Other accrued expenses and current liabilities |
(601) | |||
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Total current liabilities |
(5,490) | |||
Other long-term liabilities (1) |
(10,592) | |||
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$ | 148,953 | |||
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(1) |
Primarily includes long-term deferred tax liabilities. |
Fair values are based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach.
The following table presents the Company’s purchased intangible assets as of August 20, 2012, the acquisition date (in thousands):
Amount Assigned | Weighted Average Amortization Period (years) |
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Customer relationships |
$ | 46,000 | 8 | |||||
Trade names |
10,600 | 8 | ||||||
Non-compete agreements |
670 | 2 | ||||||
Favorable lease agreement |
450 | 2 | ||||||
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$ | 57,720 | 8 | ||||||
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The $80.8 million of goodwill was assigned to the Company’s Americas operating segment. Pursuant to Federal income tax regulations, no amount of intangibles or goodwill from this acquisition will be deductible for tax purposes.
The fair value of receivables acquired is $11.8 million, with the gross contractual amount of $11.8 million.
The following table presents the unaudited pro forma combined revenues and net earnings as if Alpine had been included in the consolidated results of the Company for the entire three month period ended March 31, 2012. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2012 (in thousands):
Three Months Ended March 31, 2012 |
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Revenues |
$ | 306,174 | ||
Income from continuing operations, net of taxes |
$ | 10,537 | ||
Income from continuing operations per common share: |
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Basic |
$ | 0.24 | ||
Diluted |
$ | 0.24 |
These amounts have been calculated to reflect the additional depreciation, amortization and interest expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2012, together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies’ operating results. Included in these costs are severance, advisory and legal costs, net of the tax effects.
Merger and integration costs associated with Alpine, comprised of severance costs and transaction and integration costs, and included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2013, were as follows (none in the comparable period in 2012) (in thousands):
Three Months Ended March 31, 2013 |
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Severance costs: |
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Americas |
$ | 207 | ||
Corporate |
159 | |||
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366 | ||||
Transaction and integration costs: |
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Corporate |
320 | |||
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320 | ||||
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Total merger and integration costs |
$ | 686 | ||
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Note 3. Discontinued Operations
In November 2011, the Finance Committee of the Board of Directors of the Company approved a plan to sell its Spanish operations, which were operated through its Spanish subsidiary, Sykes Enterprises, Incorporated S.L. (“Sykes Spain”). Sykes Spain operated customer contact management centers, with annual revenues of approximately $39.3 million in 2011, providing contact center services through a total of three customer contact management centers in Spain to clients in Spain. The decision to sell the Spanish operations was made in 2011 after management completed a strategic review of the Spanish market and determined the operations were no longer consistent with the Company’s strategic direction.
On March 29, 2012, Sykes Spain entered into the asset purchase agreement, by and between Sykes Spain and Iberphone, S.A.U., and pursuant thereto, on March 29, 2012, Sykes Spain sold the fixed assets located in Ponferrada, Spain, which were previously written down to zero, cash of $4.1 million, and certain contracts and licenses relating to the business of Sykes Spain, to Iberphone, S.A.U. Under the asset purchase agreement, Ponferrada, Spain employees were transferred to Iberphone S.A.U. which assumed certain payroll liabilities in the approximate amount of $1.7 million, and paid a nominal purchase price for the assets.
On March 30, 2012, the Company entered into a stock purchase agreement with a former member of Sykes Spain’s management, and pursuant thereto, on March 30, 2012, the Company sold all of the shares of capital stock of Sykes Spain to the purchaser for a nominal price. Pursuant to the stock purchase agreement, immediately prior to closing, the Company made a cash capital contribution of $8.6 million to Sykes Spain to cover a portion of Sykes Spain’s liabilities and to fund the $4.1 million of cash transferred and sold pursuant to the asset purchase agreement with Iberphone, S.A.U. discussed above. As this was a stock transaction, the Company anticipates no future obligation with regard to Sykes Spain and there are no material post-closing obligations.
The Company reflected the operating results related to the Spanish operations as discontinued operations in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2012. Cash flows from discontinued operations are included in the accompanying Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012. This business was historically reported by the Company as part of the EMEA segment.
The results of the Spanish operations included in discontinued operations were as follows (none in 2013) (in thousands):
Three Months Ended March 31, 2012 |
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Revenues |
$ | 10,102 | ||
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(Loss) from discontinued operations before income taxes |
$ | (820) | ||
Income taxes (1) |
- | |||
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(Loss) from discontinued operations, net of taxes |
$ | (820) | ||
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(Loss) on sale of discontinued operations before income taxes |
$ | (10,707) | ||
Income taxes (1) |
- | |||
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(Loss) on sale of discontinued operations, net of taxes |
$ | (10,707) | ||
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(1) |
There were no income taxes as any tax benefit from the losses would be offset by a valuation allowance. |
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Note 4. Costs Associated with Exit or Disposal Activities
Fourth Quarter 2011 Exit Plan
During 2011, the Company announced a plan to rationalize seats in certain U.S. sites and close certain locations in EMEA (the “Fourth Quarter 2011 Exit Plan”). The details are described below, by segment.
Americas
During 2011, as part of an on-going effort to streamline excess capacity related to the integration of the ICT Group, Inc. (“ICT”) acquisition and align it with the needs of the market, the Company announced a plan to rationalize approximately 900 seats in the U.S., some of which were revenue generating, with plans to migrate the associated revenues to other locations within the U.S. Approximately 300 employees were affected and the Company has completed the actions associated with the Americas plan.
The major costs estimated to be incurred as a result of these actions are program transfer costs, facility-related costs (primarily consisting of those costs associated with the real estate leases), and impairments of long-lived assets (primarily leasehold improvements and equipment) estimated at $1.9 million as of March 31, 2013 ($1.9 million at December 31, 2012). The Company recorded $0.5 million of the costs associated with these actions as non-cash impairment charges, while approximately $1.4 million represents cash expenditures for program transfer and facility-related costs, including obligations under the leases, the last of which ends in February 2017. The Company has paid $0.7 million in cash through March 31, 2013 under the Fourth Quarter 2011 Exit Plan in the Americas.
The following table summarizes the accrued liability associated with the Americas Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges for the three months ended March 31, 2013 (none in the comparable period in 2012) (in thousands):
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 |
Cash Payments | Other Non-Cash Changes |
Ending Accrual at March 31, 2013 |
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Lease obligations and facility exit costs |
$ | 682 | $ | - | $ | (35) | $ | - | $ | 647 | ||||||||||
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EMEA
During 2011, to improve the Company’s overall profitability in the EMEA region, the Company committed to close a customer contact management center in South Africa and a customer contact management center in Ireland, as well as some capacity rationalization in the Netherlands, all components of the EMEA segment. Through these actions, the Company expects to improve its cost structure in the EMEA region by optimizing its capacity utilization. While the Company migrated approximately $3.2 million of annualized call volumes of the Ireland facility to other facilities within EMEA, the Company did not migrate the remaining call volume in Ireland or any of the annualized revenue from the Netherlands or South Africa facilities, which was $18.8 million for 2011, to other facilities within the region. The number of seats rationalized across the EMEA region approximated 900 with approximately 500 employees affected by the actions. The Company closed these facilities and substantially completed the actions associated with the EMEA plan on September 30, 2012.
The major costs estimated to be incurred as a result of these actions are facility-related costs (primarily consisting of those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and equipment) and anticipated severance-related costs estimated at $6.7 million as of March 31, 2013 ($6.7 million as of December 31, 2012). The Company recorded $0.5 million of the costs associated with these actions as non-cash impairment charges, while approximately $6.2 million represents cash expenditures for severance and related costs and facility-related costs, primarily rent obligations to be paid through the remainder of the noncancelable term of the leases, the last of which ended in March 2013. The Company has paid $5.9 million in cash through March 31, 2013 under the Fourth Quarter 2011 Exit Plan in EMEA.
The Company charged $0.7 million to “Direct salaries and related costs” for severance and related costs and $0.3 million to “General and administrative” costs for lease obligations and facility exit costs, severance and related costs and legal-related costs in the accompanying Consolidated Statement of Operations for the three months ended March 31, 2012.
The following tables summarize the accrued liability associated with EMEA’s Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges for the three months ended March 31, 2013 and 2012 (in thousands):
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 (1) |
Cash Payments | Other Non-Cash Changes (2) |
Ending Accrual at March 31, 2013 |
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Lease obligations and facility exit costs |
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Severance and related costs |
187 | 6 | (7) | (4) | 182 | |||||||||||||||
Legal-related costs |
10 | 1 | (7) | 1 | 5 | |||||||||||||||
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$ | 197 | $ | 7 | $ | (14) | $ | (3) | $ | 187 | |||||||||||
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Beginning Accrual at January 1, 2012 |
Charges (Reversals) for the Three Months Ended March 31, 2012 (1) |
Cash Payments | Other Non-Cash Changes (2) |
Ending Accrual at March 31, 2012 |
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Lease obligations and facility exit costs |
$ | 577 | $ | - | $ | - | $ | 18 | $ | 595 | ||||||||||
Severance and related costs |
4,470 | 948 | (367) | 168 | 5,219 | |||||||||||||||
Legal-related costs |
13 | 51 | (51) | 1 | 14 | |||||||||||||||
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$ | 5,060 | $ | 999 | $ | (418) | $ | 187 | $ | 5,828 | |||||||||||
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(1) |
During the three months ended March 31, 2013 and 2012, the Company recorded additional severance and related costs and legal-related costs. |
(2) |
Effect of foreign currency translation. |
Fourth Quarter 2010 Exit Plan
During 2010, in furtherance of the Company’s long-term goals to manage and optimize capacity utilization, the Company committed to and closed a customer contact management center in the United Kingdom and a customer contact management center in Ireland, both components of the EMEA segment (the “Fourth Quarter 2010 Exit Plan”). These actions were substantially completed by January 31, 2011.
The major costs incurred as a result of these actions were facility-related costs (primarily consisting of those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and equipment) and severance-related costs totaling $2.2 million as of March 31, 2013 ($2.2 million as of December 31, 2012). The Company recorded $0.2 million of the costs associated with the Fourth Quarter 2010 Exit Plan as non-cash impairment charges. Approximately $1.8 million represents cash expenditures for facility-related costs, primarily rent obligations to be paid through the remainder of the lease terms, the last of which ends in March 2014, and $0.2 million represents cash expenditures for severance-related costs. The Company has paid $1.4 million in cash through March 31, 2013 under the Fourth Quarter 2010 Exit Plan.
The following tables summarize the accrued liability associated with the Fourth Quarter 2010 Exit Plan’s exit or disposal activities and related charges during the three months ended March 31, 2013 and 2012 (in thousands):
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 |
Cash Payments | Other Non-Cash Changes (1) |
Ending Accrual at March 31, 2013 |
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Lease obligations and facility exit costs |
$ | 537 | $ | - | $ | (75) | $ | (13) | $ | 449 | ||||||||||
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Beginning Accrual at January 1, 2012 |
Charges (Reversals) for the Three Months Ended March 31, 2012 |
Cash Payments | Other Non-Cash Changes (1) |
Ending Accrual at March 31, 2012 |
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Lease obligations and facility exit costs |
$ | 835 | $ | - | $ | (96) | $ | 25 | $ | 764 | ||||||||||
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(1) |
Effect of foreign currency translation. |
Third Quarter 2010 Exit Plan
During 2010, consistent with the Company’s long-term goals to manage and optimize capacity utilization, the Company closed or committed to close four customer contact management centers in The Philippines and consolidated or committed to consolidate leased space in our Wilmington, Delaware and Newtown, Pennsylvania locations (the “Third Quarter 2010 Exit Plan”). These actions were substantially completed by January 31, 2011.
The major costs incurred as a result of these actions were impairments of long-lived assets (primarily leasehold improvements) and facility-related costs (primarily consisting of those costs associated with the real estate leases) estimated at $10.5 million as of March 31, 2013 ($10.5 million as of December 31, 2012), all of which are in the Americas segment. The Company recorded $3.8 million of the costs associated with the Third Quarter 2010 Exit Plan as non-cash impairment charges. The remaining $6.7 million represents cash expenditures for facility-related costs, primarily rent obligations to be paid through the remainder of the lease terms, the last of which ends in February 2017. The Company has paid $4.4 million in cash through March 31, 2013 under the Third Quarter 2010 Exit Plan.
The following tables summarize the accrued liability associated with the Third Quarter 2010 Exit Plan’s exit or disposal activities and related charges for the three months ended March 31, 2013 and 2012 (in thousands):
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 |
Cash Payments | Other Non-Cash Changes (1) |
Ending Accrual at March 31, 2013 |
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Lease obligations and facility exit costs |
$ | 2,551 | $ | - | $ | (224) | $ | 1 | $ | 2,328 | ||||||||||
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Beginning Accrual at January 1, 2012 |
Charges (Reversals) for the Three Months Ended March 31, 2012 |
Cash Payments | Other Non-Cash Changes (1) |
Ending Accrual at March 31, 2012 |
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Lease obligations and facility exit costs |
$ | 3,427 | $ | - | $ | (477 | ) | $ | - | $ | 2,950 | |||||||||
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(1) |
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 March 31, 2013 and December 31, 2012 (in thousands):
Americas Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2011 Exit Plan |
Fourth Quarter 2010 Exit Plan |
Third Quarter 2010 Exit Plan |
Total | ||||||||||||||||
March 31, 2013 |
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Short-term accrued restructuring liability (1) |
$ | 144 | $ | 187 | $ | 449 | $ | 535 | $ | 1,315 | ||||||||||
Long-term accrued restructuring liability (2) |
503 | - | - | 1,793 | 2,296 | |||||||||||||||
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Ending accrual at March 31, 2013 |
$ | 647 | $ | 187 | $ | 449 | $ | 2,328 | $ | 3,611 | ||||||||||
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December 31, 2012 |
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Short-term accrued restructuring liability (1) |
$ | 138 | $ | 197 | $ | 448 | $ | 618 | $ | 1,401 | ||||||||||
Long-term accrued restructuring liability (2) |
544 | - | 91 | 1,933 | 2,568 | |||||||||||||||
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Ending accrual at December 31, 2012 |
$ | 682 | $ | 197 | $ | 539 | $ | 2,551 | $ | 3,969 | ||||||||||
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(1) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
(2) |
Included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
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Note 5. Fair Value
The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at March 31, 2013 Using: | ||||||||||||||||||
Balance at March 31, 2013 |
Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||||
Level (1) | Level (2) | Level (3) | ||||||||||||||||
Assets: |
||||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” |
(1) | $ | 7,410 | $ | 7,410 | $ | - | $ | - | |||||||||
Money market funds and open-end mutual funds in “Deferred charges and other assets” |
(1) | 11 | 11 | - | - | |||||||||||||
Foreign currency forward and option contracts |
(2) | 2,840 | - | 2,840 | - | |||||||||||||
Foreign currency forward contracts |
(3) | 433 | - | 433 | - | |||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan |
(4) | 3,799 | 3,799 | - | - | |||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan |
(4) | 1,238 | 1,238 | - | - | |||||||||||||
Guaranteed investment certificates |
(5) | 80 | - | 80 | - | |||||||||||||
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$ | 15,811 | $ | 12,458 | $ | 3,353 | $ | - | |||||||||||
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Liabilities: |
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Foreign currency forward and option contracts |
(6) | $ | 1,102 | $ | - | $ | 1,102 | $ | - | |||||||||
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$ | 1,102 | $ | - | $ | 1,102 | $ | - | |||||||||||
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(1) |
In the accompanying Condensed Consolidated Balance Sheet. |
(2) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
(3) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
(4) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 8. |
(5) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. |
(6) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2012 Using: | ||||||||||||||||||
Balance at December 31, 2012 |
Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||||
Level (1) | Level (2) | Level (3) | ||||||||||||||||
Assets: |
||||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” |
(1) | $ | 7,598 | $ | 7,598 | $ | - | $ | - | |||||||||
Money market funds and open-end mutual funds in “Deferred charges and other assets” |
(1) | 11 | 11 | - | - | |||||||||||||
Foreign currency forward and option contracts |
(2) | 2,008 | - | 2,008 | - | |||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan |
(3) | 3,212 | 3,212 | - | - | |||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan |
(3) | 2,049 | 2,049 | - | - | |||||||||||||
Guaranteed investment certificates |
(4) | 80 | - | 80 | - | |||||||||||||
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$ | 14,958 | $ | 12,870 | $ | 2,088 | $ | - | |||||||||||
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Liabilities: |
||||||||||||||||||
Foreign currency forward and option contracts |
(5) | $ | 974 | $ | - | $ | 974 | $ | - | |||||||||
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$ | 974 | $ | - | $ | 974 | $ | - | |||||||||||
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(1) |
In the accompanying Condensed Consolidated Balance Sheet. |
(2) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
(3) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 8. |
(4) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. |
(5) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with acquired businesses, including goodwill, other intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be impaired. The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities) subject to the requirements of ASC 820 were not material at December 31, 2012 (none at March 31, 2013).
The following table summarizes the total impairment losses related to nonrecurring fair value measurements of certain assets (no liabilities) subject to the requirements of ASC 820 (in thousands):
Total Impairment (Loss) | ||||||||
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Americas: |
||||||||
Property and equipment, net (1) |
$ | - | $ | (149) | ||||
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|
|
(1) |
See Note 1 for additional information regarding the fair value measurement. |
Impairment of Long-Lived Assets
During the three months ended March 31, 2012, as part of an on-going effort to streamline excess capacity related to the integration of the ICT acquisition and align it with the needs of the market, the Company closed one of its customer contact management centers in Costa Rica (a component of the Americas segment), and recorded an impairment charge of $0.1 million for the carrying value of the long-lived assets that could not be redeployed to other locations.
|
Note 6. Intangible Assets
The following table presents the Company’s purchased intangible assets as of March 31, 2013 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 104,005 | $ | (26,669) | $ | 77,336 | 8 | |||||||||
Trade name |
11,600 | (1,810) | 9,790 | 8 | ||||||||||||
Non-compete agreements |
1,226 | (763) | 463 | 2 | ||||||||||||
Proprietary software |
850 | (823) | 27 | 2 | ||||||||||||
Favorable lease agreement |
450 | (138) | 312 | 2 | ||||||||||||
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$ | 118,131 | $ | (30,203) | $ | 87,928 | 8 | ||||||||||
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The following table presents the Company’s purchased intangible assets as of December 31, 2012 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 104,483 | $ | (23,552) | $ | 80,931 | 8 | |||||||||
Trade name |
11,600 | (1,451) | 10,149 | 8 | ||||||||||||
Non-compete agreements |
1,229 | (681) | 548 | 2 | ||||||||||||
Proprietary software |
850 | (810) | 40 | 2 | ||||||||||||
Favorable lease agreement |
450 | (81) | 369 | 2 | ||||||||||||
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$ | 118,612 | $ | (26,575) | $ | 92,037 | 8 | ||||||||||
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The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to March 31, 2013, is as follows (in thousands):
Years Ending December 31, | Amount | |||
2013 (remaining nine months) |
$ | 11,156 | ||
2014 |
14,651 | |||
2015 |
14,292 | |||
2016 |
14,292 | |||
2017 |
14,292 | |||
2018 |
7,682 | |||
2019 and thereafter |
11,563 |
|
Note 7. Financial Derivatives
Cash Flow Hedges – The Company had derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815, consisting of Philippine Peso and Costa Rican Colon, Hungarian Forint and Romanian Leu contracts. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.
The deferred gains (losses) and related taxes on the Company’s derivative instruments recorded in “Accumulated other comprehensive income (loss)” in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Deferred gains (losses) in AOCI |
$ | 1,459 | $ | (512 | ) | |||
Tax on deferred gains (losses) in AOCI |
(10 | ) | (58 | ) | ||||
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|
|||||
Deferred gains (losses) in AOCI, net of taxes |
$ | 1,449 | $ | (570 | ) | |||
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|
|
|
|||||
Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months |
$ | 1,459 | ||||||
|
|
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts and options.
Net Investment Hedge – During 2013, the Company entered into foreign exchange forward contracts to hedge its net investment in a foreign operation, as defined under ASC 815. The Company did not hedge net investments in foreign operations during 2012. 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.
Other Hedges – The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect the Company’s interests against adverse foreign currency moves pertaining to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries’ functional currencies. These contracts generally do not exceed 180 days in duration.
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
As of March 31, 2013 | As of December 31, 2012 | |||||||||||||||
Contract Type |
Notional Amount in USD |
Settle Through Date |
Notional Amount in USD |
Settle Through Date |
||||||||||||
Cash flow hedges: |
||||||||||||||||
Options: |
||||||||||||||||
Philippine Pesos |
$ | 77,000 | December 2013 | $ | 71,000 | September 2013 | ||||||||||
Forwards: |
||||||||||||||||
Philippine Pesos |
5,000 | August 2013 | 5,000 | August 2013 | ||||||||||||
Costa Rican Colones |
44,250 | December 2013 | 60,750 | December 2013 | ||||||||||||
Hungarian Forints |
3,647 | January 2014 | 4,744 | January 2014 | ||||||||||||
Romanian Leis |
5,570 | January 2014 | 6,895 | January 2014 | ||||||||||||
Net investment hedges: |
||||||||||||||||
Forwards: |
||||||||||||||||
Euros |
32,657 | September 2014 | - | - | ||||||||||||
Non-designated hedges: |
||||||||||||||||
Forwards |
39,770 | July 2013 | 41,799 | June 2013 |
See Note 1, Overview and Summary of Significant Accounting Policies, for additional information on the Company’s purpose for entering into derivatives not designated as hedging instruments and its overall risk management strategies.
As of March 31, 2013, the maximum amount of loss due to credit risk that the Company would incur if parties to the financial instruments that make up the concentration failed to perform according to the terms of the contracts was $3.3 million, based on the gross fair value of the financial instruments.
Master netting agreements exist with each respective counterparty used to transact foreign exchange derivatives. These agreements allow the Company to net settle transactions of the same currency in a single transaction. In the event of default by the Company or one of its counterparties, these agreements include a set-off clause that provides the non-defaulting party the right to net settle all derivative transactions, regardless of the currency and settlement date. However, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in the accompanying Condensed 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 Condensed Consolidated Balance Sheets (in thousands):
Derivative Assets | ||||||||
March 31, 2013 | December 31, 2012 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (1) |
$ | 2,622 | $ | 1,080 | ||||
Foreign currency forward and option contracts (2) |
- | 14 | ||||||
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|
|
|
|||||
2,622 | 1,094 | |||||||
Derivatives designated as net investment hedging instruments under ASC 815: | ||||||||
Foreign currency forward contracts (2) |
433 | - | ||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts(1) |
218 | 914 | ||||||
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|
|
|||||
Total derivative assets |
$ | 3,273 | $ | 2,008 | ||||
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|
|
Derivative Liabilities | ||||||||
March 31, 2013 | December 31, 2012 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (3) |
$ | 209 | $ | 904 | ||||
Foreign currency forward and option contracts (4) |
- | 8 | ||||||
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|
|||||
209 | 912 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (3) |
893 | 62 | ||||||
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|
|
|||||
Total derivative liabilities |
$ | 1,102 | $ | 974 | ||||
|
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|
|
(1) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets. |
(2) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets. |
(3) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
(4) |
Included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
The following tables present the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the three months ended March 31, 2013 and 2012 (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) |
||||||||||||||||||||||
March 31, | March 31, | March 31, | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
Derivatives designated as cash flow hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward and option contracts |
$ | 2,717 | $ | 2,674 | $ | 731 | $ | 240 | $ | 12 | $ | 14 | ||||||||||||
Derivatives designated as net investment hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward contracts |
433 | - | - | - | - | - | ||||||||||||||||||
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Foreign currency forward and option contracts |
$ | 3,150 | $ | 2,674 | $ | 731 | $ | 240 | $ | 12 | $ | 14 | ||||||||||||
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Gain (Loss) Recognized in “Other income and (expense)” on Derivatives |
||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts |
$ | (525 | ) | $ | (472 | ) |
|
Note 8. 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 Condensed Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Mutual funds |
$ | 4,197 | $ | 5,037 | $ | 4,812 | $ | 5,261 | ||||||||
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The mutual funds held in the rabbi trusts were 75% equity-based and 25% debt-based as of March 31, 2013. Net investment income (losses), included in “Other income (expense)” in the accompanying Condensed Consolidated Statements of Operations consists of the following (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Gross realized gains from sale of trading securities |
$ | 96 | $ | 81 | ||||
Gross realized (losses) from sale of trading securities |
(3 | ) | (1 | ) | ||||
Dividend and interest income |
10 | 7 | ||||||
Net unrealized holding gains (losses) |
195 | 359 | ||||||
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|
|
|||||
Net investment income (losses) |
$ | 298 | $ | 446 | ||||
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|
Note 9. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Future service |
$ | 24,616 | $ | 25,074 | ||||
Estimated potential penalties and holdbacks |
9,284 | 9,209 | ||||||
|
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|
|
|||||
$ | 33,900 | $ | 34,283 | |||||
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|
Note 10. Deferred Grants
The components of deferred grants consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Property grants |
$ | 7,035 | $ | 7,270 | ||||
Employment grants |
423 | 337 | ||||||
|
|
|
|
|||||
Total long-term deferred grants (1) |
$ | 7,458 | $ | 7,607 | ||||
|
|
|
|
(1) |
Included in “Deferred grants” in the accompanying Condensed Consolidated Balance Sheets. |
Amortization of the Company’s property grants included as a reduction to “General and administrative” costs and amortization of the Company’s employment grants included as a reduction to “Direct salaries and related costs” in the accompanying Condensed Consolidated Statements of Operations consist of the following (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Amortization of property grants |
$ | 235 | $ | 235 | ||||
Amortization of employment grants |
18 | 18 | ||||||
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|
|
|||||
$ | 253 | $ | 253 |
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Note 11. Borrowings
On May 3, 2012, the Company entered into a $245 million revolving credit facility (the “2012 Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent (“KeyBank”). The 2012 Credit Agreement replaces the Company’s previous $75 million revolving credit facility (the “2010 Credit Agreement”) dated February 2, 2010, as amended, which agreement was terminated simultaneous with entering into the 2012 Credit Agreement. The 2012 Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants. The Company borrowed $108.0 million under the 2012 Credit Agreement’s revolving credit facility on August 20, 2012 in connection with the acquisition of Alpine on such date. See Note 2, Acquisition of Alpine Access, Inc., for further information.
The 2012 Credit Agreement includes a $184 million alternate-currency sub-facility, a $10 million swingline sub-facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be available to the Company, even though it is a binding commitment of the financial institutions.
Borrowings consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Revolving credit facility |
$ | 111,000 | $ | 91,000 | ||||
Less: Current portion |
- | - | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 111,000 | $ | 91,000 | ||||
|
|
|
|
The 2012 Credit Agreement matures on May 2, 2017 and has no varying installments due.
Borrowings under the 2012 Credit Agreement will bear interest at either LIBOR or the base rate plus, in each case, an applicable margin based on the Company’s leverage ratio. The applicable interest rate will be determined quarterly based on the Company’s leverage ratio at such time. The base rate is a rate per annum equal to the greatest of (i) the rate of interest established by KeyBank, from time to time, as its “prime rate”; (ii) the Federal Funds effective rate in effect from time to time, plus 1/2 of 1% per annum; and (iii) the then-applicable LIBOR rate for one month interest periods, plus 1.00%. Swingline loans will bear interest only at the base rate plus the base rate margin. In addition, the Company is required to pay certain customary fees, including a commitment fee of 0.175%, which is due quarterly in arrears and calculated on the average unused amount of the 2012 Credit Agreement.
The 2012 Credit Agreement is guaranteed by all of the Company’s existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the direct foreign subsidiaries of the Company and those of the guarantors.
In May 2012, the Company paid an underwriting fee of $0.9 million for the 2012 Credit Agreement, which is deferred and amortized over the term of the loan. In addition, the Company pays a quarterly commitment fee on the 2012 Credit Agreement.
The 2012 Credit Agreement had $111.0 million of outstanding borrowings as of March 31, 2013, with an average daily utilization of $91.2 million for the three months ended March 31, 2013 (none in the comparable period in 2012). During the three months ended March 31, 2013, the related interest expense, excluding amortization of deferred loan fees, under our credit agreements was $0.3 million, which represented a weighted average interest rate of 1.4% for the three months ended March 31, 2013 (none in the comparable period in 2012).
|
Note 12. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Condensed Consolidated Statements of Changes in Shareholders’ Equity in accordance with ASC 220 “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 Hedge |
Unrealized Actuarial Gain (Loss) Related to Pension Liability |
Unrealized Gain (Loss) on Cash Flow Hedging Instruments |
Unrealized Gain (Loss) on Post Retirement Obligation |
Total | |||||||||||||||||||
Balance at January 1, 2012 |
$ | 5,995 | $ | (2,565 | ) | $ | 985 | $ | (438 | ) | $ | 459 | $ | 4,436 | ||||||||||
Pre-tax amount |
9,516 | - | 499 | 4,417 | 92 | 14,524 | ||||||||||||||||||
Tax (provision) benefit |
- | - | (90 | ) | (306 | ) | - | (396 | ) | |||||||||||||||
Reclassification to net income |
570 | - | (48 | ) | (4,174 | ) | (56 | ) | (3,708 | ) | ||||||||||||||
Foreign currency translation |
2 | - | 67 | (69 | ) | - | - | |||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2012 |
16,083 | (2,565 | ) | 1,413 | (570 | ) | 495 | 14,856 | ||||||||||||||||
Pre-tax amount |
(5,736 | ) | 433 | - | 2,729 | (27 | ) | (2,601 | ) | |||||||||||||||
Tax (provision) benefit |
- | (151 | ) | (5 | ) | 43 | - | (113 | ) | |||||||||||||||
Reclassification to net income |
- | - | (10 | ) | (738 | ) | (16 | ) | (764 | ) | ||||||||||||||
Foreign currency translation |
8 | - | 7 | (15 | ) | - | - | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at March 31, 2013 |
$ | 10,355 | $ | (2,283 | ) | $ | 1,405 | $ | 1,449 | $ | 452 | $ | 11,378 | |||||||||||
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|
The following table summarizes the amounts reclassified to net income from accumulated other comprehensive income (loss) and the associated line item in the accompanying Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended March 31, 2013 |
Income Statement Location |
|||||
Unrealized Actuarial Gain (Loss) Related to Pension Liability: (1) |
||||||
Pre-tax amount |
$ | 15 | Direct salaries and related costs | |||
Pre-tax amount |
- | General and administrative | ||||
Tax (provision) benefit |
(5 | ) | Income taxes | |||
|
|
|||||
Reclassification to net income |
10 | |||||
Unrealized Gain (Loss) on Cash Flow Hedging Instruments: (2) |
||||||
Pre-tax amount |
743 | Revenues | ||||
Tax (provision) benefit |
(5 | ) | Income taxes | |||
|
|
|||||
Reclassification to net income |
738 | |||||
Unrealized Gain (Loss) on Post Retirement Obligation: (1) |
||||||
Pre-tax amount |
16 | General and administrative | ||||
Tax (provision) benefit |
- | Income taxes | ||||
|
|
|||||
Reclassification to net income |
16 | |||||
|
|
|||||
Total reclassification to net income |
$ | 764 | ||||
|
|
(1) |
See Note 16, Defined Benefit Pension Plan and Postretirement Benefits, for further information. |
(2) |
See Note 7, Financial Derivatives, for further information. |
Except as discussed in Note 13, Income Taxes, earnings associated with the Company’s investments in its subsidiaries are considered to be indefinitely invested and no provision for income taxes on those earnings or translation adjustments have been provided.
|
Note 13. Income Taxes
The Company’s effective tax rate was 32.9% and 23.8% for the three months ended March 31, 2013 and 2012, respectively. The increase in the effective tax rate is primarily due to retroactive tax impact of The American Taxpayer Relief Act of 2012 that was signed into law on January 2, 2013. The difference between the Company’s effective tax rate of 32.9% as compared to the U.S. statutory federal income tax rate of 35.0% was primarily due to the aforementioned legislation and the recognition of tax benefits resulting from income earned in certain tax holiday jurisdictions, foreign tax rate differentials, changes in unrecognized tax positions and tax credits, offset by the tax impact of permanent differences, adjustments of valuation allowances and foreign withholding taxes.
The liability for unrecognized tax benefits is recorded as “Long-term income tax liabilities” in the accompanying Condensed Consolidated Balance Sheets. The Company has accrued $16.4 million at March 31, 2013, and $16.9 million at December 31, 2012, excluding penalties and interest. The $0.5 million decrease results primarily from fluctuations in foreign exchange rates.
Generally, earnings associated with the investments in the Company’s foreign subsidiaries are considered to be indefinitely invested outside of the U.S. Therefore, a U.S. provision for income taxes on those earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740. Determination of any unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in nature is not practicable.
In 2013, the Company executed offshore cash movements to take advantage of The American Taxpayer Relief Act of 2012 (the “Act”) passed on January 2, 2013, with retroactive application to January 1, 2012. This Act, which extended the tax provisions of the Internal Revenue Code Section 954(c)(6) through the end of 2013, permits continued tax deferral on such movements that would otherwise be taxable immediately in the U.S. While these cash movements are not taxable in the U.S., related foreign withholding taxes of $2.6 million were included in the provision for income taxes in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2013.
In addition, the U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals” in April 2013. These proposals represent a significant shift in international tax policy, which may materially impact U.S. taxation of international earnings. The Company continues to monitor these proposals and is currently evaluating the potential impact on its financial condition, results of operations and cash flows.
The Company is currently under audit in several tax jurisdictions. In April 2012, the Company received an assessment for the Canadian 2003-2006 audit for which the Company filed a Notice of Objection in July 2012. This process will allow the Company to submit the case to the U.S. and Canada Competent Authority for ultimate resolution. As required by the Notice of Objection process, the Company paid mandatory security deposits in the amount of $14.6 million to the Canadian tax authorities in 2012. In January 2013, the Company received a partial assessment for the Canadian 2007 audit and paid the Canadian Revenue Agency an additional security deposit of $0.3 million for the 2007 tax year. These deposits are included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012. Although the outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved for these audits and that resolutions of them are not expected to have a material impact on its financial condition and results of operations.
The significant tax jurisdictions currently under audit are as follows:
Tax Jurisdiction | Tax Year Ended | |
Canada | 2003 to 2009 | |
Philippines | 2007 to 2009 | |
United States | 2010 to 2012 |
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Note 15. Commitments and Loss Contingency
Commitments
During the three months ended March 31, 2013, the Company entered into several leases in the ordinary course of business. The following is a schedule of future minimum rental payments required under operating leases that have noncancelable lease terms as of March 31, 2013 (in thousands):
Amount | ||||
2013 (remaining nine months) |
$ | 1,102 | ||
2014 |
1,850 | |||
2015 |
1,903 | |||
2016 |
795 | |||
2017 |
585 | |||
2018 |
346 | |||
2019 and thereafter |
59 | |||
|
|
|||
Total minimum payments required |
$ | 6,640 | ||
|
|
During the three months ended March 31, 2013, the Company entered into agreements with third-party vendors in the ordinary course of business whereby the Company committed to purchase goods and services used in its normal operations. These agreements, which are not cancelable, generally range from one to five year periods and contain fixed or minimum annual commitments. Certain of these agreements allow for renegotiation of the minimum annual commitments based on certain conditions. The following is a schedule of the future minimum purchases remaining under the agreements as of March 31, 2013 (in thousands):
Amount | ||||
2013 (remaining nine months) |
$ | 2,192 | ||
2014 |
2,953 | |||
2015 |
2,040 | |||
2016 |
436 | |||
2017 |
- | |||
2018 |
- | |||
2019 and thereafter |
- | |||
|
|
|||
Total minimum payments required |
$ | 7,621 | ||
|
|
Except as outlined above, there have not been any material changes to the outstanding contractual obligations from the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2012.
Loss Contingency
The Company from time to time is involved in legal actions arising in the ordinary course of business. With respect to these matters, management believes that the Company has adequate legal defenses and/or provided adequate accruals for related costs such that the ultimate outcome will not have a material adverse effect on the Company’s financial position or results of operations.
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Note 16. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The following table provides information about the net periodic benefit cost for the Company’s pension plans (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Service cost |
$ | 88 | $ | 93 | ||||
Interest cost |
29 | 30 | ||||||
Recognized actuarial (gains) |
(15) | (12) | ||||||
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|
|||||
Net periodic benefit cost |
$ | 102 | $ | 111 | ||||
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Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements. Under the plan provisions, the Company matches 50% of participant contributions to a maximum matching amount of 2% of participant compensation. The Company’s contributions included in the accompanying Condensed Consolidated Statement of Operations were as follows (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
401(k) plan contributions |
$ | 233 | $ | 409 |
In connection with the acquisition of Alpine in August 2012, the Company assumed Alpine’s employee benefit plan (Section 401(k)). Under this employee benefit plan, the Company makes a matching contribution on an annual basis in the amount of 100% of the employee contribution for the first 3% of included compensation plus 50% of the employee contribution for the next 2% of included compensation. Employees are 100% vested in contributions, earnings and matching funds at all times. No contributions were made during the three months ended March 31, 2013 and 2012.
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Postretirement benefit obligation |
$ | 72 | $ | 72 | ||||
Unrealized gains (losses) in AOCI (1) |
$ | 452 | $ | 495 |
(1) |
Unrealized gains (losses) are due to changes in discount rates related to the postretirement obligation. |
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Note 17. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the 2004 Non-Employee Director Fee Plan and the Deferred Compensation Plan. The following table summarizes the stock-based compensation expense (primarily in the Americas), income tax benefits related to the stock-based compensation and excess tax benefits (deficiencies) (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Stock-based compensation (expense) (1) |
$ | (664) | $ | (1,119) | ||||
Income tax benefit (2) |
232 | 436 | ||||||
Excess tax benefit (deficiency) from stock-based compensation (3) |
(34) | (278) |
(1) |
Included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations. |
(2) |
Included in “Income taxes” in the accompanying Condensed Consolidated Statements of Operations. |
(3) |
Included in “Additional paid-in capital” in the accompanying Condensed Consolidated Statements of Changes in Shareholder’s Equity. |
There were no capitalized stock-based compensation costs as of March 31, 2013 and December 31, 2012.
2011 Equity Incentive Plan — The Company’s Board of Directors (the “Board”) adopted the Sykes Enterprises, Incorporated 2011 Equity Incentive Plan (the “2011 Plan”) on March 23, 2011, as amended on May 11, 2011 to reduce the number of shares of common stock available to 4.0 million shares. The 2011 Plan was approved by the shareholders at the May 2011 annual shareholders meeting. The 2011 Plan replaced and superseded the Company’s 2001 Equity Incentive Plan (the “2001 Plan”), which expired on March 14, 2011. The outstanding awards granted under the 2001 Plan will remain in effect until their exercise, expiration or termination. The 2011 Plan permits the grant of restricted stock, stock appreciation rights, stock options and other stock-based awards to certain employees of the Company, and certain non-employees who provide services to the Company in order to encourage them to remain in the employment of or to faithfully provide services to the Company and to increase their interest in the Company’s success.
Stock Appreciation Rights – Stock appreciation rights (“SARs”) represent the right to receive, without payment to the Company, a certain number of shares of common stock, as determined by the Compensation and Human Resource Development Committee, equal to the amount by which the fair market value of a share of common stock at the time of exercise exceeds the grant price. The SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date. The SARs have a term of 10 years from the date of grant. The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses various assumptions.
The following table summarizes the assumptions used to estimate the fair value of SARs granted:
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Expected volatility |
45.2% | 47.1% | ||||||
Weighted-average volatility |
45.2% | 47.1% | ||||||
Expected dividend rate |
0.0% | 0.0% | ||||||
Expected term (in years) |
5.0 | 4.7 | ||||||
Risk-free rate |
0.8% | 0.8% |
The following table summarizes SARs activity as of March 31, 2013 and for the three months then ended:
Stock Appreciation Rights |
Shares (000s) | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (000s) |
||||||||||||
Outstanding at January 1, 2013 |
865 | $ | - | |||||||||||||
Granted |
318 | $ | - | |||||||||||||
Exercised |
- | $ | - | |||||||||||||
Forfeited or expired |
- | $ | - | |||||||||||||
|
|
|||||||||||||||
Outstanding at March 31, 2013 |
1,183 | $ | - | 7.8 | $ | 436 | ||||||||||
|
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|
|
|
|
|
|
|||||||||
Vested or expected to vest at March 31, 2013 |
1,183 | $ | - | 7.8 | $ | 436 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at March 31, 2013 |
648 | $ | - | 6.4 | $ | 95 | ||||||||||
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|
|
|
|
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The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of SARs granted |
318 | 259 | ||||||
Weighted average grant-date fair value per SAR |
$ | 6.08 | $ | 5.97 | ||||
Intrinsic value of SARs exercised |
$ | - | $ | - | ||||
Fair value of SARs vested |
$ | 1,298 | $ | 1,388 |
The following table summarizes nonvested SARs activity as of March 31, 2013 and for the three months then ended:
Nonvested Stock Appreciation Rights | Shares (000s) |
Weighted Date Fair Value |
||||||
Nonvested at January 1, 2013 |
395 | $ | 6.74 | |||||
Granted |
318 | $ | 6.08 | |||||
Vested |
(178) | $ | 7.28 | |||||
Forfeited or expired |
- | $ | - | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
535 | $ | 6.17 | |||||
|
|
As of March 31, 2013, there was $3.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested SARs granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period of 1.7 years.
Restricted Shares – The Company’s Board has approved in the past, and may approve in the future, awards of performance and employment-based restricted shares (“restricted shares”) for eligible participants. In some instances, where the issuance of restricted shares has adverse tax consequences to the recipient, the Board will instead issue restricted stock units (“RSUs”). The restricted shares are shares of the Company’s common stock (or in the case of RSUs, represent an equivalent number of shares of the Company’s common stock) which are issued to the participant subject to (a) restrictions on transfer for a period of time and (b) forfeiture under certain conditions. The performance goals, including revenue growth and income from operations targets, provide a range of vesting possibilities from 0% to 100% and will be measured at the end of the performance period. If the performance conditions are met for the performance period, the shares will vest and all restrictions on the transfer of the restricted shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common stock will be issued to the recipient). The Company recognizes compensation cost, net of estimated forfeitures, based on the fair value (which approximates the current market price) of the restricted shares (and RSUs) on the date of grant ratably over the requisite service period based on the probability of achieving the performance goals.
Changes in the probability of achieving the performance goals from period to period will result in corresponding changes in compensation expense. The employment-based restricted shares currently outstanding vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date.
The following table summarizes nonvested restricted shares/RSUs activity as of March 31, 2013 and for the three months then ended:
Nonvested Restricted Shares and RSUs |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2013 |
872 | $ | 18.25 | |||||
Granted |
706 | $ | 15.25 | |||||
Vested |
(20) | $ | 18.11 | |||||
Forfeited or expired |
(191) | $ | 23.55 | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
1,367 | $ | 15.96 | |||||
|
|
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands, except per restricted share/RSU amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of restricted shares/RSUs granted |
706 | 420 | ||||||
Weighted average grant-date fair value per restricted share/RSU |
$ | 15.25 | $ | 15.21 | ||||
Fair value of restricted shares/RSUs vested |
$ | 366 | $ | 3,845 |
As of March 31, 2013, based on the probability of achieving the performance goals, there was $21.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted shares/RSUs granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period of 2.1 years.
2004 Non-Employee Director Fee Plan — The Company’s 2004 Non-Employee Director Fee Plan (the “2004 Fee Plan”), as amended on May 17, 2012, provides that all new non-employee directors joining the Board will receive an initial grant of shares of common stock on the date the new director is elected or appointed, the number of which will be determined by dividing $60,000 by the closing price of the Company’s common stock on the trading day immediately preceding the date a new director is elected or appointed, rounded to the nearest whole number of shares. The initial grant of shares vests in twelve equal quarterly installments, one-twelfth on the date of grant and an additional one-twelfth on each successive third monthly anniversary of the date of grant. The award lapses with respect to all unvested shares in the event the non-employee director ceases to be a director of the Company, and any unvested shares are forfeited.
The 2004 Fee Plan also provides that each non-employee director will receive, on the day after the annual shareholders meeting, an annual retainer for service as a non-employee director (the “Annual Retainer”). Prior to May 17, 2012, the Annual Retainer was $95,000, of which $50,000 was payable in cash, and the remainder was paid in stock. The annual grant of cash vests in four equal quarterly installments, one-fourth on the day following the annual meeting of shareholders, and an additional one-fourth on each successive third monthly anniversary of the date of grant. The annual grant of shares paid to non-employee directors prior to May 17, 2012 vests in eight equal quarterly installments, one-eighth on the day following the annual meeting of shareholders, and an additional one-eighth on each successive third monthly anniversary of the date of grant. On May 17, 2012, upon the recommendation of the Compensation and Human Resource Development Committee, the Board adopted the Fifth Amended and Restated Non-Employee Director Fee Plan (the “Amendment”), which increased the common stock component of the Annual Retainer by $30,000, resulting in a total Annual Retainer of $125,000, of which $50,000 is payable in cash and the remainder paid in stock. In addition, the Amendment also changed the vesting period for the annual equity award, from a two-year vesting period, to a one-year vesting period (consisting of four equal quarterly installments, one-fourth on the date of grant and an additional one-fourth on each successive third monthly anniversary of the date of grant). The award lapses with respect to all unpaid cash and unvested shares in the event the non-employee director ceases to be a director of the company, and any unvested shares and unpaid cash are forfeited.
In addition to the Annual Retainer award, the 2004 Fee Plan also provides for any non-employee Chairman of the Board to receive an additional annual cash award of $100,000, and each non-employee director serving on a committee of the Board to receive an additional annual cash award. The additional annual cash award for the Chairperson of the Audit Committee is $20,000 and Audit Committee members’ are entitled to an annual cash award of $10,000. Prior to May 20, 2011, the annual cash awards for the Chairpersons of the Compensation and Human Resource Development Committee, Finance Committee and Nominating and Corporate Governance Committee were $12,500 and the members of such committees were entitled to an annual cash award of $7,500. On May 20, 2011, the Board increased the additional annual cash award to the Chairperson of the Compensation and Human Resource Development Committee to $15,000. All other additional cash awards remained unchanged.
The Board may pay additional cash compensation to any non-employee director for services on behalf of the Board over and above those typically expected of directors, including but not limited to service on a special committee of the Board.
The following table summarizes nonvested common stock share award activity as of March 31, 2013 and for the three months then ended:
Nonvested Common Stock Share Awards |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2013 |
13 | $ | 17.18 | |||||
Granted |
- | $ | - | |||||
Vested |
(13) | $ | 17.18 | |||||
Forfeited or expired |
- | $ | - | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
- | $ | - | |||||
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The following table summarizes information regarding common stock share awards granted and vested (in thousands, except per share award amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of share awards granted |
- | - | ||||||
Weighted average grant-date fair value per share award |
$ | - | $ | - | ||||
Fair value of share awards vested |
$ | 219 | $ | 113 |
As of March 31, 2013, there were no unrecognized compensation costs related to nonvested shares granted since March 2008 under the Plan.
Deferred Compensation Plan — The Board adopted the Sykes Enterprises, Incorporated non-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) on December 17, 1998 and amended on March 29, 2006 and May 23, 2006. The Deferred Compensation Plan, which was not shareholder-approved, provides certain eligible employees the ability to defer any portion of their compensation until the participant’s retirement, termination, disability or death, or a change in control of the Company. Using the Company’s common stock, the Company matches 50% of the amounts deferred by certain senior management participants on a quarterly basis up to a total of $12,000 per year for the president, executive vice presidents and senior vice presidents and $7,500 per year for vice presidents (participants below the level of vice president are not eligible to receive matching contributions from the Company). Matching contributions and the associated earnings vest over a seven year service period. Deferred compensation amounts used to pay benefits, which are held in a rabbi trust, include investments in various mutual funds and shares of the Company’s common stock (See Note 8, Investments Held in Rabbi Trust.) As of March 31, 2013 and December 31, 2012, liabilities of $5.0 million and $5.3 million, respectively, of the Deferred Compensation Plan were recorded in “Accrued employee compensation and benefits” in the accompanying Condensed Consolidated Balance Sheets.
Additionally, the Company’s common stock match associated with the Deferred Compensation Plan, with a carrying value of approximately $1.5 million and $1.4 million at March 31, 2013 and December 31, 2012, respectively, is included in “Treasury stock” in the accompanying Condensed Consolidated Balance Sheets.
The following table summarizes nonvested common stock activity as of March 31, 2013 and for the three months then ended:
Nonvested Common Stock |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2013 |
8 | $ | 16.98 | |||||
Granted |
6 | $ | 15.96 | |||||
Vested |
(6) | $ | 16.12 | |||||
Forfeited or expired |
- | $ | - | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
8 | $ | 16.86 | |||||
|
|
The following table summarizes information regarding shares of common stock granted and vested (in thousands, except per common stock amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of shares of common stock granted |
6 | 7 | ||||||
Weighted average grant-date fair value per common stock |
$ | 15.96 | $ | 15.80 | ||||
Fair value of common stock vested |
$ | 104 | $ | 76 | ||||
Cash used to settle the obligation |
$ | 953 | $ | 161 |
As of March 31, 2013, there was $0.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected to be recognized over a weighted average period of 2.4 years.
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Note 18. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, and provides outsourced customer contact management solutions (with an emphasis on technical support and customer service) and technical staffing and (2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer contact management solutions (with an emphasis on technical support and customer service) and fulfillment services. The sites within Latin America, India and the Asia Pacific Rim are included in the Americas segment given the nature of the business and client profile, which is primarily made up of U.S.-based companies that are using the Company’s services in these locations to support their customer contact management needs.
Information about the Company’s reportable segments is as follows (in thousands):
Americas | EMEA | Other (1) | Consolidated | |||||||||||||
Three Months Ended March 31, 2013: |
||||||||||||||||
Revenues (2) |
$ | 255,214 | $ | 46,030 | $ | 301,244 | ||||||||||
Percentage of revenues |
84.7% | 15.3% | 100.0% | |||||||||||||
Depreciation, net (2) |
$ | 9,178 | $ | 991 | $ | 10,169 | ||||||||||
Amortization of intangibles (2) |
$ | 3,759 | $ | - | $ | 3,759 | ||||||||||
Income (loss) from continuing operations |
$ | 19,522 | $ | 1,855 | $ | (11,500) | $ | 9,877 | ||||||||
Other (expense), net |
(159) | (159) | ||||||||||||||
Income taxes |
(3,200) | (3,200) | ||||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
6,518 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | - | $ | - | - | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 6,518 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of March 31, 2013 |
$ | 1,095,705 | $ | 709,892 | $ | (885,996) | $ | 919,601 | ||||||||
|
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|
|
|
|
|
|
|||||||||
Three Months Ended March 31, 2012: |
||||||||||||||||
Revenues (2) |
$ | 230,087 | $ | 48,011 | $ | 278,098 | ||||||||||
Percentage of revenues |
82.7% | 17.3% | 100.0% | |||||||||||||
Depreciation, net (2) |
$ | 9,645 | $ | 989 | $ | 10,634 | ||||||||||
Amortization of intangibles (2) |
$ | 1,861 | $ | - | $ | 1,861 | ||||||||||
Income (loss) from continuing operations |
$ | 26,956 | $ | 388 | $ | (12,654) | $ | 14,690 | ||||||||
Other (expense), net |
(553) | (553) | ||||||||||||||
Income taxes |
(3,367) | (3,367) | ||||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
10,770 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | (6,302) | $ | (5,225) | (11,527) | |||||||||||
|
|
|||||||||||||||
Net (loss) |
$ | (757) | ||||||||||||||
|
|
|||||||||||||||
Total assets as of March 31, 2012 |
$ | 919,288 | $ | 1,085,278 | $ | (1,237,568) | $ | 766,998 | ||||||||
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(1) |
Other items (including corporate costs, impairment costs, other income and expense, and income taxes) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the three months ended March 31, 2013 and 2012. The accounting policies of the reportable segments are the same as those described in Note 1 to the accompanying Condensed Consolidated Financial Statements. Inter-segment revenues are not material to the Americas and EMEA segment results. The Company evaluates the performance of its geographic segments based on revenue and income (loss) from operations, and does not include segment assets or other income and expense items for management reporting purposes. |
(2) |
Revenues and depreciation and amortization include results from continuing operations only. |
(3) |
Includes the (loss) from discontinued operations, net of taxes, as well as the (loss) on sale of discontinued operations, net of taxes, if any. |
|
Note 19. Other Income (Expense)
Gains and losses resulting from foreign currency transactions are recorded in “Other income (expense)” in the accompanying Condensed Consolidated Statements of Operations during the period in which they occur. Other income (expense) consists of the following (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Foreign currency transaction gains (losses) |
$ | 234 | $ | (638) | ||||
Gains (losses) on foreign currency derivative instruments not designated as hedges |
(525) | (472) | ||||||
Other miscellaneous income (expense) |
416 | 509 | ||||||
|
|
|
|
|||||
$ | 125 | $ | (601) | |||||
|
|
|
|
|
Note 20. Related Party Transactions
In January 2008, the Company entered into a lease for a customer contact management center located in Kingstree, South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes, the founder, former Chairman and Chief Executive Officer and the father of Charles Sykes, President and Chief Executive Officer of the Company. The lease payments on the 20 year lease were negotiated at or below market rates, and the lease is cancellable at the option of the Company. There are significant penalties for early cancellation which decrease over time. The Company paid $0.1 million to the landlord during both the three months ended March 31, 2013 and 2012 under the terms of the lease.
|
Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides comprehensive outsourced customer contact management solutions and services in the business process outsourcing arena to companies, primarily within the communications, financial services, technology/consumer, transportation and leisure, and healthcare industries. SYKES provides flexible, high-quality outsourced customer contact management services (with an emphasis on inbound technical support and customer service), which includes customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels encompassing phone, e-mail, Internet, text messaging and chat. SYKES complements its outsourced customer contact management services with various enterprise support services in the United States that encompass services for a company’s internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services including multilingual sales order processing via the Internet and phone, payment processing, inventory control, product delivery and product returns handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the United States, Canada, Latin America, India and the Asia Pacific Rim, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and Africa.
Acquisition — In August 2012, the Company completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated July 27, 2012. The Company has reflected the operating results in the Condensed Consolidated Statements of Operations since August 20, 2012. See Note 2, Acquisition of Alpine Access, Inc., for additional information on the acquisition of this business.
Discontinued Operations — In March 2012, the Company sold its operations in Spain (the “Spanish operations”), pursuant to an asset purchase agreement dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. The Company reflected the operating results related to the Spanish operations as discontinued operations in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2012. Cash flows from discontinued operations are included in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012. See Note 3, Discontinued Operations, for additional information on the sale of the Spanish operations.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2013. For further information, refer to the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (“SEC”).
Principles of Consolidation — The condensed consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates — The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance of the condensed consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the accompanying condensed consolidated financial statements.
New Accounting Standards Not Yet Adopted
In March 2013, the FASB issued ASU 2013-05 “Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The amendments in ASU 2013-05 indicates that a cumulative translation adjustment (“CTA”) is attached to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, a loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or a step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). ASU 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. The Company does not expect the adoption of ASU 2013-05 to materially impact its financial condition, results of operations and cash flows.
New Accounting Standards Recently Adopted
In December 2011, the FASB issued ASU 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). The amendments in ASU 2011-11 will enhance disclosures by requiring improved information about financial and derivative instruments that are either 1) offset (netting assets and liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards Codification or 2) subject to an enforceable master netting arrangement or similar agreement. The amendments in ASU 2011-11 are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In July 2012, the FASB issued ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). The amendments in ASU 2012-02 provide entities with the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. Under the amendments in ASU 2012-02, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU 2012-02 on January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In January 2013, the FASB issued ASU 2013-01 “Balance Sheet (Topic 210) Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). The amendments in ASU 2013-01 clarify which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. ASU 2013-01 addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to the financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Financial Accounting Standards Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under International Financial Reporting Standards (IFRS). The amendments in ASU 2013-01 are effective for fiscal years beginning on or after January 1, 2013. Retrospective application is required for any period presented that begins before the entity’s initial application of the new requirements. The adoption of ASU 2013-01 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income (Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 as of January 1, 2013 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the respective periods and the further dilutive effect, if any, from stock options, stock appreciation rights, restricted stock, restricted stock units and shares held in a rabbi trust using the treasury stock method.
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.
|
The following table summarizes the final purchase price allocation of the fair values of the assets acquired and liabilities assumed, all included in the Americas segment (in thousands):
Amount | ||||
Cash and cash equivalents |
$ | 1,859 | ||
Receivables |
11,831 | |||
Prepaid expenses |
617 | |||
|
|
|||
Total current assets |
14,307 | |||
Property and equipment |
11,326 | |||
Goodwill |
80,766 | |||
Intangibles |
57,720 | |||
Deferred charges and other assets |
916 | |||
Accounts payable |
(880) | |||
Accrued employee compensation and benefits |
(3,774) | |||
Income taxes payable |
(141) | |||
Deferred revenue |
(94) | |||
Other accrued expenses and current liabilities |
(601) | |||
|
|
|||
Total current liabilities |
(5,490) | |||
Other long-term liabilities (1) |
(10,592) | |||
|
|
|||
$ | 148,953 | |||
|
|
(1) |
Primarily includes long-term deferred tax liabilities. |
The following table presents the Company’s purchased intangible assets as of August 20, 2012, the acquisition date (in thousands):
Amount Assigned | Weighted Average Amortization Period (years) |
|||||||
Customer relationships |
$ | 46,000 | 8 | |||||
Trade names |
10,600 | 8 | ||||||
Non-compete agreements |
670 | 2 | ||||||
Favorable lease agreement |
450 | 2 | ||||||
|
|
|||||||
$ | 57,720 | 8 | ||||||
|
|
The following table presents the unaudited pro forma combined revenues and net earnings as if Alpine had been included in the consolidated results of the Company for the entire three month period ended March 31, 2012. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2012 (in thousands):
Three Months Ended March 31, 2012 |
||||
Revenues |
$ | 306,174 | ||
Income from continuing operations, net of taxes |
$ | 10,537 | ||
Income from continuing operations per common share: |
||||
Basic |
$ | 0.24 | ||
Diluted |
$ | 0.24 |
Merger and integration costs associated with Alpine, comprised of severance costs and transaction and integration costs, and included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2013, were as follows (none in the comparable period in 2012) (in thousands):
Three Months Ended March 31, 2013 |
||||
Severance costs: |
||||
Americas |
$ | 207 | ||
Corporate |
159 | |||
|
|
|||
366 | ||||
Transaction and integration costs: |
||||
Corporate |
320 | |||
|
|
|||
320 | ||||
|
|
|||
Total merger and integration costs |
$ | 686 | ||
|
|
|
The results of the Spanish operations included in discontinued operations were as follows (none in 2013) (in thousands):
Three Months Ended March 31, 2012 |
||||
Revenues |
$ | 10,102 | ||
|
|
|||
(Loss) from discontinued operations before income taxes |
$ | (820) | ||
Income taxes (1) |
- | |||
|
|
|||
(Loss) from discontinued operations, net of taxes |
$ | (820) | ||
|
|
|||
(Loss) on sale of discontinued operations before income taxes |
$ | (10,707) | ||
Income taxes (1) |
- | |||
|
|
|||
(Loss) on sale of discontinued operations, net of taxes |
$ | (10,707) | ||
|
|
(1) |
There were no income taxes as any tax benefit from the losses would be offset by a valuation allowance. |
|
The following table summarizes the Company’s short-term and long-term accrued liabilities associated with its exit and disposal activities, by plan, as of March 31, 2013 and December 31, 2012 (in thousands):
Americas Fourth Quarter 2011 Exit Plan |
EMEA Fourth Quarter 2011 Exit Plan |
Fourth Quarter 2010 Exit Plan |
Third Quarter 2010 Exit Plan |
Total | ||||||||||||||||
March 31, 2013 |
||||||||||||||||||||
Short-term accrued restructuring liability (1) |
$ | 144 | $ | 187 | $ | 449 | $ | 535 | $ | 1,315 | ||||||||||
Long-term accrued restructuring liability (2) |
503 | - | - | 1,793 | 2,296 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending accrual at March 31, 2013 |
$ | 647 | $ | 187 | $ | 449 | $ | 2,328 | $ | 3,611 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2012 |
||||||||||||||||||||
Short-term accrued restructuring liability (1) |
$ | 138 | $ | 197 | $ | 448 | $ | 618 | $ | 1,401 | ||||||||||
Long-term accrued restructuring liability (2) |
544 | - | 91 | 1,933 | 2,568 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending accrual at December 31, 2012 |
$ | 682 | $ | 197 | $ | 539 | $ | 2,551 | $ | 3,969 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
(2) |
Included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
The following table summarizes the accrued liability associated with the Americas Fourth Quarter 2011 Exit Plan’s exit or disposal activities and related charges for the three months ended March 31, 2013 (none in the comparable period in 2012) (in thousands):
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 |
Cash Payments | Other Non-Cash Changes |
Ending Accrual at March 31, 2013 |
||||||||||||||||
Lease obligations and facility exit costs |
$ | 682 | $ | - | $ | (35) | $ | - | $ | 647 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 (1) |
Cash Payments | Other Non-Cash Changes (2) |
Ending Accrual at March 31, 2013 |
||||||||||||||||
Lease obligations and facility exit costs |
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Severance and related costs |
187 | 6 | (7) | (4) | 182 | |||||||||||||||
Legal-related costs |
10 | 1 | (7) | 1 | 5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 197 | $ | 7 | $ | (14) | $ | (3) | $ | 187 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Beginning Accrual at January 1, 2012 |
Charges (Reversals) for the Three Months Ended March 31, 2012 (1) |
Cash Payments | Other Non-Cash Changes (2) |
Ending Accrual at March 31, 2012 |
||||||||||||||||
Lease obligations and facility exit costs |
$ | 577 | $ | - | $ | - | $ | 18 | $ | 595 | ||||||||||
Severance and related costs |
4,470 | 948 | (367) | 168 | 5,219 | |||||||||||||||
Legal-related costs |
13 | 51 | (51) | 1 | 14 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 5,060 | $ | 999 | $ | (418) | $ | 187 | $ | 5,828 | |||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
During the three months ended March 31, 2013 and 2012, the Company recorded additional severance and related costs and legal-related costs. |
(2) |
Effect of foreign currency translation. |
The following tables summarize the accrued liability associated with the Fourth Quarter 2010 Exit Plan’s exit or disposal activities and related charges during the three months ended March 31, 2013 and 2012 (in thousands):
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 |
Cash Payments |
Other Non- Cash Changes (1) |
Ending Accrual at March 31, 2013 |
||||||||||||||||
Lease obligations and facility exit costs |
$ | 537 | $ | - | $ | (75) | $ | (13) | $ | 449 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Beginning Accrual at January 1, 2012 |
Charges (Reversals) for the Three Months Ended March 31, 2012 |
Cash Payments |
Other Non- Cash Changes (1) |
Ending Accrual at March 31, 2012 |
||||||||||||||||
Lease obligations and facility exit costs |
$ | 835 | $ | - | $ | (96) | $ | 25 | $ | 764 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
Effect of foreign currency translation. |
The following tables summarize the accrued liability associated with the Third Quarter 2010 Exit Plan’s exit or disposal activities and related charges for the three months ended March 31, 2013 and 2012 (in thousands):
Beginning Accrual at January 1, 2013 |
Charges (Reversals) for the Three Months Ended March 31, 2013 |
Cash Payments | Other Non-Cash Changes (1) |
Ending Accrual at March 31, 2013 |
||||||||||||||||
Lease obligations and facility exit costs |
$ | 2,551 | $ | - | $ | (224) | $ | 1 | $ | 2,328 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Beginning Accrual at January 1, 2012 |
Charges (Reversals) for the Three Months Ended March 31, 2012 |
Cash Payments | Other Non-Cash Changes (1) |
Ending Accrual at March 31, 2012 |
||||||||||||||||
Lease obligations and facility exit costs |
$ | 3,427 | $ | - | $ | (477 | ) | $ | - | $ | 2,950 | |||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
Effect of foreign currency translation. |
|
The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at March 31, 2013 Using: | ||||||||||||||||||
Balance at March 31, 2013 |
Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||||
Level (1) | Level (2) | Level (3) | ||||||||||||||||
Assets: |
||||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” |
(1) | $ | 7,410 | $ | 7,410 | $ | - | $ | - | |||||||||
Money market funds and open-end mutual funds in “Deferred charges and other assets” |
(1) | 11 | 11 | - | - | |||||||||||||
Foreign currency forward and option contracts |
(2) | 2,840 | - | 2,840 | - | |||||||||||||
Foreign currency forward contracts |
(3) | 433 | - | 433 | - | |||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan |
(4) | 3,799 | 3,799 | - | - | |||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan |
(4) | 1,238 | 1,238 | - | - | |||||||||||||
Guaranteed investment certificates |
(5) | 80 | - | 80 | - | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | 15,811 | $ | 12,458 | $ | 3,353 | $ | - | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Liabilities: |
||||||||||||||||||
Foreign currency forward and option contracts |
(6) | $ | 1,102 | $ | - | $ | 1,102 | $ | - | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | 1,102 | $ | - | $ | 1,102 | $ | - | |||||||||||
|
|
|
|
|
|
|
|
(1) |
In the accompanying Condensed Consolidated Balance Sheet. |
(2) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
(3) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
(4) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 8. |
(5) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. |
(6) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2012 Using: | ||||||||||||||||||
Balance at December 31, 2012 |
Quoted Prices in Active Markets For Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||||
Level (1) | Level (2) | Level (3) | ||||||||||||||||
Assets: |
||||||||||||||||||
Money market funds and open-end mutual funds included in “Cash and cash equivalents” |
(1) | $ | 7,598 | $ | 7,598 | $ | - | $ | - | |||||||||
Money market funds and open-end mutual funds in “Deferred charges and other assets” |
(1) | 11 | 11 | - | - | |||||||||||||
Foreign currency forward and option contracts |
(2) | 2,008 | - | 2,008 | - | |||||||||||||
Equity investments held in a rabbi trust for the Deferred Compensation Plan |
(3) | 3,212 | 3,212 | - | - | |||||||||||||
Debt investments held in a rabbi trust for the Deferred Compensation Plan |
(3) | 2,049 | 2,049 | - | - | |||||||||||||
Guaranteed investment certificates |
(4) | 80 | - | 80 | - | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | 14,958 | $ | 12,870 | $ | 2,088 | $ | - | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Liabilities: |
||||||||||||||||||
Foreign currency forward and option contracts |
(5) | $ | 974 | $ | - | $ | 974 | $ | - | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | 974 | $ | - | $ | 974 | $ | - | |||||||||||
|
|
|
|
|
|
|
|
(1) |
In the accompanying Condensed Consolidated Balance Sheet. |
(2) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
(3) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheet. See Note 8. |
(4) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. |
(5) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet. See Note 7. |
The following table summarizes the total impairment losses related to nonrecurring fair value measurements of certain assets (no liabilities) subject to the requirements of ASC 820 (in thousands):
Total Impairment (Loss) | ||||||||
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Americas: |
||||||||
Property and equipment, net (1) |
$ | - | $ | (149) | ||||
|
|
|
|
(1) |
See Note 1 for additional information regarding the fair value measurement. |
|
The following table presents the Company’s purchased intangible assets as of March 31, 2013 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 104,005 | $ | (26,669) | $ | 77,336 | 8 | |||||||||
Trade name |
11,600 | (1,810) | 9,790 | 8 | ||||||||||||
Non-compete agreements |
1,226 | (763) | 463 | 2 | ||||||||||||
Proprietary software |
850 | (823) | 27 | 2 | ||||||||||||
Favorable lease agreement |
450 | (138) | 312 | 2 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 118,131 | $ | (30,203) | $ | 87,928 | 8 | ||||||||||
|
|
|
|
|
|
The following table presents the Company’s purchased intangible assets as of December 31, 2012 (in thousands):
Gross Intangibles | Accumulated Amortization |
Net Intangibles | Weighted Average Amortization Period (years) |
|||||||||||||
Customer relationships |
$ | 104,483 | $ | (23,552) | $ | 80,931 | 8 | |||||||||
Trade name |
11,600 | (1,451) | 10,149 | 8 | ||||||||||||
Non-compete agreements |
1,229 | (681) | 548 | 2 | ||||||||||||
Proprietary software |
850 | (810) | 40 | 2 | ||||||||||||
Favorable lease agreement |
450 | (81) | 369 | 2 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 118,612 | $ | (26,575) | $ | 92,037 | 8 |
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to March 31, 2013, is as follows (in thousands):
Years Ending December 31, | Amount | |||
2013 (remaining nine months) |
$ | 11,156 | ||
2014 |
14,651 | |||
2015 |
14,292 | |||
2016 |
14,292 | |||
2017 |
14,292 | |||
2018 |
7,682 | |||
2019 and thereafter |
11,563 |
|
The deferred gains (losses) and related taxes on the Company’s derivative instruments recorded in “Accumulated other comprehensive income (loss)” in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Deferred gains (losses) in AOCI |
$ | 1,459 | $ | (512 | ) | |||
Tax on deferred gains (losses) in AOCI |
(10 | ) | (58 | ) | ||||
|
|
|
|
|||||
Deferred gains (losses) in AOCI, net of taxes |
$ | 1,449 | $ | (570 | ) | |||
|
|
|
|
|||||
Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months |
$ | 1,459 | ||||||
|
|
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
As of March 31, 2013 | As of December 31, 2012 | |||||||||||||||
Contract Type |
Notional Amount in USD |
Settle Through Date |
Notional Amount in USD |
Settle Through Date |
||||||||||||
Cash flow hedges: |
||||||||||||||||
Options: |
||||||||||||||||
Philippine Pesos |
$ | 77,000 | December 2013 | $ | 71,000 | September 2013 | ||||||||||
Forwards: |
||||||||||||||||
Philippine Pesos |
5,000 | August 2013 | 5,000 | August 2013 | ||||||||||||
Costa Rican Colones |
44,250 | December 2013 | 60,750 | December 2013 | ||||||||||||
Hungarian Forints |
3,647 | January 2014 | 4,744 | January 2014 | ||||||||||||
Romanian Leis |
5,570 | January 2014 | 6,895 | January 2014 | ||||||||||||
Net investment hedges: |
||||||||||||||||
Forwards: |
||||||||||||||||
Euros |
32,657 | September 2014 | - | - | ||||||||||||
Non-designated hedges: |
||||||||||||||||
Forwards |
39,770 | July 2013 | 41,799 | June 2013 |
The following tables present the fair value of the Company’s derivative instruments included in the accompanying Condensed Consolidated Balance Sheets (in thousands):
Derivative Assets | ||||||||
March 31, 2013 | December 31, 2012 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (1) |
$ | 2,622 | $ | 1,080 | ||||
Foreign currency forward and option contracts (2) |
- | 14 | ||||||
|
|
|
|
|||||
2,622 | 1,094 | |||||||
Derivatives designated as net investment hedging instruments under ASC 815: | ||||||||
Foreign currency forward contracts (2) |
433 | - | ||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts(1) |
218 | 914 | ||||||
|
|
|
|
|||||
Total derivative assets |
$ | 3,273 | $ | 2,008 | ||||
|
|
|
|
Derivative Liabilities | ||||||||
March 31, 2013 | December 31, 2012 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: |
||||||||
Foreign currency forward and option contracts (3) |
$ | 209 | $ | 904 | ||||
Foreign currency forward and option contracts (4) |
- | 8 | ||||||
|
|
|
|
|||||
209 | 912 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts (3) |
893 | 62 | ||||||
|
|
|
|
|||||
Total derivative liabilities |
$ | 1,102 | $ | 974 | ||||
|
|
|
|
(1) |
Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets. |
(2) |
Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets. |
(3) |
Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
(4) |
Included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets. |
The following tables present the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the three months ended March 31, 2013 and 2012 (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) |
||||||||||||||||||||||
March 31, | March 31, | March 31, | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
Derivatives designated as cash flow hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward and option contracts |
$ | 2,717 | $ | 2,674 | $ | 731 | $ | 240 | $ | 12 | $ | 14 | ||||||||||||
Derivatives designated as net investment hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward contracts |
433 | - | - | - | - | - | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Foreign currency forward and option contracts |
$ | 3,150 | $ | 2,674 | $ | 731 | $ | 240 | $ | 12 | $ | 14 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in “Other income and (expense)” on Derivatives |
||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||
Foreign currency forward contracts |
$ | (525 | ) | $ | (472 | ) | ||
|
|
|
|
|
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Mutual funds |
$ | 4,197 | $ | 5,037 | $ | 4,812 | $ | 5,261 |
The mutual funds held in the rabbi trusts were 75% equity-based and 25% debt-based as of March 31, 2013. Net investment income (losses), included in “Other income (expense)” in the accompanying Condensed Consolidated Statements of Operations consists of the following (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Gross realized gains from sale of trading securities |
$ | 96 | $ | 81 | ||||
Gross realized (losses) from sale of trading securities |
(3 | ) | (1 | ) | ||||
Dividend and interest income |
10 | 7 | ||||||
Net unrealized holding gains (losses) |
195 | 359 | ||||||
|
|
|
|
|||||
Net investment income (losses) |
$ | 298 | $ | 446 | ||||
|
|
|
|
|
The components of deferred revenue consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Future service |
$ | 24,616 | $ | 25,074 | ||||
Estimated potential penalties and holdbacks |
9,284 | 9,209 | ||||||
|
|
|
|
|||||
$ | 33,900 | $ | 34,283 | |||||
|
|
|
|
|
The components of deferred grants consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Property grants |
$ | 7,035 | $ | 7,270 | ||||
Employment grants |
423 | 337 | ||||||
|
|
|
|
|||||
Total long-term deferred grants (1) |
$ | 7,458 | $ | 7,607 | ||||
|
|
|
|
(1) |
Included in “Deferred grants” in the accompanying Condensed Consolidated Balance Sheets. |
Amortization of the Company’s property grants included as a reduction to “General and administrative” costs and amortization of the Company’s employment grants included as a reduction to “Direct salaries and related costs” in the accompanying Condensed Consolidated Statements of Operations consist of the following (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Amortization of property grants |
$ | 235 | $ | 235 | ||||
Amortization of employment grants |
18 | 18 | ||||||
|
|
|
|
|||||
$ | 253 | $ | 253 | |||||
|
|
|
|
|
Borrowings consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Revolving credit facility |
$ | 111,000 | $ | 91,000 | ||||
Less: Current portion |
- | - | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 111,000 | $ | 91,000 | ||||
|
|
|
|
|
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 Hedge |
Unrealized Actuarial Gain (Loss) Related to Pension Liability |
Unrealized Gain (Loss) on Cash Flow Hedging Instruments |
Unrealized Gain (Loss) on Post Retirement Obligation |
Total | |||||||||||||||||||
Balance at January 1, 2012 |
$ | 5,995 | $ | (2,565 | ) | $ | 985 | $ | (438 | ) | $ | 459 | $ | 4,436 | ||||||||||
Pre-tax amount |
9,516 | - | 499 | 4,417 | 92 | 14,524 | ||||||||||||||||||
Tax (provision) benefit |
- | - | (90 | ) | (306 | ) | - | (396 | ) | |||||||||||||||
Reclassification to net income |
570 | - | (48 | ) | (4,174 | ) | (56 | ) | (3,708 | ) | ||||||||||||||
Foreign currency translation |
2 | - | 67 | (69 | ) | - | - | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2012 |
16,083 | (2,565 | ) | 1,413 | (570 | ) | 495 | 14,856 | ||||||||||||||||
Pre-tax amount |
(5,736 | ) | 433 | - | 2,729 | (27 | ) | (2,601 | ) | |||||||||||||||
Tax (provision) benefit |
- | (151 | ) | (5 | ) | 43 | - | (113 | ) | |||||||||||||||
Reclassification to net income |
- | - | (10 | ) | (738 | ) | (16 | ) | (764 | ) | ||||||||||||||
Foreign currency translation |
8 | - | 7 | (15 | ) | - | - | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at March 31, 2013 |
$ | 10,355 | $ | (2,283 | ) | $ | 1,405 | $ | 1,449 | $ | 452 | $ | 11,378 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the amounts reclassified to net income from accumulated other comprehensive income (loss) and the associated line item in the accompanying Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended March 31, 2013 |
Income Statement Location |
|||||
Unrealized Actuarial Gain (Loss) Related to Pension Liability: (1) |
||||||
Pre-tax amount |
$ | 15 | Direct salaries and related costs | |||
Pre-tax amount |
- | General and administrative | ||||
Tax (provision) benefit |
(5 | ) | Income taxes | |||
|
|
|||||
Reclassification to net income |
10 | |||||
Unrealized Gain (Loss) on Cash Flow Hedging Instruments: (2) |
||||||
Pre-tax amount |
743 | Revenues | ||||
Tax (provision) benefit |
(5 | ) | Income taxes | |||
|
|
|||||
Reclassification to net income |
738 | |||||
Unrealized Gain (Loss) on Post Retirement Obligation: (1) |
||||||
Pre-tax amount |
16 | General and administrative | ||||
Tax (provision) benefit |
- | Income taxes | ||||
|
|
|||||
Reclassification to net income |
16 | |||||
|
|
|||||
Total reclassification to net income |
$ | 764 | ||||
|
|
(1) |
See Note 16, Defined Benefit Pension Plan and Postretirement Benefits, for further information. |
(2) |
See Note 7, Financial Derivatives, for further information. |
|
The significant tax jurisdictions currently under audit are as follows:
Tax Jurisdiction | Tax Year Ended | |
Canada | 2003 to 2009 | |
Philippines | 2007 to 2009 | |
United States | 2010 to 2012 |
|
The following is a schedule of future minimum rental payments required under operating leases that have noncancelable lease terms as of March 31, 2013 (in thousands):
Amount | ||||
2013 (remaining nine months) |
$ | 1,102 | ||
2014 |
1,850 | |||
2015 |
1,903 | |||
2016 |
795 | |||
2017 |
585 | |||
2018 |
346 | |||
2019 and thereafter |
59 | |||
|
|
|||
Total minimum payments required |
$ | 6,640 | ||
|
|
The following is a schedule of the future minimum purchases remaining under the agreements as of March 31, 2013 (in thousands):
Amount | ||||
2013 (remaining nine months) |
$ | 2,192 | ||
2014 |
2,953 | |||
2015 |
2,040 | |||
2016 |
436 | |||
2017 |
- | |||
2018 |
- | |||
2019 and thereafter |
- | |||
|
|
|||
Total minimum payments required |
$ | 7,621 | ||
|
|
|
The following table provides information about the net periodic benefit cost for the Company’s pension plans (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Service cost |
$ | 88 | $ | 93 | ||||
Interest cost |
29 | 30 | ||||||
Recognized actuarial (gains) |
(15) | (12) | ||||||
|
|
|
|
|||||
Net periodic benefit cost |
$ | 102 | $ | 111 | ||||
|
|
|
|
The Company’s contributions included in the accompanying Condensed Consolidated Statement of Operations were as follows (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
401(k) plan contributions |
$ | 233 | $ | 409 |
The postretirement benefit obligation included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Postretirement benefit obligation |
$ | 72 | $ | 72 | ||||
Unrealized gains (losses) in AOCI (1) |
$ | 452 | $ | 495 |
(1) |
Unrealized gains (losses) are due to changes in discount rates related to the postretirement obligation. |
|
The following table summarizes the stock-based compensation expense (primarily in the Americas), income tax benefits related to the stock-based compensation and excess tax benefits (deficiencies) (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Stock-based compensation (expense) (1) |
$ | (664) | $ | (1,119) | ||||
Income tax benefit (2) |
232 | 436 | ||||||
Excess tax benefit (deficiency) from stock-based compensation (3) |
(34) | (278) |
(1) |
Included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations. |
(2) |
Included in “Income taxes” in the accompanying Condensed Consolidated Statements of Operations. |
(3) |
Included in “Additional paid-in capital” in the accompanying Condensed Consolidated Statements of Changes in Shareholder’s Equity. |
The following table summarizes the assumptions used to estimate the fair value of SARs granted:
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Expected volatility |
45.2% | 47.1% | ||||||
Weighted-average volatility |
45.2% | 47.1% | ||||||
Expected dividend rate |
0.0% | 0.0% | ||||||
Expected term (in years) |
5.0 | 4.7 | ||||||
Risk-free rate |
0.8% | 0.8% |
The following table summarizes SARs activity as of March 31, 2013 and for the three months then ended:
Stock Appreciation Rights |
Shares (000s) | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (000s) |
||||||||||||
Outstanding at January 1, 2013 |
865 | $ | - | |||||||||||||
Granted |
318 | $ | - | |||||||||||||
Exercised |
- | $ | - | |||||||||||||
Forfeited or expired |
- | $ | - | |||||||||||||
|
|
|||||||||||||||
Outstanding at March 31, 2013 |
1,183 | $ | - | 7.8 | $ | 436 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested or expected to vest at March 31, 2013 |
1,183 | $ | - | 7.8 | $ | 436 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at March 31, 2013 |
648 | $ | - | 6.4 | $ | 95 | ||||||||||
|
|
|
|
|
|
|
|
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of SARs granted |
318 | 259 | ||||||
Weighted average grant-date fair value per SAR |
$ | 6.08 | $ | 5.97 | ||||
Intrinsic value of SARs exercised |
$ | - | $ | - | ||||
Fair value of SARs vested |
$ | 1,298 | $ | 1,388 |
The following table summarizes nonvested SARs activity as of March 31, 2013 and for the three months then ended:
Nonvested Stock Appreciation Rights | Shares (000s) |
Weighted Date Fair Value |
||||||
Nonvested at January 1, 2013 |
395 | $ | 6.74 | |||||
Granted |
318 | $ | 6.08 | |||||
Vested |
(178) | $ | 7.28 | |||||
Forfeited or expired |
- | $ | - | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
535 | $ | 6.17 | |||||
|
|
The following table summarizes nonvested restricted shares/RSUs activity as of March 31, 2013 and for the three months then ended:
Nonvested Restricted Shares and RSUs |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2013 |
872 | $ | 18.25 | |||||
Granted |
706 | $ | 15.25 | |||||
Vested |
(20) | $ | 18.11 | |||||
Forfeited or expired |
(191) | $ | 23.55 | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
1,367 | $ | 15.96 |
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands, except per restricted share/RSU amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of restricted shares/RSUs granted |
706 | 420 | ||||||
Weighted average grant-date fair value per restricted share/RSU |
$ | 15.25 | $ | 15.21 | ||||
Fair value of restricted shares/RSUs vested |
$ | 366 | $ | 3,845 |
The following table summarizes nonvested common stock share award activity as of March 31, 2013 and for the three months then ended:
Nonvested Common Stock Share Awards |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2013 |
13 | $ | 17.18 | |||||
Granted |
- | $ | - | |||||
Vested |
(13) | $ | 17.18 | |||||
Forfeited or expired |
- | $ | - | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
- | $ | - | |||||
|
|
The following table summarizes information regarding common stock share awards granted and vested (in thousands, except per share award amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of share awards granted |
- | - | ||||||
Weighted average grant-date fair value per share award |
$ | - | $ | - | ||||
Fair value of share awards vested |
$ | 219 | $ | 113 |
The following table summarizes nonvested common stock activity as of March 31, 2013 and for the three months then ended:
Nonvested Common Stock |
Shares (000s) | Weighted Average Grant- Date Fair Value |
||||||
Nonvested at January 1, 2013 |
8 | $ | 16.98 | |||||
Granted |
6 | $ | 15.96 | |||||
Vested |
(6) | $ | 16.12 | |||||
Forfeited or expired |
- | $ | - | |||||
|
|
|||||||
Nonvested at March 31, 2013 |
8 | $ | 16.86 |
The following table summarizes information regarding shares of common stock granted and vested (in thousands, except per common stock amounts):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Number of shares of common stock granted |
6 | 7 | ||||||
Weighted average grant-date fair value per common stock |
$ | 15.96 | $ | 15.80 | ||||
Fair value of common stock vested |
$ | 104 | $ | 76 | ||||
Cash used to settle the obligation |
$ | 953 | $ | 161 |
|
Information about the Company’s reportable segments is as follows (in thousands):
Americas | EMEA | Other (1) | Consolidated | |||||||||||||
Three Months Ended March 31, 2013: |
||||||||||||||||
Revenues (2) |
$ | 255,214 | $ | 46,030 | $ | 301,244 | ||||||||||
Percentage of revenues |
84.7% | 15.3% | 100.0% | |||||||||||||
Depreciation, net (2) |
$ | 9,178 | $ | 991 | $ | 10,169 | ||||||||||
Amortization of intangibles (2) |
$ | 3,759 | $ | - | $ | 3,759 | ||||||||||
Income (loss) from continuing operations |
$ | 19,522 | $ | 1,855 | $ | (11,500) | $ | 9,877 | ||||||||
Other (expense), net |
(159) | (159) | ||||||||||||||
Income taxes |
(3,200) | (3,200) | ||||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
6,518 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | - | $ | - | - | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 6,518 | ||||||||||||||
|
|
|||||||||||||||
Total assets as of March 31, 2013 |
$ | 1,095,705 | $ | 709,892 | $ | (885,996) | $ | 919,601 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Three Months Ended March 31, 2012: |
||||||||||||||||
Revenues (2) |
$ | 230,087 | $ | 48,011 | $ | 278,098 | ||||||||||
Percentage of revenues |
82.7% | 17.3% | 100.0% | |||||||||||||
Depreciation, net (2) |
$ | 9,645 | $ | 989 | $ | 10,634 | ||||||||||
Amortization of intangibles (2) |
$ | 1,861 | $ | - | $ | 1,861 | ||||||||||
Income (loss) from continuing operations |
$ | 26,956 | $ | 388 | $ | (12,654) | $ | 14,690 | ||||||||
Other (expense), net |
(553) | (553) | ||||||||||||||
Income taxes |
(3,367) | (3,367) | ||||||||||||||
|
|
|||||||||||||||
Income from continuing operations, net of taxes |
10,770 | |||||||||||||||
(Loss) from discontinued operations, net of taxes (3) |
$ | (6,302) | $ | (5,225) | (11,527) | |||||||||||
|
|
|||||||||||||||
Net (loss) |
$ | (757) | ||||||||||||||
|
|
|||||||||||||||
Total assets as of March 31, 2012 |
$ | 919,288 | $ | 1,085,278 | $ | (1,237,568) | $ | 766,998 | ||||||||
|
|
|
|
|
|
|
|
(1) |
Other items (including corporate costs, impairment costs, other income and expense, and income taxes) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the three months ended March 31, 2013 and 2012. The accounting policies of the reportable segments are the same as those described in Note 1 to the accompanying Condensed Consolidated Financial Statements. Inter-segment revenues are not material to the Americas and EMEA segment results. The Company evaluates the performance of its geographic segments based on revenue and income (loss) from operations, and does not include segment assets or other income and expense items for management reporting purposes. |
(2) |
Revenues and depreciation and amortization include results from continuing operations only. |
(3) |
Includes the (loss) from discontinued operations, net of taxes, as well as the (loss) on sale of discontinued operations, net of taxes, if any. |
|
Other income (expense) consists of the following (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Foreign currency transaction gains (losses) |
$ | 234 | $ | (638) | ||||
Gains (losses) on foreign currency derivative instruments not designated as hedges |
(525) | (472) | ||||||
Other miscellaneous income (expense) |
416 | 509 | ||||||
|
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