USA 1.800.867.9537
Intl. +1.813.274.1000
Sykes Enterprises, Incorporated
400 North Ashley Drive • Suite 2800
Tampa, Florida 33602-5089
www.sykes.com
Corporate Profile
SYKES is a global leader in providing customer contact management solutions and services in the business
process outsourcing (BPO) arena. SYKES provides an array of sophisticated customer contact management
solutions to Fortune 1000 companies around the world, primarily in the communications, financial
services, healthcare, technology and transportation and leisure industries. SYKES specializes in providing
flexible, high-quality customer support outsourcing solutions with an emphasis on inbound technical
support and customer service. Headquartered in Tampa, Florida, with customer contact management
centers throughout the world, SYKES provides its services through multiple communication channels
encompassing phone, e-mail, web and chat. Utilizing its integrated onshore/offshore global delivery
model, SYKES serves its clients through two geographic operating segments: the Americas (United States,
Canada, Latin America and Asia Pacific) and EMEA (Europe, Middle East and Africa). SYKES also
provides various enterprise support services in the Americas and fulfillment services in EMEA, which
include multilingual sales order processing, payment processing, inventory control, product delivery and
product returns handling. For additional information, please visit www.sykes.com.
Financial Highlights
Revenues (in Millions)
Operating Margins
Total Debt (in Millions)
$1000.0
$750.0
$500.0
$250.0
$0.0
15%
24%
16%
10.0%
8.0%
7.4%
7.5%
5.9%
5.0%
2.5%
0.0%
^^
^^^
2006 2007 2008
^
2006
2007 2008
Revenues
(in Millions)
2006
2007
$ 574.2
$ 710.1
7.9%
7.2%
$ 0.0
$ 0.0
2008
$ 819.2
8.0%
$ 0.0
$219
$178
$159
$250.0
$200.0
$150.0
$100.0
$50.0
$0.0
35
30
25
20
15
10
5
0
29.6
26.4
22.6
90%
85%
80%
75%
70%
65%
60%
2006
2007 2008
#
2006 2007 2008
Operating Margins
Cash &
Cash Equivalents
(in Millions)
Seat Capacity and
Capacity Utilization Rate
(in Thousands)
Seat Capacity
Capacity Utilization Rates
^
In July 2006, the Company purchased Apex, a customer contact management company in Argentina. Revenue contribution from the Argentina
acquisition was $15.1 million for the six months of 2006 and $36.7 million for full-year 2007.
^^
Excludes gain from sale of customer contact management centers as well as a charitable contribution reversal of approximately 2.4%
and 0.3% of revenues, respectively.
^^^ Excludes provision related to regulatory penalties in 2007, 0.2% of revenues.
In July 2006, the Company purchased Apex, a customer contact management company in Argentina with approximately 2,200 seats.
#
— Differences due to rounding.
Principal Officers
CHARLES E. SYKES
President and Chief Executive Officer
W. MICHAEL KIPPHUT
Senior Vice President and
Chief Financial Officer
JAMES C. HOBBY
Senior Vice President,
Global Operations
JENNA R. NELSON
Senior Vice President,
Human Resources
DANIEL L. HERNANDEZ
Senior Vice President,
Global Strategy
LAWRENCE (LANCE) R. ZINGALE
Senior Vice President,
Global Sales and Client Management
DAVID L. PEARSON
Senior Vice President and
Chief Information Officer
JAMES T. HOLDER
Senior Vice President, General Counsel
and Corporate Secretary
WILLIAM N. ROCKTOFF
Vice President and
Corporate Controller
Board of Directors
PAUL L. WHITING
Chairman of the Board
Chief Executive Officer (retired)
Spalding and Evenflo
CHARLES E. SYKES
Director (Principal Executive Officer)
President and Chief Executive Officer
Sykes Enterprises, Incorporated
MARK C. BOZEK
Director
Chief Executive Officer
Halo Entertainment
FURMAN P. BODENHEIMER, JR.
Director
President and Chief Executive Officer
Zickgraf Enterprises, Inc.
LT. GEN. MICHAEL P. DELONG
(retired)
Director
Corporate Vice President
of Strategic Planning and Operations
Shaw Environmental and Infrastructure
H. PARKS HELMS, ESQ.
Director
Managing Partner for
Helms, Henderson & Fulton, P.A.
IAIN A. MACDONALD
Director
Chairman of Yakara, plc
Director of the Northern AIM VCT plc
Member of the Scottish Industrial
Development Advisory Board
JAMES S. MACLEOD
Director
Managing Director
CoastalStates Bank
LINDA F. MCCLINTOCK-GRECO M.D.
Director
President and Chief Executive Officer
Greco & Associates Consulting
(Healthcare)
WILLIAM J. MEURER
Director
Private Financial Consultant
Director of Heritage Family of Funds
Managing Partner (retired) for Arthur
Andersen’s Central Florida Operations
JAMES (JACK) K. MURRAY, JR.
Director
Chairman
Murray Corporation
Corporate Information
Corporate Headquarters
400 North Ashley Drive,
Suite 2800
Tampa, FL USA 33602
(813) 274-1000
Fax (813) 273-0148
www.sykes.com
Independent Auditors
Deloitte & Touche LLP
201 E. Kennedy Boulevard,
Suite 1200
Tampa, FL USA 33602
Registrar and Transfer Agent
Computershare
P.O. Box 43078
Providence, RI 02940-3078
(800) 568-3476
SYKES’ shares trade on
The NasdaqGS Stock Market under the
symbol “SYKE”
Annual Meeting
SYKES’ annual meeting
of shareholders will be held at:
9 a.m. (ET)
Wednesday, May 20, 2009
The meeting will be held at:
Sheraton Tampa Riverwalk Hotel
200 North Ashley Drive
Tampa, Florida 33602
Phone: (813) 223-2222
Investor Information
Quarterly Reports on Form 10-Q
and the Form 10-K Annual Report
filed with the Securities and Exchange
Commission are available on
the Company’s website at
http://investor.sykes.com/annuals.cfm,
or upon written request to SYKES’
Investor Relations department in
Tampa, Florida, or by contacting:
SUBHAASH KUMAR
Vice President, Investor Relations
(813) 274-1000
Corporate Information
A n n u a
l
R e p o r
t
2 0 0 7
2008 Highlights:
We delivered...
record revenues,
up 15.4%.
We established...
presence in Brazil
and Denmark.
We strengthened...
our existing
delivery footprint.
We achieved...
broad-based
revenue growth.
We boosted...
operating margins.
We sustained...
our solid balance sheet.
Listed in
Top 100 Most Trustworthy
Small Cap Companies
by Forbes Magazine
Charles E. Sykes (front)
President and Chief Executive Officer
W. Michael Kipphut
Senior Vice President and Chief Financial Officer
Dear Shareholders,
By almost any measure, 2008 was unprecedented. It was a year marked by a
global financial crisis resulting in almost unmatched volatility and economic
dislocation. Most striking was the magnitude and the extraordinary pace with
which these economic events played out. Amid all that, our business model
proved its resilience. Our focus on operational excellence, financial discipline and
risk mitigation served as a buffer against some of the economic dislocation. We
advanced our strategic aims and delivered solid financial performance, while our
peer group remained distracted by execution challenges resulting from ongoing
client migrations offshore, as well as vertical and client concentration. That is
not to say we were not tested. We saw unprecedented volatility in the U.S. dollar
against foreign currencies in jurisdictions where we operate. Demand levels across
certain client programs also fluctuated to some extent. Still, we achieved what we
set out to do in 2008. Here are some highlights:
• We delivered record revenues of $819.2 million, up 15.4%.
• We established beach-heads in Brazil and Denmark, bringing the total number
of markets we serve to 17 and delivery geographies we use worldwide to 20.
• We strengthened our existing delivery footprint, and, for the first time since
2001, undertook new customer contact management center expansion in the U.S.
• We achieved broad-based revenue growth, a strong measure of client
satisfaction, with our top-40 clients, which represented close to three-quarters
of 2008 revenues, up approximately 23.5%.
• We boosted operating margins to a record 8.0% versus 7.4% in 2007, through
better expense leverage.
• We sustained our solid balance sheet with cash and cash equivalents of $219.1
million at year-end 2008, underscoring our disciplined financial approach.
• And finally, we made Forbes magazine’s list of 100 Most Trustworthy Small Cap
Companies based on criteria devised by Audit Integrity.
2008 Annual Report 1 SYKES
Trends:
Industry Observations
In light of the Company’s strong financial performance in a challenging
Long-term trend
toward outsourcing
customer contact
management services
is encouraging.
Clients are reducing
costs to preserve capital
and reduce future
fixed costs.
Seeing opportunities
in the wireless and
retail banking areas.
Clients and prospects
are checking vendors’
financial statements
to ensure
sourcing stability.
Capacity, pricing and
wage inflation appear
to remain stable.
macroeconomic environment, we believe it is in our shareholders’ interest that we
provide some insight into what we are seeing in the customer contact management
industry. But, before we begin, let us put this economic cycle in the proper context
as it relates to SYKES. Admittedly, no two economic cycles are the same. However,
compared with the last down-cycle in the 2001 time frame, our business profile
is markedly different. During the last downturn, we were less focused on our
core inbound customer contact business; we were heavily concentrated in the
technology vertical, which was roughly 70% of revenues; the split in our revenue
model was 70% products, which are typically more cyclical, and 30% services
such as wireless or retail banking lines of business, which are more annuity-like in
nature; and our largest client was responsible for approximately 16% of revenues.
By contrast, we exit 2008 with focus; a more diverse vertical base, with technology
representing 34% of revenues; a revenue model split of 70% services and 30%
products; and our largest client, a telecommunications carrier, responsible for only
7% of revenues.
With the above perspective, here is what we are seeing in the customer
contact management industry, starting with the demand backdrop. The long-
term trend toward outsourcing customer contact management services still
appears encouraging. It continues to be fueled by our clients’ need to reduce
costs to preserve capital and turn future fixed costs into variable costs. And the
current economic environment has decidedly made cost reduction a key strategic
imperative for clients. As such, we continue to see conversion of our sales pipeline,
particularly within the communications and, somewhat surprisingly, the financial
services verticals. Specifically, we are seeing opportunities in the wireless and
retail banking areas with new and existing clients across the Americas and EMEA
regions. Given our sweet-spot for an average deal size is between 250 and 400
seats, modest in comparison with 1,000 seats or so for some of our peers, we
haven’t seen significant headwinds thus far in our close rate. Nor have we seen
any meaningful changes in the ramps related to the closed business. The only
noteworthy change we have seen is that many Fortune 500 clients and prospects
are starting to scrutinize vendors’ financial statements and balance sheets. These
actions, in our view, are a response to the current economic environment as clients
and prospects ensure their outsourcers are financially viable and do not pose risks
to their sourcing strategy. Because of our solid balance sheet, this heightened
scrutiny on financials plays to our strength and should help us differentiate among
competitors when clients either select or consolidate vendors.
SYKES 2 2008 Annual Report
Along with a focus on the demand backdrop, we are also monitoring other
barometers of industry health, including capacity, pricing and wage inflation.
On the capacity front, we believe that most of the vendors are still in a capacity
rationalization mode, particularly in the U.S., which is a positive sign. And the
same goes for Europe, albeit to a somewhat lesser extent than the U.S. But the
capacity picture remains a little mixed offshore. Although some of our peers have
recently scaled back their capacity addition plans offshore, a lot of new capacity
expansion has been undertaken by our peers and some captives (our clients’ own
in-house call centers) over the past two years. As long as the demand environment
doesn’t deteriorate materially and the impetus to offshoring remains strong, we
believe, things should hold. Similarly, the pricing environment seems to be holding
up thus far: We are watching that carefully, given how rapidly the macroeconomic
environment has changed. Apart from a few isolated cases, we are not seeing
irrational pricing in our industry. Nor are we seeing clients demanding blanket
concessions on pricing. With clients starting to focus on vendors’ financial viability,
and given the amount of financial leverage taken on by some of our peers, it is
our hope that this keeps some of them disciplined from a pricing perspective. And
finally, on wage inflation, the environment remains unchanged for the most part.
However, we believe that if the labor market remains sluggish, the wage picture
Looking Ahead:
To stay ahead
of the curve,
we will continue to...
1
Scale back on some
discretionary spending.
2
Focus will remain
on client retention
through continued
operational excellence.
3
Increase market share
through vendor
consolidation
and new account wins
in order to drive
capacity utilization.
could improve. That will still vary by vertical, line of business and geography.
4
Enter new markets
and delivery geographies
and deploy capacity
to sustain our compelling
value proposition
to our clients.
5
Seek out both platform
and tuck-in acquisitions
to further bolster
our business model.
Focus in 2009
With uncertainty surrounding the duration and depth of the macroeconomic
slowdown, we remain cautiously optimistic about 2009. While we do not want
to overextrapolate from recent events, our actions in 2009, to some extent, will
be guided by how the economic environment is evolving. To stay ahead of the
curve, we will continue to execute on the proactive steps taken to optimize our
cost structure. To that end, we have already scaled back on some discretionary
spending and can cut further as needed. Second, our focus will remain on client
retention through continued operational excellence. Because replacing clients is
costly, and clients are under more pressure than ever to ensure their customers
remain satisfied, operational excellence holds one of the keys to competitive
differentiation. Third, we plan to increase market share through vendor
consolidation and new account wins in order to drive capacity utilization. Fourth,
we plan to selectively enter new markets and delivery geographies and deploy
capacity to sustain our compelling value proposition to our clients. And finally, we
plan to continue down the path of seeking both platform and tuck-in acquisitions
to further bolster our business model, thus further strengthening our long-term
growth profile.
2008 Annual Report 3 SYKES
As we enter 2009
with a solid
foundation, we are
well positioned
to sustain
and further extend
our market position.
In closing, we believe we are entering 2009 with a solid foundation. And we
would like to thank our shareholders, clients, employees and Board of Directors for
their continued support as we execute against the current economic slowdown. The
underlying market for customer contact management services has many favorable
attributes, including its significant size, high fragmentation and low penetration.
Together, these attributes translate into a business that offers significant scope
for sustained long-term growth. Even if some of our business drivers moderate in
the near-term, our financial strength, operational focus, global delivery footprint,
domain expertise and a broad service portfolio put us in a good position to meet
not only the challenges but also the opportunities that will emerge from this
economy.
Charles E. Sykes
W. Michael Kipphut
President and Chief Executive Officer
Senior Vice President
and Chief Financial Officer
Global Locations
MARKET & DElIVERy FOOTPRINT MARKET ONly DElIVERy FOOTPRINT ONly
•
•
•
•
•
•
•
Argentina
Brazil
Canada
China
Costa Rica
Denmark
El Salvador
•
•
•
•
•
•
•
Finland
Germany
Hungary
Ireland
Italy
Mexico
Philippines
•
•
•
•
•
•
•
Scotland
Slovakia
South Africa
Spain
Sweden
The Netherlands
United States
SYKES 4 2008 Annual Report
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the fiscal year ended December 31, 2008
Or
[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For The Transition Period From To
Commission File Number 0-28274
Sykes Enterprises, Incorporated
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
400 N. Ashley Drive, Tampa, Florida
(Address of principal executive offices)
56-1383460
(IRS Employer
Identification No.)
33602
(Zip Code)
(813) 274-1000
(cid:11)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:3)(cid:70)(cid:82)(cid:71)(cid:72)(cid:12)(cid:3)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock $.01 Par Value
Name of each exchange on which registered
NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the be(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions (cid:82)(cid:73)(cid:3) (cid:179)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:15)(cid:180)(cid:3) (cid:179)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:180) (cid:68)(cid:81)(cid:71)(cid:3) (cid:179)(cid:86)(cid:80)(cid:68)(cid:79)(cid:79)(cid:72)(cid:85)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180) in
Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the shares of voting common stock held by non-affiliates of the Registrant computed by reference
to the closing sales price of such shares on the NASDAQ Global Select Market on June 30, 2008, the last business day of the
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:15)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:7)637,736,227.
As of February 20, 2009, there were 41,260,264 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents .......................................................................................................
Portions of the Proxy Statement for the year 2009 Annual Meeting of
Shareholders .....................................................................................................
Form 10-K Reference
Part III Items 10(cid:177)14
TABLE OF CONTENTS
Page No.
PART I
Item 1 Business ...................................................................................................................................
Item 1A Risk Factors ..............................................................................................................................
Item 1B Unresolved Staff Comments .....................................................................................................
Item 2 Properties ................................................................................................................................
Item 3 Legal Proceedings ...................................................................................................................
Item 4 Submission of Matters to a Vote of Security Holders .............................................................
PART II
Item (cid:24)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)Issuer
Purchases of Equity Securities.............................................................................................
Item 6 Selected Financial Data ...........................................................................................................
Item (cid:26)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) ..
Item 7A Quantitative and Qualitative Disclosures About Market Risk .................................................
Item 8 Financial Statements and Supplementary Data .......................................................................
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A Controls and Procedures ..........................................................................................................
Item 9B Other Information .....................................................................................................................
PART III
Item 10 Directors Executive Officers and Corporate Governance ........................................................
Item 11 Executive Compensation .........................................................................................................
Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters ...............................................................................................
Item 13 Certain Relationships and Related Transactions, and Director Independence ........................
Item 14 Principal Accountant Fees and Services .................................................................................
PART IV
Item 15 Exhibits and Financial Statement Schedules ............................................................................
3
11
15
16
18
18
19
21
22
38
38
38
38
41
41
41
41
41
41
42
2
PART I
Item 1. Business
General
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in providing outsourced customer contact management solutions and services in the business process outsourcing
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clients including Fortune 1000 companies, medium sized businesses, and public institutions around the world,
primarily in the communications, technology/consumer, financial services, healthcare, and transportation and leisure
industries. We serve our clients through two geographic operating regions: the Americas (United States, Canada,
Latin America and Asia Pacific) and EMEA (Europe, Middle East and Africa). Our Americas and EMEA groups
primarily provide 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 our client(cid:182)(cid:86)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:81)(cid:72)(cid:79)(cid:86)(cid:3)
including phone, e-mail, Web and chat. We also provide various enterprise support services in the United States that
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help desk services. In Europe, we also provide fulfillment services including multilingual sales order processing via
the Internet and phone, inventory control, product delivery and product returns handling. (See Note 24 to the
accompanying Consolidated Financial Statements for information on our segments.) Our complete service offering
helps our clients acquire, retain and increase the lifetime value of their customer relationships. We have developed
an extensive global reach with customer contact management centers throughout the United States, Canada, Europe,
Latin America, Asia and Africa. SYKES delivers cost-effective solutions that enhance the customer service
experience, promote stronger brand loyalty, and bring about high levels of performance and profitability.
SYKES was founded in 1977 in North Carolina and moved its headquarters to Florida in 1993. In March 1996,
we changed our state of incorporation from North Carolina to Florida. Our headquarters are located at 400 North
Ashley Drive, 28th Floor, Tampa, Florida 33602, and our telephone number is (813) 274-1000.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports, as well as our proxy statements and other materials which are filed with or furnished to the
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at www.sykes.com/investors.asp under (cid:87)(cid:75)(cid:72)(cid:3) (cid:75)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:179)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3) (cid:178) (cid:54)(cid:40)(cid:38)(cid:3) (cid:41)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:180)(cid:3) (cid:68)(cid:86)(cid:3) (cid:86)(cid:82)(cid:82)(cid:81)(cid:3) (cid:68)(cid:86)(cid:3) (cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)
practicable after they are filed with, or furnished to, the SEC.
Industry Overview
We believe that growth for outsourced customer contact management solutions and services will be fueled by the
trend of global Fortune 1000 companies and medium sized businesses turning to outsourcers to provide high quality,
cost-effective, value added customer contact management solutions. Businesses continue to move toward integrated
solutions that consist of a combination of support from our onshore markets in the United States, Canada and Europe
and offshore markets in the Asia Pacific Rim and Latin America.
(cid:44)(cid:81)(cid:3)(cid:87)(cid:82)(cid:71)(cid:68)(cid:92)(cid:182)(cid:86)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)-changing marketplace, companies require innovative customer contact management solutions that
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company brands, maximize the lifetime value of their customers, efficiently and effectively deliver human
interaction when customers value it most, and deploy best in-class customer management strategies, processes and
technologies.
Global competition, pricing pressures, softness in the global economy and rapid changes in technology continue
to make it difficult for companies to cost effectively maintain the in-house personnel necessary to handle all their
customer contact management needs. As a result, companies are increasingly turning to outsourcers to perform
specialized functions and services in the customer contact management arena. By working in partnership with
outsourcers, companies can ensure that the crucial task of retaining and growing their customer base is addressed.
Companies outsource customer contact management solutions for various reasons, including the need to focus on
core competencies, to drive service excellence and execution, to achieve cost savings, to scale and grow geographies
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and niche markets, and to efficiently allocate capital within their organizations.
To address these needs, SYKES offers global customer contact management solutions that focus on proactively
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customers across the globe in a multitude of languages, leveraging our dynamic, secure communications
infrastructure and our global footprint that reaches across 20 countries. This global footprint includes established
operations in both onshore and offshore geographic markets where companies have access to high quality customer
contact management solutions at lower costs compared to other markets.
Business Strategy
Our goal is to proactively provide enhanced and value added customer contact management solutions and
(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3) We anticipate trends and deliver new ways of growing our
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Our business strategy encompasses building long-term client relationships, capitalizing on our expert worldwide
response team, leveraging our depth of relevant experience and expanding both organically and through
acquisitions. The principles of this strategy include the following:
Build Long-term Client Relationships Through Operational Excellence. We believe that providing high-value,
high-(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)-term relationships with our
clients. To ensure service excellence and consistency across each of our centers globally, we leverage a portfolio of
techniques including SYKES Standard of Excellence (cid:11)(cid:179)(cid:54)(cid:54)(cid:40)(cid:180)(cid:12). This standard is a compilation of more than 30 years
of experience and best practices. Every customer contact management center strives to meet or exceed the standard,
which addresses leadership, hiring and training, performance management down to the agent level, forecasting and
scheduling, and the client relationship including continuous improvement, disaster recovery plans and feedback.
Capitalize on our Worldwide Response Team. Companies are demanding a customer contact management
solution that is global in nature (cid:178) one of our key strengths. In addition to our network of customer contact
management centers throughout North America and Europe, we continue to develop our global delivery model with
operations in the Philippines, The Peoples Republic of China, Costa Rica, El Salvador, Argentina and Brazil,
offering our clients a secure, high quality solution tailored to the needs of their diverse and global markets.
Maintain a Competitive Advantage Through Technology Solutions. For more than 30 years, SYKES has been
an innovative pioneer in delivering customer contact management solutions. We seek to maintain a competitive
advantage and differentiation by utilizing technology to consistently deliver innovative service solutions, ultimately
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solutions for agents and end customers, automatic call distributors, intelligent call routing and workforce
management capabilities based on agent skill and availability, call tracking software, quality management systems
and computer-(cid:87)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:92)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:38)(cid:55)(cid:44)(cid:180)(cid:12)(cid:17)(cid:3) (cid:38)(cid:55)(cid:44) enables our customer contact management centers to serve as
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detailed information concerning the status and results of our services on a daily basis.
Through strategic technology relationships, we are able to provide fully integrated communication services
encompassing e-mail, chat and Web self-service platforms. In addition, the European deployment of Global Direct,
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establishes a platform whereby our clients can manage all customer profile and contact information from every
communication channel, making it a viable customer-facing infrastructure solution to support their CRM initiatives.
We are also continuing to capitalize on sophisticated technological capabilities, including our current digital
private network that provides us the ability to manage call volumes more efficiently by load balancing calls and data
between customer contact management centers over the same network. Our converged voice and data digital
communications network provides a high-quality, fault tolerant global network for the transport of Voice Over
Internet Protocol communications and fully integrates with emergent Internet Protocol telephony systems as well as
traditional Time Domain Multiplexing telephony systems. Our flexible, secure and scalable network infrastructure
allows us to rapidly respond to changes in client voice and data traffic and quickly establish support operations for
new and existing clients.
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Continue to Grow Our Business Organically and through Acquisitions. We have grown our customer contact
management outsourcing operations utilizing a strategy of both internal organic growth and external acquisitions.
This strategy has resulted in an increase from three U.S. customer contact management centers in 1994 to 47
customer contact management centers worldwide as of the end of 2008. Given the fragmented nature of the
customer contact management industry, there may be other companies that could bring us certain complementary
competencies. Acquisition candidates that can, among other competencies, expand our service offerings, broaden
our geographic footprint, allow us access to new technology and are synergistic in nature will be given
consideration. We have and will continue to explore these options upon identification of strategic opportunities.
Growth Strategy
Applying the key principles of our business strategy, we execute our growth strategy by focusing on increasing
capacity utilization rates and adding seat capacity, broadening our global delivery footprint, increasing share of
seats within existing and new clients, diversifying verticals and expanding service lines, advancing horizontal
service offerings and add-on enhancements and continuing to focus on expanding markets.
Increasing Capacity Utilization Rates and Adding Seat Capacity. The key driver of our revenues is increasing
capacity utilization rate in conjunction with seat capacity additions. We exited 2008 with a capacity utilization rate
of approximately 80% even as we increased our capacity by approximately 3,200 seats. We plan to sustain our focus
on increasing the capacity utilization rate further while adding seat capacity as deemed necessary.
Broadening Global Delivery Footprint. Just as increased capacity utilization rates and increased seat capacity are
key drivers of our revenues, where we deploy the seat capacity geographically is also important. By broadening and
continuously strengthening (cid:82)(cid:88)(cid:85)(cid:3) (cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3) (cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3) (cid:73)(cid:82)(cid:82)(cid:87)(cid:83)(cid:85)(cid:76)(cid:81)(cid:87)(cid:15)(cid:3) (cid:90)(cid:72)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:80)(cid:72)(cid:72)(cid:87)(cid:3) (cid:69)(cid:82)(cid:87)(cid:75)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:81)(cid:72)(cid:90)(cid:3) (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)
customer contact management needs globally as they enter new markets.
Increasing Share of Seats within Existing Clients and Penetrating New Clients. We provide customer contact
management support to over 100 multinational companies. With this client list, we have the opportunity to grow our
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:60)(cid:46)(cid:40)(cid:54)(cid:182)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:90)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:76)(cid:81)-house seats as
well as gain share from our competitors by providing consistently high quality of service. In addition as we further
leverage our knowledge of verticals and business lines, we plan to penetrate new clients as a way to broaden our
base of growth.
Diversifying Verticals and Expanding Service Lines. To mitigate the impact of economic and product cycles on
our growth rate, we continue to seek ways to diversify into verticals and service lines that have countercyclical
features and healthy growth rates. We are targeting the following verticals for growth: communications, financial
services, technology, healthcare and travel and transportation. These verticals cover various business lines,
including wireless services, broadband, retail banking, credit card/consumer fraud protection, content moderation,
telemedicine and travel portals.
Advancing Horizontal Service Offerings and Add-On Enhancements. To improve both revenue and margin
expansion, we will continue to introduce new service offerings and add-on enhancements. Bi-lingual customer
support offering and back office services are examples of horizontal service offerings, while data analytics and
process improvement products are examples of add-on enhancements.
Continuing to Focus on Expanding Markets. As part of our growth strategy, we continually seek to expand the
number of markets we serve. The United States, Canada and Germany, for instance, are markets, which are served
by either in-country or from offshore regions, or a combination thereof. We currently serve 17 markets and thus
(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:86)(cid:72)(cid:72)(cid:78)(cid:3)(cid:90)(cid:68)(cid:92)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:85)(cid:82)(cid:68)(cid:71)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:71)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:54)(cid:60)(cid:46)(cid:40)(cid:54)(cid:182)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:70)(cid:87)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17)
Services
We specialize in providing inbound outsourced customer contact management solutions in the BPO arena on a
global basis. Our customer contact management services are provided through two operating segments (cid:178) the
Americas and EMEA. The Americas region, representing 67.4% of consolidated revenues in 2008, includes the
United States, Canada, Latin America and Asia Pacific. The sites within Latin America and Asia Pacific are
included in the Americas region as they provide a significant service delivery vehicle for U.S. based companies that
are utilizing our customer contact management solutions in these locations to support their customer care needs. The
EMEA region, representing 32.6% of consolidated revenues in 2008, includes Europe, the Middle East and Africa.
5
For further information about segments, see Note 24, Segments and Geographic Information, to our Consolidated
Financial Statements. The following is a description of our customer contact management solutions:
Outsourced Customer Contact Management Services. Our outsourced customer contact management services
represented approximately 96% of total 2008 consolidated revenues. Each year we handle over 250 million
customer contacts including phone, e-mail, Web and chat throughout the Americas and EMEA regions. We provide
these services utilizing our advanced technology infrastructure, human resource management skills and industry
experience. These services include:
(cid:131)
(cid:131)
Customer care (cid:178) Customer care contacts primarily include product information requests, describing product
features, activating customer accounts, resolving complaints, handling billing inquiries, changing addresses,
claims handling, ordering/reservations, prequalification and warranty management, providing health
information and roadside assistance;
Technical support (cid:178) Technical support contacts primarily include handling inquiries regarding hardware,
software, communications services, communications equipment, Internet access technology and Internet portal
usage; and
(cid:131) Acquisition (cid:178) Our acquisition services are primarily focused on inbound up-(cid:86)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
services.
We provide these services, primarily inbound customer calls, through our extensive global network of customer
contact management centers in a multitude of languages. Our technology infrastructure and managed service
solutions allow for effective distribution of calls to one or more centers. These technology offerings provide our
clients and us with the leading edge tools needed to maximize quality and customer satisfaction while controlling
and minimizing costs.
Fulfillment Services. In Europe, we offer fulfillment services that are integrated with our customer care and
technical support services. Our fulfillment solutions include multilingual sales order processing via the Internet and
phone, payment processing, inventory control, product delivery and product returns handling.
Enterprise Support Services. In the United States, we provide a range of enterprise support services including
technical staffing services and outsourced corporate help desk solutions.
Operations
Customer Contact Management Centers. We operate across 20 countries and 47 customer contact management
centers, which breakdown as follows: 18 centers across Europe and South Africa, 11 centers in the United States,
one center in Canada and 17 centers offshore, including The Peoples Republic of China, the Philippines, Costa Rica,
El Salvador, Argentina and Brazil.
In an effort to stay ahead of industry off-shoring trends, we opened our first customer contact management centers
in the Philippines and Costa Rica over ten years ago. Over the past ten years, through 2008, we have expanded
beyond centers in the Philippines and Costa Rica, and into centers in (cid:55)(cid:75)(cid:72)(cid:3)(cid:51)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:76)(cid:81)(cid:68)(cid:15)(cid:3)El Salvador,
Argentina and Brazil.
We utilize a sophisticated workforce management system to provide efficient scheduling of personnel. Our
internally developed digital private communications network complements our workforce by allowing for effective
call volume management and disaster recovery backup. Through this network and our dynamic intelligent call
routing capabilities, we can rapidly respond to changes in client call volumes and move call volume traffic based on
agent availability and skill throughout our network of centers, improving the responsiveness and productivity of our
agents. We also can offer cost competitive solutions for taking calls to our offshore locations.
Our sophisticated data warehouse captures and downloads customer contact information for reporting on a daily,
real time and historical basis. This data provides our clients with direct visibility into the services that we are
providing for them. The data warehouse supplies information for our performance management systems such as our
agent scorecarding application, which provides management with the information required for effective management
of our operations.
Our customer contact management centers are protected by a fire extinguishing system, backup generators with
6
significant capacity and 24 hour refueling contracts and short-term battery backups in the event of a power outage,
reduced voltage or a power surge. Rerouting of call volumes to other customer contact management centers is also
available in the event of a telecommunications failure, natural disaster or other emergency. Security measures are
imposed to prevent unauthorized physical access. Software and related data files are backed up daily and stored off
site at multiple locations. We carry business interruption insurance covering interruptions that might occur as a
result of certain types of damage to our business.
Fulfillment Centers. We currently have three fulfillment centers located in Europe. We provide our fulfillment
services primarily to certain clients operating in Europe who desire this complementary service in connection with
outsourced customer contact management services.
Enterprise Support Services Offices. Our two enterprise support services offices are located in metropolitan areas
in the United States to provide a recruiting platform for high-end knowledge workers and to establish a local
presence to service major accounts.
Quality Assurance
(cid:58)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)
building long-term relationships with our clients. It is also our belief and commitment that quality is the
responsibility of each individual at every level of the organization. To ensure service excellence and continuity
across our organization, we have developed an integrated Quality Assurance program consisting of three major
components:
(cid:131) The certification of client accounts and customer contact management centers to the SSE and Site of Excellence
programs;
(cid:131) The application of continuous improvement through application of our Data Analytics and Six Sigma
techniques; and
(cid:131) The application of process audits to all work procedures.
The SSE program is a quality certification standard that was developed based on our more than 30 years of
experience, and best practices from industry standards such as the Malcolm Baldridge National Quality Award and
COPC. It specifies the requirements that must be met in each of our customer contact management centers including
measured performance against our standard operating procedures. It has a well-defined auditing process that ensures
compliance with the SSE standards. Our focus is on quality, predictability and consistency over time, not just point
in time certification.
The application of continuous improvement is established by SSE and is based upon the five-step Six Sigma
cycle, which we have tuned to apply specifically to our service industry. All managers are responsible for
continuous improvement in their operations.
Process audits are used to verify that processes and procedures are consistently executed as required by
established documentation. Process audits are applicable to services being provided for the client and internal
procedures.
Sales and Marketing
Our sales and marketing objective is to leverage our expertise and global presence to develop long-term
relationships with existing and future clients. Our customer contact management solutions have been developed to
help our clients acquire, retain and increase the value of their customer relationships. Our plans for increasing our
visibility include market focused advertising, consultative personal visits, participation in market specific trade
shows and seminars, speaking engagements, articles and white papers, and our website.
Our sales force is composed of business development managers who pursue new business opportunities and
strategic account managers who manage and grow relationships with existing accounts. We emphasize account
development to strengthen relationships with existing clients. Business development management and strategic
account managers are assigned to markets in their area of expertise in order to develop a complete understanding of
(cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3) (cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:15)(cid:3) (cid:87)(cid:82)(cid:3) (cid:73)(cid:82)(cid:85)(cid:80)(cid:3) (cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3) (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:81)(cid:70)(cid:82)(cid:88)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3) (cid:70)(cid:85)(cid:82)(cid:86)(cid:86)-selling of our other service
offerings. We have inside customer sales representatives who receive customer inquiries and who provide outbound
lead generation for the business development managers. We also have relationships with channel partners including
7
systems integrators, software and hardware vendors and value-added resellers, where we pair our solutions and
services with their product offering or focus. We plan to maintain and expand these relationships as part of our sales
and marketing strategy.
As part of our marketing efforts, we invite existing and potential clients to visit our customer contact management
centers, where we can demonstrate the expertise of our skilled staff in partnering to deliver new ways of growing
(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3) (cid:86)(cid:68)(cid:87)(cid:76)(cid:86)(cid:73)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3) and thus profit, through timely, insightful and proven solutions.
During these visits, we demonstrate our ability to quickly and effectively support a new client or scale business from
an existing client by emphasizing our systematic approach to implementing customer contact solutions throughout
the world.
Clients
In 2008, we provided service to hundreds of clients from our locations in the United States, Canada, Latin
America, Europe, the Philippines, The Peoples Republic of China, India and South Africa. These clients are Fortune
1000 corporations, medium sized businesses and public
the communications,
technology/consumer, financial services, healthcare, and transportation and leisure industries. Revenue by vertical
market for 2008, as a percentage of our consolidated revenues, was 34% for technology/consumer, 29% for
communications, 15% for financial services, 9% for transportation and leisure, 6% for healthcare, and 7% for all
other vertical markets, including government-related and utilities. We believe our globally recognized client base
presents opportunities for further cross marketing of our services.
institutions, which span
Although no client represented 10% or more of 2008 consolidated revenues, our top ten clients accounted for
approximately 40% of our consolidated revenues in 2008, an increase from 38% in 2007. The loss of (or the failure
to retain a significant amount of business with) any of our key clients could have a material adverse effect on our
performance. Many of our contracts contain penalty provisions for failure to meet minimum service levels and are
cancelable by the client at any time or on short notice. Also, clients may unilaterally reduce their use of our services
under our contracts without penalty.
Competition
The industry in which we operate is global, therefore highly fragmented and extremely competitive. While many
companies provide customer contact management solutions and services, we believe no one company is dominant in
the industry.
(cid:44)(cid:81)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:76)(cid:81)-house customer contact
management operations. When it is not the in-house operations of a client, our public and private direct competition
includes TeleTech, Sitel, APAC Customer Services, ICT Group, Convergys, West Corporation, Stream, Aegis BPO,
Sutherland, 24/7 Customer, vCustomer, Startek, Atento, Teleperformance, and NCO Group as well as the customer
care arm of such companies as Accenture, Wipro, Infosys EDS and IBM. There are other numerous and varied
providers of such services, including firms specializing in various CRM consulting, other customer management
solutions providers (cid:178) niche or large market companies, as well as product distribution companies that provide
fulfillment services. Some of these companies possess substantially greater resources, greater name recognition and
a more established customer base than SYKES.
We believe that the most significant competitive factors in the sale of outsourced customer contact management
services include service quality, tailored value added service offerings, industry experience, advanced technological
capabilities, global coverage, reliability, scalability, security, price and financial strength. As a result of intense
competition, outsourced customer contact management solutions and services frequently are subject to pricing
pressure. Clients also require outsourcers to be able to provide services in multiple locations. Competition for
contracts for many of our services takes the form of competitive bidding in response to requests for proposals.
Intellectual Property
We own and/or have applied to register numerous trademarks and service marks in the United States and/or in
many additional countries throughout the world. Our registered trademarks and service marks include SYKES®,
REAL PEOPLE. REAL SOLUTIONS®, SCIENCE OF SERVICE®, CLEARCALL®, I AM SYKES. HOW FAR
WILL YOU LET ME TAKE YOU? ®, and APEX A SYKES COMPANY®. The duration of trademark registrations
8
varies from country to country, but may generally be renewed indefinitely as long as they are in use and/or their
registrations are properly maintained.
Employees
As of January 31, 2009, we had approximately 32,940 employees worldwide, including 30,320 customer contact
agents handling technical and customer support inquiries at our centers, 2,350 in management, administration,
information technology, finance, sales and marketing roles, 120 in enterprise support services, and 150 in fulfillment
services. Our employees - with the exception of approximately 1,040 in Argentina and those from various European
countries - are not union members. Due to laws in their respective countries, Argentina, Brazil and Spain require
that wages are collectively bargained for certain non-management employees. The negotiations are conducted at the
local, federal (cid:82)(cid:85)(cid:3) (cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:15)(cid:3) (cid:76)(cid:85)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:88)(cid:81)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3) (cid:3) (cid:44)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3)
countries approximately 5,520 employees are governed by laws whereby their wages are determined by collective
bargaining; 4,340 in Argentina, 1,130 in Spain and 50 in Brazil. We consider our relations with our employees
worldwide to be satisfactory and strengthened by open communications and mutual respect. Furthermore, we have
never suffered a material interruption of business as a result of a labor dispute.
We employ personnel through a continually updated recruiting network. This network includes a seasoned team
of recruiters, competency-based selection standards and the sharing of global best practices in order to advertise and
source qualified candidates through proven recruiting techniques. Nonetheless, demand for qualified professionals
with the required language and technical skills may still exceed supply at times as new skills are needed to keep
pace with the requirements of customer engagements. As such, competition for such personnel is intense and
employee turnover in our industry is high.
Executive Officers
The following table provides the names and ages of our executive officers, and the positions and offices currently
held by each of them:
Name
Age
Principal Position
Charles E. Sykes
W. Michael Kipphut
James C. Hobby
Jenna R. Nelson
Daniel L. Hernandez
David L. Pearson
Lawrence R. Zingale
James T. Holder
William N. Rocktoff
46
55
58
45
42
50
53
50
46
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, Global Operations
Senior Vice President, Human Resources
Senior Vice President, Global Strategy
Senior Vice President and Chief Information Officer
Senior Vice President, Global Sales and Client Management
Senior Vice President, General Counsel and Corporate Secretary
Vice President and Corporate Controller
9
Charles E. Sykes joined SYKES in 1986 and was named President and Chief Executive Officer in August 2004.
From July 2003 to August 2004, Mr. Sykes was the Chief Operating Officer. From March 2000 to June 2001,
Mr. Sykes was Senior Vice President, Marketing, and in June 2001, he was appointed to the position of General
Manager, Senior Vice President (cid:178) the Americas. From December 1996 to March 2000, he served as Vice President,
Sales, and held the position of Regional Manager of the Midwest Region for Professional Services from 1992 until
1996.
W. Michael Kipphut, C.P.A., joined SYKES in March 2000 as Vice President and Chief Financial Officer and
was named Senior Vice President and Chief Financial officer in June 2001. From September 1998 to February 2000,
Mr. Kipphut held the position of Vice President and Chief Financial Officer for USA Floral Products, Inc., a
publicly-held, worldwide, perishable products distributor. From September 1994 until September 1998, Mr. Kipphut
held the position of Vice President and Treasurer for Spalding & Evenflo Companies, Inc., a global manufacturer of
consumer products. Previously, Mr. Kipphut held various financial positions, including Vice President and
Treasurer, in his 17 years at Tyler Corporation, a publicly-held, diversified holding company.
James C. Hobby joined SYKES in August 2003 as Senior Vice President, the Americas, overseeing the daily
operations, administration and development of SYKES(cid:182)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)
North America, Latin America, the Asia Pacific Rim and India, and was named Senior Vice President, Global
Operations, in January 2005. Prior to joining SYKES, Mr. Hobby held several positions at Gateway, Inc., most
recently serving as President of Consumer Customer Care since August 1999. From January 1999 to August 1999,
Mr. Hobby served as Vice President of European Customer Care for Gateway, Inc. From January 1996 to
January 1999, Mr. Hobby served as the Vice President of European Customer Service Centers at American Express.
Prior to January 1996, Mr. Hobby held various senior management positions in customer care at FedEx Corporation
since 1983, mostly recently serving as Managing Director, European Customer Service Operations.
Jenna R. Nelson joined SYKES in August 1993 and was named Senior Vice President, Human Resources, in
July 2001. From January 2001 until July 2001, Ms. Nelson held the position of Vice President, Human Resources.
In August 1998, Ms. Nelson was appointed Vice President, Human Resources, and held the position of Director,
Human Resources and Administration, from August 1996 to July 1998. From August 1993 until July 1996,
Ms. Nelson served in various management positions within SYKES, including Director of Administration.
Daniel L. Hernandez joined SYKES in October 2003 as Senior Vice President, Global Strategy overseeing
marketing, public relations, operational strategy and corporate development efforts worldwide. Prior to joining
SYKES, Mr. Hernandez served as President and CEO of SBC Internet Services, a division of SBC Communications
Inc., since March 2000. From February 1998 to March 2000, Mr. Hernandez held the position of Vice
President/General Manager, Internet and System Operations, at Ameritech Interactive Media Services. Prior to
February 1998, Mr. Hernandez held various management positions at US West Communications since joining the
telecommunications provider in 1990.
David L. Pearson joined SYKES in February 1997 as Vice President, Engineering, and was named Vice
President, Technology Systems Management, in 2000 and Senior Vice President and Chief Information Officer in
August 2004. Prior to SYKES, Mr. Pearson held various engineering and technical management roles over a fifteen
year period, including eight years at Compaq Computer Corporation and five years at Texas Instruments.
Lawrence R. Zingale joined SYKES in January 2006 as Senior Vice President, Global Sales and Client
Management. Prior to joining SYKES, Mr. Zingale served as Executive Vice President and Chief Operating Officer
of Startek, Inc. since 2002. From December 1999 until November 2001, Mr. Zingale served as President of the
Americas at Stonehenge Telecom, Inc. From May 1997 until November 1999, Mr. Zingale served as President and
COO of International Community Marketing. From February 1980 until May 1997, Mr. Zingale held various senior
level positions at AT&T.
James T. Holder, J.D., C.P.A joined SYKES in December 2000 as General Counsel and was named Corporate
Secretary in January 2001, Vice President in January 2004 and Senior Vice President in December 2006. From
November 1999 until November 2000, Mr. Holder served in a consulting capacity as Special Counsel to Checkers
Drive-In Restaurants, Inc., a publicly held restaurant operator and franchisor. From November 1993 until November
1999, Mr. Holder served in various capacities at Checkers including Corporate Secretary, Chief Financial Officer
and Senior Vice President and General Counsel.
10
William N. Rocktoff, C.P.A., joined SYKES in August 1997 as Corporate Controller and was named Treasurer
and Corporate Controller in December 1999 and Vice President and Corporate Controller in March 2002. From
November 1989 to August 1997, Mr. Rocktoff held various financial positions, including Corporate Controller, at
Kimmins Corporation, a publicly-held contracting company.
Item 1A. Risk Factors
Factors Influencing Future Results and Accuracy of Forward - Looking Statements
This report contains forward-looking statements (within the meaning of the Private Securities Litigation Reform
Act of 1995) that are based on current expectations, estimates, forecasts, and projections about us, our beliefs, and
assumptions made by us. In addition, we may make other written or oral statements, which constitute forward-
(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:76)(cid:80)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:76)(cid:80)(cid:72)(cid:17)(cid:3) (cid:58)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:68)(cid:86)(cid:3) (cid:179)(cid:80)(cid:68)(cid:92)(cid:15)(cid:180)(cid:3) (cid:179)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:86)(cid:15)(cid:180)(cid:3)
(cid:179)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:86)(cid:72)(cid:72)(cid:78)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75) words, and similar expressions are intended to identify
such forward-looking statements. Similarly, statements that describe our future plans, objectives or goals also are
forward-looking statements. These statements are not guarantees of future performance and are subject to a number
of risks and uncertainties, including those discussed below and elsewhere in this report. Our actual results may differ
materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not
be placed on such statements. All forward-looking statements are made as of the date hereof, and we undertake no
obligation to update any forward-looking statements, whether as a result of new information, future events or
otherwise.
Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-
(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:29)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
of services offered under our standardized contract for future bundled service offerings; our ability to continue the
growth of our service revenues through additional customer contact management centers; our ability to further
penetrate into vertically integrated markets; our ability to expand revenues within the global markets; our ability to
continue to establish a competitive advantage through sophisticated technological capabilities, and the following risk
factors:
Unfavorable General Economic Conditions Could Negatively Impact our Operating Results and Financial
Condition
Unfavorable general economic conditions, including the economic downturn in the United States and the recent
financial crisis affecting the banking system and financial markets, could negatively affect our business. While it is
often difficult to predict the impact of general economic conditions on our business, these conditions could
(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)roducts and services and, in turn, could cause a decline in the
demand for our services. Also, our clients may not be able to obtain adequate access to credit, which could affect
their ability to make timely payments to us. If that were to occur, we could be required to increase our allowance for
doubtful accounts, and the number of days outstanding for our accounts receivable could increase. In addition, due
to recent turmoil in the credit markets and the continued decline in the economy, we may not be able to renew our
(cid:85)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:12)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:68)(cid:86)(cid:3) (cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:68)(cid:86)(cid:3) (cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3) (cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3) (cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3)
current Credit Facility. Also, the group of lenders under our Credit Facility may not be able to fulfill their funding
obligations, which could adversely impact our liquidity. For these reasons, among others, if the current economic
conditions persist or decline, this could adversely affect our revenue, operating results and financial condition, as
well as our ability to access debt under comparable terms and conditions.
Dependence on Key Clients
We derive a substantial portion of our revenues from a few key clients. Although no client represented 10% or
more of 2008 consolidated revenues, our top ten clients accounted for approximately 40% of our consolidated
revenues in 2008. The loss of (or the failure to retain a significant amount of business with) any of our key clients
could have a material adverse effect on our business, financial condition and results of operations. Many of our
contracts contain penalty provisions for failure to meet minimum service levels and are cancelable by the client at
any time or on short-term notice. Also, clients may unilaterally reduce their use of our services under these contracts
without penalty. Thus, our contracts with our clients do not ensure that we will generate a minimum level of
revenues.
11
Risks Associated With International Operations and Expansion
We intend to continue to pursue growth opportunities in markets outside the United States. At December 31,
2008, our international operations in EMEA and the Asia Pacific Rim were conducted from 26 customer contact
management centers located in Sweden, the Netherlands, Finland, Germany, South Africa, Scotland, Ireland, Italy,
Denmark, Hungary, Slovakia, Spain, The Peoples Republic of China and the Philippines. Revenues from these
international operations for the years ended December 31, 2008, 2007, and 2006, were 57%, 56%, and 52% of
consolidated revenues, respectively. We also conduct business from nine customer contact management centers
located in Argentina, Canada, Costa Rica, El Salvador and Brazil. International operations are subject to certain
risks common to international activities, such as changes in foreign governmental regulations, tariffs and taxes,
import/export license requirements, the imposition of trade barriers, difficulties in staffing and managing
international operations, political uncertainties, longer payment cycles, foreign exchange restrictions that could limit
the repatriation of earnings, possible greater difficulties in accounts receivable collection, economic instability as
well as political and country-specific risks. Additionally, we have been granted tax holidays in the Philippines, El
Salvador, India and Costa Rica, which expire at varying dates from 2009 through 2018. In some cases, the tax
holidays expire without possibility of renewal. In other cases, we expect to renew these tax holidays, but there are no
assurances from the respective foreign governments that they will renew them. This could potentially result in
adverse tax consequences. In 2006, Costa Rican tax holiday benefits were extended through the year 2018. Any one
or more of these factors could have an adverse effect on our international operations and, consequently, on our
business, financial condition and results of operations.
As of December 31, 2008, we had cash balances of approximately $199.1 million held in international operations,
which may be subject to additional taxes if repatriated to the United States.
We conduct business in various foreign currencies and are therefore exposed to market risk from changes in
foreign currency exchange rates and interest rates, which could impact our results of operations and financial
condition. We are also subject to certain exposures arising from the translation and consolidation of the financial
results of our foreign subsidiaries. We have, from time to time, taken limited actions, such as using foreign currency
forward contracts, to attempt to mitigate our currency exchange exposure. However, there can be no assurance that
we will take any actions to mitigate such exposure in the future, and if taken, that such actions will be successful or
that future changes in currency exchange rates will not have a material adverse impact on our future operating
results. A significant change in the value of the dollar against the currency of one or more countries where we
operate may have a material adverse effect on our results.
Fundamental Shift Toward Global Service Delivery Markets
Clients continue to require blended delivery models using a combination of onshore and offshore support. Our
offshore delivery locations include The Peoples Republic of China, the Philippines, Costa Rica, El Salvador,
Argentina and Brazil, and while we have operated in global delivery markets since 1996, there can be no assurance
that we will be able to successfully conduct and expand such operations, and a failure to do so could have a material
adverse effect on our business, financial condition, and results of operations. The success of our offshore operations
will be subject to numerous contingencies, some of which are beyond our control, including general and regional
economic conditions, prices for our services, competition, changes in regulation and other risks. In addition, as with
all of our operations outside of the United States, we are subject to various additional political, economic, and
market uncertainties (see (cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:17)(cid:180)(cid:12)(cid:17)(cid:3)(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)
in the political environment in the United States or the adoption and enforcement of legislation and regulations
curbing the use of offshore customer contact management solutions and services could effectively have a material
adverse effect on our business, financial condition and results of operations.
Improper Disclosure or Control of Personal Information Could Result in Liability and Harm our Reputation
Our business involves the use, storage and transmission of information about our employees, our clients and
customers of our clients. While we take measures to protect the security and privacy of this information and to
prevent unauthorized access, it is possible that our security controls over personal data and other practices we follow
may not prevent the improper access to or disclosure of personally identifiable information. Such disclosure could
harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in
increased costs or loss of revenue. Further, data privacy is subject to frequently changing rules and regulations,
which sometimes conflict among the various jurisdictions and countries in which we provide services. Our failure to
12
adhere to or successfully implement processes in response to changing regulatory requirements in this area could
result in legal liability or impairment to our reputation in the marketplace.
Existence of Substantial Competition
The markets for many of our services operate on a commoditized basis and are highly competitive and subject to
rapid change. While many companies provide outsourced customer contact management services, we believe no one
company is dominant in the industry. There are numerous and varied providers of our services, including firms
specializing in call center operations, temporary staffing and personnel placement, consulting and integration firms,
and niche providers of outsourced customer contact management services, many of whom compete in only certain
markets. Our competitors include both companies who possess greater resources and name recognition than we do,
as well as small niche providers that have few assets and regionalized (local) name recognition instead of global
name recognition. In addition to our competitors, many companies who might utilize our services or the services of
one of our competitors may utilize in-house personnel to perform such services. Increased competition, our failure to
compete successfully, pricing pressures, loss of market share and loss of clients could have a material adverse effect
on our business, financial condition and results of operations.
Many of our large clients purchase outsourced customer contact management services from multiple preferred
vendors. We have experienced and continue to anticipate significant pricing pressure from these clients in order to
remain a preferred vendor. These companies also require vendors to be able to provide services in multiple
(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:36)(cid:79)(cid:87)(cid:75)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:90)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:69)(cid:72)(cid:3)(cid:81)(cid:82)(cid:3)(cid:68)(cid:86)surance that we will
be able to compete effectively with other outsourced customer contact management services companies on price.
We believe that the most significant competitive factors in the sale of our core services include the standard
requirements of service quality, tailored value added service offerings, industry experience, advanced technological
capabilities, global coverage, reliability, scalability, security and price.
Inability to Attract and Retain Experienced Personnel May Adversely Impact Our Business
Our business is labor intensive and places significant importance on our ability to recruit, train, and retain
qualified technical and consultative professional personnel. We generally experience high turnover of our personnel
and are continuously required to recruit and train replacement personnel as a result of a changing and expanding
work force. Additionally, demand for qualified technical professionals conversant in multiple languages, including
English, and/or certain technologies may exceed supply, as new and additional skills are required to keep pace with
evolving computer technology. Our ability to locate and train employees is critical to achieving our growth
objective. Our inability to attract and retain qualified personnel or an increase in wages or other costs of attracting,
training, or retaining qualified personnel could have a material adverse effect on our business, financial condition
and results of operations.
Dependence on Senior Management
Our success is largely dependent upon the efforts, direction and guidance of our senior management. Our growth
and success also depend in part on our ability to attract and retain skilled employees and managers and on the ability
of our executive officers and key employees to manage our operations successfully. We have entered into
employment and non-competition agreements with our executive officers. The loss of any of our senior management
or key personnel, or the inability to attract, retain or replace key management personnel in the future, could have a
material adverse effect on our business, financial condition and results of operations.
Dependence on Trend Toward Outsourcing
Our business and growth depend in large part on the industry trend toward outsourced customer contact
management services. Outsourcing means that an entity contracts with a third party, such as us, to provide customer
contact services rather than perform such services in-house. There can be no assurance that this trend will continue,
as organizations may elect to perform such services themselves. A significant change in this trend could have a
material adverse effect on our business, financial condition and results of operations. Additionally, there can be no
assurance that our cross-selling efforts will cause clients to purchase additional services from us or adopt a single-
source outsourcing approach.
13
Our Strategy of Growing Through Selective Acquisitions and Mergers Involves Potential Risks
We evaluate opportunities to expand the scope of our services through acquisitions and mergers. We may be
unable to identify companies that complement our strategies, and even if we identify a company that complements
our strategies, we may be unable to acquire or merge with the company. In addition, a decrease in the price of our
common stock could hinder our growth strategy by limiting growth through acquisitions (cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:54)(cid:60)(cid:46)(cid:40)(cid:54)(cid:182)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78).
Our acquisition strategy involves other potential risks. These risks include:
(cid:131)
(cid:131)
(cid:131)
The inability to obtain the capital required to finance potential acquisitions on satisfactory terms;
The diversion of our attention to the integration of the businesses to be acquired;
The risk that the acquired businesses will fail to maintain the quality of services that we have historically
provided;
The need to implement financial and other systems and add management resources;
(cid:131)
The risk that key employees of the acquired business will leave after the acquisition;
(cid:131)
Potential liabilities of the acquired business;
(cid:131)
(cid:131) Unforeseen difficulties in the acquired operations;
(cid:131) Adverse short-term effects on our operating results;
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Lack of success in assimilating or integrating the operations of acquired businesses within our business;
The dilutive effect of the issuance of additional equity securities;
The impairment of goodwill and other intangible assets involved in any acquisitions;
The businesses we acquire not proving profitable; and
Potentially incurring additional indebtedness.
Uncertainties Relating to Future Litigation
We cannot predict whether any material suits, claims, or investigations may arise in the future. Regardless of the
outcome of any future actions, claims, or investigations, we may incur substantial defense costs and such actions
may cause a diversion of management time and attention. Also, it is possible that we may be required to pay
substantial damages or settlement costs which could have a material adverse effect on our financial condition and
results of operations.
Rapid Technological Change
Rapid technological advances, frequent new product introductions and enhancements, and changes in client
requirements characterize the market for outsourced customer contact management services. Technological
advancements in voice recognition software, as well as self-provisioning and self-help software, along with call
avoidance technologies, have the potential to adversely impact call volume growth and, therefore, revenues. Our
future success will depend in large part on our ability to service new products, platforms and rapidly changing
technology. These factors will require us to provide adequately trained personnel to address the increasingly
sophisticated, complex and evolving needs of our clients. In addition, our ability to capitalize on our acquisitions
will depend on our ability to continually enhance software and services and adapt such software to new hardware
and operating system requirements. Any failure by us to anticipate or respond rapidly to technological advances,
new products and enhancements, or changes in client requirements could have a material adverse effect on our
business, financial condition and results of operations.
Reliance on Technology and Computer Systems
We have invested significantly in sophisticated and specialized communications and computer technology and
(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:92)(cid:3)
to continue to invest in and develop new and enhanced technology on a timely basis to maintain our
competitiveness. Significant capital expenditures may be required to keep our technology up-to-date. There can be
no assurance that any of our information systems will be adequate to meet our future needs or that we will be able to
incorporate new technology to enhance and develop our existing services. Moreover, investments in technology,
including future investments in upgrades and enhancements to software, may not necessarily maintain our
competitiveness. Our future success will also depend in part on our ability to anticipate and develop information
technology solutions that keep pace with evolving industry standards and changing client demands.
14
Risk of Emergency Interruption of Customer Contact Management Center Operations
Our operations are dependent upon our ability to protect our customer contact management centers and our
information databases against damage that may be caused by fire, earthquakes, inclement weather and other
disasters, power failure, telecommunications failures, unauthorized intrusion, computer viruses and other
emergencies. The temporary or permanent loss of such systems could have a material adverse effect on our business,
financial condition and results of operations. Notwithstanding precautions taken to protect us and our clients from
events that could interrupt delivery of services, there can be no assurance that a fire, natural disaster, human error,
equipment malfunction or inadequacy, or other event would not result in a prolonged interruption in our ability to
provide services to our clients. Such an event could have a material adverse effect on our business, financial
condition and results of operations.
Control By Principal Shareholder and Anti-Takeover Considerations
As of February 20, 2009, John H. Sykes, our founder and former Chairman of the Board and Chief Executive
Officer, beneficially owned approximately 13.8% of our outstanding common stock. As a result, Mr. Sykes will
have substantial influence in the election of our directors and in determining the outcome of other matters requiring
shareholder approval.
Our Board of Directors is divided into three classes serving staggered three-year terms. The staggered Board of
Directors and the anti-takeover effects of certain provisions contained in the Florida Business Corporation Act and
in our Articles of Incorporation and Bylaws, including the ability of the Board of Directors to issue shares of
preferred stock and to fix the rights and preferences of those shares without shareholder approval, may have the
effect of delaying, deferring or preventing an unsolicited change in control. This may adversely affect the market
price of our common stock or the ability of shareholders to participate in a transaction in which they might otherwise
receive a premium for their shares.
Volatility of Stock Price May Result in Loss of Investment
The trading price of our common stock has been and may continue to be subject to wide fluctuations over short
and long periods of time. We believe that market prices of outsourced customer contact management services stocks
in general have experienced volatility, which could affect the market price of our common stock regardless of our
financial results or performance. We further believe that various factors such as general economic conditions,
changes or volatility in the financial markets, changing market conditions in the outsourced customer contact
management services industry, quarterly variations in our financial results, the announcement of acquisitions,
strategic partnerships, or new product offerings, and changes in financial estimates and recommendations by
securities analysts could cause the market price of our common stock to fluctuate substantially in the future.
Item 1B. Unresolved Staff Comments
There are no material unresolved written comments that were received from the SEC staff 180 days or more
before the year ended December 31, 2008 relating to our periodic or current reports filed under the Securities
Exchange Act of 1934.
15
Item 2. Properties
Our principal executive offices are located in Tampa, Florida. This facility currently serves as the headquarters for
senior management and the financial, information technology and administrative departments. We believe our
existing facilities are adequate to meet current requirements, and that suitable additional or substitute space will be
available as needed to accommodate any physical expansion. We operate from time to time in temporary facilities to
accommodate growth before new customer contact management centers are available. During 2008, our customer
contact management centers, taken as a whole, were utilized at average capacities of approximately 81% and were
capable of supporting a higher level of market demand. The following table sets forth additional information
concerning our facilities:
Properties
AMERICAS LOCATIONS
General Usage
Square
Feet
Lease Expiration
Tampa, Florida
Corporate headquarters
Bismarck, North Dakota
Customer contact management center
Wise, Virginia
Customer contact management center
Milton-Freewater, Oregon
Customer contact management center
Morganfield, Kentucky
Customer contact management center
Perry County, Kentucky
Customer contact management center
Minot, North Dakota
Customer contact management center
Ponca City, Oklahoma
Customer contact management center
Customer contact management center
Sterling, Colorado
Buchanan County, Virginia Customer contact management center
Customer contact management center
Kingstree, South Carolina
Customer contact management center
Greenwood, South Carolina
Customer contact management center
Malvern, Arkansas
Customer contact management center
Sumter, South Carolina
Customer contact management center/
London, Ontario, Canada
Headquarters
Headquarters
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management centers
Cordoba, Argentina
Cordoba, Argentina
Rosario, Argentina
Curitiba, Brazil
LaAurora, Heredia, Costa
Rica (three)
Moravia, San Jose, Costa Rica Customer contact management centers
Customer contact management center
San Salvador, El Salvador
Customer contact management center (1)
Toronto, Ontario, Canada
Customer contact management center (1)
North Bay, Ontario, Canada
Customer contact management center (1)
Sudbury, Ontario, Canada
Customer contact management center (1)
Moncton, New Brunswick,
Canada
Bathurst, New Brunswick,
Canada
Stephenville, Newfoundland,
Canada
Corner Brook, Newfoundland,
Canada
(cid:54)(cid:87)(cid:17)(cid:3)(cid:36)(cid:81)(cid:87)(cid:75)(cid:82)(cid:81)(cid:92)(cid:182)(cid:86)(cid:15)(cid:3)(cid:49)(cid:72)(cid:90)foundland,
Canada
Customer contact management center (1)
Barrie, Ontario, Canada
Makati City, The Philippines Customer contact management center
Customer contact management center (1)
Customer contact management center (1)
Customer contact management center (1)
Customer contact management center (1)
Cebu City, The Philippines
Paranaque City, The
Philippines
Pasig City, The Philippines
Customer contact management center
Customer contact management center
December 2010
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
February 2028
November 2010
January 2019
67,600
42,000
42,000
42,000
42,000
42,000
42,000
42,000
34,000
42,700
35,000
25,000
32,000
25,000 March 2012
50,000
Company owned
7,900
101,000
20,100
25,700
133,200
July 2013
July 2010
September 2009
July 2010
September 2023
38,500
119,800
14,600
July 2027
November 2024
June 2012
5,400 May 2009
3,900
12,700
December 2010
December 2011
1,900
December 2012
2,300
November 2026
2,900
October 2026
4,000
November 2026
1,000
68,300
July 2009
September 2011
119,800 March 2023
149,200
92,000
December 2026
November 2027
Customer contact management center
127,400
November 2023
16
Properties
AMERICAS LOCATIONS
General Usage
Quezon City, The Philippines Customer contact management center
Quezon City, The Philippines Customer contact management center
Customer contact management center
Guangzhou, The Peoples
Republic of China
Shanghai, The Peoples
Republic of China
Bangalore, India
Cary, North Carolina
Chesterfield, Missouri
Calgary, Alberta, Canada
Customer contact management center
Office
Office
Office
Office
Square
Feet
Lease Expiration
112,300
84,100
13,000
March 2027
May 2024
March 2012
70,500
February 2011
1,500
1,200
3,600
7,800
January 2014
March 2010
January 2016
July 2012
Properties
EMEA LOCATIONS
General Usage
Square
Feet
Lease Expiration
Amsterdam, The Netherlands Customer contact management center
Customer contact management center
Budapest, Hungary
Customer contact management center/
Edinburgh, Scotland
Office /Headquarters
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management centers
Turku, Finland
Bochum, Germany
Pasewalk, Germany
Wilhelmshaven, Germany
(two)
Johannesburg, South Africa
Odense, Denmark
Ed, Sweden
Sveg, Sweden
Prato, Italy
Shannon, Ireland
Lugo, Spain
La Coruña, Spain
Ponferrada, Spain
Kosice, Slovakia
Galashiels, Scotland
Rosersberg, Sweden
Turku, Finland
Frankfurt, Germany
Madrid, Spain
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Fulfillment center
Fulfillment center and Sales office
Fulfillment center
Sales office
Office
41,800
23,000
35,900
17,800
12,500
57,100
46,100
60,300
September 2009
July 2023
September 2019
March 2009
February 2010
December 2010
February 2010
November 2010
33,000
13,600
44,000
35,000
10,000
66,000
21,400
32,300
16,100
30,100
126,700
43,100
26,000
1,700
1,605
March 2025
January 2016
November 2009
June 2011
October 2013
March 2013
June 2009
December 2023
December 2028
December 2024
Company owned
February 2012
February 2010
September 2010
April 2012
(1) Considered part of the Toronto, Ontario, Canada customer contact management center.
17
Item 3. Legal Proceedings
From time to time, we are involved in legal actions arising in the ordinary course of business. With respect to
these matters, we believe that we have adequate legal defenses and/or provided adequate accruals for related costs
such that the ultimate outcome will not have a material adverse effect on our future financial position or results of
operations.
We have previously disclosed regulatory sanctions assessed against our Spanish subsidiary relating to the alleged
inappropriate acquisition of personal information in connection with two outbound client contracts. In order to
appeal these claims, we issued a bank guarantee of $0.9 million. During 2008, $0.4 million of the bank guarantee
was returned to the Company. The remaining balance of the bank guarantee of $0.5 million is included as restricted
(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:54)(cid:75)(cid:72)(cid:72)(cid:87)s as of December 31,
2008 ($0.9 million as of December 31, 2007). We have been and will continue to vigorously defend these matters.
However, due to further progression of several of these claims within the Spanish court system, and based upon
opinion of legal counsel regarding the likely outcome of several of the matters before the courts, we have accrued
the amount of $1.3 million as of December 31, 2008 and (cid:21)(cid:19)(cid:19)(cid:26)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:24)(cid:15)(cid:3)(cid:179)Accounting for Contingencies(cid:180)(cid:3)
because we believe that a loss is probable and the amount of the loss can be reasonably estimated as to three of the
subject claims. There are two other related claims, one of which is currently under appeal, and the other of which is
in the early stages of investigation, but we have not accrued any amounts related to either of those claims because
we do not currently believe a loss is probable, and it is not currently possible to reasonably estimate the amount of
any loss related to those two claims.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter of the year covered by this report.
18
PART II
Item 5. (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:44)(cid:86)(cid:86)(cid:88)(cid:72)(cid:85)(cid:3)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
Securities
Our common stock is quoted on the NASDAQ Global Select Market under the symbol SYKE. The following
table sets forth, for the periods indicated, certain information as to the high and low sale prices per share of our
common stock as quoted on the NASDAQ Global Select Market.
High
Low
Year ended December 31, 2008:
Fourth Quarter ................................................. $ 22.20 $ 12.34
Third Quarter ...................................................
22.02 16.88
22.55 16.26
Second Quarter ................................................
First Quarter ....................................................
18.27 15.41
Year ended December 31, 2007:
Fourth Quarter ................................................. $ 20.85 $ 16.31
19.46 14.96
Third Quarter ...................................................
Second Quarter ................................................
20.80 17.85
First Quarter ....................................................
19.99 14.48
Holders of our common stock are entitled to receive dividends out of the funds legally available when and if
declared by the Board of Directors. We have not declared or paid any cash dividends on our common stock in the
past and do not anticipate paying any cash dividends in the foreseeable future.
As of February 20, 2009, there were 1,050 holders of record of the common stock. We estimate there were
approximately 12,162 beneficial owners of our common stock.
Below is a summary of stock repurchases for the quarter ended December 31, 2008 (in thousands, except average
price per share.) See Note 20, Earnings Per Share, to the Consolidated Financial Statements for information
regarding our stock repurchase program.
Period
Total Number
of Shares
Purchased (1)
October 1, 2008 (cid:177) October 31, 2008 .....................
November 1, 2008 (cid:177) November 30, 2008 .............
December 1, 2008 (cid:177) December 31, 2008 ..............
Total ......................................................................
(cid:178)
34
(cid:178)
34
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs (1)
Maximum
Number Of
Shares That May
Yet Be
Purchased
Under Plans or
Programs
(cid:178)
34
(cid:178)
34
1,356
1,322
1,322
1,322
Average
Price
Paid Per
Share
(cid:178)
$14.83
(cid:178)
(1) All shares purchased as part of a repurchase plan publicly announced on August 5, 2002. Total number of shares approved for
repurchase under the plan was 3 million with no expiration date.
Five-Year Stock Performance Graph
total return on
the Nasdaq Computer and Data Processing Services Index,
The following graph presents a comparison of the cumulative shareholder return on the common stock with the
cumulative
the Nasdaq
Telecommunications Index, the Russell 2000 Index, the S&P Small Cap 600 and the SYKES Peer Group (as defined
below). The SYKES Peer Group is comprised of publicly traded companies that derive a substantial portion of their
revenues from call center, customer care business, have similar business models to SYKES, and are those most
commonly compared to SYKES by industry analysts following SYKES. This graph assumes that $100 was invested
on December 31, 2003 in SYKES common stock, the Nasdaq Computer and Data Processing Services Index, the
Nasdaq Telecommunications Index, the Russell 2000 Index, the S&P Small Cap 600 and SYKES Peer Group,
including reinvestment of dividends.
19
Comparison of Five-Year Cumulative Total Return
SYKES
NASDAQ Computer & Data
Processing Services Stocks
NASDAQ
Telecommunications Stocks
Russell 2000® Index
S&P Small Cap 600 Index
SYKES Peer Group
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
SYKES
NASDAQ Computer & Data Processing Services
Stocks
NASDAQ Telecommunications Stocks
Russell 2000® Index
S&P Small Cap 600 Index
SYKES Peer Group
2003
$100
$100
$100
$100
$100
$100
2004
$81
$103
$108
$117
$122
$79
2005
$156
$106
$100
$121
$130
$79
2006
$205
$113
$128
$141
$148
$119
2007
$210
$137
$140
$138
$146
$74
2008
$223
$73
$80
$90
$99
$31
Sykes Peer Group
APAC Customer Service, Inc.
Convergys Corp.
ICT Group, Inc.
Startek, Inc.
TeleTech Holdings, Inc.
Ticker Symbol
APAC
CVG
ICTG
SRT
TTEC
Both PeopleSupport (Ticker:PSPT) and eTelecare Global Solutions (Ticker:ETEL) were excluded from the peer
group and, thus, the five-year cumulative total return share price performance. PeopleSupport was acquired by
Aegis BPO and ceased to trade publicly at the end of 2008, while eTelecare Global Solutions was acquired by Ayala
Corporation and Providence Equity Partners.
There can be no assurance that (cid:54)(cid:60)(cid:46)(cid:40)(cid:54)(cid:182) stock performance will continue into the future with the same or similar
trends depicted in the graph above. SYKES does not make or endorse any predictions as to the future stock
performance.
(cid:55)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:42)(cid:85)(cid:68)(cid:83)(cid:75)(cid:3) (cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:86)(cid:75)(cid:68)(cid:79)(cid:79)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:69)(cid:72)(cid:3) (cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:69)(cid:72)(cid:3) (cid:179)(cid:86)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:180)(cid:3) (cid:82)(cid:85)(cid:3) (cid:179)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:180)(cid:3) (cid:82)(cid:85)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:73)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)s with the SEC, or subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by
reference into a document filed under the Securities Exchange Act of 1934.
20
Item 6. Selected Financial Data
Selected Financial Data
The following selected financial data has been derived from our consolidated financial statements. The
(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3) (cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3) (cid:69)(cid:72)(cid:3) (cid:85)(cid:72)(cid:68)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:77)(cid:88)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85) Consolidated Financial Statements and related notes.
(In thousands, except per share data)
Income Statement Data (1) :
2008
Years Ended December 31,
2006
2007
2005
2004
Revenues .......................................................... $ 819,190 $ 710,120 $ 574,223 $ 494,918 $ 466,713
Income from operations (2,3,4,5) ..........................
12,597
65,708
Net income(2,3,4,5) ...............................................
10,814
60,561
51,180
39,859
45,158
42,323
26,331
23,408
Weighted Average Shares Outstanding:
Basic .................................................................
Diluted ..............................................................
40,618
40,961
40,387
40,699
39,829
40,219
39,204
39,536
39,607
39,722
Net Income Per Share(2,3,4,5):
Basic ................................................................. $
Diluted ..............................................................
1.49 $
1.48
0.99 $
0.98
1.06 $
1.05
0.60 $
0.59
0.27
0.27
Balance Sheet Data (1,6) :
Total assets ....................................................... $ 529,542 $ 505,475 $ 415,573 $ 331,185 $ 312,526
210,035
384,030
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) ........................................
291,473
226,090
365,321
(1)
(2)
The amounts for 2008, 2007 and 2006 include the Argentine acquisition completed on July 3, 2006.
The amounts for 2007 include a $1.3 million provision for regulatory penalties related to privacy claims
associated with the alleged inappropriate acquisition of personal bank account information in one of our
European subsidiaries.
(3)
The amounts for 2006 include a $13.9 million net gain on the sale of facilities and $0.4 million of charges
associated with the impairment of long-lived assets.
(4)
(5)
(6)
The amounts for 2005 include a $1.8 million net gain on the sale of facilities, a $0.3 million reversal of
restructuring and other charges and $0.6 million of charges associated with the impairment of long-lived
assets.
The amounts for 2004 include a $7.1 million net gain on the sale of facilities, a $5.4 million net gain on
insurance settlement, a $0.1 million reversal of restructuring and other charges and $0.7 million of
charges associated with the impairment of long-lived assets.
SYKES has not declared cash dividends per common share for any of the five years presented.
21
Item 7. (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
The following should be read in conjunction with the Consolidated Financial Statements and the notes thereto
that appear elsewhere in this document. The following discussion and analysis compares the year ended
December 31, 2008 (cid:11)(cid:179)2008(cid:180)(cid:12)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) 31, 2007 (cid:11)(cid:179)2007(cid:180)(cid:12)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) 2007 to the year ended
December 31, 2006 (cid:11)(cid:179)2006(cid:180)(cid:12)(cid:17)(cid:3)
The following discussion and analysis and other sections of this document contain forward-looking statements
(cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3) (cid:58)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:68)(cid:86)(cid:3) (cid:179)(cid:80)(cid:68)(cid:92)(cid:15)(cid:180)(cid:3) (cid:179)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:86)(cid:15)(cid:180)(cid:3)
(cid:179)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:86)(cid:72)(cid:72)(cid:78)(cid:86)(cid:15)(cid:180)(cid:3) (cid:179)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3) (cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:90)(cid:82)(cid:85)(cid:71)(cid:86)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3) (cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3)
identify such forward-looking statements. Similarly, statements that describe our future plans, objectives, or goals
also are forward-looking statements. Future events and actual results could differ materially from the results
reflected in these forward-looking statements, as a result of certain of the factors set forth below and elsewhere in
this analysis and in this Form 10-K for the year ended December 31, 2008 in Item 1.A.-Risk Factors.
Overview
We provide outsourced customer contact management services with an emphasis on inbound technical support
and customer service, which represented 96.2% of consolidated revenues in 2008, delivered through multiple
communication channels encompassing phone, e-mail, Web and chat. We also offer fulfillment services in Europe,
including multilingual sales order processing via the Internet and phone, payment processing, inventory control,
product delivery and product returns handling, and a range of enterprise support services in the United States,
including technical staffing services and outsourced corporate help desk services.
Revenue from these services is recognized as the services are performed, which is based on either a per minute,
per call or per transaction basis, under a fully executed contractual agreement, and we record reductions to revenue
for contractual penalties and holdbacks for a failure to meet specified minimum service levels and other
performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery
of any future product or service or meeting other specified performance conditions. Product sales, accounted for
within our fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.
Direct salaries and related costs include direct personnel compensation, severance, statutory and other benefits
associated with such personnel and other direct costs associated with providing services to customers. General and
administrative costs include administrative, sales and marketing, occupancy, depreciation and amortization, and
other costs.
Provision for regulatory penalties is related to privacy claims associated with the alleged inappropriate acquisition
of personal bank account information by one of our European subsidiaries.
Recognition of income associated with grants from local or state governments of land and the acquisition of
property, buildings and equipment is deferred and recognized as a reduction of depreciation expense included within
general and administrative costs over the corresponding useful lives of the related assets. Amounts received in
excess of the cost of the building are allocated to equipment and, only after the grants are released from escrow,
recognized as a reduction of depreciation expense over the weighted average useful life of the related equipment,
which approximates five years. Deferred property and equipment grants, net of amortization, totaled $9.3 million
and $10.3 million at December 31, 2008 and 2007, respectively, a decrease of $1.0 million.
The net loss (gain) on disposal of property and equipment includes the net gain on the sale of four third party
leased U.S. customer contact management centers in 2006 in addition to the net loss (gain) on the disposal of
property and equipment.
Impairment of long-lived assets charges of $0.4 million in 2006 related to a $0.3 million asset impairment charge
in one of our underutilized European customer contact management centers and a $0.1 million charge for property
and equipment no longer used in one of our Philippine facilities.
Interest income primarily relates to interest earned on cash and cash equivalents and interest on foreign tax
refunds.
Interest expense primarily includes commitment fees charged on the unused portion of our credit facility, interest
22
on outstanding short-term debt and interest costs related to a foreign income tax settlement.
Income from rental operations, net, was generated from the leasing of several U.S. facilities, which were sold in
September 2006.
Foreign currency transaction gains and losses generally result from exchange rate fluctuations on intercompany
transactions and the revaluation of cash and other assets and liabilities that are settled in a currency other than
functional currency.
Our effective tax rate for the periods presented includes the effects of state income taxes, net of federal tax
benefit, tax holidays, valuation allowance changes, foreign rate differentials, foreign withholding and other taxes,
and permanent differences.
23
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items
reflected in our Statements of Operations:
Years Ended December 31,
2007
2006
2008
PERCENTAGES OF REVENUES:
Revenues .............................................................................
Direct salaries and related costs ..........................................
General and administrative ..................................................
Provision for regulatory penalties ........................................
Net loss (gain) on disposal of property and equipment .......
Income from operations .......................................................
Interest income .....................................................................
Interest expense ....................................................................
Income from rental operations, net .......................................
Other income (expense) ........................................................
Income before provision for income taxes ...........................
Provision for income taxes ..................................................
Net income ...........................................................................
100.0 %
64.0
28.0
(cid:178)
(cid:178)
8.0
0.7
(0.1 )
(cid:178)
1.4
10.0
2.6
7.4%
100.0%
63.6
29.0
0.2
(cid:178)
7.2
0.9
(0.1)
(cid:178)
(0.4)
7.6
2.0
5.6%
100.0%
63.7
30.8
(cid:178)
(2.4)
7.9
1.2
(0.1)
0.2
(0.2)
9.0
1.6
7.4%
The following table sets forth, for the periods indicated, certain data derived from our Consolidated Statements of
Operations (in thousands):
Revenues ............................................................
Direct salaries and related costs .........................
General and administrative .................................
Provision for regulatory penalties .......................
Net loss (gain) on disposal of property and
equipment .......................................................
Impairment of long-lived assets .........................
Income from operations .....................................
Interest income ....................................................
Interest expense ...................................................
Income from rental operations, net ......................
Other income (expense) ......................................
Income before provision for income taxes ..........
Provision for income taxes .................................
Net income ..........................................................
2008
$ 819,190
524,133
229,027
(cid:178)
Years Ended December 31,
2007
$ 710,120
451,280
206,009
1,312
2006
$ 574,223
365,602
176,701
(cid:178)
322
(cid:178)
65,708
5,448
(433)
(cid:178)
11,259
81,982
21,421
60,561
$
339
(cid:178)
51,180
6,257
(803)
(cid:178)
(2,583)
54,051
14,192
39,859
$
(13,683)
445
45,158
6,785
(674)
1,200
(1,010)
51,459
9,136
42,323
$
The following table summarizes our revenues for the periods indicated, by reporting segment (in thousands):
2008
Years Ended December 31,
2007
2006
Revenues:
Americas ....................................
EMEA ........................................
Consolidated ............................
$ 551,761 67.4% $
267,429 32.6 %
$ 819,190 100.0% $
482,823 68.0 % $ 387,305 67.4 %
227,297 32.0 %
186,918 32.6 %
710,120 100.0 % $ 574,223 100.0 %
24
The following table summarizes the amounts and percentage of revenue for direct salaries and related costs and
general and administrative costs for the periods indicated, by reporting segment (in thousands):
Direct salaries and related costs:
Americas ....................................
EMEA ........................................
Consolidated ............................
General and administrative:
Americas ....................................
EMEA ........................................
Corporate .....................................
Consolidated ............................
2008
Years Ended December 31,
2007
2006
$ 342,288 62.0 % $
181,845 68.0 %
$ 524,133
$
295,719 61.2 % $ 238,290 61.5 %
155,561 68.4 %
127,312 68.1 %
451,280
$ 365,602
$ 123,910 22.5 % $
64,264 24.0 %
40,853
$ 229,027
$
108,788 22.5 % $ 91,231 23.6 %
49,429 26.4 %
36,041
$ 176,701
58,337 25.7 %
38,884
206,009
2008 Compared to 2007
Revenues
During 2008, we recognized consolidated revenues of $819.2 million, an increase of $109.1 million or 15.4%,
from $710.1 million of consolidated revenues for 2007. Revenues increased in 2008, despite the rapid and sharp
deterioration in the economy, due to strong demand from our new and existing client relationships. As clients have
increasingly outsourced non-core functions as a way to cut costs and preserve capital, our depth of experience, broad
vertical expertise, global delivery footprint, a healthy risk profile and financial strength, including a strong cash
position and no debt as of December 31, 2008, has helped us attract new business and build on our current market
position.
On a geographic segment basis, revenues from the Americas region, including the United States, Canada, Latin
America, India and the Asia Pacific Rim, represented 67.4%, or $551.8 million, for 2008 compared to 68.0%, or
$482.8 million, for 2007. Revenues from the EMEA region, including Europe, the Middle East and Africa
represented 32.6%, or $267.4 million, for 2008 compared to 32.0%, or $227.3 million, for 2007.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:25)(cid:28)(cid:17)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:20)(cid:23)(cid:17)(cid:22)(cid:8)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:15)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:3)(cid:69)(cid:85)(cid:82)(cid:68)(cid:71)-
based growth in client demand, including new and existing client relationships, partially offset by certain program
expirations and a net loss on foreign currency hedges of $7.4 million. New client relationships represented 5.4% of
(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:28)(cid:23)(cid:17)(cid:25)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:70)(cid:68)(cid:80)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)
existing clients. Revenues from our offshore operations represented 61.7% of Americas revenues, compared to
60.0% for 2007. The trend of generating more of our revenues in our offshore operations is likely to continue in
2009. While operating margins generated offshore are generally comparable to those in the United States, our ability
to maintain these offshore operating margins longer term is difficult to predict due to potential increased competition
for the available workforce, the trend of higher occupancy costs and costs of functional currency fluctuations in
offshore markets. We weight these factors in our focus to re-price or replace certain sub-profitable target client
(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)(cid:17)(cid:3) (cid:3) (cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:21)(cid:19)(cid:19)(cid:27)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3) (cid:68)(cid:3) (cid:7)(cid:20)(cid:17)(cid:26)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)
currency exchange rates c(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:17)(cid:3)(cid:40)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:15)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)
$67.3 million, or 13.9% compared to last year.
The increase in EMEA revenues of $40.1 million, or 17.7%, for 2008 compared to 2007, reflects a broad-based
growth in client demand, including new and existing client relationships, partially offset by certain program
expirations. New client relationships represented 3.2% of the increase in EMEA revenue over 2007, while 96.8% of
the increase was generated by existing clients. EMEA revenues for 2008 experienced a $6.8 million increase as a
result of changes in foreign currency exchange rates compared to 2007. Excluding this foreign currency impact,
EMEA revenues increased $33.3 million, or 14.8%, compared to last year.
Direct Salaries and Related Costs
Direct salaries and related costs increased $72.8 million, or 16.1%, to $524.1 million for 2008, from
$451.3 million in 2007.
25
On a geographic segment basis, direct salaries and related costs from the Americas segment increased $46.6
million, or 15.7%, to $342.3 million for 2008 from $295.7 million in 2007. Direct salaries and related costs from the
EMEA segment increased $26.2 million, or 16.9%, to $181.8 million for 2008 from $155.6 million in 2007. While
changes in foreign currency exchange rates positively impacted revenues in the Americas and EMEA, they
negatively impacted direct salaries and related costs in 2008 compared to 2007 by approximately $3.7 million and
$5.4 million, respectively.
In the Americas segment, as a percentage of revenues, direct salaries and related costs increased to 62.0% in 2008
from 61.2% in 2007. This increase of 0.8%, as a percentage of revenues, was primarily attributable to higher
compensation costs of 1.9%, partially offset by lower auto tow claim costs of 0.3%, lower telephone costs of 0.3%,
lower facility and maintenance costs of 0.2% and lower other costs of 0.3%, primarily billable supply costs and
recruiting.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs decreased to 68.0% in 2008
from 68.4% in 2007. This decrease of 0.4% was primarily attributable to lower fulfillment material costs of 1.3%,
lower telephone costs of 0.5%, lower billable supply costs of 0.3%, lower postage costs of 0.2% and lower other
costs of 0.1% partially offset by higher compensation costs of 1.4% and higher recruiting costs of 0.6%.
General and Administrative
General and administrative costs increased $23.0 million, or 11.2%, to $229.0 million for 2008, from $206.0
million in 2007.
On a geographic segment basis, general and administrative costs from the Americas segment increased $15.1
million, or 13.9%, to $123.9 million for 2008 from $108.8 million in 2007. General and administrative costs from
the EMEA segment increased $5.9 million, or 10.2%, to $64.2 million for 2008 from $58.3 million in 2007. While
changes in foreign currency exchange rates positively impacted revenues in the Americas and EMEA, they
negatively impacted general and administrative costs in 2008 compared to 2007 by approximately $1.4 million and
$0.6 million, respectively. Corporate general and administrative costs increased $2.0 million, or 5.1%, to $40.9
million for 2008 from $38.9 million in 2007. This increase of $2.0 million was primarily attributable to a higher bad
debt expense of $1.0 million, higher travel and meeting costs of $0.8 million, higher compensation costs of $0.7
million, higher depreciation and amortization of $0.3 million, higher dues and subscriptions of $0.2 million, higher
charitable contributions of $0.2 million, higher insurance costs of $0.1 million, higher taxes (other than income
taxes) of $0.1 million and higher other costs of $0.3 million, partially offset by lower professional fees of $1.7
million.
In the Americas segment, as a percentage of revenues, general and administrative costs remained unchanged at
22.5% in 2008 and 2007. Higher compensation costs of 0.6%, higher taxes (other than income taxes) of 0.1% and
higher bad debt expense of 0.1% were offset by lower depreciation expense of 0.2% and lower other costs of 0.6%,
primarily facility related costs, telephone costs, professional fees and insurance costs.
In the EMEA segment, as a percentage of revenues, general and administrative costs decreased to 24.0% in 2008
from 25.7% in 2007. This decrease of 1.7% was primarily attributable to lower bad debt expense of 0.4%, recruiting
costs of 0.4%, lower facility related expenses of 0.3%, lower compensation costs of 0.2%, lower taxes (other than
income taxes) of 0.2%, lower travel and meetings costs of 0.1% and lower depreciation expense of 0.1%.
Provision for Regulatory Penalties
Provision for regulatory penalties of $1.3 million in 2007 is related to privacy claims associated with the alleged
inappropriate acquisition of personal bank account information in one of our European subsidiaries.
Net Loss (Gain) on Disposal of Property and Equipment
The net loss on disposal of property and equipment remained unchanged at $0.3 million for 2008 and 2007,
respectively.
26
Impairment of Long-Lived Assets
There was no asset impairment charge for 2008 or 2007.
Interest Income
Interest income was $5.4 million in 2008, compared to $6.3 million in 2007. Interest income decreased $0.9
million reflecting lower average rates earned on interest-bearing investments in cash and cash equivalents and short-
term investments.
Interest Expense
Interest expense was $0.4 million for 2008 compared to $0.8 million for 2007, a decrease of $0.4 million
reflecting lower average levels of outstanding short-term debt.
Income from Rental Operations, Net
We sold our four U.S. leased facilities in September 2006; therefore, there is no income from rental operations for
2008 and 2007.
Other Income and Expense
Other income, net, was $11.3 million in 2008 compared to other expense, net, of $2.6 million in 2007. This $13.9
million net increase in other income was primarily attributable to an increase of $14.7 million in realized and
unrealized foreign currency transaction gains, net of losses arising from the revaluation of nonfunctional currency
assets and liabilities partially offset by a $0.1 million increase in the loss on forward points valuation on foreign
currency hedges and a $0.7 million increase in unrealized losses, net of gains on marketable securities held in a
Rabbi Trust. Other income excludes the effects of cumulative translation effects and unrealized gains (losses) on
financial derivatives that are included in Accumulated Other Comprehensive Income (Loss) (cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)
in the accompanying Consolidated Balance Sheets.
Provision for Income Taxes
The provision for income taxes of $21.4 million for 2008 was based upon pre-tax income of $82.0 million,
compared to the provision for income taxes of $14.2 million for 2007 based upon pre-tax income of $54.1 million.
The effective tax rate was 26.1% for 2008 compared to an effective tax rate of 26.3% for 2007. This decrease in the
effective tax rate of 0.2% resulted from a shift in our mix of earnings and the effects of permanent differences,
valuation allowances, foreign withholding taxes, state income taxes, and foreign income tax rate differentials
(including tax holiday jurisdictions) and recognition of income tax benefits of $2.4 million, including interest and
penalties of $1.0 million, primarily relating to favorable tax audit determinations in 2008, partially offset by
withholding taxes of $6.2 million related to a distribution from the Philippine operations to its foreign parent in the
Netherlands and an additional tax expense of $6.7 million resulting from taxable foreign exchange gains realized on
non-functional currencies.
Net Income
As a result of the foregoing, we reported income from operations for 2008 of $65.7 million, an increase of $14.6
million from 2007. This increase was principally attributable to a $109.1 million increase in revenues and a $1.3
million decrease in provision for regulatory penalties charged in 2007 partially offset by a $72.8 million increase in
direct salaries and related costs, and a $23.0 million increase in general and administrative costs. The $14.6 million
increase in income from operations, a $13.9 million increase in other income, net and a decrease in interest expense
of $0.4 million was offset by a $7.2 million higher tax provision and a decrease in interest income of $0.9 million,
resulting in net income of $60.6 million for 2008, an increase of $20.8 million compared to 2007.
2007 Compared to 2006
Revenues
During 2007, we recognized consolidated revenues of $710.1 million, an increase of $135.9 million, or 23.7%,
27
from $574.2 million of consolidated revenues for 2006.
On a geographic segment basis, revenues from the Americas segment, including the United States, Canada, Latin
America, India and the Asia Pacific Rim, represented 68.0%, or $482.8 million for 2007 compared to 67.4%, or
$387.3 million, for 2006. Revenues from the EMEA segment, including Europe, the Middle East and Africa,
represented 32.0%, or $227.3 million, for 2007 compared to 32.6%, or $186.9 million, for 2006.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:28)(cid:24)(cid:17)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:21)(cid:23)(cid:17)(cid:26)(cid:8)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:19)(cid:19)(cid:25)(cid:15)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:3)(cid:69)(cid:85)(cid:82)(cid:68)(cid:71)-
based growth in client demand, including new and existing client relationships, within our offshore operations and
Canada, as well as an increase in revenue generated from our Argentina operations acquired in July 2006 of $21.6
million, a net gain on foreign currency hedges of $5.0 million and an increase in revenue from a performance
incentive payment of $1.4 million received by our Canadian operations related to our telemedicine program. New
client relationships represented 14.6(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:25)(cid:15)(cid:3)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
from our Argentina operations and the telemedicine performance incentive mentioned above. Revenues from
offshore operations represented 60.0(cid:8)(cid:3) (cid:82)(cid:73)(cid:3) (cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:21)(cid:19)(cid:19)(cid:26)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) 54.7% for 2006. Am(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3)
revenues for 2008 experienced a $6.3 million increase as a result of changes in foreign currency exchange rates
(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:17)(cid:3)(cid:3)(cid:40)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:15)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:7)(cid:27)(cid:28)(cid:17)(cid:21)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:21)(cid:22).0%,
compared to last year.
The increase in EMEA revenues of $40.4 million, or 21.6%, for 2007 compared to 2006, reflects growth in client
demand, including new and existing client relationships, partially offset by certain program expirations. New client
relationships represented 23.8(cid:8)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:48)(cid:40)(cid:36)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)nue over 2006. EMEA revenues for 2007
experienced a $19.0 million increase as a result of the strength in the Euro compared to 2006. Excluding this foreign
currency impact, EMEA revenues increased $21.4 million compared to 2006.
Direct Salaries and Related Costs
Direct salaries and related costs increased $85.7 million, or 23.4%, to $451.3 million for 2007, from
$365.6 million in 2006. This increase included $15.2 million of direct salaries and related costs from our Argentina
operations acquired in July 2006, primarily consisting of compensation costs.
On a geographic segment basis, direct salaries and related costs from the Americas segment increased $57.4
million, or 24.1%, to $295.7 million for 2007 from $238.3 million in 2006. Direct salaries and related costs from the
EMEA segment increased $28.3 million, or 22.2%, to $155.6 million for 2007 from $127.3 million in 2006. While
changes in foreign currency exchange rates positively impacted revenues in the Americas and EMEA, they
negatively impacted direct salaries and related costs in 2007 compared to 2006 by approximately $12.0 million and
$13.0 million, respectively.
In the Americas segment, as a percentage of revenues, direct salaries and related costs decreased to 61.2% in 2007
from 61.5% in 2006. Excluding the $1.4 million revenue contribution from Canada mentioned above, as a
percentage of revenues, direct salaries and related costs decreased to 61.4% for 2007. This decrease of 0.1%, as a
percentage of revenues, was primarily attributable to lower telephone costs of 0.7%, partially offset by higher salary
costs of 0.4%, including training costs associated with the ramp up of business in our offshore and U.S. operations
and higher other costs of 0.2%.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs increased to 68.4% in 2007
from 68.1% in 2006. This increase of 0.3% was primarily attributable to higher compensation costs of 1.7% partially
offset by lower billable supply costs of 0.7%, lower material costs of 0.6% and lower other costs of 0.1%.
General and Administrative
General and administrative costs increased $29.3 million, or 16.6%, to $206.0 million for 2007, from $176.7
million in 2006. This increase included $6.0 million of general and administrative costs from our Argentina
operations acquired in July 2006.
On a geographic segment basis, general and administrative costs from the Americas segment increased $17.6
million, or 19.3%, to $108.8 million for 2007 from $91.2 million in 2006. General and administrative costs from the
EMEA segment increased $8.8 million, or 17.8%, to $58.3 million for 2007 from $49.5 million in 2006. While
changes in foreign currency exchange rates positively impacted revenues in the Americas and EMEA, they
28
negatively impacted general and administrative costs in 2007 compared to 2006 by approximately $4.3 million and
$5.0 million, respectively. Corporate general and administrative costs increased $2.9 million, or 7.9%, to $38.9 for
2006 from $36.0 million. This increase of $2.9 million was primarily attributable to higher compensation costs of
$4.3 million, including higher employee counts, as well as $1.7 million associated with our stock-based
compensation plans, and higher travel costs of $0.6 million partially offset by a $2.0 million charitable contribution
in 2006.
(cid:44)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:182)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) (cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:15)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) costs decreased to 22.5% in
2007 from 23.6% in 2006. Excluding the $1.4 million revenue contribution from Canada mentioned above, general
and administrative expenses decreased to 22.6% for 2007. This decrease of 1.0% was primarily attributable to lower
depreciation expense of 0.9%, lower telephone costs of 0.3%, lower legal and professional fees of 0.1% and lower
insurance costs of 0.1% partially offset by higher compensation costs of 0.2%, higher lease and equipment
maintenance of 0.1% and higher other costs of 0.1%.
In the EMEA segment, as a percentage of revenues, general and administrative costs decreased to 25.7% in 2007
from 26.4% in 2006. This decrease of 0.7% was primarily attributable to lower lease and equipment maintenance of
0.8%, lower legal and professional fees of 0.4%, lower depreciation expense of 0.4%, lower telephone costs of
0.1%, lower insurance costs of 0.1% and lower other costs of 0.2% partially offset by higher bad debt expense of
0.5%, higher recruiting costs of 0.4%, higher compensation costs of 0.3% and higher travel costs of 0.1%.
Provision for Regulatory Penalties
Provision for regulatory penalties of $1.3 million in 2007 is related to privacy claims associated with the alleged
inappropriate acquisition of personal bank account information in one of our European subsidiaries.
Net Loss (Gain) on Disposal of Property and Equipment
The net gain on disposal of property and equipment of $13.7 million for 2006 was primarily a result of sale of
four third party leased U.S. customer contact management centers. This compares to a net loss on disposal of
property and equipment of $0.3 million for 2007.
Impairment of Long-Lived Assets
There was no asset impairment charge for 2007. In 2006 we recorded impairment charges of $0.4 million
consisting of a $0.3 million asset impairment charge relating to one of our underutilized European customer contact
management centers and a $0.1 million charge for property and equipment no longer used in one of our Philippine
facilities.
Interest Income
Interest income was $6.3 million in 2007, compared to $6.8 million in 2006. Excluding interest income of $1.7
million on a foreign tax settlement in 2006, interest income increased $1.2 million reflecting higher levels of
interest-bearing investments in cash and cash equivalents and short-term investments.
Interest Expense
Interest expense was $0.8 million for 2007 compared to $0.7 million for 2006, an increase of $0.1 million due to
interest costs related to a foreign income tax settlement and short-term debt outstanding during 2007.
Income from Rental Operations, Net
We sold our four U.S. leased facilities in September 2006; therefore, there was no income from rental operations
for 2007. For 2006 income from rental operations, net, related to these leased facilities was $1.2 million.
Other Income and Expense
Other expense, net, increased to $2.6 million in 2007 from $1.0 million in 2006. This increase was primarily
attributable to an increase in foreign currency transaction losses, net of gains. Other income excludes the effects of
cumulative translation effects and unrealized gains (losses) on financial derivatives that are included in Accumulated
29
Other Comprehensive Income (Loss) (cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) Sheets.
Provision for Income Taxes
The provision for income taxes of $14.2 million for 2007 was based upon pre-tax income of $54.1 million,
compared to the provision for income taxes of $9.1 million for 2006 based upon pre-tax income of $51.5 million.
The effective tax rate was 26.3% for 2007 and 17.8% for 2006. This increase in the effective tax rate resulted from
a shift in our mix of earnings and the effects of permanent differences, valuation allowances, foreign withholding
taxes, state income taxes, and foreign income tax rate differentials (including tax holiday jurisdictions).
Net Income
As a result of the foregoing, we reported income from operations for 2007 of $51.2 million, an increase of $6.0
million from 2006. This increase was principally attributable to a $135.9 million increase in revenues and a $0.4
million decrease in asset impairment charges partially offset by a $85.7 million increase in direct salaries and related
costs, a $29.3 million increase in general and administrative costs, a $14.0 million decrease in net gain on disposal
of property and equipment and a $1.3 million increase in provision for regulatory penalties. The $6.0 million
increase in income from operations was offset by a $5.1 million higher tax provision, a $1.2 million decrease in
income from rental operations, net, an increase of $1.6 million in other expense and a decrease in interest income,
net of $0.5 million, resulting in net income of $39.9 million for 2007, a decrease of $2.4 million compared to 2006.
30
Quarterly Results
The following information presents our unaudited quarterly operating results for 2008 and 2007. The data has
been prepared on a basis consistent with the Consolidated Financial Statements included elsewhere in this Form 10-
K, and include all adjustments, consisting of normal recurring accruals that we consider necessary for a fair
presentation thereof.
(In thousands, except per share data)
12/31/08 9/30/08 6/30/08 3/31/08 12/31/07 9/30/07 6/30/07 3/31/07
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
284
1,312
57,355
56,434
56,606 50,466 50,385
48
13,572 19,253
1,274
1,094
(47 )
(159 )
2,737
4,258
Revenues ...................................... $ 200,774 $ 207,066 $ 207,629 $ 203,721 $ 197,713 $ 176,122 $ 168,284 $ 168,001
Direct salaries and related costs ...
128,936 130,509 133,708 130,980 124,171 110,774 110,464 105,871
General and administrative ..........
48,552
57,982 57,256
Provision for regulatory
penalties(1) .................................
Net loss (gain) on disposal of
property and equipment............
Income from operations ...............
Interest income .............................
Interest expense ............................
Other income (expense) ...............
Income before provision
for income taxes .......................
Provision for income
taxes(2) ......................................
Net income ................................... $
Net income per basic share(3) ....... $
Total weighted average basic
shares ......................................
Net income per diluted share(3)..... $
Total weighted average diluted
shares ......................................
(3)
15,251 14,885
1,614
1,849
(230 )
(265 )
(233 )
(1,393 )
40,438 40,432 40,359
0.16 $
3,725
11,135
7,630 $ 19,492 $
0.48 $
3,780
5,975
9,467 $ 12,256 $
0.30 $
2,653
1,784
6,337 $ 11,799
0.29
(10 )
16,317
1,822
(102 )
531
(cid:178)
16,566
1,258
(125 )
3,733
40,687 40,678
0.47 $
(34 )
7,469
1,445
(155 )
(638 )
3
13,575
1,349
(153 )
(319 )
2,858
15,710 $
0.39 $
3,703
17,729 $
0.44 $
40,783 40,697 40,652
40,491
0.38 $
40,599
0.43 $
15,442 16,036
18,765 23,217
41,092 41,070
40,299
0.29
18,568
40,813
40,953
21,432
8,121
40,550
14,452
0.30 $
0.19 $
0.19 $
0.16 $
0.23 $
0.23 $
373
(cid:178)
(cid:178)
(1)
The quarter ended December 31, 2007 includes a $1.3 million provision for regulatory penalties related to
privacy claims associated with the alleged inappropriate acquisition of personal bank account information
in one of our European subsidiaries. See Note 21 of the accompanying Consolidated Financial Statements.
(2)
The quarter ended December 31, 2008 includes additional expense of $4.1 million, primarily due to an
unfavorable verdict by the German Supreme Court that overturned a lower German tax court ruling, $6.7
million due to taxable foreign exchange gains realized on non functional currencies and withholding taxes
of $6.2 million on a distribution of foreign earnings, partially offset by a $1.1 million reversal of
unrecognized tax benefits related to favorable tax audit determinations. The quarter ended September 30,
2008 includes tax benefits of $6.1 million due to reversal of income tax valuation allowances. See Note 18
of the accompanying Consolidated Financial Statements.
(3)
Net income per basic and diluted share is computed independently for each of the quarters presented and
therefore may not sum to the total for the year.
31
Liquidity and Capital Resources
Our primary sources of liquidity are generally cash flows generated by operating activities and from available
borrowings under our revolving credit facilities. We utilize these capital resources to make capital expenditures
associated primarily with our customer contact management services, invest in technology applications and tools to
further develop our service offerings and for working capital and other general corporate purposes, including
repurchase of our common stock in the open market and to fund possible acquisitions. In future periods, we intend
similar uses of these funds.
On August 5, 2002, the Board of Directors authorized the purchase of up to three million shares of our
outstanding common stock. A total of 1.7 million shares have been repurchased under this program since inception.
The shares are purchased, from time to time, through open market purchases or in negotiated private transactions,
and the purchases are based on factors, including but not limited to, the stock price and general market conditions.
During 2008, we repurchased 34 thousand common shares under the 2002 repurchase program at a price of $14.83
per share for a total cost of $0.5 million. We expect to make additional stock repurchases under this program in
2009 if market conditions are favorable.
During 2008, we generated $80.9 million in cash from operating activities, $17.5 million from the sale of short-
term investments, $0.8 million from the release of restricted cash, $1.2 million in cash from issuance of stock, $0.7
million from the tax benefit of share-based compensation, $0.1 million from an employment grant and $0.2 million
in cash from the sale of property and equipment. Further, we used $34.7 million in funds for capital expenditures,
settled contingencies of $2.4 million related to the 2006 purchase of our Argentine operations, repurchased $0.5
million of common stock, invested $1.0 million in restricted cash and used $0.1 million for other investing activities
resulting in a $41.4 million increase in available cash (including the unfavorable effects of foreign currency
exchange rates on cash of $21.3 million).
Net cash flows provided by operating activities for 2008 were $80.9 million, compared to net cash flows provided
by operating activities of $48.2 million for 2007. The $32.7 million increase in net cash flows from operating
activities was due to a $20.7 million increase in net income; a $5.7 million increase in non-cash reconciling items
such as deferred income taxes, stock-based compensation, termination costs associated with exit activities,
unrealized gains on financial instruments; and an increase of $6.3 million in cash flows from assets and liabilities.
This $6.3 million net change in assets and liabilities was principally a result of a $5.2 million increase in deferred
revenue, a $2.9 million increase in other liabilities, a $1.5 million decrease in other assets and a $0.2 million
decrease in receivables partially offset by a $3.5 million decrease in taxes payable.
Capital expenditures, which are generally funded by cash generated from operating activities and borrowings
available under our credit facilities, were $34.7 million for 2008, compared to $31.5 million for 2007, an increase of
$3.2 million. During 2008, approximately 30% of the capital expenditures were the result of investing in new and
existing customer contact management centers, primarily offshore, and 70% was expended primarily for
maintenance and systems infrastructure. In 2009, we anticipate capital expenditures in the range of $28.0 million to
$32.0 million.
An available source of future cash flows from financing activities is from borrowings under our $50.0 million
(cid:85)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:51)(cid:88)(cid:85)(cid:86)(cid:88)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)
the terms of the Credit Facility, the amount of $50.0 million may be increased up to a maximum of $100.0 million
with the prior written consent of the lenders. The $50.0 million Credit Facility includes a $10.0 million swingline
subfacility, a $15.0 million letter of credit subfacility and a $40.0 million multi-currency subfacility.
The Credit Facility, which includes certain financial covenants, may be used for general corporate purposes
including acquisitions, share repurchases, working capital support, and letters of credit, subject to certain limitations.
The Credit Facility, including the multi-(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3) (cid:86)(cid:88)(cid:69)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3) (cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:15)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:68)(cid:87)(cid:3) (cid:11)(cid:68)(cid:12)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
(cid:37)(cid:68)(cid:86)(cid:72)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:41)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:19)(cid:17)(cid:24)(cid:19)(cid:8)(cid:12)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3) an applicable
(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:19)(cid:17)(cid:24)(cid:19)(cid:8)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:69)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:47)(cid:82)(cid:81)(cid:71)(cid:82)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:50)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:179)(cid:47)(cid:44)(cid:37)(cid:50)(cid:53)(cid:180)(cid:12)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:17)(cid:21)(cid:24)(cid:8)(cid:17)(cid:3)
Borrowings under the swingline subfacility accrue interest at the prime rate plus an applicable margin up to 0.50%
and borrowings under the letter of credit subfacility accrue interest at the LIBOR plus an applicable margin up to
1.25%. In addition, a commitment fee of up to 0.25% is charged on the unused portion of the Credit Facility on a
quarterly basis. The borrowings under the Credit Facility, which will terminate on March 14, 2010, are secured by a
(cid:83)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:25)(cid:24)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:86)(cid:3)
the Company from incurring additional indebtedness, subject to certain specific exclusions. There were no
32
borrowings in 2008 and no outstanding balances as of December 31, 2008, with $50.0 million availability on the
Credit Facility.
Effective January 1, 2008, we adopted Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 157 (SFAS 157), (cid:179)Fair Value Measurements(cid:180). Adoption of SFAS 157 did not
have a material effect on our financial condition, results of operations or cash flows. At December 31, 2008, the
aggregate amount of assets requiring fair value measurement (no liabilities) included in Level 3 represented
approximately 1% of the aggregate amount of consolidated assets and liabilities. Of the aggregate amount of total
assets and liabilities requiring fair value measurement, approximately 6% are included in Level 3. The amount we
report in Level 3 in future periods will be directly affected by market conditions. There were no material changes
made to the valuation techniques and methodologies used to measure fair value during 2008. See Note 1 of the
accompanying Consolidated Financial Statements for further information related to the adoption of SFAS 157 and
(cid:44)(cid:87)(cid:72)(cid:80)(cid:3) (cid:22)(cid:3) (cid:179)(cid:52)(cid:88)(cid:68)(cid:81)(cid:87)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:52)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:39)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3) (cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3) (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:53)(cid:76)(cid:86)(cid:78)(cid:180)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)
currency risk.
At December 31, 2008, we had $219.1 million in cash and cash equivalents, of which approximately 91% or
$199.1 million, was held in international operations and may be subject to additional taxes if repatriated to the
United States.
We believe that our current cash levels, short-term investments, accessible funds under our credit facilities and
cash flows from future operations will be adequate to meet anticipated working capital needs, future debt repayment
requirements (if any), continued expansion objectives, funding of potential acquisitions, anticipated levels of capital
expenditures and contractual obligations for the foreseeable future and stock repurchases.
Off-Balance Sheet Arrangements and Other
At December 31, 2008, we did not have any material commercial commitments, including guarantees or standby
repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities
often referred to as structured finance or special purpose entities or variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes.
From time to time, during the normal course of business, we may make certain indemnities, commitments and
guarantees under which we may be required to make payments in relation to certain transactions. These include, but
are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence
or willful misconduct and (ii) indemnities involving breach of contract, the accuracy of representations and
warranties, or other liabilities assumed by us in certain contracts. In addition, we have agreements whereby we will
indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was,
serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences
(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:182)(cid:86)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:87)(cid:76)(cid:80)(cid:72)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) we could be required
to make under these indemnification agreements is unlimited; however, we have director and officer insurance
coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the
applicable insurance coverage is generally adequate to cover any estimated potential liability under these
indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any
liability for these indemnities, commitments and other guarantees in the accompanying Consolidated Balance
Sheets. In addition, we have some client contracts that do not contain contractual provisions for the limitation of
liability, and other client contracts that contain agreed upon exceptions to limitation of liability. We have not
recorded any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under
which we have or may have unlimited liability.
33
Contractual Obligations
The following table summarizes our contractual cash obligations at December 31, 2008, and the effect these
obligations are expected to have on liquidity and cash flow in future periods (in thousands):
Payments Due By Period
Total
Less Than
1 Year
1 (cid:177) 3
Years
3 (cid:177) 5
Years
After 5
Years
Other
Operating leases (1) ................................. $
Purchase obligations and other (2) ...........
Other short-term liabilities (3) ..................
Long-term tax liabilities (4) .....................
Forward contracts (5) ...............................
Other long-term liabilities (6) ..................
Total contractual cash obligations ..... $
32,651
7,632
2,745
5,077
11,654
590
60,349
$
12,952 $ 10,606 $
4,157
2,745
(cid:178)
11,654
(cid:178)
3,385
(cid:178)
(cid:178)
(cid:178)
3
$
31,508 $ 13,994 $
2,868
90
(cid:178)
(cid:178)
(cid:178)
6
2,964
$
$
6,225 $
(cid:178)
(cid:178)
(cid:178)
(cid:178)
581
6,806 $
(cid:178)
(cid:178)
(cid:178)
5,077
(cid:178)
(cid:178)
5,077
(1)
(2)
(3)
(4)
(5)
(6)
Amounts represent the expected cash payments of our operating leases as discussed in Note 21 to the accompanying Consolidated
Financial Statements.
Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all
significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty.
Other short-term liabilities include a $1.3 million estimated liability related to the provision for regulatory penalties and $1.4 million
related to the Deferred Compensation Plan as discussed in Notes 21 and 23, respectively, to the accompanying Consolidated Financial
Statements.
Long-term tax liabilities include uncertain tax positions and related penalties and interest as discussed in Note 18 to the accompanying
Consolidated Financial Statements. We cannot make reasonably reliable estimates of the cash settlement of these long-term liabilities with
the taxing authority; therefore, amounts have been excluded from payments due by period.
Amounts represent estimated obligations related to forward contracts as discussed in Note 8 to the accompanying Consolidated Financial
Statements. These amounts will fluctuate with movements in the underlying market price of the forward contracts.
Other long-term liabilities, which exclude deferred income taxes, represent the expected cash payments due under pension obligations and
minority shareholders of certain subsidiaries.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires estimations and assumptions that affect the reported amounts of assets and liabilities
and the 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. These estimates and assumptions are based on historical
experience and various other factors that are believed to be reasonable under the circumstances. Actual results could
differ from these estimates under different assumptions or conditions.
We believe the following accounting policies are the most critical since these policies require significant
judgment or involve complex estimations that are important to the portrayal of our financial condition and operating
results:
Recognition of Revenue
We recognize revenue pursuant to applicable accounting standards, including SEC Staff Accounting Bulletin
(cid:11)(cid:179)(cid:54)(cid:36)(cid:37)(cid:180)(cid:12)(cid:3)(cid:49)(cid:82)(cid:17) (cid:20)(cid:19)(cid:20)(cid:3)(cid:11)(cid:54)(cid:36)(cid:37)(cid:3)(cid:20)(cid:19)(cid:20)(cid:12)(cid:15)(cid:3)(cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3) SAB 104(cid:15)(cid:3)(cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:80)(cid:72)(cid:85)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3) (cid:44)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86)(cid:3) (cid:55)(cid:68)(cid:86)(cid:78)(cid:3) (cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:3) (cid:11)(cid:179)(cid:40)(cid:44)(cid:55)(cid:41)(cid:180)(cid:12)(cid:3) (cid:49)(cid:82)(cid:17) 00-21, (EITF 00-21)(cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3) (cid:36)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:48)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3)
(cid:39)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:17)(cid:180)(cid:3) SAB 101, as amended, (cid:68)(cid:81)(cid:71)(cid:3) (cid:54)(cid:36)(cid:37)(cid:3) (cid:20)(cid:19)(cid:23)(cid:3) (cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:40)(cid:38)(cid:3) (cid:86)(cid:87)(cid:68)(cid:73)(cid:73)(cid:182)(cid:86)(cid:3) (cid:89)(cid:76)(cid:72)(cid:90)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:83)(cid:83)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)
generally accepted accounting principles to revenue recognition in financial statements and provide guidance on
revenue recognition issues in the absence of authoritative literature addressing a specific arrangement or a specific
industry. EITF 00-21 provides further guidance on how to account for multiple element contracts.
We primarily recognize revenue from services as the services are performed, which is based on either on a per
minute, per call or per transaction basis, under a fully executed contractual agreement and record reductions to
revenue for contractual penalties and holdbacks for failure to meet specified minimum service levels and other
performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery
34
of any future product or service or meeting other specified performance conditions.
Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and
satisfaction of all obligations.
Revenue from contracts with multiple-deliverables is allocated to separate units of accounting based on their
relative fair value, if the deliverables in the contract(s) meet the criteria for such treatment. Certain fulfillment
services contracts contain multiple-deliverables. Additionally, we had a contract containing multiple-deliverables for
customer contact management services and fulfillment services that ended in 2008. Separation criteria included
whether a delivered item has value to the customer on a stand-alone basis, whether there is objective and reliable
evidence of the fair value of the undelivered items and, if the arrangement includes a general right of return related
to a delivered item, whether delivery of the undelivered item is considered probable and in our control. Fair value is
the price of a deliverable when it is regularly sold on a stand-alone basis, which generally consists of vendor-specific
objective evidence of fair value. If there is no evidence of the fair value for a delivered product or service, revenue is
allocated first to the fair value of the undelivered product or service and then the residual revenue is allocated to the
delivered product or service. If there is no evidence of the fair value for an undelivered product or service, the
contract(s) is accounted for as a single unit of accounting, resulting in delay of revenue recognition for the delivered
product or service until the undelivered product or service portion of the contract is complete. We recognize revenue
for delivered elements only when the fair values of undelivered elements are known, uncertainties regarding client
acceptance are resolved, and there are no client-negotiated refund or return rights affecting the revenue recognized
for delivered elements. Once we determine the allocation of revenue between deliverable elements, there are no
further changes in the revenue allocation. If the separation criteria are met, revenue from these services is
recognized as the services are performed under a fully executed contractual agreement. If the separation criteria are
not met because there is insufficient evidence to determine fair value of one of the deliverables, all of the services
are accounted for as a single combined unit of accounting. For these deliverables with insufficient evidence to
determine fair value, revenue is recognized on the proportional performance method using the straight-line basis
over the contract period, or the actual number of operational seats used to serve the client, as appropriate.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts of $3.1 million as of December 31, 2008, or 2.0% of trade account
receivables, for estimated losses arising from the inability of our customers to make required payments. Our
estimate is based on factors surrounding the credit risk of certain clients, historical collection experience and a
review of the current status of trade accounts receivable. It is reasonably possible that our estimate of the allowance
for doubtful accounts will change if the financial condition of our customers were to deteriorate, resulting in a
reduced ability to make payments.
Income Taxes
We reduce deferred tax assets by a valuation allowance if, based on the weight of available evidence for each
respective tax jurisdiction, it is more likely than not that some portion or all of such deferred tax assets will not be
realized. The valuation allowance for a particular tax jurisdiction is allocated between current and noncurrent
deferred tax assets for that jurisdiction on a pro rata basis. Available evidence which is considered in determining
the amount of valuation allowance required includes, but is not limited to, our estimate of future taxable income and
any applicable tax-planning strategies.
In September, 2008, the Company determined that its profitability and expectations of future profitability of
certain foreign (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:87)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:179)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:81)(cid:82)(cid:87)(cid:180)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)
be realized. Accordingly, in the third quarter of 2008, the Company recognized an increase in its deferred tax assets
of $6.0 million through a partial reversal of the valuation allowance. As of December 31, 2008, management
determined that a valuation allowance of $30.6 million was necessary to reduce U.S. deferred tax assets by $10.8
million and foreign deferred tax assets by $19.8 million, where it was more likely than not that some portion or all of
such deferred tax assets will not be realized. The recoverability of the remaining net deferred tax asset of $19.4
million at December 31, 2008 is dependent upon future profitability within each tax jurisdiction. As of December
31, 2008, based on our estimates of future taxable income and any applicable tax-planning strategies within various
tax jurisdictions, we believe that it is more likely than not that the remaining net deferred tax asset will be realized.
It is reasonably possible that the Company will be required to release up to $6.5 million of valuation allowance
during 2009 pursuant to the requirements of (cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:19)(cid:28)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:19)(cid:28)(cid:12)(cid:15)(cid:3)(cid:179)Accounting for Income Taxes(cid:17)(cid:180)
35
We evaluate tax positions that have been taken or are expected to be taken in our tax returns, and record a liability
(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:23)(cid:27)(cid:3)(cid:11)(cid:179)(cid:41)(cid:44)(cid:49)(cid:3)(cid:23)(cid:27)(cid:180)(cid:12)(cid:15)(cid:3)(cid:179)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:56)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:92)(cid:3)
in Income Taxes (cid:177) an interpretation of FASB No. 109.(cid:180)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:79)(cid:70)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:86)(cid:3)(cid:71)(cid:72)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)
uncertainties in the application of complex tax regulations. FIN 48 contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance with SFAS 109. First, tax positions are recognized if
the weight of available evidence indicates that it is more likely than not that the position will be sustained upon
examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon
settlement. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors
including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under
audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax
benefit or an additional charge to the tax provision.
We adopted the provisions of FIN 48 on January 1, 2007 and recognized a $2.7 million liability for unrecognized
tax benefits, including interest and penalties, which was accounted for as a reduction to the January 1, 2007 balance
of retained earnings. This adjustment to the beginning balance of retained earnings includes $1.3 million related to
transfer pricing penalties that may be assessed in connection with an income tax audit of our Indian subsidiary.
Upon adoption of FIN 48 as of January 1, 2007, we had $9.1 million of unrecognized tax benefits (including $4.6
million of net operating loss carryforwards that were previously recognized as deferred tax assets with a full
valuation allowance).
As of December 31, 2008, we had $3.4 million of unrecognized tax benefits, a net decrease of $2.0 million from
$5.4 million as of December 31, 2007. This decrease relates primarily to the recognition of tax benefits related to
transfer pricing as a result of favorable tax audits. If we recognized these tax benefits, approximately $3.1 million
and related interest and penalties would favorably impact the effective tax rate. We believe it is reasonably possible
that these unrecognized tax benefits will decrease or be recognized in the next twelve months by up to $0.3 million
due to the resolution of audits and appeals in various tax jurisdictions.
Impairment of Long-lived Assets
We review long-lived assets, which had a carrying value of $110.3 million as of December 31, 2008, including
goodwill, intangibles, property and equipment, and investment in SHPS, Incorporated for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable and at least
annually for impairment testing of goodwill. An asset is considered to be impaired when the carrying amount
exceeds the fair value. Upon determination that the carrying value of the asset is impaired, we would record an
impairment charge or loss to reduce the asset to its fair value. Future adverse changes in market conditions or poor
operating results of the underlying investment could result in losses or an inability to recover the carrying value of
the investment and, therefore, might require an impairment charge in the future.
Recent Accounting Pronouncements
I(cid:81)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:21)(cid:19)(cid:19)(cid:25)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:23)(cid:27)(cid:3)(cid:11)(cid:41)(cid:44)(cid:49)(cid:3)(cid:23)(cid:27)(cid:12)(cid:15)(cid:3)(cid:179)Accounting for Uncertainty in Income Taxes(cid:180)(cid:15)(cid:3)
which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance
with SFAS 109. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosures, and transition. We adopted the provisions of FIN 48 on
January 1, 2007. As a result of the implementation of FIN 48, we recognized a $2.7 million liability for
unrecognized tax benefits, including interest and penalties, which was accounted for as a reduction to the January 1,
2007 balance of retained earnings.
(cid:44)(cid:81)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:25)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:24)(cid:26)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:24)(cid:26)(cid:12)(cid:15)(cid:3)(cid:179)Fair Value Measurements(cid:180), which defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. We adopted the provisions of SFAS 157 on
January 1, 2008. The adoption of this standard did not have a material impact on our financial condition, results of
operations or cash flows. See Note 2 (cid:177) Fair Value to our Consolidated Financial Statements for further information.
In March 2007, the EITF reached a consensus on Issue No. 06-10 (EITF 06-(cid:20)(cid:19)(cid:12)(cid:15)(cid:3) (cid:179)Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance
Arrangements(cid:17)(cid:180)(cid:3) (cid:40)(cid:44)(cid:55)(cid:41)(cid:3) (cid:19)(cid:25)-10 provides guidance on the employer(cid:182)s recognition of assets, liabilities and related
compensation costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an
36
employee that extends into postretirement periods. We adopted the provisions of EITF 06-10 on January 1, 2008.
As a result of the implementation of EITF 06-10, we recognized a $0.5 million liability for a postretirement benefit
obligation related to a split dollar arrangement on behalf of our founder and former Chairman and Chief Executive
Officer which was accounted for as a reduction to the January 1, 2008 balance of retained earnings. See Note 22 (cid:177)
Pension Plan and Post-Retirement Benefits to our Consolidated Financial Statements for further information.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), (cid:179)Business Combinations(cid:180) and
SFAS No. 160 (SFAS 160), (cid:179)Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51(cid:180). SFAS 141R changes how business acquisitions are accounted for and
impacts financial statements both on the acquisition date and in subsequent periods. SFAS 160 changes the
accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and
(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)ity. On January 1, 2009, we adopted the provisions of SFAS 141R
and SFAS 160. SFAS 141R will be applied prospectively for all business combinations entered into after January 1,
2009, the date of adoption. The provisions of SFAS 160 will also be applied prospectively to all noncontrolling
interests, except for the presentation and disclosure provisions which are applied retrospectively to any
noncontrolling interests that arose before January 1, 2009. The adoption of these standards did not have a material
impact on our financial condition, results of operations or cash flows.
(cid:44)(cid:81)(cid:3) (cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:21)(cid:19)(cid:19)(cid:27)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:36)(cid:54)(cid:37)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:25)(cid:20)(cid:3) (cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:20)(cid:25)(cid:20)(cid:12)(cid:15)(cid:3) (cid:179)Disclosures About Derivative Instruments and
Hedging Activities(cid:180)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:22)(cid:22)(cid:15)(cid:3)(cid:179)Accounting for Derivative Instruments and Hedging Activities(cid:180)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3)
requiring increased qualitative, quantitative, and credit-(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
hedging activities. On January 1, 2009, we adopted the provisions of SFAS 161. The adoption of this standard did
not have a material impact on our financial condition, results of operations or cash flows.
(cid:44)(cid:81)(cid:3)(cid:36)(cid:83)(cid:85)(cid:76)(cid:79)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:54)(cid:87)(cid:68)(cid:73)(cid:73)(cid:3)(cid:51)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:41)(cid:54)(cid:51)(cid:180)(cid:12)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:23)(cid:21)-3 (FSP 142-(cid:22)(cid:12)(cid:15)(cid:3)(cid:179)Determination of the Useful
Life of Intangible Assets(cid:180)(cid:17) FSP 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No.
(cid:20)(cid:23)(cid:21)(cid:15)(cid:3)(cid:179)Goodwill and Other Intangible Assets(cid:180)(cid:17) This new guidance applies prospectively to intangible assets that are
acquired individually or with a group of other assets in business combinations and asset acquisitions. We adopted
the provisions of FSP 142-3 on January 1, 2009. The adoption of this standard did not have a material impact on our
financial condition, results of operations or cash flows.
(cid:44)(cid:81)(cid:3) (cid:48)(cid:68)(cid:92)(cid:3) (cid:21)(cid:19)(cid:19)(cid:27)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:36)(cid:54)(cid:37)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:25)(cid:21)(cid:3) (cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:20)(cid:25)(cid:21)(cid:12)(cid:15)(cid:3) (cid:179)The Hierarchy of Generally Accepted Accounting
Principles(cid:180)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:85)(cid:72)(cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) principles (GAAP) hierarchy. SFAS 162 is
intended to improve financial reporting by providing a consistent framework for determining what accounting
principles should be used in preparing U.S. GAAP financial statements. With the issuance of SFAS 162, the FASB
concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the
accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants
(AICPA) Statement on Auditing Standards No. (cid:25)(cid:28)(cid:15)(cid:3)(cid:179)The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles(cid:180)(cid:17)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:20)(cid:25)(cid:21)(cid:3) was effective November 15, 2008, and did not have any material
impact on our financial condition, results of operations and cash flows.
In October 2008, the FASB issued FSP No. FAS 157-3 (FSP 157-3), "Determining the Fair Value of a Financial
Asset When the Market for that Asset Is Not Active", which clarifies the application of SFAS 157 as it relates to the
valuation of financial assets in a market that is not active for those financial assets. FSP 157-3 is effective
immediately and includes those periods for which financial statements have not been issued. We currently do not
have any financial assets that are valued using inactive markets, and as such are not impacted by the issuance of this
standard.
In December 2008, the FASB issued FSP No. FAS 132(R)-1 (FSP 132R-1), "Employers Disclosures about
Postretirement Benefit Plan Assets", which provides additional guidance on an employers' disclosures about plan
assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial
statements issued for fiscal years ending after December 15, 2009. We are currently evaluating the impact of
adopting FSP 132R-1 on our financial statements, results of operations and cash flows.
37
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Our earnings and cash flows are subject to fluctuations due to changes in non-U.S. currency exchange rates. We
are exposed to non-U.S. exchange rate fluctuations as the financial results of non-U.S. subsidiaries are translated
into U.S. dollars in consolidation. As exchange rates vary, those results, when translated, may vary from
expectations and adversely impact overall expected profitability. The cumulative translation effects for subsidiaries
using functional currencies other than the U.S. dollar are included in (cid:179)Accumulated other comprehensive income
(loss)(cid:180) (cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:48)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:81)(cid:82)(cid:81)-U.S. currency exchange rates may negatively or positively affect
our competitive position, as exchange rate changes may affect business practices and/or pricing strategies of non-
U.S. based competitors. Periodically, we use foreign currency contracts to hedge intercompany receivables and
payables, and transactions initiated in the United States that are denominated in foreign currency.
We serve a number of U.S.-based clients using customer contact management center capacity in the Philippines
which is within our Americas(cid:182) segment. Although the contracts with these clients are priced in U.S. dollars, a
substantial portion of the costs incurred to render services under these contracts are denominated in Philippine pesos
(PHP), which represent a foreign exchange exposure.
In order to hedge approximately 71% of our exposure related to the anticipated cash flow requirements
denominated in PHP, we had outstanding forward contracts as of December 31, 2008 with counterparties to acquire
a total of PHP 4.6 billion through December 2009 at fixed prices of $107.0 million U.S. dollars. As of December 31,
2008, we had net total derivative liabilities associated with these contracts of $11.4 million, which will settle within
the next 12 months. The fair value of these derivative instruments as of December 31, 2008 is presented in Note 8 of
the accompanying Consolidated Financial Statements. If the U.S. dollar was to weaken against the PHP by 10%
from current period-end levels, we would incur a loss of approximately $13.8 million on the underlying exposures of
the derivative instruments. However, this loss would be partially offset by a corresponding gain of approximately
$10.7 million in our underlying exposures.
In February 2009, we entered into an additional forward contract to sell PHP 175.0 million at fixed prices of Euro
2.8 million through April 2009 to hedge an intercompany loan payment denominated in PHP.
We evaluate the credit quality of potential counterparties to derivative transactions and periodically monitor
changes to counterparty credit quality as well as our concentration of credit exposure to individual counterparties.
We do not use derivative instruments for trading or speculative purposes.
Interest Rate Risk
Our exposure to interest rate risk results from variable debt outstanding under our $50.0 million revolving credit
facility. During the year ended December 31, 2008, we had no debt outstanding under this credit facility; therefore, a
one-point increase in the weighted average interest rate, which generally equals the LIBOR rate plus an applicable
margin, would not have had a material impact on our financial position or results of operations.
We have not historically used derivative instruments to manage exposure to changes in interest rates.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are located beginning on page 48 and page
31 of this report, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2008, under the direction of our Chief Executive Officer and Chief Financial Officer, we
38
evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in
Rule 13a (cid:177) 15(e) under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures
are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports is
(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:15)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:15)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:40)(cid:38)(cid:182)(cid:86)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. We concluded that, as of December 31, 2008,
our disclosure controls and procedures were effective at the reasonable assurance level.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:50)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:50)(cid:89)(cid:72)(cid:85)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making
this assessment, we used the criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Based on our assessment, management believes that, as of December 31, 2008, our internal control over financial
reporting was effective.
Our independent registered public accounting firm has issued an attestation report on our internal control over
financial reporting. This report appears on page 40.
Changes to Internal Control Over Financial Reporting
There were no significant changes in our internal control over financial reporting during the quarter ended
December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
Tampa, Florida
We have audited the internal control over financial reporting of Sykes Enterprises, Incorporated and subsidiaries
(the "Company") as of December 31, 2008, based on criteria established in Internal Control (cid:178) Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment
(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on the criteria established in Internal Control (cid:178) Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended
December 31, 2008 of the Company and our report dated March 10, 2009 expressed an unqualified opinion on those
financial statements and financial statement schedule.
Certified Public Accountants
Tampa, Florida
March 10, 2009
40
Item 9B. Other Information
None.
Items 10. through 14.
PART III
All information required by Items 10 through 14, with the exception of information on Executive Officers which
(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:44)(cid:87)(cid:72)(cid:80)(cid:3) (cid:20)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:179)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:180)(cid:15)(cid:3) (cid:76)(cid:86)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) SYKES(cid:182)(cid:3)
Proxy Statement for the 2008 Annual Meeting of Shareholders.
41
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
(1) Consolidated Financial Statements
The Index to Consolidated Financial Statements is set forth on page 48 of this report.
(2) Financial Statements Schedule
Schedule II (cid:178) Valuation and Qualifying Accounts is set forth on page 89 of this report.
Other schedules have been omitted because they are not required or applicable or the information is
included in the consolidated financial statements or notes therein.
(3) Exhibits:
Exhibit
Number
Exhibit Description
2.1
2.2
2.3
2.4
2.5
2.6
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
Articles of Merger between Sykes Enterprises, Incorporated, a North Carolina Corporation,
and Sykes Enterprises, Incorporated, a Florida Corporation, dated March 1, 1996. (1)
Articles of Merger between Sykes Enterprises, Incorporated and Sykes Realty, Inc. (1)
Shareholder Agreement dated December 11, 1997, by and among Sykes Enterprises,
Incorporated and HealthPlan Services Corporation. (2)
Stock Purchase Agreement, dated September 1, 1998, between Sykes Enterprises,
Incorporated and HealthPlan Services Corporation. (4)
Merger Agreement, dated as of June 9, 2000, among Sykes Enterprises, Incorporated, SHPS,
Incorporated, Welsh Carson And(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:54)(cid:87)(cid:82)(cid:90)(cid:72)(cid:15)(cid:3) (cid:57)(cid:44)(cid:44)(cid:44)(cid:15)(cid:3) (cid:47)(cid:51)(cid:3) (cid:11)(cid:179)(cid:58)(cid:38)(cid:36)(cid:54)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:54)(cid:79)(cid:88)(cid:74)(cid:74)(cid:72)(cid:85)(cid:3)
Acquisition Corp. (9)
Stock Purchase Agreement, dated as of July 3, 2006, between SEI International Services,
S.a.r.l., a Luxembourg corporation, and Sykes Enterprises, Incorporated Holdings B.V., a
Netherlands corporation and Antonio Marcelo Cid, an individual, Humberto Daniel Sahade,
an individual, and AM Transport, LLC, a Delaware limited liability company. (22)
Articles of Incorporation of Sykes Enterprises, Incorporated, as amended. (5)
Articles of Amendment to Articles of Incorporation of Sykes Enterprises, Incorporated, as
amended. (6)
Bylaws of Sykes Enterprises, Incorporated, as amended. (18)
Specimen certificate for the Common Stock of Sykes Enterprises, Incorporated. (1)
1996 Employee Stock Option Plan. (1)*
Amended and Restated 1996 Non-Employee Director Stock Option Plan. (10)*
1996 Non-(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:41)(cid:72)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(1)*
2004 Non-(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:41)(cid:72)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(16)*
First Amended and Restated 2004 Non-(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:182)(cid:86)(cid:3)(cid:41)(cid:72)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(28)*
Second Amended and Restated 2004 Non-(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:182)(cid:86)(cid:3)(cid:41)(cid:72)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(30)*
42
Exhibit
Number
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Exhibit Description
Form of Split Dollar Plan Documents. (1)*
Form of Split Dollar Agreement. (1)*
Form of Indemnity Agreement between Sykes Enterprises, Incorporated and directors &
executive officers. (1)
Tax Indemnification Agreement between Sykes Enterprises, Incorporated and John H. Sykes. (1)*
1997 Management Stock Incentive Plan. (3)*
(cid:20)(cid:28)(cid:28)(cid:28)(cid:3)(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(7)*
2000 Stock Option Plan. (8)*
2001 Equity Incentive Plan. (11)*
Deferred Compensation Plan. (18)*
2004 Non-Employee Director Stock Option Plan. (14)*
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of March
29, 2006. (20)*
Form of Restricted Share And Bonus Award Agreement dated as of March 29, 2006. (20)*
Form of Restricted Share Award Agreement dated as of May 24, 2006. (21)*
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of
January 2, 2007. (24)*
Form of Restricted Share Award Agreement dated as of January 2, 2007. (24)*
Form of Restricted Share and Stock Appreciation Right Award Agreement dated as of January
2, 2008. (26)*
Amended and Restated Executive Employment Agreement dated as of October 1, 2001
between Sykes Enterprises, Incorporated and John H. Sykes. (12)*
(cid:41)(cid:82)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:20)(cid:19)(cid:15)(cid:3) (cid:21)(cid:19)(cid:19)(cid:23)(cid:3) (cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3) (cid:54)(cid:92)(cid:78)(cid:72)(cid:86)(cid:3)
Enterprises, Incorporated and John H. Sykes. (17)*
Stock Option Agreement dated as of January 8, 2002, between Sykes Enterprises, Incorporated
and John H. Sykes. (12)*
Amended and Restated Employment Agreement dated as of December 30, 2008 between
Sykes Enterprises, Incorporated and Charles E. Sykes. *
Stock Option Agreement dated as of March 15, 2002 between Sykes Enterprises, Incorporated
and Charles E. Sykes. (13)*
Stock Option Agreement (Performance Accelerated Option) dated as of March 15, 2002
between Sykes Enterprises, Incorporated and Charles E. Sykes. (13)*
Amended and Restated Employment Agreement dated as of December 30, 2008 between
Sykes Enterprises, Incorporated and W. Michael Kipphut. *
Stock Option Agreement dated as of October 1, 2001, between Sykes Enterprises,
Incorporated and W. Michael Kipphut. (12)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and Jenna R. Nelson. *
43
Exhibit
Number
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
Exhibit Description
Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises,
Incorporated and Jenna R. Nelson. (13)*
Independent Subcontractor Agreement dated as of July 27, 2004 between Sykes Enterprises,
Incorporated and Gerry L. Rogers. (18)*
First Amendment to Independent Subcontractor Agreement dated as of July 27, 2004
between Sykes Enterprises, Incorporated and Gerry L. Rogers. (18)*
Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises,
Incorporated and Gerry Rogers. (13)*
Stock Option Agreement dated as of October 1, 2001, between Sykes Enterprises,
Incorporated and James T. Holder. (12)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and James T. Holder. *
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and William N. Rocktoff. *
Stock Option Agreement dated as of March 18, 2002 between Sykes Enterprises,
Incorporated and William Rocktoff. (13)*
Stock Option Agreement dated as of March 18, 2002 between Sykes Enterprises,
Incorporated and William Rocktoff. (13)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and James Hobby, Jr. *
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and Daniel L. Hernandez. *
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and David L. Pearson. *
Amended and Restated Employment Agreement, dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and Lawrence R. Zingale. *
Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National
Association and BNP Paribas dated March 15, 2004. (15)
Amendment No. 1 to Credit Agreement Among Sykes Enterprises, Incorporated and
Keybank National Association and BNP Paribas dated October 18, 2004. (18)
Amendment No. 2 to Credit Agreement Among Sykes Enterprises, Incorporated and
Keybank National Association and BNP Paribas dated May 25, 2005. (19)
Amendment No. 3 to Credit Agreement Among Sykes Enterprises, Incorporated and
Keybank National Association and BNP Paribas dated December 15, 2006. (27)
Amendment No. 4 to Credit Agreement Among Sykes Enterprises, Incorporated and
Keybank National Association and BNP Paribas dated May 4, 2007. (25)
Real Estate Purchase and Sale Agreement Between Sykes Realty, Inc.(as Seller) and Sage
Aggregation, LLC (as Purchaser) Concerning Certain Properties Known as The Sykes
Portfolio dated as of September 13, 2006. (23)
Lease Agreement, dated January 25, 2008, Lease Amendment Number One and Lease
Amendment Number Two dated February 12, 2008 and May 28, 2008 respectively, between
Sykes Enterprises, Incorporated and Kingstree Office One, LLC. (29)
44
Exhibit
Number
10.52
Exhibit Description
Continuing Services Agreement between Sykes Enterprises, Incorporated and JHS Equity,
LLC, dated May 28, 2008. (29)
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
Code of Ethics. (14)
List of subsidiaries of Sykes Enterprises, Incorporated.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney relating to subsequent amendments (included on the signature page of this
report).
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a).
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a).
Certification of Chief Executive Officer, pursuant to Section 1350.
Certification of Chief Financial Officer, pursuant to Section 1350.
Indicates management contract or compensatory plan or arrangement.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:81)(cid:3) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:54)-1 (Registration
No. 333-2324) and incorporated herein by reference.
Filed as Exhibit (cid:21)(cid:17)(cid:20)(cid:21)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:20)(cid:19)-K filed with the Commission on March 16,
1998, and incorporated herein by reference.
Filed as Exhibit 10.14 (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:20)(cid:19)-Q filed with the Commission on July 28,
1998, and incorporated herein by reference.
Filed as Exhibit (cid:21)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission
on September 25, 1998, and incorporated herein by reference.
Filed as Exhibit (cid:22)(cid:17)(cid:20)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:54)-3 filed with the
Commission on October 23, 1997, and incorporated herein by reference.
Filed as Exhibit (cid:22)(cid:17)(cid:21)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:20)(cid:19)-K filed with the Commission on March 29,
1999, and incorporated herein by reference.
Filed as Exhibit (cid:20)(cid:19)(cid:17)(cid:20)(cid:28)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:20)(cid:19)-K filed with the Commission on March 29,
1999, and incorporated herein by reference.
Filed as Exhibit (cid:20)(cid:19)(cid:17)(cid:21)(cid:22)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86) Form 10-K filed with the Commission on March 29,
2000, and incorporated herein by reference.
Filed as Exhibit (cid:21)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission
on July 17, 2000, and incorporated herein by reference.
Filed as Exhibit (cid:20)(cid:19)(cid:17)(cid:20)(cid:21)(cid:3) (cid:87)(cid:82)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:20)(cid:19)-Q filed with the Commission on May 7, 2001,
and incorporated herein by reference.
Filed as Exhibit (cid:20)(cid:19)(cid:17)(cid:22)(cid:21)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed with the Commission on May 7, 2001, and
incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:81)(cid:3) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:20)(cid:19)-K filed with the Commission on March 19, 2002,
and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed with the Commission on May 10, 2002, and
incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:23)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
filed with the Commission April 6, 2004.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission on
March 29, 2004, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed with the Commission on August 9, 2004, and
incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)s Current Report on Form 8-K filed with the Commission on
December 16, 2004, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:81)(cid:3) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:41)(cid:82)(cid:85)(cid:80)(cid:3) (cid:20)(cid:19)-K filed with the Commission on March 22, 2005,
and incorporated herein by reference.
45
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission on
May 31, 2005, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission on
April 4, 2006, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission on
May 31, 2006, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)eport on Form 8-K filed with the Commission on
July 10, 2006, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission on
September 19, 2006, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission on
December 28, 2006, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed with the Commission on May 10, 2007, and
incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 8-K filed with the Commission on
January 8, 2008, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed with the Commission on March 13, 2008 and
incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 10-Q filed with the Commission on May 7, 2008,
and incorporated herein by reference.
Filed as an Exhibit to the (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed with the Commission on
May 29, 2008, and incorporated herein by reference.
(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed with the Commission on November 5,
2008, and incorporated herein by reference.
46
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of
Tampa, and State of Florida, on this 10th day of March 2009.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
By:
/s/ W. Michael Kipphut
W. Michael Kipphut,
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose
signature appears below constitutes and appoints W. Michael Kipphut his true and lawful attorney-in-fact and agent,
with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities, to
sign any and all amendments to this report and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents,
and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and purposes as he might or should do in person, thereby
ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Signature
Title
Date
/s/ Paul L. Whiting
Paul L. Whiting
/s/ Charles E. Sykes
Charles E. Sykes
Chairman of the Board
March 10, 2009
President and Chief Executive Officer and
Director (Principal Executive Officer)
March 10, 2009
/s/ Furman P. Bodenheimer, Jr.
Furman P. Bodenheimer, Jr.
/s/ Mark C. Bozek
Mark C. Bozek
Director
Director
/s/ Lt. Gen. Michael P. Delong (Ret.)
Lt. Gen. Michael P. Delong (Ret.)
Director
/s/ H. Parks Helms
H. Parks Helms
/s/ Iain A. Macdonald
Iain A. Macdonald
/s/ James S. MacLeod
James S. MacLeod
Director
Director
Director
/s/ Linda F. McClintock-Greco M.D.
Linda F. McClintock-Greco M.D.
Director
/s/ William J. Meurer
William J. Meurer
/s/ James K. Murray, Jr.
James K. Murray, Jr.
Director
Director
47
March 10, 2009
March 10, 2009
March 10, 2009
March 10, 2009
March 10, 2009
March 10, 2009
March 10, 2009
March 10, 2009
March 10, 2009
Table of Contents
Report of Independent Registered Public Accounting Firm ....................................................
Consolidated Balance Sheets as of December 31, 2008 and 2007 ...........................................
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and
2006 ..........................................................................................................................................
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)
December 31, 2008, 2007 and 2006 ..........................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and
2006 ..........................................................................................................................................
Notes to Consolidated Financial Statements ............................................................................
Page No.
49
50
51
52
53
55
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
Tampa, Florida
We have audited the accompanying consolidated balance sheets of Sykes Enterprises, Incorporated and subsidiaries
(the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes
in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2008. Our
audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Sykes Enterprises, Incorporated and subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of December 31, 2008, based on the criteria
established in Internal Control(cid:178)Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 10, 2009 expressed an unqualified opinion on the Company's
internal control over financial reporting.
As discussed in Note 18 to the consolidated financial statements, the Company adopted the provisions of Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes on January 1, 2007.
Certified Public Accountants
Tampa, Florida
March 10, 2009
49
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents ......................................................................... $
Receivables, net .........................................................................................
Prepaid expenses .......................................................................................
Other current assets ...................................................................................
Short-term investments...............................................................................
Total current assets ................................................................................
Property and equipment, net ......................................................................
Goodwill ....................................................................................................
Intangibles, net ...........................................................................................
Deferred charges and other assets .............................................................
$
(cid:47)(cid:44)(cid:36)(cid:37)(cid:44)(cid:47)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:54)(cid:43)(cid:36)(cid:53)(cid:40)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:54)(cid:182)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60)(cid:3)
Current liabilities:
Accounts payable ...................................................................................... $
Accrued employee compensation and benefits ..........................................
Income taxes payable .................................................................................
Deferred revenue ........................................................................................
Other accrued expenses and current liabilities ..........................................
Total current liabilities .........................................................................
Deferred grants .............................................................................................
Long-term income tax liabilities ...................................................................
Other long-term liabilities ............................................................................
December 31,
2008
2007
$
$
$
219,050
157,067
7,084
13,317
(cid:178)
396,518
80,390
23,191
4,586
24,857
529,542
26,419
47,194
4,485
26,955
21,057
126,110
9,340
5,077
4,985
177,682
145,490
10,905
19,828
17,827
371,732
78,574
22,468
6,646
26,055
505,475
21,588
46,245
4,592
31,822
14,132
118,379
10,329
6,269
5,177
Total liabilities ......................................................................................
145,512
140,154
Commitments and loss contingency (Note 21)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:29)(cid:3)
Preferred stock, $0.01 par value, 10,000 shares authorized;
no shares issued and outstanding .............................................................
Common stock, $0.01 par value; 200,000 shares authorized;
41,271 and 45,537 shares issued .............................................................
Additional paid-in capital ..........................................................................
Retained earnings ......................................................................................
Accumulated other comprehensive income (loss) ......................................
Treasury stock at cost: 96 shares and 4,697 shares ...................................
(cid:178)
413
158,216
237,188
(10,683)
(1,104)
(cid:178)
455
184,184
195,203
37,457
(51,978 )
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) ....................................................................
384,030
529,542
$
365,321
505,475
$
See accompanying notes to Consolidated Financial Statements.
50
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
2008
Revenues ............................................................................... $ 819,190
Years Ended December 31,
2007
$ 710,120
2006
$ 574,223
Operating expenses:
Direct salaries and related costs .........................................
General and administrative .................................................
Provision for regulatory penalties .......................................
Net loss (gain) on disposal of property and equipment ......
Impairment of long-lived assets .........................................
524,133
229,027
(cid:178)
322
(cid:178)
451,280
206,009
1,312
339
(cid:178)
365,602
176,701
(cid:178)
(13,683)
445
Total operating expenses ...............................................
753,482
658,940
529,065
Income from operations ........................................................
65,708
51,180
45,158
Other income (expense):
Interest income ..................................................................
Interest expense ...................................................................
Income from rental operations, net .....................................
Other income (expense) ......................................................
5,448
(433)
(cid:178)
11,259
6,257
(803 )
(cid:178)
(2,583 )
6,785
(674)
1,200
(1,010)
Total other income (expense) .........................................
16,274
2,871
6,301
Income before provision for income taxes ............................
81,982
54,051
51,459
Provision for income taxes:
Current ...............................................................................
Deferred .............................................................................
20,067
1,354
14,086
106
Total provision for income taxes ...................................
21,421
14,192
8,938
198
9,136
Net income ............................................................................ $ 60,561
$ 39,859
$ 42,323
Net income per share:
Basic ................................................................................... $
Diluted ................................................................................ $
1.49
1.48
$
$
0.99
0.98
$
$
1.06
1.05
Weighted average shares:
Basic ...................................................................................
Diluted ................................................................................
40,618
40,961
40,387
40,699
39,829
40,219
See accompanying notes to Consolidated Financial Statements.
51
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)
(In thousands)
Balance at January 1, 2006 ........... 44,009 $ 440 $ 165,674 $ 115,735 $
Common Stock
Shares
Issued Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss) Compensation Stock
Deferred
Stock
Treasury
Total
(3,435 ) $
(355 ) $ (51,969 ) $ 226,090
Reclassification of deferred
stock compensation balance
upon adoption of SFAS 123R ..... (cid:178)
Issuance of common stock .............
660
Stock-based compensation
expense ....................................... (cid:178)
Excess tax benefit from stock-
based compensation .................... (cid:178)
Issuance of common stock and
restricted stock under equity
award plans .................................
Modification of Deferred
Compensation Plan ..................... (cid:178)
Issuance of common stock for
business acquisition ....................
Comprehensive income ................ (cid:178)
Adjustment upon adoption of
SFAS 158, net of tax ................... (cid:178)
315
270
(cid:178)
8
(355 )
4,334
(cid:178)
2,460
2,355
114
40
(cid:178)
3
(cid:178)
2
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
4,399
(cid:178)
(cid:178)
42,323
(cid:178)
10,348
(cid:178)
(cid:178)
(1,044 )
Balance at December 31, 2006 ...... 45,254
453
179,021
158,058
5,869
Adjustment upon adoption of FIN
48 ................................................ (cid:178)
Issuance of common stock .............
70
Stock-based compensation
expense ....................................... (cid:178)
Issuance of common stock and
restricted stock under equity
award plans .................................
Issuance of common stock for
business acquisition ....................
25
Comprehensive income ................. (cid:178)
188
(cid:178)
1
(cid:178)
473
(2,714 )
(cid:178)
(cid:178)
4,171
1
(cid:178)
(cid:178)
51
468
(cid:178)
(cid:178)
(cid:178)
(cid:178)
39,859
(cid:178)
31,588
(cid:178)
(cid:178)
(cid:178)
(cid:178)
Balance at December 31, 2007 ...... 45,537
455
184,184
195,203
37,457
Adjustment upon adoption of
EITF 06-10 .................................
Issuance of common stock .............
Stock-based compensation
expense .......................................
Excess tax benefit from stock-
based compensation ....................
Issuance of common stock and
restricted stock under equity
award plans .................................
Repurchase of common stock .......
Retirement of treasury stock .........
Issuance of common stock for
business acquisition ....................
Comprehensive income (loss) ........
(cid:178)
105
(cid:178)
(cid:178)
(cid:178)
1
(cid:178)
1,173
(cid:178)
4,756
(cid:178)
712
(482 )
(cid:178)
(cid:178)
(cid:178)
236
(cid:178)
(4,644 )
3
(cid:178)
(46 )
61
(cid:178)
(33,346 )
(cid:178)
(cid:178)
(18,094 )
37
(cid:178)
(cid:178)
(cid:178)
676
(cid:178)
(cid:178)
60,561
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(48,140 )
355
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
41
(cid:178)
(cid:178)
4,342
2,460
2,355
158
40
(cid:178)
(cid:178)
4,401
52,671
(cid:178)
(1,044 )
(51,928 )
291,473
(cid:178)
(cid:178)
(cid:178)
(50 )
(cid:178)
(cid:178)
(2,714 )
474
4,171
2
468
71,447
(51,978 )
365,321
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(100 )
(512 )
51,486
(482 )
1,174
4,756
712
(36 )
(512 )
(cid:178)
(cid:178)
(cid:178)
676
12,421
Balance at December 31, 2008 ...... 41,271 $ 413 $ 158,216
$ 237,188
$ (10,683 ) $
(cid:178) $
(1,104 ) $ 384,030
See accompanying notes to Consolidated Financial Statements.
52
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
2007
2006
2008
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................................................................... $ 60,561 $ 39,859 $ 42,323
24,747
Depreciation and amortization, net ...............................................................................
(cid:178)
Unrealized foreign currency transaction losses, net ......................................................
445
Impairment of long-lived assets ...................................................................................
Stock-based compensation expense ..............................................................................
2,460
(cid:178)
Excess tax benefit from stock-based compensation .....................................................
198
Deferred income tax provision ......................................................................................
(13,683 )
Net loss (gain) on disposal of property and equipment ................................................
721
(Reversals of) termination costs associated with exit activities .....................................
(600 )
Bad debt expense (reversals) .........................................................................................
240
Write down of value added tax receivables ..................................................................
(105 )
Unrealized loss (gain) on financial instruments, net ......................................................
Amortization of discount on short-term investments ....................................................
(cid:178)
Amortization of actuarial (gains) losses on pension ......................................................
(cid:178)
(48 )
Foreign exchange loss (gain) on liquidation of foreign entities .....................................
Changes in assets and liabilities:
(23,705 )
Receivables ..............................................................................................................
1,360
Prepaid expenses .......................................................................................................
(1,035 )
Other current assets ...................................................................................................
Deferred charges and other assets ............................................................................
(1,671 )
4,396
Accounts payable .....................................................................................................
Income taxes receivable/payable ..............................................................................
(1,151 )
4,596
Accrued employee compensation and benefits .........................................................
Other accrued expenses and current liabilities .........................................................
(456 )
925
Deferred revenue ......................................................................................................
Other long-term liabilities ........................................................................................
479
Net cash provided by operating activities ............................................................. 80, 857
27,965
567
(cid:178)
4,756
(712 )
1,354
322
(cid:178)
554
592
1,395
(173 )
(66 )
4
25,235
(cid:178)
(cid:178)
4,171
(cid:178)
106
339
(54 )
407
1,452
(542 )
(292 )
43
(13 )
(23,912 )
(2,940 )
144
(28 )
118
2,368
4,170
723
(4,247 )
1,142
48,249
(20,816 )
(996 )
463
(4,843 )
2,481
4,685
2,758
(1,182 )
5,153
371
44,772
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .....................................................................................................
Cash paid for business acquisitions, net of cash acquired .............................................
Proceeds from sale of facilities ....................................................................................
Proceeds from sale of property and equipment ............................................................
Proceeds from sale (purchase) of short-term investments .............................................
Investments in restricted cash ........................................................................................
Proceeds from release of restricted cash........................................................................
Other .............................................................................................................................
Net cash used for investing activities ...................................................................
(34,677 )
(2,400 )
(cid:178)
170
17,535
(997 )
847
(129 )
(19,651 )
(1,600 )
(cid:178)
128
(17,535 )
(368 )
1,600
(130 )
(31,472 ) (19,420 )
(17,417 )
15,375
183
(213 )
(4,510 )
(cid:178)
(132 )
(49,377 ) (26,134 )
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt .........................................................................................
Proceeds from issuance of stock ...................................................................................
Excess tax benefit from stock-based compensation ......................................................
Cash paid for repurchase of common stock ...................................................................
Proceeds from grants .....................................................................................................
Proceeds from short-term debt ......................................................................................
Payments of short-term debt..........................................................................................
Net cash provided by financing activities .............................................................
(cid:178)
1,174
712
(512 )
123
26
(26 )
1,497
(cid:178)
474
(cid:178)
(cid:178)
248
242
(242 )
722
(381 )
4,342
2,355
(cid:178)
531
(cid:178)
(cid:178)
6,847
5,483
Effects of exchange rates on cash ..............................................................................
Net increase in cash and cash equivalents ....................................................................
30,968
CASH AND CASH EQUIVALENTS (cid:178) BEGINNING ............................................. 177,682 158,580 127,612
CASH AND CASH EQUIVALENTS (cid:178) ENDING .................................................... $ 219,050 $ 177,682 $ 158,580
(21,335 )
41,368
19,508
19,102
53
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
(In thousands)
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ................................................................... $
Cash paid during the year for income taxes ........................................................... $
Years Ended December 31,
2007
2006
2008
369 $
420
23,635 $ 12,148 $ 10,007
393 $
Non-cash transactions:
Property and equipment additions included in accounts payable ......................... $
Issuance of common stock for business acquisition .............................................. $
5,318 $
676 $
2,868 $
468 $
2,014
4,399
See accompanying notes to Consolidated Financial Statements.
54
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Sykes (cid:40)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)SYKES(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:12)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:71)(cid:3)
customer contact management solutions and services in the business process outsourcing arena to companies,
primarily within the communications, financial services, healthcare, technology/consumer and transportation and
leisure 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(cid:182) customers. Utilizing SYKES(cid:182)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
onshore/offshore global delivery model, SYKES provides its services through multiple communications channels
encompassing phone, e-mail, Web and chat. SYKES complements its outsourced customer contact management
services with various enterprise support services in the United States that encompass services for a (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
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 geographic regions 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
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:11)(cid:21)(cid:12)(cid:3) (cid:40)(cid:48)(cid:40)(cid:36)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3) (cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72), the
Middle East and Africa.
Note 1. Summary of Accounting Policies
Principles of Consolidation (cid:178) The consolidated financial statements include the accounts of SYKES and its
wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Use of Estimates (cid:178) The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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.
Recognition of Revenue (cid:178) Revenue is recognized pursuant to applicable accounting standards, including
(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:3)(cid:54)(cid:87)(cid:68)(cid:73)(cid:73)(cid:3) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:37)(cid:88)(cid:79)(cid:79)(cid:72)(cid:87)(cid:76)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:36)(cid:37)(cid:180)(cid:12)(cid:3)(cid:49)(cid:82)(cid:17) 101 (SAB 101), (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)
(cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180), SAB 104(cid:15)(cid:3) (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3) (cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180), and the Emerging Issues Task Force
(cid:11)(cid:179)(cid:40)(cid:44)(cid:55)(cid:41)(cid:180)(cid:12)(cid:3) (cid:49)(cid:82)(cid:17) 00-21, (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3) (cid:36)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:48)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3) (cid:39)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:180). SAB 101, as amended, and SAB 104
(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:40)(cid:38)(cid:3) (cid:86)(cid:87)(cid:68)(cid:73)(cid:73)(cid:182)(cid:86)(cid:3) (cid:89)(cid:76)(cid:72)(cid:90)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:83)(cid:83)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)
recognition in financial statements and provide guidance on revenue recognition issues in the absence of
authoritative literature addressing a specific arrangement or a specific industry. EITF 00-21 provides further
guidance on how to account for multiple element contracts.
The Company primarily recognizes its revenue from services as those services are performed, which is based on
either a per minute, per call or per transaction basis, under a fully executed contractual agreement and records
reductions to revenue for contractual penalties and holdbacks for failure to meet specified minimum service levels
and other performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon
delivery of any future product or service or meeting other specified performance conditions.
Product sales, accounted for within fulfillment services, are recognized upon shipment to the customer and
satisfaction of all obligations.
Revenue from contracts with multiple-deliverables is allocated to separate units of accounting based on their
relative fair value, if the deliverables in the contract(s) meet the criteria for such treatment. Certain fulfillment
services contracts contain multiple-deliverables. Additionally, the Company had a contract containing multiple-
deliverables for customer contact management services and fulfillment services that ended during 2008. Separation
criteria included whether a delivered item has value to the customer on a standalone basis, whether there is objective
and reliable evidence of the fair value of the undelivered items and, if the arrangement includes a general right of
return related to a delivered item, whether delivery of the undelivered item is considered probable and in the
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79). Fair value is the price of a deliverable when it is regularly sold on a standalone basis, which
generally consists of vendor-specific objective evidence of fair value. If there is no evidence of the fair value for a
55
delivered product or service, revenue is allocated first to the fair value of the undelivered product or service and then
the residual revenue is allocated to the delivered product or service. If there is no evidence of the fair value for an
undelivered product or service, the contract(s) is accounted for as a single unit of accounting, resulting in delay of
revenue recognition for the delivered product or service until the undelivered product or service portion of the
contract is complete. The Company recognizes revenue for delivered elements only when the fair values of
undelivered elements are known, uncertainties regarding client acceptance are resolved, and there are no client-
negotiated refund or return rights affecting the revenue recognized for delivered elements. Once the Company
determines the allocation of revenue between deliverable elements, there are no further changes in the revenue
allocation. If the separation criteria are met, revenue from these services is recognized as the services are performed
under a fully executed contractual agreement. If the separation criteria are not met because there is insufficient
evidence to determine fair value of one of the deliverables, all of the services are accounted for as a single combined
unit of accounting. For these deliverables with insufficient evidence to determine fair value, revenue is recognized
on the proportional performance method using the straight-line basis over the contract period, or the actual number
of operational seats used to serve the client, as appropriate.
Cash and Cash Equivalents (cid:178) Cash and cash equivalents consist of cash and highly liquid short-term
investments. Cash in the amount of $219.0 million and $177.7 million at December 31, 2008 and 2007, respectively,
was primarily held in interest bearing investments, which have an average maturity of less than 90 days. Cash and
cash equivalents of $199.1 million and $166.4 million at December 31, 2008 and 2007, respectively, were held in
international operations and may be subject to additional taxes if repatriated to the United States.
Allowance for Doubtful Accounts (cid:178) The Company maintains allowances for doubtful accounts of $3.1 million
and $2.8 million as of December 31, 2008 and 2007, or 2.0% and 1.9% of trade account receivables, respectively,
for estimated losses arising from the inability of its customers to make required payments. (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)
is based on factors surrounding the credit risk of certain clients, historical collection experience and a review of the
(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:17)(cid:3)(cid:44)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:83)(cid:82)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
for doubtful accounts will change if (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3) (cid:90)(cid:72)(cid:85)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:71)eteriorate,
resulting in a reduced ability to make payments. Based on a review of the trade accounts receivables balances and
activity, the Company increased the allowance for doubtful accounts during 2008 and 2007 by $0.6 million and $0.4
million, respectively.
Property and Equipment (cid:178) Property and equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are
credited or charged to income. Depreciation expense was $27.6 million, $24.8 million and $25.0 million for 2008,
2007 and 2006, respectively. Property and equipment includes $5.3 million, $2.9 million and $2.0 million of
additions included in accounts payable at December 31, 2008, 2007 and 2006, respectively. Accordingly, non-cash
transactions have been excluded from the accompanying Consolidated Statements of Cash Flows for 2008, 2007 and
2006, respectively.
The Company capitalizes certain costs incurred to internally develop software upon the establishment of
technological feasibility. Costs incurred prior to the establishment of technological feasibility are expensed as
incurred. Capitalized internally developed software costs, net of accumulated amortization, were $0.5 million and
$0.5 million at December 31, 2008 and 2007, respectively.
The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable in accordance with Statement of
(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:11)(cid:179)(cid:54)(cid:41)(cid:36)(cid:54)(cid:180)(cid:12)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:23)(cid:23)(cid:15)(cid:3) (cid:179)Accounting for the Impairment or Disposal of Long-Lived
Assets(cid:180)(cid:17)(cid:3)For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels
(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:180)(cid:12). An asset is considered to be impaired when the
sum of the undiscounted future net cash flows of the reporting unit expected to result from the use of the asset and
its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured
as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally
determined based on appraisals or sales prices of comparable assets. Occasionally, the Company redeploys property
and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that
the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the
carrying amount of these assets. The Company determined that its property and equipment was not impaired as of
December 31, 2008.
56
Rent Expense (cid:178)The Company has entered into several operating lease agreements, some of which contain
provisions for future rent increases, rent free periods, or periods in which rent payments are reduced. The total
amount of the rental payments due over the lease term is being charged to rent expense on the straight-line method
over the term of the lease (cid:76)(cid:81)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:22)(cid:3) (cid:179)Accounting for Leases(cid:15)(cid:180)(cid:3) Financial Accounting
Standards Board (FASB) Technical Bulletin 88-(cid:20)(cid:3)(cid:179)Issues Relating to Accounting for Leases(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:55)(cid:72)(cid:70)(cid:75)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)
Bulletin 85-(cid:22)(cid:3)(cid:179)Accounting for Operating Leases with Scheduled Rent Increases(cid:17)(cid:180)
Investment in SHPS (cid:178) The Company holds a 3.8% ownership interest in SHPS, Incorporated, which is
accounted for at cost of approximately $2.1 million as of December 31, 2008 and 2007 (cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)
(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:54)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:3) (cid:11)see Note 12.) The Company will
record an impairment charge or loss if it believes the investment has experienced a decline in value that is other than
temporary. Future adverse changes in market conditions or poor operating results of the underlying investment could
result in losses or an inability to recover the carrying value of the investment and, therefore, might require an
impairment charge in the future.
Investments Held in Rabbi Trust (cid:178) Securities held in a rabbi trust for a supplemental nonqualified executive
retirement program, as more fully described in Note 23, Stock-Based Compensation, include the fair market value of
debt and equity securities held in various mutual funds. The fair market value of these mutual funds, classified as
trading securities in accordance with SFAS No. 115 (SFAS 115)(cid:15)(cid:3)(cid:179)Accounting for Certain Investments in Debt and
Equity Securities(cid:180), is determined by quoted market prices and is adjusted to the current market price at the end of
each reporting period. The net realized and unrealized gains and losses on trading securities are included (cid:76)(cid:81)(cid:3)(cid:179)Other
income and expense(cid:180)(cid:3) in the accompanying Consolidated Statements of Operations. For purposes of determining
realized gains and losses, the cost of securities sold is based on specific identification.
Short-term Investments (cid:178) Short-term investments are investments that are highly liquid, held to maturity
(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:20)(cid:24)(cid:15)(cid:3)(cid:179)Accounting for Certain Investments in Debt and Equity Securities(cid:180)(cid:15)(cid:3)
and have terms greater than three months, but less than one year, at the time of acquisition.
Goodwill (cid:178) The Company accounts for goodwill under SFAS No. 142 (SFAS 142), (cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:17)(cid:180) Goodwill and other intangible assets with indefinite lives are not subject to amortization, but
instead must be reviewed at least annually, and more frequently in the presence of certain circumstances, for
impairment by applying a fair value based test. Fair value for goodwill is based on discounted cash flows, market
multiples and/or appraised values, as appropriate. Under SFAS 142, the carrying value of assets is calculated at the
(cid:79)(cid:82)(cid:90)(cid:72)(cid:86)(cid:87)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:180)(cid:12)(cid:17)(cid:3)(cid:44)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:3)
is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within
the reporting unit is less than its carrying value. The Company completed its annual goodwill impairment test during
the third quarter of 2008, which included the consideration of recent economic developments and determined that
the carrying amount of goodwill was not impaired. The Company expects to receive future benefits from previously
acquired goodwill over an indefinite period of time.
Intangible Assets (cid:178) Intangible assets, primarily customer relationships, existing technologies and covenants not
to compete, are amortized using the straight-line method over their estimated useful lives which approximates the
pattern in which the economic benefits of the assets are consumed. The Company periodically evaluates the
recoverability of intangible assets and takes into account events or changes in circumstances that warrant revised
estimates of useful lives or that indicate that impairment exists. Fair value for intangible assets is based on
discounted cash flows, market multiples and / or appraised values as appropriate. The Company does not have other
intangible assets with indefinite lives.
Value Added Tax Receivables (cid:178) The Philippine operations are subject to Value Added Tax, or VAT, which is
usually applied to all goods and services purchased throughout the Philippines. Upon validation and certification of
the VAT receivables by the Philippine government, the VAT receivables are held for sale through third-party
brokers. This process through collection typically takes three to five years. The VAT receivables balance, which is
recorded at net realizable value, is $7.5 million and $8.3 million as of December 31, 2008 and 2007, respectively.
As of December 31, 2008 and 2007, the VAT receivables of $4.9 million and $6.4 million, respectively, are
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:38)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:15)(cid:3)(cid:7)1.1 million and $0.0 million, respectively, are (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)$1.5 million and $1.9 million, respectively, are (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:53)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)
Consolidated Balance Sheets. During the years ended December 31, 2008, 2007 and 2006, the Company wrote
down the VAT receivables balance by $0.6 million, $1.4 million, and $0.2 million, respectively.
57
Income Taxes (cid:178) The Company accounts for income taxes under SFAS No. (cid:20)(cid:19)(cid:28)(cid:15)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:19)(cid:28)(cid:12)(cid:3)(cid:179)Accounting for
Income Taxes(cid:15)(cid:180)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3)
differences between the tax bases of assets and liabilities and their reported amounts in the accompanying
Consolidated Financial Statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight
of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that
the deferred tax assets will not be realized in accordance with criteria of SFAS 109.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and
records a liability for unce(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:41)(cid:36)(cid:54)(cid:37)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:23)(cid:27)(cid:3) (cid:11)(cid:179)(cid:41)(cid:44)(cid:49)(cid:3) (cid:23)(cid:27)(cid:180)(cid:12)(cid:15)(cid:3)
(cid:179)Accounting for Uncertainty in Income Taxes (cid:177) an interpretation of FASB No. 109(cid:17)(cid:180)(cid:3) (cid:41)(cid:44)(cid:49)(cid:3) (cid:23)(cid:27)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3) (cid:68)(cid:3) (cid:87)(cid:90)(cid:82)-step
approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS 109. First,
tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the
position will be sustained upon examination, including resolution of related appeals or litigation processes, if any.
Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of
being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits
in the provision for income taxes in the accompanying Consolidated Financial Statements.
Self-Insurance Programs (cid:178) The Company self-(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:40)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
costs of this self-insurance program are accrued at the projected settlements for known and anticipated claims. The
self-insurance liabilities total $0.4 million and $0.6 million as of December 31, 2008 and 2007, respectively. As of
December 31, 2008 and 2007, self-insurance liabilities of $0.2 million and $0.3 million, respectively, are included in
(cid:179)(cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:180), and $0.2 million and $0.3 million, respectively, are included in
(cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)-(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180) in the accompanying Consolidated Balance Sheets.
Deferred Grants (cid:178) Recognition of income associated with grants of land and the acquisition of property,
buildings and equipment is deferred until after the completion and occupancy of the building and title has passed to
the Company, and the funds have been released from escrow. The deferred amounts for both land and building are
amortized and recognized as a reduction of depreciation expense included within general and administrative costs
over the corresponding useful lives of the related assets. Amounts received in excess of the cost of the building are
allocated to the cost of equipment and, only after the grants are released from escrow, recognized as a reduction of
depreciation expense over the weighted average useful life of the related equipment, which approximates five years.
Amortization of the deferred grants that is included as a reduction t(cid:82)(cid:3) (cid:179)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:180) costs in the
accompanying Consolidated Statements of Operations was approximately $1.1 million, $1.1 million and
$1.3 million for the years ended December 31, 2008, 2007 and 2006, respectively. Upon sale of the related facilities,
any deferred grant balance is recognized in full and is included in the gain on sale of property and equipment.
In April 2006, the Company executed an agreement with a government entity in Ireland, which agreed to pay $0.8
million to the Company to provide 100 new permanent jobs (on or before December 31, 2008) in excess of the
existing base employment as of December 31, 2004, subject to certain terms and conditions. These grants were
awarded by the government for creating and maintaining permanent employment positions in Ireland for a period of
at least five years. During October 2007 and December 2006, the Company received employment grants totaling
$0.8 million for jobs created under this agreement. This amount is amortized (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:179)General and
administrative(cid:180)(cid:3)costs in the Consolidated Statement of Operations using the proportionate performance model over
the five-year employment period. At December 31, 2008(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3) met or
exceeded the base employment levels set by the government.
Deferred Revenue (cid:178) The Company receives up-front fees in connection with certain contracts. The deferred
revenue is earned over the service periods of the respective contracts, which range from six months to seven years.
Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets includes the up-
front fees associated with services to be provided over the next ensuing twelve month period and the up-front fees
associated with services to be provided over multiple years in connection with contracts that contain cancellation
and refund provisions, whereby the manufacturers or customers can terminate the contracts and demand pro-rata
refunds of the up-front fees with short notice. Deferred revenue included in current liabilities in the accompanying
Consolidated Balance Sheets also includes estimated penalties and holdbacks for failure to meet specified minimum
service levels in certain contracts and other performance based contingencies.
Stock-Based Compensation (cid:178) The Company has three stock-based compensation plans: the 2001 Equity
Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-
58
employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible
employees), which are discussed more fully in Note 23. Stock-based awards under these plans may consist of
common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted
stock and other stock-based awards. The Company issues common stock and treasury stock to satisfy stock option
exercises or vesting of stock awards.
In accordance with SFAS 123R, the Company recognizes in its income statement the grant-date fair value of
stock options and other equity-based compensation issued to employees and directors. Compensation expense for
equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation
expense for liability-based awards (those usually settled in cash rather than stock) is measured to fair-value at each
balance sheet date until the award is settled.
Effective January 1, 2006, the Company adopted the provisions of SFAS No. (cid:20)(cid:21)(cid:22)(cid:53)(cid:15)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:21)(cid:22)(cid:53)(cid:12)(cid:15)(cid:3)(cid:179)Share-Based
Payment(cid:180)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)-based compensation plans. In conjunction with the adoption of SFAS 123R on January 1,
2006, the Company also adopted the following: Staff Accounting Bulletin (SAB) 107, (cid:179)Share-Based Payments(cid:180)(cid:15)(cid:3)
which provides guidance on valuation methods available and other matters; Financial Accounting Standards Board
(FASB) Staff Position No. 123 R-2 (SFAS 123R-(cid:21)(cid:12)(cid:15)(cid:3)(cid:179)Practical Accommodation to the Application of Grant Date as
Defined in SFAS 123R(cid:15)(cid:180)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:74)(cid:88)(cid:76)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:54)(cid:87)(cid:68)(cid:73)(cid:73)(cid:3)(cid:51)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)
No. 123R-(cid:22)(cid:15)(cid:3) (cid:179)Transition Election Related to Accounting for the Tax Effects of Share Based Payment Awards(cid:15)(cid:180)(cid:3)
which provides for an elective alternative transition method that establishes a computational component to arrive at
the beginning balance of the accumulated paid-in capital pool related to employee compensation and a simplified
method to determine the subsequent impact on the accumulated paid-in capital pool of employee awards that are
fully vested and outstanding upon the adoption of SFAS 123R. The Company elected to use the alternative transition
method in conjunction with the adoption of SFAS 123R. The adoption of SFAS 123R did not have a material effect
(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:70)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)
per share for the year ended December 31, 2006.
Under SFAS 123R, the pro forma disclosures previously permitted are no longer an alternative to financial
statement recognition. The Company elected to use the modified prospective method which requires the Company to
record compensation expense for the non-vested portion of previously issued awards that remain outstanding at the
initial date of adoption of SFAS 123R and to record compensation expense for any awards issued or modified after
January 1, 2006. Results for prior periods have not been restated. Upon adoption of SFAS 123R, the deferred stock
compensation balance of $0.4 million as of January 1, 2006 was reclassified to additional paid-in capital in the
(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:21)(cid:22)(cid:53)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
tax deductions in excess of recognized compensation cost to be reported as a financing cash flow and a
corresponding reduction in operating cash flows, rather than as an operating cash flow as previously required.
Accordingly, the excess tax benefit of $2.4 million for the year ended December 31, 2006 was classified as a
financing cash flow and a corresponding reduction in operating cash flows in the accompanying Consolidated
Statement of Cash Flows.
Fair Value of Financial Instruments (cid:178) The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to estimate that value:
(cid:120) Cash, Accounts Receivable, Value Added Tax Receivables, Short-term and Other Investments, Investments
Held in Rabbi Trust and Accounts Payable. The carrying values reported in the balance sheet for cash,
accounts receivable, value added tax receivables, short-term investments, investments held in rabbi trust
and accounts payable approximate their fair values.
(cid:120) Forward currency forward contracts. Forward currency forward contracts are recognized in the balance
sheet at fair value based on quoted market prices of comparable instruments or, if none are available, on
pricing models or formulas using current market and model assumptions.
(cid:120) Long-Term Debt. The fair value of long-term debt, including the current portion thereof, is estimated based
on the quoted market price for the same or similar types of borrowing arrangements. As of December 31,
2008 and 2007, the Company had no outstanding long-term debt.
Fair Value Measurements - Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157
(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:24)(cid:26)(cid:12)(cid:15)(cid:3) (cid:179)Fair Value Measurements(cid:180) (cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:24)(cid:28)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:24)(cid:28)(cid:12)(cid:15)(cid:3)(cid:179)The Fair Value Option for Financial
Assets and Financial Liabilities - including an amendment to FASB Statement No. 115(cid:180). SFAS 157, which defines
fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 clarifies that fair value is an exit
59
price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants.
SFAS 159 permits an entity to measure certain financial assets and financial liabilities at fair value with changes
in fair value recognized in earnings each period. During 2008, the Company has not elected to use the fair value
option permitted under SFAS 159 for any of its financial assets and financial liabilities that are not already recorded
at fair value.
(cid:36)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)is summarized below.
Fair Value Hierarchy - SFAS 157 requires disclosure about how fair value is determined for assets and liabilities
and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of
observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while
(cid:88)(cid:81)(cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:76)(cid:81)(cid:83)(cid:88)(cid:87)(cid:86)(cid:3) (cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:76)(cid:86)(cid:3) (cid:75)(cid:76)(cid:72)(cid:85)(cid:68)(cid:85)(cid:70)(cid:75)(cid:92)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:88)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
market data when available. These two types of inputs have created the following fair-value hierarchy:
(cid:135)(cid:3) Level 1 (cid:177) Quoted prices for identical instruments in active markets.
(cid:135)(cid:3) Level 2 (cid:177) Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived valuations
in which all significant inputs and significant value drivers are observable in active
markets.
(cid:135)(cid:3) Level 3 (cid:177) Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
Determination of Fair Value - The Company generally uses quoted market prices (unadjusted) in active markets
for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies
such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include
quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices
that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and
include situations where there is little, if any, market activity for the asset or liability.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that
use, where possible, current market-based or independently sourced market parameters, such as interest rates,
currency rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified
according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified
in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure fair value,
including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
Money Market and Open-end Mutual Funds - The Company uses quoted market prices in active markets to
determine the fair value of money market and open-end mutual funds, which are classified in Level 1 of the fair
value hierarchy.
Foreign Currency Forward Contracts - The Company enters into foreign currency forward contracts over the
counter and values such contracts using a discounted cash flows model. The key inputs include forward foreign
currency exchange rates and interest rates, adjusted for credit risk. The item is classified in Level 2 of the fair value
hierarchy.
Investments Held in Rabbi Trust - The Company maintains a non-qualified deferred compensation plan structured
as a rabbi trust for certain eligible employees. The investment assets of the rabbi trust are valued using quoted
market prices multiplied by the number of shares held in the trust, which are classified in Level 1 of the fair value
hierarchy. For additional information about our deferred compensation plan, refer to Notes 9 and 23.
Guaranteed Investment Certificates - (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:74)(cid:88)(cid:68)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)
rate linked to the prime rate and approximates fair value due to the automatic ability to reprice with changes in the
market; such items are classified in Level 2 of the fair value hierarchy.
60
Value Added Tax Receivables - The value (cid:68)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:179)(cid:57)(cid:36)(cid:55)(cid:180)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)s are recorded at net realizable value,
which approximates fair value. The Company writes down the carrying value in excess of the net realizable value
based on estimated discounted future cash flows using such factors as historical sales experience and current market
conditions. Such items are classified in Level 3 of the fair value hierarchy.
Foreign Currency Translation (cid:178) (cid:55)(cid:75)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)
functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date,
and income and expenses are translated at the weighted average exchange rate during the period. The net effect of
translation gains and losses is not included in determining net income, but is included in (cid:179)Accumulated other
comprehensive income (loss)(cid:180)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:88)(cid:81)(cid:87)(cid:76)(cid:79)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)
until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign
currency transactional gains and losses are included in determining net income. Such gains and losses are included
in (cid:179)(cid:50)ther income (expense)(cid:180) in the accompanying Consolidated Statements of Operations.
Foreign Currency and Derivative Instruments (cid:178) The Company accounts for financial derivative instruments
(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:22)(cid:22)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:22)(cid:22)(cid:12)(cid:15)(cid:3)(cid:179)Accounting for Derivative Instruments and Hedging Activities(cid:180)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:17)(cid:3)
The Company generally utilizes non-deliverable forward contracts expiring within one to 24 months to reduce its
foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional
foreign currencies. Upon proper qualification, these contracts are accounted for as cash-flow hedges, as defined by
SFAS 133. 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. In using derivative financial instruments
to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.
All derivatives, including foreign currency forward contracts, are recognized in the balance sheet at fair value as
defined in SFAS 157(cid:17)(cid:3)(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:84)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)
prices of comparable instruments or, if none are available, on pricing models or formulas using current market and
model assumptions, including adjustments for credit risk. On the date the derivative contract is entered into, the
Company determines whether the derivative contract should be designated as a cash flow hedge. Changes in the fair
value of derivatives that are highly effective and designated as cash flow hedges are recorded in (cid:179)Accumulated other
comprehensive income (loss)(cid:180), until the forecasted underlying transactions occur. Any realized gains or losses
resulting from the cash flow hedges are recognized together with the hedged transaction within (cid:179)(cid:53)evenue(cid:86)(cid:180). Cash
(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:179)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)g activities(cid:180) in the accompanying
Consolidated Statement of Cash Flows. Ineffectiveness is measured based on the change in fair value of the forward
contracts and the fair value of the hypothetical derivatives with terms that match the critical terms of the risk being
hedged(cid:17)(cid:3)(cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:180)(cid:17)
The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk management objective and strategy for undertaking various hedging activities. This process includes linking all
derivatives that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses,
(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:71)(cid:74)(cid:72)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)e used in hedging transactions
are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis.
When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective
hedge or if a forecasted hedge is no longer probable of occurring, the Company discontinues hedge accounting
prospectively. At December 31, 2008, all hedges were determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges. The purpose of
these derivative instruments is to reduce the effects on its operating results and cash flows from fluctuations caused
by volatility in currency exchange rates. See Note 8 for further information on financial derivative instruments.
Recent Accounting Pronouncements (cid:177) In July 2006, the FASB issued FASB Interpretation 48 (FIN 48),
(cid:179)Accounting for Uncertainty in Income Taxes(cid:180)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:70)(cid:79)(cid:68)(cid:85)(cid:76)(cid:73)(cid:76)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) accounting for uncertainty in income taxes
(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:19)(cid:28)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:19)(cid:28)(cid:12)(cid:15)(cid:3)(cid:179)Accounting for
Income Taxes(cid:17)(cid:180)(cid:3)(cid:41)(cid:44)(cid:49)(cid:3)(cid:23)(cid:27)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:74)(cid:88)(cid:76)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosures, and transition. The Company adopted the provisions of
FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $2.7 million
liability for unrecognized tax benefits, including interest and penalties, which was accounted for as a reduction to the
January 1, 2007 balance of retained earnings.
61
(cid:44)(cid:81)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:25)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:24)(cid:26)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:24)(cid:26)(cid:12)(cid:15)(cid:3)(cid:179)Fair Value Measurements(cid:180), which defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. The Company adopted the provisions of SFAS
(cid:20)(cid:24)(cid:26)(cid:3)(cid:82)(cid:81)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:71)(cid:76)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
condition, results of operations or cash flows. See Note 2 (cid:177) Fair Value for further information.
In March 2007, the EITF reached a consensus on Issue No. 06-10 (EITF 06-(cid:20)(cid:19)(cid:12)(cid:15)(cid:3) (cid:179)Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance
Arrangements(cid:17)(cid:180)(cid:3) (cid:40)ITF 06-10 provides guidance on the employer(cid:182)s recognition of assets, liabilities and related
compensation costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an
employee that extends into postretirement periods. The Company adopted the provisions of EITF 06-10 on January
1, 2008. As a result of the implementation of EITF 06-10, the Company recognized a $0.5 million liability for a
postretirement benefit obligation related to a split dollar arrangement on behalf of its founder and former Chairman
and Chief Executive Officer which was accounted for as a reduction to the January 1, 2008 balance of retained
earnings. See Note 22 (cid:177) Pension Plan and Post-Retirement Benefits for further information.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), (cid:179)Business Combinations(cid:180) and
SFAS No. 160 (SFAS 160), (cid:179)Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51(cid:180). SFAS 141R changes how business acquisitions are accounted for and
impacts financial statements both on the acquisition date and in subsequent periods. SFAS 160 changes the
accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and
(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3) On January 1, 2009, the Company adopted the provisions of
SFAS 141R and SFAS 160. SFAS 141R will be applied prospectively for all business combinations entered into
after January 1, 2009, the date of adoption. The provisions of SFAS 160 will also be applied prospectively to all
noncontrolling interests, except for the presentation and disclosure provisions which are applied retrospectively to
any noncontrolling interests that arose before January 1, 2009. The adoption of these standards did not have a
(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:17)
(cid:44)(cid:81)(cid:3) (cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:21)(cid:19)(cid:19)(cid:27)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:36)(cid:54)(cid:37)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:25)(cid:20)(cid:3) (cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:20)(cid:25)(cid:20)(cid:12)(cid:15)(cid:3) (cid:179)Disclosures About Derivative Instruments and
Hedging Activities(cid:180)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:22)(cid:22)(cid:15)(cid:3)(cid:179)Accounting for Derivative Instruments and Hedging Activities(cid:180)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3)
requiring increased qualitative, quantitative, and credit-(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
hedging activities. On January 1, 2009, the Company adopted the provisions of SFAS 161. The adoption of this
(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:71)(cid:76)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:17)(cid:3)
In April 2008, the FASB issued FASB Staff Position (cid:11)(cid:179)(cid:41)(cid:54)(cid:51)(cid:180)(cid:12)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:23)(cid:21)-3 (FSP 142-(cid:22)(cid:12)(cid:15)(cid:3) (cid:179)Determination of the
Useful Life of Intangible Assets(cid:180)(cid:17) FSP 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No.
(cid:20)(cid:23)(cid:21)(cid:15)(cid:3)(cid:179)Goodwill and Other Intangible Assets(cid:180)(cid:17) This new guidance applies prospectively to intangible assets that are
acquired individually or with a group of other assets in business combinations and asset acquisitions. The Company
adopted the provisions of FSP 142-3 on January 1, 2009. The adoption of this standard did not have a material
(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:17)(cid:3)
(cid:44)(cid:81)(cid:3)(cid:48)(cid:68)(cid:92)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:25)(cid:21)(cid:3)(cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:25)(cid:21)(cid:12)(cid:15)(cid:3)(cid:179)The Hierarchy of Generally Accepted Accounting
Principles(cid:180)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:85)(cid:72)(cid:82)(cid:85)ganizes the generally accepted accounting principles (GAAP) hierarchy. SFAS 162 is
intended to improve financial reporting by providing a consistent framework for determining what accounting
principles should be used in preparing U.S. GAAP financial statements. With the issuance of SFAS 162, the FASB
concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the
accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants
(AICPA) Statement on Auditing Standards No. (cid:25)(cid:28)(cid:15)(cid:3)(cid:179)The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles(cid:180)(cid:17)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:20)(cid:25)(cid:21)(cid:3) was effective November 15, 2008, and did not have any material
(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)ncial condition, results of operations and cash flows.
In October 2008, the FASB issued FSP No. FAS 157-3 (FSP 157-3), "Determining the Fair Value of a Financial
Asset When the Market for that Asset Is Not Active", which clarifies the application of SFAS 157 as it relates to the
valuation of financial assets in a market that is not active for those financial assets. FSP 157-3 is effective
immediately and includes those periods for which financial statements have not been issued. The Company currently
does not have any financial assets that are valued using inactive markets, and as such is not impacted by the issuance
of this standard.
62
In December 2008, the FASB issued FSP No. FAS 132(R)-1 (FSP 132R-1), "Employers Disclosures about
Postretirement Benefit Plan Assets", which provides additional guidance on an employers' disclosures about plan
assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial
statements issued for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact
of adopting FSP 132R-1 on its financial statements, results of operations and cash flows.
Note 2. Fair Value
The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of
SFAS 157 consist of the following (in thousands):
Fair Value Measurements at December 31, 2008 Using:
Quoted Prices in
Active Markets
For Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
Balance at
December 31,
2008
Assets:
Money Market and Open(cid:177)end
Mutual Funds .......................... (1) $
Investments Held in Rabbi
Trust
for the Deferred
Compensation
111,423
$
111,423 $
(cid:178) $
(cid:178)
Plan ......................................... (2)
Guaranteed Investment
Certificates ............................. (3)
Value Added Tax Receivables ... (4)
Total Assets ..................................
$
1,386
1,386
858
7,501
121,168
$
(cid:178)
(cid:178)
112,809 $
(cid:178)
858
(cid:178)
858 $
(cid:178)
(cid:178)
7,501
7,501
Liabilities:
Foreign Currency Forward
Contracts ................................. (5) $
Total Liabilities ............................
$
11,654
11,654
$
$
(cid:178) $
(cid:178) $
11,654 $
11,654 $
(cid:178)
(cid:178)
(1)
(2)
(3)
(4)
(5)
Included $110.7 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:7)0.7 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)
Consolidated Balance Sheet.
(cid:44)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:54)(cid:75)(cid:72)(cid:72)(cid:87)(cid:17)
Included $0.1 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:7)0.8 million classified as restricted cash (cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)
the accompanying Consolidated Balance Sheet.
Included $1.1 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180), $1.5 million in (cid:179)Receivable(cid:86)(cid:180) and $4.9 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)
the accompanying Consolidated Balance Sheet.
Included $11.7 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:54)(cid:75)(cid:72)(cid:72)(cid:87)(cid:17)
The (cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)
added tax receivables measured at fair value on a recurring basis using significant unobservable inputs (Level 3)
during 2008:
Balance, January 1, 2008 ....................................................................... $
Included in earnings1 ..............................................................................
Purchases, issuances and settlements .....................................................
Balance, December 31, 2008 .................................................................. $
8,247
(592 )
(154 )
7,501
Unrealized Gains (Losses) Included in Earnings Above
For the year ended December 31, 2008 ................................................ $ (cid:178)
1Represents (cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:85)(cid:76)(cid:87)(cid:72)(cid:3)(cid:71)(cid:82)(cid:90)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:180)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
accompanying Consolidated Statement of Operations.
63
At December 31, 2008, the Company also had assets that under certain conditions would be subject to
measurement at fair value on a non-recurring basis, like those associated with acquired businesses, including
goodwill and other intangible assets, and other long-lived assets. For these assets, measurement at fair value in
periods subsequent to their initial recognition would be applicable if one or more of these assets was determined to
be impaired; however, no impairment losses have occurred relative to any of these assets during 2008. When and if
recognition of these assets at their fair value is necessary, such measurements would be determined utilizing Level 3
inputs.
Note 3. Acquisitions and Dispositions
(cid:50)(cid:81)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:24)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:46)(cid:72)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:47)(cid:88)(cid:87)(cid:87)(cid:80)(cid:72)(cid:85)(cid:3)(cid:9)(cid:3)(cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:11)(cid:179)(cid:46)(cid:47)(cid:36)(cid:180)(cid:12)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
in Calgary, Alberta, Canada, which included net assets of approximately $0.2 million. KLA specializes in providing
call center services for organizational health, employee assistance, occupational health, and disability management.
The Company acquired these operations in an effort to broaden its operations in the healthcare sector, which resulted
in the Company paying a premium for KLA resulting in recognition of goodwill. Total cash consideration paid was
approximately $3.2 million based on foreign currency rates in effect at the date of the acquisition. The purchase
price resulted in a purchase price allocation to net assets of $0.2 million, to purchased intangible assets of $2.4
million (primarily customer relationships) and to goodwill of $0.6 million. The results of operations of KLA have
(cid:69)(cid:72)(cid:72)(cid:81)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:182)(cid:86)(cid:3) (cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) first quarter of
2005. Pro-forma results of operations, in respect to this acquisition, have not been presented because the effect of
this acquisition was not material.
On July 3, 2006, the Company completed the acquisition of all the outstanding shares of capital stock of Centro
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:68)(cid:70)(cid:70)(cid:76)(cid:121)(cid:81)(cid:3) (cid:48)(cid:88)(cid:79)(cid:87)(cid:76)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:15)(cid:3) (cid:54)(cid:17)(cid:36)(cid:17)(cid:3) (cid:11)(cid:5)(cid:36)(cid:83)(cid:72)(cid:91)(cid:180)(cid:12)(cid:15)(cid:3) (cid:68)(cid:81) established customer contact management solutions and services
provider headquartered in the City of Cordoba, Argentina. Apex serves clients in Argentina, Mexico and the United
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:36)(cid:83)(cid:72)(cid:91)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:69)(cid:72)(cid:72)(cid:81)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3)
(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)06. Client programs range from in-bound customer care and
help-desk/technical support to out-bound sales and cross selling within the business-to-consumer and certain
business-to-business segments for Internet Service Providers, wireless carriers and credit card companies. The
Company acquired these operations to broaden its operations in a growing market in the communications and
financial services verticals, which resulted in the Company paying a premium for Apex resulting in recognition of
goodwill. The purchase price for the shares was $27.4 million less $0.4 million, representing (cid:36)(cid:83)(cid:72)(cid:91)(cid:182)(cid:86)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)
certain of its capital leases as of the closing date, for a net purchase price of $27.0 million, eighty percent of which
($21.6 million) was paid in cash from offshore operations and twenty percent of which ($5.4 million) was paid by
the delivery of 330,992 shares of the common stock of the Company, valued at $16.324 per share. Of the net
purchase price of $27.0 million, $5.0 million was paid to an escrow account (eighty percent in cash and twenty
(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:12)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:72)(cid:79)(cid:79)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:80)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:68)(cid:3) (cid:75)(cid:82)(cid:79)(cid:71)(cid:69)(cid:68)(cid:70)(cid:78)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
purchase price until amounts billed by Apex to a major client reach established targets. In June 2007, the Company
settled the contingency related to the holdback of a portion of the purchase price based upon amounts billed to a
major client as amounts billed by Apex to the client reached the established targets. This settlement resulted in a
payout of $1.6 million in cash and $0.5 million in common stock from the escrow account and an increase in the
recorded amount of goodwill of $2.1 million. In July 2008, the Company settled the contingency related to the
holdback of a portion of the purchase price in the Apex transaction related to representations and warranties. This
settlement resulted in a payout of $2.4 million in cash and $0.7 million in common stock from the escrow account
and an increase in the recorded amount of goodwill of $3.1 million.
The Company allocated the net purchase price of $27.0 million less the $5.0 million contingent purchase price
held in escrow plus direct acquisition costs of $0.6 million, or $22.6 million, to the tangible assets, liabilities and
intangible purchased (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3) (cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:23)(cid:20)(cid:15)(cid:3) (cid:179)Business
Combinations(cid:17)(cid:180) The excess net purchase price over these fair values is recognized as goodwill, which is not
expected to be deductible for tax purposes. These fair values (cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)
including variations of the income approach, the market approach and the cost approach, resulting in a purchase
64
price allocation to net assets of $4.2 million, to goodwill of $14.4 million, to a deferred tax liability of $2.9 million
and to purchased intangible assets of $6.9 million as detailed in the following table (in thousands):
Purchased Intangible Assets
Customer relationships ................... $
Trade name .....................................
Non-compete agreements ...............
Other ...............................................
Total ............................................ $
Weighted
Average
Amortization
Period (years)
6
5
2
3
6
Amount
Assigned
5,500
1,000
200
165
6,865
The purchase price allocation for the Apex acquisition resulted in the following condensed balance sheet as of the
acquisition date (in thousands):
Cash and cash equivalents ...................................... $
Receivables, net and other current assets ................
Total current assets ............................................
Property and equipment, net ...................................
Goodwill .................................................................
Intangibles ..............................................................
Other long-term assets ............................................
$
Current liabilities .................................................... $
Long-term deferred tax liability ..............................
Other long-term liabilities .......................................
Total liabilities ...................................................
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) ...............................................
$
Amount
788
3,546
4,334
4,718
14,392
6,865
133
30,442
4,791
2,903
140
7,834
22,608
30,442
The following unaudited pro forma data summarizes the combined results of operations of the Company and
Apex for 2006 as if the combination had been consummated on January 1, 2006 (in thousands except per share
data):
Year Ended
December 31,
2006
Revenues ................................................................. $
Income before provision for income taxes ........ $
Net income.............................................................. $
Net income per diluted share ............................... $
588,280
54,144
44,064
1.10
Amortization expense, related to the purchased intangible assets resulting from the acquisitions (other than
goodwill), of $1.4 million, $1.5 million and $1.0 million for the years ended December 31, 2008, 2007 and 2006
respectively, (cid:76)(cid:86)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:179)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:180)(cid:3) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) of
Operations.
65
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)2008:
Gross
Intangibles
Accumulated
Amortization
Net
Intangibles
Weighted
Average
Amortization
Period (years)
Customer relationships ............. $
Trade name ...............................
Non-compete agreements..........
Other .........................................
$
6,711
892
610
237
8,450
$
$
2,596
446
610
212
3,864
$
$
4,115
446
(cid:178)
25
4,586
7
5
2
3
6
The following table presents the (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)purchased intangible assets (in thousands) as of December 31, 2007:
Gross
Intangibles
Accumulated
Amortization
Net
Intangibles
Weighted
Average
Amortization
Period (years)
Customer relationships ....... $
Trade name .........................
Non-compete agreements ...
Other ...................................
$
7,589
979
724
270
9,562
$
$
1,762
293
675
186
2,916
$
$
5,827
686
49
84
6,646
8
5
2
3
7
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:29)
Years Ending December 31,
2009 ........................................................................ $
2010 ........................................................................ $
2011 ........................................................................ $
2012 ........................................................................ $
2013 ........................................................................ $
Amount
1,375
1,351
1,262
598
(cid:178)
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:29)
Balance at December 31, 2006 ....................... $
Contingent payment for Apex acquisition .......
Foreign currency translation ............................
Balance at December 31, 2007 .......................
Contingent payment for Apex acquisition .......
Foreign currency translation ............................
Balance at December 31, 2008 ....................... $
Amount
20,422
2,068
(22 )
22,468
3,076
(2,353 )
23,191
66
Note 4. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:72)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)
(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71). See Note 8 - Financial Derivatives(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
credit risk relating to financial derivative instruments.
Note 5. Receivables
Receivables consist of the following (in thousands):
December 31,
Trade accounts receivable ................................................ $ 155,764
1,245
Income taxes receivable ...................................................
Other ................................................................................
3,128
160,137
2008
Less allowance for doubtful accounts ..............................
3,070
$ 157,067
2007
$ 144,165
549
3,589
148,303
2,813
$ 145,490
Note 6. Prepaid Expenses
Prepaid expenses consist of the following (in thousands):
Inventory, at cost............................................................... $
Prepaid rent .......................................................................
Prepaid maintenance .........................................................
Prepaid insurance ..............................................................
Prepaid other .....................................................................
$
December 31,
2008
1,604
1,217
1,942
640
1,681
7,084
2007
$
3,486
1,534
2,117
933
2,835
$ 10,905
Note 7. Other Current Assets
Other current assets consist of the following (in thousands):
December 31,
2008
Deferred tax assets (Note 18) ............................................ $
Restricted cash (Notes 2 and 3) ........................................
Financial derivatives (Note 8) ...........................................
Investments held in Rabbi Trust (Note 9) .........................
Value added tax certificates (Note 1) ...............................
Other current assets ...........................................................
8,199
1,134
(cid:178)
1,386
1,121
1,477
$ 13,317
2007
$
5,780
3,132
8,372
1,405
(cid:178)
1,139
$ 19,828
Note 8. Financial Derivatives
The Company had derivative assets and liabilities relating to outstanding forward contracts, designated as cash
flow hedges, maturing within 12 months, consisting of Philippine peso contracts with a notional value of $107.0
million and $97.2 million as of December 31, 2008 and 2007, respectively. These derivative instruments are
(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:19)(cid:17)(cid:19)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:7)(cid:27).4 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:20)(cid:17)(cid:23)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:7)(cid:19)(cid:17)(cid:20) million as of December 31, 2008 and 2007, respectively, in the accompanying
Consolidated Balance Sheets.
The Company had a total of $(7.8) million and $5.0 million of deferred (losses) gains, net of taxes of $(3.0)
million and $2.7 million, on these derivative instruments as of December 31, 2008 and 2007, respectively, recorded
67
(cid:76)(cid:81)(cid:3) (cid:179)(cid:36)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:180)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:37)(cid:68)lance Sheets. The
(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:69)(cid:72)(cid:3) (cid:85)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:180)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:179)(cid:36)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:180)(cid:3)
during the next twelve months is $7.8 million. However, this amount and other future reclassifications from
(cid:179)(cid:36)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:180)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:80)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)
the forward contracts.
Net (losses) of $(1.9) million and net gains of $4.3 million from settled hedge contracts were reclassified from
(cid:179)(cid:36)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:180)(cid:3) (cid:87)(cid:82)(cid:3) (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:180)(cid:3) (cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:21)(cid:19)(cid:19)(cid:27)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:21)(cid:19)(cid:19)(cid:26)(cid:15)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
accompanying Consolidated Statements of Operations (none in 2006). During 2008 and 2007, the Company
recognized (losses) gains related to hedge ineffectiveness of $(0.5) million and $1.8 million, respectively which
(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:179)(cid:36)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:180)(cid:3)(cid:87)(cid:82)(cid:3)(cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:180)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:15)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:180)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:20)(cid:17)(cid:20)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)
contracts attributable to the difference in the spot and forward exchange rates, which was excluded from the
assessment of hedge effectiveness (none in 2008 and 2006).
During 2008, the Company entered into forward contracts to sell CAD 25.0 million at fixed prices of EUR 14.6
million. Also, during 2007, the Company entered into and settled forward contracts to purchase PHP 385.3 million
and CAD 2.5 million at fixed prices of $8.0 million and $2.5 million, respectively. Since these contracts were not
designated as accounting hedges, they were accounted for on a mark-to-market basis, with realized and unrealized
gains or losses recognized in the current period. As a result, the Company recognized losses in 2008 of $0.3 million
(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:180)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3)
Operations (not material for 2007). As of December 31, 2008 and 2007, the Company had derivative liabilities of
$0.3 million and $0.1 million, respectively, related to outstanding forward contracts, not designated as hedges,
maturing within twelve months and three months, respectively(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) 31, 2008 and 2007 in the accompanying Consolidated
Balance Sheets.
In February 2009, the Company entered into an additional forward contract to sell PHP 175.0 million at fixed
prices of Euro 2.8 million through April 2009 to hedge an intercompany loan payment denominated in PHP.
Note 9. Investments Held in Rabbi Trust
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) Held in Rabbi Trust, classified as (cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)Other current
assets(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:54)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:15) at fair value, consist of the following (in thousands):
Mutual funds .........................................................
$
1,810
$
1,386 $
December 31, 2008
Cost
Fair Value
December 31, 2007
Cost
1,196
Fair Value
1,405
$
Investments Held in Rabbi Trust were comprised of mutual funds, 72% of which are equity-based and 28% were
debt-based at December 31, 2008. (cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:12)(cid:180)(cid:3) in the accompanying
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007 consists of the following
(in thousands):
Gross realized gains from sale of trading securities ....... $
Gross realized losses from sale of trading securities .......
Dividend and interest income .........................................
Net unrealized holding losses ..........................................
Net investment (loss) income .......................................... $
2
(13 )
44
(660 )
(627 )
$
$
2
(4 )
124
(71 )
51
December 31,
2008
2007
Note 10. Short-term Investments
As of December 31, 2007, the Company had short-term investments of $17.8 million in commercial paper (none
for 2008) with a remaining maturity of less than one year. Short-term investments are carried at amortized cost,
which approximates fair value. Therefore, there were no significant unrecognized holding gains or losses at
December 31, 2007.
68
Note 11. Property and Equipment
Property and equipment consist of the following (in thousands):
Land ............................................................................... $
Buildings and leasehold improvements ..........................
Equipment, furniture and fixtures ...................................
Capitalized software development costs ........................
Transportation equipment ...............................................
Construction in progress .................................................
Less accumulated depreciation .......................................
$
December 31,
2008
4,180
57,082
188,550
3,074
706
498
254,090
173,700
80,390
$
2007
4,262
52,770
192,170
2,692
701
258
252,853
174,279
$ 78,574
In September 2006, the Company sold the land and buildings of four U.S. customer contact management centers
to an unrelated third party for cash totaling $14.6 million, net of selling costs, resulting in a net gain of $13.9
million. The net book value of these facilities of $6.3 million and other related assets of $0.5 million were offset by
the related deferred grants of $6.1 million.
During 2006, the Company recorded a $0.3 million impairment charge for property and equipment in one of its
underutilized European customer contact management centers. This impairment charge represented the amount by
which the carrying value of the assets exceeded the estimated fair value of those assets which cannot be redeployed
to other locations. Additionally, in 2006, the Company recorded an impairment charge of $0.1 million for property
and equipment no longer used in one of its Philippine facilities.
Note 12. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
December 31,
Non-current deferred tax assets (see Note 18) ................ $ 14,679
4,924
Non-current value added tax receivables, net ..................
Restricted cash (see Note 21) ...........................................
453
Investment in SHPS, Incorporated, at cost ......................
2,089
Other ...............................................................................
2,712
$ 24,857
2008
2007
14,757
6,394
923
2,089
1,892
26,055
$
$
Note 13. Accrued Employee Compensation and Benefits
Accrued employee compensation and benefits consist of the following (in thousands):
December 31,
Accrued compensation .................................................... $ 15,245
10,021
Accrued bonus and commissions .....................................
Accrued vacation .............................................................
10,954
Accrued employment taxes .............................................
8,657
Other ................................................................................
2,317
$ 47,194
2008
2007
$ 17,971
8,358
9,019
7,535
3,362
$ 46,245
69
Note 14. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
Future service.......................................................................$
Penalties and holdbacks .......................................................
$
December 31,
2008
2007
23,530
3,425
26,955
$
$
28,571
3,251
31,822
Note 15. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consist of the following (in thousands):
Accrued legal and professional fees ................................ $
Accrued roadside assistance claim costs .........................
Deferred tax liabilities (Note 18) ......................................
Accrued telephone charges ..............................................
Accrued rent ....................................................................
Forward contracts (Note 8) ..............................................
Other ................................................................................
$
December 31,
2008
3,097
1,937
(cid:178)
556
446
11,654
3,367
21,057
2007
3,291
2,042
2,867
640
518
188
4,586
14,132
$
$
Note 16. Borrowings
(cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:7)(cid:24)(cid:19)(cid:17)(cid:19)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:85)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:3) (cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3) (cid:82)(cid:73)(cid:3) (cid:79)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)
amount is subject to certain borrowing limitations, was executed on March 15, 2004 and amended on May 4, 2007.
Pursuant to the amended terms of the Credit Facility, the amount of $50.0 million may be increased up to a
maximum of $100.0 million with the prior written consent of the lenders. The Credit Facility includes a $10.0
million swingline subfacility, a $15.0 million letter of credit subfacility and a $40.0 million multi-currency
subfacility, not to exceed a total of $50 million availability under the Credit Facility.
The Credit Facility, which includes certain financial covenants, may be used for general corporate purposes
including acquisitions, share repurchases, working capital support, and letters of credit, subject to certain limitations.
The Credit Facility, including the multi-(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3) (cid:86)(cid:88)(cid:69)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3) (cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:15)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:68)(cid:87)(cid:3) (cid:11)(cid:68)(cid:12)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
Base Rate (defined as the h(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:41)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:19)(cid:17)(cid:24)(cid:19)(cid:8)(cid:12)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:19)(cid:17)(cid:24)(cid:19)(cid:8)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:69)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:47)(cid:82)(cid:81)(cid:71)(cid:82)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:50)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:179)(cid:47)(cid:44)(cid:37)(cid:50)(cid:53)(cid:180)(cid:12)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:17)(cid:21)(cid:24)(cid:8)(cid:17)(cid:3)
Borrowings under the swingline subfacility accrue interest at the prime rate plus an applicable margin up to 0.50%
and borrowings under the letter of credit subfacility accrue interest at the LIBOR plus an applicable margin up to
1.25%. In addition, a commitment fee of up to 0.25% is charged on the unused portion of the Credit Facility on a
quarterly basis. The borrowings under the Credit Facility, which will terminate on March 14, 2010, are secured by a
(cid:83)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:25)(cid:24)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) prohibits
the Company from incurring additional indebtedness, subject to certain specific exclusions. There were no
borrowings in 2008 and no outstanding balances as of December 31, 2008, with $50.0 million availability on the
Credit Facility.
Note 17. Accumulated Other Comprehensive Income (Loss)
(cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:71)(cid:68)(cid:87)(cid:68)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
with SFAS No. 130 (SFAS 130), (cid:179)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17)(cid:180)(cid:3)SFAS 130 establishes rules for the reporting
of comprehensive income (loss) and its components. The components of other accumulated comprehensive income
(loss) consist of the following (in thousands):
70
Foreign
Currency
Unrealized
Unrealized Gain
Actuarial Gain (Loss) on Cash
Translation (Loss) Related to Flow Hedging
Adjustment
Pension Liability
Instruments
Balance at January 1, 2006 ................. $
Pre tax amount ....................................
Tax benefit .........................................
Reclassification to net income ............
Balance at December 31, 2006 .............
Pre tax amount ....................................
Tax (provision) ...................................
Reclassification to net income ............
Foreign currency translation ...............
Balance at December 31, 2007 .............
Pre tax amount ....................................
Tax (provision) benefit .......................
Reclassification to net income ............
Foreign currency translation ...............
Balance at December 31, 2008 ............. $
(3,435 ) $
10,396
(cid:178)
(48 )
6,913
23,195
(cid:178)
(13 )
197
30,292
(34,451 )
(cid:178)
(4 )
(73 )
(4,236 ) $
(cid:178) $
(1,607 )
563
(cid:178)
(1,044 )
4,166
(803 )
43
(197 )
2,165
48
(479 )
(61 )
(286 )
1,387 $
(cid:178) $
(cid:178)
(cid:178)
(cid:178)
(cid:178)
13,821
(2,693 )
(6,128 )
(cid:178)
5,000
(21,247 )
5,664
2,390
359
(7,834 ) $
Total
(3,435 )
8,789
563
(48 )
5,869
41,182
(3,496 )
(6,098 )
(cid:178)
37,457
(55,650 )
5,185
2,325
(cid:178)
(10,683 )
(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:80)(cid:68)(cid:81)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)
and no provision for income taxes on those earnings or translation adjustments has been provided.
Note 18. Income Taxes
The income (loss) before provision for income taxes includes the following components (in thousands):
Domestic (U.S., state and local) ......................................
Foreign ............................................................................
Total income before provision for
income taxes ..............................................................
Years Ended December 31,
2007
(7,426)
61,477
$
2008
(7,207)
89,189
$
2006
$
555
50,904
$
81,982
$
54,051
$ 51,459
Significant components of the income tax provision are as follows (in thousands):
Current:
U.S. federal ..................................................................... $
State and local .................................................................
Foreign ...........................................................................
Total current provision for income taxes ....................
Deferred:
U.S. federal .....................................................................
State and local .................................................................
Foreign ...........................................................................
Total deferred provision for income taxes ..................
2008
(323)
(cid:178)
20,390
20,067
3,600
357
(2,603)
1,354
Years Ended December 31,
2007
2006
$
$
403
66
13,617
14,086
57
7
42
106
107
(cid:178)
8,831
8,938
977
(94)
(685)
198
Total provision for income taxes ................................ $ 21,421
$
14,192
$
9,136
71
The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are
as follows (in thousands):
Accrued expenses ...............................................................
Net operating loss and tax credit carryforwards .................
Depreciation and amortization ...........................................
Deferred revenue ................................................................
Deferred statutory income ..................................................
Valuation allowance ...........................................................
Other...................................................................................
Total deferred provision for income taxes ......................
2008
(932)
4,093
1,750
(2,087)
2,252
(4,087)
365
1,354
$
$
Years Ended December 31,
2007
(957)
1,465
435
398
(631)
(1,244)
640
106
$
$
2006
(3,118)
(3,315)
478
(333)
163
6,460
(137)
198
$
$
The reconciliation of income tax provision (cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:56)(cid:17)(cid:54)(cid:17)(cid:3) (cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
effective income tax provision is as follows (in thousands):
Tax at U.S. statutory rate .....................................................
State income taxes, net of federal tax benefit ......................
Tax holidays ........................................................................
Change in valuation allowance, net of related adjustments .
Foreign rate differential .......................................................
Changes in uncertain tax positions .......................................
Permanent differences .........................................................
Foreign withholding and other taxes ...................................
Tax credits ...........................................................................
Other ....................................................................................
Total provision for income taxes .....................................
2008
28,694
357
(10,895)
1,280
(9,144)
(2,261)
6,388
7,545
(1,477)
934
21,421
$
$
$
Years Ended December 31,
2007
18,917
3
(6,499)
2,640
(7,025)
1,087
3,124
1,344
(cid:178)
601
14,192
$
2006
$
$
18,011
(173 )
(7,544 )
2,659
(3,859 )
(cid:178)
(670 )
849
(cid:178)
(137 )
9,136
During 2008, the Company distributed approximately $62.0 million in current earnings from its Philippine
operations to its foreign parent in the Netherlands to take advantage of the expiring tax provisions of IRC section
954(c)(6). These tax provisions permit continued tax deferral on such distributions that would otherwise be taxable
immediately in the United States. While the distribution is not taxable in the United States, it is subject to a
withholding tax of $6.2 million, which is included in the provision for income taxes in the Consolidated Statements
of Operations for 2008. A provision for income taxes has not been made for the undistributed earnings of foreign
subsidiaries of approximately $365.0 million at December 31, 2008, as the earnings are permanently reinvested in
foreign business operations. 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.
The Company recognized a tax expense of $6.7 million resulting from taxable foreign exchange gains realized on
non-functional currencies, which is included in the provision for income taxes in the Consolidated Statements of
Operations for 2008.
The Company has been granted tax holidays in the Philippines, Costa Rica, El Salvador and India. The tax
holidays have various expiration dates ranging from 2009 through 2018. Upon expiration, the Company intends to
seek renewals of these tax holidays, whe(cid:85)(cid:72)(cid:3) (cid:83)(cid:82)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:75)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:92)(cid:86)(cid:3) (cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3)
income taxes by $10.9 million ($0.27 per diluted share), $6.5 million ($0.16 per diluted share) and $7.5 million
($0.19 per diluted share) for the years ended December 31, 2008, 2007 and 2006, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the amounts used for income taxes.
The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of
December 31, 2008 and 2007, respectively, are presented below (in thousands):
72
Deferred tax assets:
Accrued expenses ................................................................. $
Net operating loss and tax credit carryforwards ...................
Depreciation and amortization .............................................
Deferred revenue ..................................................................
Valuation allowance .............................................................
Deferred tax liabilities:
Accrued liabilities ................................................................
Depreciation and amortization .............................................
Deferred statutory income .....................................................
Net deferred tax assets .................................................... $
Classified as follows:
Other current assets (Note 7) ................................................ $
Deferred charges and other assets (Note 12) ........................
Other accrued expenses and current liabilities (Note 15)......
Other long-term liabilities ....................................................
Net deferred tax assets ................................................... $
December 31,
2008
2007
7,629
41,237
7,772
5,308
(30,618 )
31,328
(1,906 )
(8,345 )
(1,634 )
(11,885 )
19,443
$
$
6,042
44,078
10,369
2,638
(34,023 )
29,104
(1,259 )
(9,430 )
(4,952 )
(15,641 )
13,463
December 31,
2008
2007
8,199
14,679
(cid:178)
(3,435)
19,443
$
$
5,780
14,757
(2,867)
(4,207)
13,463
The Company establishes a valuation allowance to reduce the deferred tax assets reported if, based on the weight
of the available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. In September, 2008, the Company determined
(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:87)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:179)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)
(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:81)(cid:82)(cid:87)(cid:180)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:90)(cid:82)(cid:88)ld be realized. Accordingly, in the third quarter of 2008,
the Company recognized an increase in its deferred tax assets of $6.1 million through a partial reversal of the
valuation allowance. The reversal of the valuation allowance of $6.1 million reduced the provision for income taxes
in the accompanying Consolidated Statement of Operations for 2008. At December 31, 2008, management has
determined that a valuation allowance of approximately $30.6 million is necessary to reduce U.S. deferred tax assets
by $10.8 million and foreign deferred tax assets by $19.8 million. It is reasonably possible that the Company will be
required to release up to $6.5 million of valuation allowance during 2009 pursuant to the requirements of SFAS 109.
There is approximately $115.4 million of income tax loss carryforwards at December 31, 2008 with varying
expiration dates, approximately $80.2 million of which relates to foreign operations and $35.2 million relating to
U.S operations. For U.S. purposes, a net operating loss carryforward of approximately $35.2 million as well as $4.3
million of tax credits are available at December 31, 2008 for carryforward, with the latest expiration date ending
December 31, 2025. Of this $35.2 million carryforward, $10.1 million is limited as it relates to net operating loss
carryforwards of a domestic subsidiary acquired in prior years. With respect to foreign operations, $59.6 million of
the net operating loss carryforwards have an indefinite expiration date and the remaining $20.6 million net operating
loss carryforwards have varying expiration dates through December 2014.
The Company(cid:182)(cid:86) examination by the U.S. Internal Revenue Service concluded in 2008 with no assessments for
tax years ended July 31, 2003, December 31, 2003 and December 31, 2004. In the fourth quarter of 2008, the
German Supreme Court overturned a lower German tax court ruling on a legacy tax position resulting in the loss of
$3.1 million of future tax benefits on which the valuation allowance had been reversed in the third quarter of 2008.
T(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:72)(cid:91)(cid:68)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:42)(cid:72)(cid:85)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3) was substantially concluded for tax periods covering 1996-
2004 resulting in an additional expense of $1.0 million in 2008. In addition, the Company was informed that the
German tax authorities will audit tax periods 2005-2007. A certain Canadian subsidiary examination by Canada
Revenue Agency for 2002 and 2003 concluded in 2008 with no significant changes. A Philippine subsidiary is
bein(cid:74)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:51)(cid:75)(cid:76)(cid:79)(cid:76)(cid:83)(cid:83)(cid:76)(cid:81)(cid:72)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3) (cid:21)(cid:19)(cid:19)(cid:25)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:21)(cid:19)(cid:19)(cid:26)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:21)(cid:19)(cid:19)(cid:24)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)
examination in Scotland also concluded in 2008 resulting in a cash settlement of $0.3 million. The Indian tax
authorities previously issued an assessment for the tax year ended March 31, 2004, which was reduced by $1.4
million as a result of a favorable tax audit determination in March, 2008. This revised assessment is currently on
73
appeal with the Indian tax authorities. In addition, the Company is currently under examination in India for tax
years ended March 31, 2006 and 2005.
The Company adopted the provisions of (cid:41)(cid:36)(cid:54)(cid:37)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:23)(cid:27)(cid:3)(cid:11)(cid:41)(cid:44)(cid:49)(cid:3)(cid:23)(cid:27)(cid:12)(cid:15)(cid:3)(cid:179)Accounting for Uncertainty in Income
Taxes(cid:180)(cid:15)(cid:3)(cid:82)n January 1, 2007 and recognized a $2.7 million liability for unrecognized income tax benefits, including
interest and penalties, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.
This adjustment to the beginning balance of retained earnings includes $1.3 million related to transfer pricing
penalties that may be applicable in connection with an income tax audit of our Indian subsidiary.
Upon adoption of FIN 48 as of January 1, 2007, the Company had $9.1 million of unrecognized tax benefits
(including $4.6 million benefit of net operating loss carryforwards that were previously recognized as deferred tax
assets with a full valuation allowance). If the Company recognized these tax benefits, approximately $4.5 million
and related interest and penalties would favorably impact the effective tax rate.
As of December 31, 2008, the Company had $3.4 million of unrecognized tax benefits, a net decrease of $2.0
million from $5.4 million as of December 31, 2007. This decrease relates primarily to the recognition of tax benefits
related to transfer pricing as a result of favorable tax audits. If the Company recognized these tax benefits,
approximately $3.1 million and related interest and penalties would favorably impact the effective tax rate. The
Company believes it is reasonably possible that its unrecognized tax benefits will decrease or be recognized in the
next twelve months by up to $0.3 million due to audit or appeal resolution in various tax jurisdictions.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income
taxes. The Company had $2.0 million and $3.0 million accrued for interest and penalties as of December 31, 2008
and 2007, respectively. Of the accrued interest and penalties at December 31, 2008 and 2007, $1.2 million and $2.2
million, respectively, relate to statutory penalties. The amount of interest and penalties recognized in the
accompanying Consolidated Statements of Operations for the years ended December 31, 2008 and 2007 was ($1.0)
million and $0.6 million, respectively.
The tabular reconciliation of the amounts of unrecognized net tax benefits for the years ended December 31, 2008
and 2007 is presented below (in thousands):
Gross unrecognized tax benefits as of January 1 2007 (date of adoption) ..........$
Prior period tax position decreases .......................................................................
Current period tax position increases ...................................................................
Decrease from settlements with tax authorities ....................................................
Foreign currency translation ................................................................................
Gross unrecognized tax benefits as of December 31, 2007 ..................................
Prior period tax position decreases .......................................................................
Decrease from settlements with tax authorities ....................................................
Foreign currency translation ................................................................................
Gross unrecognized tax benefits as of December 31, 2008 ..................................$
Amount
9,095
(4,110)
220
(233)
386
5,358
(383)
(1,404)
(213)
3,358
The Company files income tax returns in the U.S. and foreign jurisdictions. The following table presents the major
tax jurisdictions and tax years that are open as of December 31, 2008 and subject to examination by the respective
tax authorities:
Tax Jurisdiction
Canada
Costa Rica
Germany
India
Philippines
Scotland
United States
Tax Year Ended
2005 to present
2005 to present
1996 to present**
2003 to present
2006 to present
2006 to present
(1997 to 1999, 2002-2004)* and 2005 to
present
*These tax years are open to the extent of the Net Operating Loss carryforward amount.
** Since the final written opinion from the German Supreme Court has not been received and amended tax
assessment notices are still outstanding these tax years have not been officially closed.
74
Note 19. Termination Costs Associated With Exit Activities
(cid:50)(cid:81)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:24)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)ly 200
people in one of its European customer contact management centers in Germany in response to the October 2005
contractual expiration of a technology client program, which generated annual revenues of approximately $12.0 million.
The Company substantially completed the Plan by the end of the third quarter of 2007. Total charges related to the Plan
were $1.4 million. These charges include approximately $1.2 million for severance and related costs and $0.2
million for other exit costs. The Company ceased using certain property and equipment estimated at $0.2 million,
and depreciated these assets over a shortened useful life, which approximated eight months. As a result, the
Company recorded additional depreciation of approximately $0.2 million during 2006. The Company reversed
previously accrued termination costs of less than $0.1 million (cid:76)(cid:81)(cid:3) (cid:179)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3) (cid:86)(cid:68)(cid:79)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
accompanying Consolidated Statement of Operations for 2007 due to a change in estimate. Termination costs of
$0.7 million (cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:86)(cid:68)(cid:79)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:25)(cid:17)(cid:3)Cash payments related to termination costs
made totaled $0.6 million and $0.6 million for 2007 and 2006, respectively. Termination costs to date approximate
$1.2 million with cash payments to date of $1.2 million.
Note 20. Earnings Per Share
Basic earnings per share is 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, common stock units and shares held in a rabbi trust using the treasury stock method. For the years ended
December 31, 2008, 2007 and 2006, the impact of outstanding options to purchase shares of common stock and
stock appreciation rights of 0.1 million shares, 0.1 million shares and 0.1 million shares, respectively, were
antidilutive and were excluded from the calculation of diluted earnings per share.
The numbers of shares used in the earnings per share computation are as follows (in thousands):
Basic:
Weighted average common shares outstanding ...
Diluted:
Dilutive effect of stock options, stock
appreciation rights, restricted stock, common
stock units and shares held in a rabbi trust ........
Years Ended December 31,
2008
2007
2006
40,618
40,387
39,829
343
312
390
Total weighted average diluted shares outstanding ...
40,961
40,699
40,219
On August (cid:24)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:21)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:88)(cid:83)(cid:3) to three million
shares of its outstanding common stock. A total of 1.7 million shares have been repurchased under this program
since inception. The shares are purchased, from time to time, through open market purchases or in negotiated private
transactions, and the purchases are based on factors such as, including but not limited to, the stock price and general
market conditions.
During 2008 the Company repurchased 34.0 thousand common shares under the 2002 repurchase program at a
price of $14.83 per share for a total cost of $0.5 million (none in 2007 and 2006).
During 2008, the Company cancelled 4.6 million shares of its Treasury stock and recorded reductions of $0.1
(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:87)(cid:82)(cid:3) (cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:15)(cid:3) (cid:7)(cid:22)(cid:22)(cid:17)(cid:22)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:87)(cid:82)(cid:3) (cid:179)(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:83)(cid:68)(cid:76)(cid:71)-(cid:76)(cid:81)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:180)(cid:15)(cid:3) (cid:7)(cid:24)(cid:20)(cid:17)(cid:24)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) (cid:87)(cid:82)(cid:3) (cid:179)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)
(cid:7)(cid:20)(cid:27)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:179)(cid:53)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:180)(cid:17)
Note 21. Commitments and Loss Contingency
The Company leases certain equipment and buildings under operating leases having original terms ranging from
one to twenty-five years, some with options to cancel at varying points during the lease. The building leases contain
up to two five-year renewal options. Rental expense under operating leases for the years ended December 31, 2008,
2007 and 2006 was approximately $23.0 million, $20.4 million, and $17.3 million, respectively.
75
The following is a schedule of future minimum rental payments under operating leases having a remaining non-
cancelable term in excess of one year subsequent to December 31, 2008 (in thousands):
Year Ending December 31,
2009 ........................................................................ $
2010 ........................................................................
2011 ........................................................................
2012.........................................................................
2013.........................................................................
Thereafter ...............................................................
Total minimum payments required ................... $
Total
Amount
12,952
7,597
3,009
1,830
1,038
6,225
32,651
(cid:36)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:70)(cid:87)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:70)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:3) (cid:44)(cid:85)(cid:72)(cid:79)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3) (cid:68)(cid:3)
cancellation clause which requires the Company, in the event of cancellation, to restore the facility to its original
state at an estimated cost of $0.7 million as of December 31, 2008 and pay a cancellation fee of $0.5 million, which
approximates two annual rental payments under the lease agreement. As of December 31, 2008, the Company had
no plans to cancel this lease agreement. Therefore, the Company does not expect to make any payments under this
agreement and, accordingly, has not recorded a liability in the accompanying Consolidated Balance Sheets.
The Company enters into agreements with third-party vendors in the ordinary course of business whereby the
Company commits 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 future minimum purchases remaining under the agreements as of December 31,
2008 (in thousands):
Year Ending December 31,
2009 ........................................................................... $
2010 ............................................................................
2011 ............................................................................
2012 ............................................................................
2013 ............................................................................
Total minimum payments required ....................... $
Total
Amount
4,157
1,898
1,487
73
17
7,632
From time to time, during the normal course of business, the Company may make certain indemnities,
commitments and guarantees under which it may be required to make payments in relation to certain transactions.
These include, but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims
based on negligence or willful misconduct of the Company and (ii) indemnities involving breach of contract, the
accuracy of representations and warranties of the Company, or other liabilities assumed by the Company in certain
contracts. In addition, the Company has agreements whereby it will indemnify certain officers and directors for
(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3) (cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3) (cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3) (cid:82)(cid:85)(cid:3) (cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3) (cid:76)(cid:86)(cid:15)(cid:3) (cid:82)(cid:85)(cid:3) (cid:90)(cid:68)(cid:86)(cid:15)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:3) (cid:76)n such
(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:80)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3) (cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:86)(cid:3) (cid:68)(cid:79)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:87)(cid:76)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3) (cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3) (cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3) (cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:182)(cid:86)(cid:3)
lifetime. The maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that
limits its exposure and enables it to recover a portion of any future amounts paid. The Company believes the
applicable insurance coverage is generally adequate to cover any estimated potential liability under these
indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential for future payments the Company could be obligated to make. The Company
has not recorded any liability for these indemnities, commitments and other guarantees in the accompanying
Consolidated Balance Sheets. In addition, the Company has some client contracts that do not contain contractual
provisions for the limitation of liability, and other client contracts that contain agreed upon exceptions to limitation
of liability. The Company has not recorded any liability in the accompanying Consolidated Balance Sheets with
respect to any client contracts under which the Company has or may have unlimited liability.
76
The Company has previously disclosed regulatory sanctions assessed against our Spanish subsidiary relating to
the alleged inappropriate acquisition of personal information in connection with two outbound client contracts. In
order to appeal these claims, the Company issued a bank guarantee of $0.9 million. During 2008, $0.4 million of the
bank guarantee was returned to the Company. The remaining balance of the bank guarantee of $0.5 million is
included as (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:54)(cid:75)(cid:72)(cid:72)(cid:87)s
as of December 31, 2008 ($0.9 million as of December 31, 2007). The Company has been and will continue to
vigorously defend these matters. However, due to further progression of several of these claims within the Spanish
court system, and based upon opinion of legal counsel regarding the likely outcome of several of the matters before
the courts, the Company has accrued the amount of $1.3 million as of December 31, 2008 and 2007 under SFAS No.
(cid:24)(cid:15)(cid:3)(cid:179)Accounting for Contingencies(cid:180)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)
can be reasonably estimated as to three of the subject claims. There are two other related claims, one of which is
currently under appeal, and the other of which is in the early stages of investigation, but the Company has not
accrued any amounts related to either of those claims because management does not currently believe a loss is
probable, and it is not currently possible to reasonably estimate the amount of any loss related to those two claims.
The Company from time to time is involved in other legal actions arising in the ordinary course of business. With
respect to these matters, management believes that it has adequate legal defenses and/or provided adequate accruals
(cid:73)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:79)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:88)(cid:87)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
position or results of operations.
Note 22. Pension and Other Post-Retirement Benefits
Defined Benefit Pension Plan
The Company sponsors a non-(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:51)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)
the Philippines. The Pension Plan provides defined benefits based on years of service and final salary. All permanent
employees meeting the minimum service requirement are eligible to participate in the Pension Plan. As of December
31, 2008, the Pension Plan was unfunded. The Company does not expect to make cash contributions to its Pension
Plan during 2009.
The following tables provide a reconciliation of the change in the benefit obligation for the Pension Plan and the
net amount recognized in the accompanying Consolidated Balance Sheets (in thousands):
For the Years Ended
December 31,
2008
2007
Beginning benefit obligation ................................... $
Service cost1 ............................................................
Interest cost ..............................................................
Actuarial gain ..........................................................
Effect of foreign currency translation ......................
Ending benefit obligation ....................................... $
353 $
80
35
(48 )
(81 )
339 $
3,455
(9 )
305
(4,166 )
768
353
Unfunded status ....................................................... $
Net amount recognized ........................................... $
(339 ) $
(339 ) $
(353 )
(353 )
1Service cost for 2007 includes a change in estimate for the assumptions related
to the employee turnover rate.
The net amount recognized consists of accrued benefit costs of $0.3 million and $0.4 million as of December 31,
2008 and 2007, respectively, and is included in (cid:179)(cid:50)ther long-term liabilities(cid:180) in the accompanying Consolidated
Balance Sheets.
Weighted-average actuarial assumptions used to determine the benefit obligations and net periodic benefit cost for
the Pension Plan were as follows:
77
Discount rate .........................................................
Rate of compensation increase ..............................
For the Years Ended
December 31,
2008
10.5%
5.0% (cid:177) 10.0%
2007
8.3%
5.0% (cid:177) 10.0%
2006
8.3%
8.0%
The Company evaluates these assumptions on a periodic basis taking into consideration current market conditions
and historical market data. The discount rate is used to calculate expected future cash flows at a present value on the
measurement date, which is December 31. This rate represents the market rate for high-quality fixed income
investments. A lower discount rate would increase the present value of benefit obligations. Other assumptions
include demographic factors such as retirement, mortality and turnover.
The following table provides information about the net periodic benefit cost and other accumulated
comprehensive income for the Pension Plan (in thousands):
Service cost ....................................................................$
Interest cost ....................................................................
Recognized actuarial (gains) losses ...............................
Net periodic benefit cost ................................................
Unrealized net actuarial (gain) loss, net of tax...............
Total recognized in net periodic benefit cost and
other accumulated comprehensive income (loss) ...... $
For the Years Ended December 31,
2006
2007
2008
348
(9 )
188
305
7
43
543
339
1,044
(2,165 )
80 $
35
(65)
50
(1,387)
$
(1,337) $ (1,826)
$
1,587
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):
Year Ending December 31,
2009 .............................................. $
2010 .............................................. $
2011 .............................................. $
2012 .............................................. $
2013 .............................................. $
2014 through 2018 ....................... $
Amount
(cid:178)
(cid:178)
3
(cid:178)
6
4,391
(cid:44)(cid:81)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:25)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:20)(cid:24)(cid:27)(cid:3)(cid:11)(cid:179)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3)(cid:20)(cid:24)(cid:27)(cid:180)(cid:12)(cid:3)(cid:179)Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans -- an amendment of FASB Statements No.
87, 88, 106 (cid:68)(cid:81)(cid:71)(cid:3)(cid:20)(cid:22)(cid:21)(cid:11)(cid:53)(cid:12)(cid:180) resulting in a $1.0 million non-cash charge to equity related to unrealized actuarial losses,
net of tax of $0.6 million, and a $1.6 million non-cash increase in other long-term liabilities, which represents the
(cid:51)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)us. The Company expects to recognize $0.1 million of net actuarial gains as a
component of net periodic benefit cost in 2009.
Employee Retirement Savings Plan
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 contribution was $0.7 million for each of the years ended
December 31, 2008, 2007 and 2006.
78
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. Effective January 1, 2008, the Company
recorded a $0.5 million liability for a post-retirement benefit obligation related to this arrangement, which was
accounted for as a reduction to the January 1, 2008 balance of retained earnings in accordance with EITF 06-10. The
post-retirement benefit obligation of $0.1 million and $0.4 million (cid:90)(cid:68)(cid:86)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:179)(cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3) (cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)
(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:180)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:179)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:79)(cid:82)(cid:81)(cid:74)-(cid:87)(cid:72)(cid:85)(cid:80)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:15)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
Balance Sheet as of December 31, 2008.
Post-Retirement Defined Contribution Healthcare Plan
On January 1, 2005, the Company established a Post-Retirement Defined Contribution Healthcare Plan for
eligible employees meeting certain service and age requirements. The plan is fully funded by the participants and
accordingly, the Company does not recognize expense relating to the plan.
Note 23. Stock-Based Compensation
(cid:36)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)-based compensation plans is provided below, including the
2001 Equity Incentive Plan, the 2004 Non-Employee Director Fee Plan and the Deferred Compensation Plan. Stock-
based compensation expense related to these plans, which is (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:179)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:180)(cid:3) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86)
primarily in the Americas in the accompanying Consolidated Statements of Operations, was $4.8 million, $4.2
million and $2.5 million for the years ended December 31, 2008, 2007 and 2006, respectively. The Company
recognized income tax benefits in the accompanying Consolidated Statements of Operations for years ended
December 31, 2008, 2007 and 2006 of $1.9 million, $1.6 million and $1.0 million, respectively. In addition, the
Company recognized benefits of tax deductions in excess of recognized tax benefits of $0.7 million and $2.4 million
from the exercise of stock options in the years ended December 31, 2008 and 2006, respectively (none in 2007).
There were no capitalized stock-based compensation costs at December 31, 2008, 2007 and 2006.
2001 Equity Incentive Plan (cid:178) (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:21)(cid:19)(cid:19)(cid:20)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)-
approved, permits the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards
to certain employees of the Company, and certain non-employees who provide services to the Company, for up to
7.0 million shares of common stock in order to encourage them to remain in the employment of or to diligently
(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)
Stock Options -- Options are granted at fair market value on the date of the grant and generally vest over one to
four years. All options granted under the Plan expire if not exercised by the tenth anniversary of their grant date.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model
that uses various assumptions. The fair value of the stock option awards is expensed on a straight-line basis over the
vesting period of the award. Expected volatilit(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:89)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)-
free rate for periods within the contractual life of the award is based on the yield curve of a zero-coupon U.S.
Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Exercises
and forfeitures are estimated within the valuation model using employee termination and other historical data. The
expected term of the stock option awards granted is derived from historical exercise experience under the Plan and
represents the period of time that stock option awards granted are expected to be outstanding. No stock options were
granted during the years ended December 31, 2008, 2007 or 2006.
79
The following table summarizes stock option activity under the Plan as of December 31, 2008 and for the year then
ended:
Stock Options
Outstanding at January 1, 2008 ...............................
Granted .....................................................................
Exercised ..................................................................
Forfeited or expired ..................................................
Outstanding at December 31, 2008 .........................
Vested or expected to vest at December 31, 2008 ....
Exercisable at December 31, 2008 ..........................
Weighted-
Shares
(000s)
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(000s)
484
(cid:178)
(105 )
(44 )
335
335
335
$
$
$
$
13.49
(cid:178)
11.20
23.10
12.94
12.94
12.94
2.2
2.2
2.2
$
$
$
2,170
2,170
2,170
Options exercised in the three years ended December 31, 2008, 2007 and 2006 had an intrinsic value of $0.8
million, $0.9 million and $6.4 million, respectively. All options were fully vested as of December 31, 2006 and there
is no unrecognized compensation cost as of December 31, 2008 related to these options granted under the Plan (the
effect of estimated forfeitures is not material.) The total fair value of stock options vested during the year ended
December 31, 2006 was $0.8 million (none in 2008 and 2007).
Cash received from stock options exercised under all stock-based compensation plans for the years ended
December 31, 2008, 2007 and 2006 was $1.2 million, $0.5 million and $4.3 million, respectively.
Stock Appreciation Rights -- (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3) (cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3) (cid:53)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3) (cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:180)(cid:12)(cid:15)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:86)(cid:3) (cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)-settled stock
(cid:68)(cid:83)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:54)(cid:36)(cid:53)(cid:86)(cid:180)(cid:12) for eligible participants. SARs represent the right to receive, without payment to the
Company, a certain number of shares of common stock, as determined by the Committee, equal to the amount by
which the fair market value of a share of common stock at the time of exercise exceeds the grant price.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:36)(cid:53)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:3)(cid:82)(cid:81)(cid:72)-
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. In the event of a change in
control, the SARs will vest on the date of the change in control, provided that the participant is employed by the
Company on the date of the change in control.
The SARs are exercisable within three months after the death, disability, retirement or termination of the
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) Company, if and to the extent the SARs were exercisable immediately prior to
(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:44)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)s terminated for cause, or the participant terminates his or her
own employment with the Company, any portion of the SARs not yet exercised (whether or not vested) terminates
immediately on the date of termination of employment.
The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses
various assumptions. The fair value of the SARs is expensed on a straight-line basis over the requisite service
period. Expected volatility is based on historical vol(cid:68)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)-free rate for periods
within the contractual life of the award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date
the award is granted with a maturity equal to the expected term of the award. Exercises and forfeitures are estimated
within the valuation model using employee termination and other historical data. The expected term of the SARs
granted represents the period of time the SARs are expected to be outstanding.
80
The following table summarizes the assumptions used to estimate the fair value of SARs granted during the year
ended December 31, 2008, 2007 and 2006:
Expected volatility .....................................................
Weighted-average volatility .......................................
Expected dividends ....................................................
Expected term (in years) ............................................
Risk-free rate ..............................................................
Years Ended
December 31,
2007
53%
53%
(cid:178)
4.0
4.5%
2008
47%
47%
(cid:178)
4.0
3.1%
2006
61%
61%
(cid:178)
3.8
4.8%
The following table summarizes SARs activity under the Plan as of December 31, 2008 and for the year then ended:
Stock Appreciation Rights
Outstanding at January 1, 2008 .................................
Granted .......................................................................
Exercised ....................................................................
Forfeited or expired ....................................................
Outstanding at December 31, 2008 ...........................
Vested or expected to vest at December 31, 2008 ......
Exercisable at December 31, 2008 ............................
Shares
(000s)
Weighted-
Average
Exercise
Price
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
243 $
133
(9 )
(cid:178)
367 $
367 $
112 $
(cid:178)
(cid:178)
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(000s)
8.2
8.2
7.2
$
$
$
858
858
513
The weighted-average grant-date fair value of the SARs granted during the years ended December 31, 2008, 2007
and 2006 was $7.20, $7.72 and $7.28, respectively. The total intrinsic value of SARs exercised during the year
ended December 31, 2008 was $0.1 million (none in 2007 and 2006).
The following table summarizes the status of nonvested SARs under the Plan as of December 31, 2008 and for the
year then ended:
Nonvested Stock Appreciation Rights
Nonvested at January 1, 2008 ...................................
Granted ...................................................................
Vested ....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2008 ..............................
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
7.54
7.20
7.50
(cid:178)
7.38
Shares
(000s)
202
134
(81)
(cid:178)
255
As of December 31, 2008, there was $1.1 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested stock appreciation rights granted under the Plan. This cost is expected to be
recognized over a weighted-average period of 1.7 years. SARs that vested during the year ended December 31, 2008
and 2007 had a fair value of $0.1 million and $0.2 million, respectively, as of the vesting date (none in 2006).
Restricted Shares -- (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86) Board of Directors, at the recommendation of the Committee, approves
awards of performance and employment-based restricted shares (cid:11)(cid:179)Restricted Shares(cid:180)(cid:12) for eligible participants. In
some instances, where the issuance of Restricted Shares has adverse tax consequences to the recipient, the Board
(cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:72)(cid:68)(cid:71)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:88)(cid:81)(cid:76)(cid:87)(cid:86)(cid:3) (cid:11)(cid:179)(cid:53)(cid:54)(cid:56)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3) (cid:3) The Restricted Shares are shares of the (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86) common
stock (cid:11)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:54)(cid:56)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:12)(cid:3)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 are 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
(cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3) (cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:79)(cid:68)(cid:83)(cid:86)(cid:72)(cid:3) (cid:11)(cid:82)(cid:85)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:53)(cid:54)(cid:56)(cid:86)(cid:15)(cid:3) (cid:68)(cid:81)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3) (cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)
81
stock will be issued to the recipient). The Company recognizes compensation cost, net of estimated forfeitures,
based on the fair value (which approximates the current market price) of the Restricted Shares (and RSUs) on the
date of grant ratably over the requisite service period based on the probability of achieving the performance goals.
Changes in the probability of achieving the performance goals from period to period will result in corresponding
changes in compensation expense. The employment-based restricted shares vest one-third on each of the first three
anniversaries of the date of grant, provided the participant is employed by the Company on such date.
In the event of a change in control (as defined in the Plan) prior to the date the Restricted Shares vest, all of the
Restricted Shares will vest and the restrictions on transfer will lapse with respect to such vested shares on the date of
the change in control, provided that participant is employed by the Company on the date of the change in control.
(cid:44)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:76)(cid:86)(cid:3) (cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) any reason, either by the Company or
participant, prior to the date on which the Restricted Shares have vested and the restrictions have lapsed with respect
to such vested shares, any Restricted Shares remaining subject to the restrictions (together with any dividends paid
thereon) will be forfeited, unless there has been a change in control prior to such date.
The weighted-average grant-date fair value of the Restricted Shares/Units granted during the years ended
December 31, 2008, 2007 and 2006 was $17.86, $16.93 and $14.92, respectively.
The following table summarizes the status of nonvested Restricted Shares/Units under the Plan as of December
31, 2008 and for the year then ended:
Nonvested Restricted Shares/Units
Nonvested at January 1, 2008 ...................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2008 .............................
Shares
(000s)
438
188
(78)
(cid:178)
548
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
15.69
17.86
14.73
(cid:178)
16.57
As of December 31, 2008, based on the probability of achieving the performance goals, there was $4.2 million of
total unrecognized compensation cost, net of estimated forfeitures, related to nonvested Restricted Shares/Units
granted under the Plan. This cost is expected to be recognized over a weighted-average period of 1.7 years. The
restricted shares that vested during the year ended December 31, 2008 had a fair value of $0.2 million as of the
vesting date (not material in 2007 and 2006).
Other Awards -- (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:15)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:38)(cid:54)(cid:56)(cid:86)(cid:180)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:79)(cid:76)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:36)(cid:3)(cid:38)(cid:54)(cid:56)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:78)(cid:72)(cid:72)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:81)(cid:87)(cid:85)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:86)(cid:3)
that records the equivalent of one share of common stock. If the performance goals described under Restricted
Shares in this Note 23 are met, performance-based CSUs will vest on the third anniversary of the grant date. The
Company recognizes compensation cost, net of estimated forfeitures, based on the fair value (which approximates
the current market price) of the CSUs 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 CSUs 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. On the date each CSU vests, the participant will become entitled to receive a share of the
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:54)(cid:56)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:70)(cid:68)(cid:81)(cid:70)(cid:72)(cid:79)(cid:72)(cid:71)(cid:17)
82
The following table summarizes CSUs activity under the Plan as of December 31, 2008, and changes during the
year then ended:
Nonvested Common Stock Units
Nonvested at January 1, 2008 ...................................
Granted ...................................................................
Vested ....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2008 ..............................
Shares
(In thousands)
58
29
(10)
(cid:178)
77
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
16.21
17.87
15.03
(cid:178)
16.99
As of December 31, 2008, there was $0.3 million of total unrecognized compensation costs, net of estimated
forfeitures, related to nonvested CSUs granted under the Plan. This cost is expected to be recognized over a
weighted-average period of 0.4 years. The fair value of the CSUs that vested during the years ended December 31,
2008, 2007 and 2006 were not material as of the vesting dates.
Until a CSU vests, the participant has none of the rights of a shareholder with respect to the CSU or the common
stock underlying the CSU. CSUs are not transferable.
2004 Non-Employee Director Fee Plan (cid:178) (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:21)(cid:19)(cid:19)(cid:23)(cid:3)(cid:49)(cid:82)(cid:81)-Employee Director (cid:41)(cid:72)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:21)(cid:19)(cid:19)(cid:23)(cid:3)
(cid:41)(cid:72)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)is shareholder-approved, replaced and superseded the 1996 Non-Employee Director Fee Plan (the
(cid:179)(cid:20)(cid:28)(cid:28)(cid:25)(cid:3) (cid:41)(cid:72)(cid:72)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) was (cid:88)(cid:86)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:79)(cid:76)(cid:72)(cid:88)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:21)(cid:19)(cid:19)(cid:23)(cid:3) (cid:49)(cid:82)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)2004 Stock
(cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)e 2004 Fee Plan provides that all new non-employee Directors joining the Board receive an initial
(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:38)(cid:54)(cid:56)(cid:86)(cid:180)(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)
will be determined by dividing a dollar amount to be determined from time to time by the Board (currently set at
$30,000) by (cid:68)(cid:81)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:72)(cid:84)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:20)(cid:19)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)
trading days prior to the date the new Director is appointed or elected. Prior to March 2008, the initial grant of CSUs
vest in three equal installments, one-(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:86)(cid:17)(cid:3)
(cid:36)(cid:3)(cid:38)(cid:54)(cid:56)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:78)(cid:72)(cid:72)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:81)(cid:87)(cid:85)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)mmon stock.
(cid:50)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:38)(cid:54)(cid:56)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:79)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)
and the CSU will be canceled. Until a CSU vests, the Director has none of the rights of a shareholder with respect to
the CSU or common stock underlying the CSU. CSUs are not transferable. The number of shares remaining
available for issuance under the 2004 Fee Plan cannot exceed 378 thousand.
Additionally, the 2004 Fee Plan provides that each non-employee Director receives on the day after the annual
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) meeting, an annual retainer for service as a non-employee Director, the amount of which shall be
determined from time to time by the Board (currently set at $70,000) to be paid in CSUs and in cash. The number of
CSUs to be granted under the 2004 Fee Plan will be determined by dividing the amount of the annual retainer by an
amount equal to 105% of the average of the closing prices for (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:89)(cid:72)(cid:3) (cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)
days preceding the award date (the day after the annual meeting). Prior to March 2008, the annual grant of CSUs
vest in two equal installments, one-(cid:75)(cid:68)(cid:79)(cid:73)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:71)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:90)(cid:82)(cid:3) (cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:86)(cid:17)
There were grants of 18 thousand, 18 thousand and 30 thousand CSUs issued under the 2004 Fee Plan during the
years ended December 31, 2008, 2007 and 2006, respectively.
In March 2008, the Board adopted amendments to the 2004 Fee Plan which provided that CSUs will vest and
compensation expense will be recognized in equal quarterly installments over the term of the grant, the requisite
service period. Beginning with grants after March 2008, unvested and unearned CSUs will not automatically vest
(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:68)(cid:87)(cid:75)(cid:15)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:80)(cid:82)(cid:89)(cid:68)(cid:79)(cid:3)(cid:82)(cid:85)(cid:3)
failure to be reelected at the end of his or her term.
In August 2008, the Board adopted amendments to the 2004 Fee Plan to increase the annual retainer for service as
a non-employee Director from $50,000 to $70,000, increase the portion of the annual retainer to be paid in cash
from $12,500 to $32,500 and eliminate the requirement to pay 75% of the annual retainer in CSUs and 25% in cash.
The Board also approved an increase in committee fees for services provided by non-employee Directors from a
(cid:179)(cid:83)(cid:72)(cid:85)(cid:3) (cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:180)(cid:3) (cid:73)(cid:72)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:20)(cid:15)(cid:21)(cid:24)(cid:19)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:81)(cid:3) (cid:68)(cid:81)(cid:81)ual retainer of $10,000 for audit committee members and $7,500 for other
committee members. The Board also amended the 2004 Fee Plan to provide that shares of common stock of the
Company would be awarded instead of CSUs beginning with the grants awarded at the annual meeting in May 2008.
83
In addition, the annual retainer for the chair of the audit committee increased from $10,000 to $20,000 and for the
chairs of the other committees increased from $5,000 ($0 for the finance committee) to $12,500.
The following table summarizes the status of the nonvested CSUs and share awards under the 2004 Fee Plan as of
December 31, 2008 and for the year then ended:
Nonvested Common Stock Units
Nonvested at January 1, 2008 ...................................
Granted ...................................................................
Vested ....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2008 ..............................
Shares
(000s)
31
18
(29)
(cid:178)
20
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
17.69
20.11
17.76
(cid:178)
19.69
CSUs and share awards that vested during the years ended December 31, 2008, 2007 and 2006 had a fair value of
$0.6 million, $0.7 million and $0.4 million, respectively.
(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:38)(cid:54)(cid:56)(cid:86)(cid:3) (cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:49)(cid:82)(cid:17)(cid:3) (cid:20)(cid:21)(cid:22)(cid:53)(cid:15)(cid:3) (cid:11)(cid:54)(cid:41)(cid:36)(cid:54)(cid:3) (cid:20)(cid:21)(cid:22)(cid:53)(cid:12)(cid:15)(cid:3) (cid:179)Share-Based
Payment(cid:180)(cid:3) (cid:82)(cid:81)(cid:3) (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:20)(cid:15)(cid:3) (cid:21)(cid:19)06 and before the 2004 Fee Plan amendment in March 2008 (as discussed above), is
recognized immediately on the date of (cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:88)(cid:87)(cid:82)(cid:80)(cid:68)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:182)(cid:86)(cid:3)
service, whether by death, retirement, resignation, removal or failure to be reelected at the end of his or her term.
However, compensation expense for CSUs granted before adoption of SFAS 123R is recognized over the requisite
(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:79)(cid:180)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:36)(cid:51)(cid:37)(cid:3)(cid:49)(cid:82)(cid:17)(cid:3)(cid:21)(cid:24)(cid:15)(cid:3)(cid:179)Accounting for
Stock Issued to Employees(cid:180)(cid:17)(cid:3)(cid:3) Compensation expense related to CSUs granted before adoption of SFAS 123R was
$0.1 million and $0.3 million for the years ended December 31, 2007 and 2006, respectively (none in 2008). As of
December 31, 2008, there was no unrecognized compensation cost, net of estimated forfeitures, which relates to
nonvested CSUs granted under the 2004 Fee Plan before adoption of SFAS 123R. As of December 31, 2008, there
was no unrecognized compensation cost, net of estimated forfeitures, related to nonvested CSUs and share awards
granted since March 2008 under the Plan.
Deferred Compensation Plan (cid:178) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) non-qualified Deferred Compensation (cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)Deferred
Compensation (cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) is not shareholder-approved, was adopted by the Board of Directors effective
December 17, 1998 and amended on March 29, 2006 and May 23, 2006. It provides certain eligible employees the
(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:81)(cid:87)(cid:76)(cid:79)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) termination, disability or death,
(cid:82)(cid:85)(cid:3) (cid:68)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)(cid:3) (cid:56)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:80)(cid:68)(cid:87)(cid:70)(cid:75)(cid:72)(cid:86)(cid:3) (cid:24)(cid:19)(cid:8)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
amounts deferred by certain senior management participants on a quarterly basis up to a total of $12,000 per year for
the president and senior vice presidents and $7,500 per year for vice presidents (participants below the level of vice
president are not eligible to receive matching contributions from the Company). Matching contributions and the
associated earnings vest over a seven year service period. Deferred compensation amounts used to pay benefits,
(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:69)(cid:69)(cid:76)(cid:3)(cid:87)(cid:85)(cid:88)(cid:86)(cid:87)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:80)(cid:88)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)
stock (See Note 9, Investments Held in Rabbi Trust.) As of December 31, 2008 and 2007, liabilities of $1.4 million
and $1.4 million, respectively, of the Deferred Compensation Plan were recorded in (cid:179)(cid:36)ccrued employee
compensation and benefits(cid:180) in the accompanying Consolidated Balance Sheets.
Additionally, t(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:80)(cid:68)(cid:87)(cid:70)(cid:75)(cid:3) (cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81), with a
carrying value of approximately $0.6 million and $0.5 million at December 31, 2008 and 2007, respectively, is
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)accompanying Consolidated Balance Sheets.
The weighted-average grant-date fair value of common stock awarded during the years ended December 31, 2008,
2007 and 2006 was $18.33, $18.12 and $15.72, respectively.
84
The following table summarizes the status of the nonvested common stock issued under the Deferred
Compensation Plan as of December 31, 2008 and for the year then ended:
Nonvested Common Stock
Nonvested at January 1, 2008 ...................................
Awarded .................................................................
Vested ....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2008 ..............................
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
12.62
18.33
16.85
(cid:178)
16.35
Shares
(000s)
5
8
(8)
(cid:178)
5
As of December 31, 2008, there was $0.1 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested common stock awarded under the Deferred Compensation Plan. This cost is
expected to be recognized over a weighted-average period of 4.1 years. The total fair value of the common stock
vested during the years ended December 31, 2008, 2007 and 2006 was $0.2 million, $0.2 million and $0.3 million,
respectively.
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81) was $0.1 million and $0.1
million, respectively, for the years ended December 31, 2007 and 2006 (none in 2008).
Note 24. Segments and Geographic Information
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:40)(cid:48)(cid:40)(cid:36)(cid:180)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3) 67.4% and 32.6%,
respectively, of consolidated revenues for 2008. The Americas and EMEA regions represented 68.0% and 32.0%,
respectively, of consolidated revenues for 2007, and 67.4% and 32.6%, respectively, of consolidated revenues for
2006. 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 (cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America,
India 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 region given the nature of the business and client profile, which is primarily made
(cid:88)(cid:83)(cid:3) (cid:82)(cid:73)(cid:3) (cid:56)(cid:17)(cid:54)(cid:17)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)
contact management needs.
(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) 31, 2008, 2007 and 2006 is
as follows (in thousands):
For the Year Ended December 31, 2008:
Revenues ........................................................ $ 551,761
Depreciation and amortization .......................
22,885
$ 267,429
5,080
Americas
EMEA
Income (loss) from operations ........................ $
Other income ..................................................
Provision for income taxes .............................
Net income .....................................................
85,383
$
21,178
$
85
Consolidated
Other (1)
Total
$
819,190
27,965
(40,853 ) $
16,274
(21,421 )
$
65,708
16,274
(21,421 )
60,561
For the Year Ended December 31, 2007:
Revenues ........................................................ $ 482,823
Depreciation and amortization .......................
20,706
$ 227,297
4,529
Americas
EMEA
Other (1)
Consolidated
Total
$
710,120
25,235
Income (loss) from operations ........................ $
Other income ..................................................
Provision for income taxes .............................
Net income .....................................................
77,980
$
13,396
$
(40,196 ) $
2,871
(14,192 )
$
51,180
2,871
(14,192 )
39,859
For the Year Ended December 31, 2006:
Revenues ........................................................ $ 387,305
Depreciation and amortization .......................
20,137
$ 186,918
4,610
Income (loss) from operations ........................ $
Other income ..................................................
Provision for income taxes .............................
Net income .....................................................
71,491
$ 10,153
$ 574,223
24,747
$ (36,486 )
6,301
(9,136 )
$
$
45,158
6,301
(9,136 )
42,323
(1) Other items (including corporate costs, provision for regulatory penalties, impairment costs, other income and
(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:12)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:75)(cid:82)(cid:90)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:86)(cid:75)(cid:82)(cid:90)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)
the table above for the three years in the period ended December 31, 2008. The accounting policies of the reportable
segments are the same as those described in Note 1, Summary of Accounting Policies, to the accompanying
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.
During 2008, 2007 and 2006, the Company had no clients that exceeded ten percent of consolidated revenues.
Informati(cid:82)(cid:81)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:74)(cid:72)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:70)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:29)(cid:3)
Years Ended December 31,
2008
2007
2006
Revenues (1) :
United States ......................................................... $
Argentina ...............................................................
Canada ..................................................................
Costa Rica .............................................................
El Salvador ............................................................
Philippines ............................................................
Other .....................................................................
Total Americas ..................................................
Germany ...............................................................
United Kingdom ...................................................
Sweden ..................................................................
Spain ......................................................................
The Netherlands ....................................................
Hungary ................................................................
Other .....................................................................
Total EMEA ......................................................
Total .............................................................. $
107,504
50,544
103,551
62,147
29,008
184,649
14,358
551,761
74,643
64,943
36,053
33,291
24,250
13,125
21,124
267,429
819,190
$ 82,880
36,723
110,472
59,325
22,341
161,684
9,398
482,823
60,389
65,874
24,707
21,156
18,702
15,230
21,239
227,297
$ 710,120
$
82,441
15,117
92,876
53,147
9,522
126,418
7,784
387,305
56,007
52,214
20,735
12,950
14,829
13,921
16,262
186,918
$ 574,223
86
Years Ended December 31,
2008
2007
2006
Long-lived assets (2) :
United States ......................................................... $
Argentina ...............................................................
Canada ..................................................................
Costa Rica .............................................................
El Salvador ............................................................
Philippines ............................................................
Other .....................................................................
Total Americas ..................................................
Germany ...............................................................
United Kingdom ...................................................
Sweden ..................................................................
Spain ......................................................................
The Netherlands ....................................................
Hungary ................................................................
Other .....................................................................
Total EMEA .......................................................
Total .................................................................. $
32,369
8,964
8,475
4,876
4,183
9,992
2,614
71,473
2,864
5,078
1,071
894
794
1,058
1,744
13,503
84,976
$ 21,907
11,067
10,599
4,395
4,162
16,334
2,133
70,597
2,886
5,904
732
751
777
2,005
1,568
14,623
$ 85,220
$
$
17,655
11,558
8,742
3,165
3,208
13,812
2,481
60,621
3,113
5,441
238
338
597
2,459
1,402
13,588
74,209
(1) Revenues are attributed to countries based on location of customer, except for revenues for
Costa Rica, Philippines, China and India which is primarily comprised of customers located
in the U.S., but serviced by centers in those respective geographic locations.
(2) Long-lived assets include property and equipment, net, and intangibles, net.
Goodwill:
Americas ...................................................... $
EMEA ..........................................................
Total...................................................... $
23,191
(cid:178)
23,191
$ 22,468
(cid:178)
$ 22,468
$
$
20,422
(cid:178)
20,422
December 31,
2008
2007
2006
(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:29)(cid:3)
Outsourced customer contact management services .... $
Fulfillment services .....................................................
Enterprise support services ..........................................
Total ........................................................................ $
Note 25. Related Party Transactions
Years Ended December 31,
2008
788,130
20,556
10,504
819,190
2007
2006
$ 679,364
21,651
9,105
$ 710,120
$ 546,488
18,312
9,423
$ 574,223
The Company paid John H. Sykes, the founder, former Chairman and Chief Executive Officer and current
significant shareholder of the Company and the father of Charles Sykes, President and Chief Executive Officer of
the Company, $0.2 million, $0.2 million and $0.3 million, for the use of his private jet in the years 2008, 2007 and
2006, respectively, which is based on two times fuel costs and other actual costs incurred for each trip.
Additionally, the Company paid Hyde Park Equity, LLC, a limited liability company owned by Mr. John H.
Sykes, fees of $150,000, which were paid in seven equal quarterly installments of $21,428, for consulting services to
be provided by Mr. Sykes through Hyde Park Equity during the period from December 31, 2004, through October 1,
2006. For such amount, Hyde Park Equity caused Mr. Sykes to provide up to 37.5 days of consulting services per
year at the request of the Board of Directors or its Chairman. Such services included advice dealing with significant
business issues and an orderly management transition. Additional days of service were billed at the rate of $2,000
87
per day. The Company also agreed to reimburse Hyde Park Equity for out of pocket business expenses incurred in
connection with providing services to the Company. During 2006, the Company paid $0.1 million to Hyde Park
Equity under this agreement (none in 2008 and 2007.)
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 Mr. John H. Sykes.
The lease payments on the 20-year lease were negotiated at or below market rates, and the lease is cancellable at the
option of the Company, subject to penalties for early cancellation which decrease over time. The Company paid $0.4
million to the landlord during the year ended December 31, 2008 under the terms of the lease (none in 2007 and
2006.)
Additionally, during the year ended December 31, 2008 (none in 2007), the Company paid $0.3 million for
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:39)(cid:68)(cid:89)(cid:76)(cid:71)(cid:3)(cid:53)(cid:72)(cid:88)(cid:79)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)
Real Estate who retired in December, 2007. Mr. Reuele is currently employed by JHS Equity, LLC, a company
owned by John H. (cid:54)(cid:92)(cid:78)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:48)(cid:85)(cid:17)(cid:3)(cid:53)(cid:72)(cid:88)(cid:79)(cid:72)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:45)(cid:43)(cid:54)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:47)(cid:47)(cid:38)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:3)(cid:76)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:86)(cid:83)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:48)(cid:85)(cid:17)(cid:3)(cid:53)(cid:72)(cid:88)(cid:79)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)
88
Schedule II (cid:178) Valuation and Qualifying Accounts
Years ended December 31, 2008, 2007 and 2006
(In thousands)
Allowance for doubtful accounts:
Balance at
Beginning
of Period
Charged
(Credited) to
Costs and
Expenses
Beginning
Balance
(Additions) of Acquired
Deductions Company
Balance at
End of
Period
Year ended December 31, 2008 ............................... $ 2,813
Year ended December 31, 2007 ...............................
2,534
3,051
Year ended December 31, 2006 ................................
$
554 $ 297 (1) $ (cid:178)
128 (1)
407
(cid:178)
72
(11 ) (1)
(600 )
$ 3,070
2,813
2,534
Valuation allowance for net deferred tax assets:
Year ended December 31, 2008 ............................... $ 34,023
Year ended December 31, 2007 ..............................
35,267
Year ended December 31, 2006 ...............................
28,807
$ (3,405 ) $ (cid:178)
(cid:178)
(1,244 )
(cid:178)
6,460
$ (cid:178)
(cid:178)
(cid:178)
$ 30,618
34,023
35,267
(1) Net write-offs and recoveries
89
Corporate Profile
SYKES is a global leader in providing customer contact management solutions and services in the business
process outsourcing (BPO) arena. SYKES provides an array of sophisticated customer contact management
solutions to Fortune 1000 companies around the world, primarily in the communications, financial
services, healthcare, technology and transportation and leisure industries. SYKES specializes in providing
flexible, high-quality customer support outsourcing solutions with an emphasis on inbound technical
support and customer service. Headquartered in Tampa, Florida, with customer contact management
centers throughout the world, SYKES provides its services through multiple communication channels
encompassing phone, e-mail, web and chat. Utilizing its integrated onshore/offshore global delivery
model, SYKES serves its clients through two geographic operating segments: the Americas (United States,
Canada, Latin America and Asia Pacific) and EMEA (Europe, Middle East and Africa). SYKES also
provides various enterprise support services in the Americas and fulfillment services in EMEA, which
include multilingual sales order processing, payment processing, inventory control, product delivery and
product returns handling. For additional information, please visit www.sykes.com.
Financial Highlights
Revenues (in Millions)
Operating Margins
Total Debt (in Millions)
$1000.0
$750.0
$500.0
$250.0
$0.0
15%
24%
16%
10.0%
8.0%
7.4%
7.5%
5.9%
5.0%
2.5%
0.0%
^^
^^^
2006 2007 2008
^
2006
2007 2008
Revenues
(in Millions)
2006
2007
$ 574.2
$ 710.1
7.9%
7.2%
$ 0.0
$ 0.0
2008
$ 819.2
8.0%
$ 0.0
$219
$178
$159
$250.0
$200.0
$150.0
$100.0
$50.0
$0.0
35
30
25
20
15
10
5
0
29.6
26.4
22.6
90%
85%
80%
75%
70%
65%
60%
2006
2007 2008
#
2006 2007 2008
Operating Margins
Cash &
Cash Equivalents
(in Millions)
Seat Capacity and
Capacity Utilization Rate
(in Thousands)
Seat Capacity
Capacity Utilization Rates
^
In July 2006, the Company purchased Apex, a customer contact management company in Argentina. Revenue contribution from the Argentina
acquisition was $15.1 million for the six months of 2006 and $36.7 million for full-year 2007.
^^
Excludes gain from sale of customer contact management centers as well as a charitable contribution reversal of approximately 2.4%
and 0.3% of revenues, respectively.
^^^ Excludes provision related to regulatory penalties in 2007, 0.2% of revenues.
In July 2006, the Company purchased Apex, a customer contact management company in Argentina with approximately 2,200 seats.
#
— Differences due to rounding.
Principal Officers
CHARLES E. SYKES
President and Chief Executive Officer
W. MICHAEL KIPPHUT
Senior Vice President and
Chief Financial Officer
JAMES C. HOBBY
Senior Vice President,
Global Operations
JENNA R. NELSON
Senior Vice President,
Human Resources
DANIEL L. HERNANDEZ
Senior Vice President,
Global Strategy
LAWRENCE (LANCE) R. ZINGALE
Senior Vice President,
Global Sales and Client Management
DAVID L. PEARSON
Senior Vice President and
Chief Information Officer
JAMES T. HOLDER
Senior Vice President, General Counsel
and Corporate Secretary
WILLIAM N. ROCKTOFF
Vice President and
Corporate Controller
Board of Directors
PAUL L. WHITING
Chairman of the Board
Chief Executive Officer (retired)
Spalding and Evenflo
CHARLES E. SYKES
Director (Principal Executive Officer)
President and Chief Executive Officer
Sykes Enterprises, Incorporated
MARK C. BOZEK
Director
Chief Executive Officer
Halo Entertainment
FURMAN P. BODENHEIMER, JR.
Director
President and Chief Executive Officer
Zickgraf Enterprises, Inc.
LT. GEN. MICHAEL P. DELONG
(retired)
Director
Corporate Vice President
of Strategic Planning and Operations
Shaw Environmental and Infrastructure
H. PARKS HELMS, ESQ.
Director
Managing Partner for
Helms, Henderson & Fulton, P.A.
IAIN A. MACDONALD
Director
Chairman of Yakara, plc
Director of the Northern AIM VCT plc
Member of the Scottish Industrial
Development Advisory Board
JAMES S. MACLEOD
Director
Managing Director
CoastalStates Bank
LINDA F. MCCLINTOCK-GRECO M.D.
Director
President and Chief Executive Officer
Greco & Associates Consulting
(Healthcare)
WILLIAM J. MEURER
Director
Private Financial Consultant
Director of Heritage Family of Funds
Managing Partner (retired) for Arthur
Andersen’s Central Florida Operations
JAMES (JACK) K. MURRAY, JR.
Director
Chairman
Murray Corporation
Corporate Information
Corporate Headquarters
400 North Ashley Drive,
Suite 2800
Tampa, FL USA 33602
(813) 274-1000
Fax (813) 273-0148
www.sykes.com
Independent Auditors
Deloitte & Touche LLP
201 E. Kennedy Boulevard,
Suite 1200
Tampa, FL USA 33602
Registrar and Transfer Agent
Computershare
P.O. Box 43078
Providence, RI 02940-3078
(800) 568-3476
SYKES’ shares trade on
The NasdaqGS Stock Market under the
symbol “SYKE”
Annual Meeting
SYKES’ annual meeting
of shareholders will be held at:
9 a.m. (ET)
Wednesday, May 20, 2009
The meeting will be held at:
Sheraton Tampa Riverwalk Hotel
200 North Ashley Drive
Tampa, Florida 33602
Phone: (813) 223-2222
Investor Information
Quarterly Reports on Form 10-Q
and the Form 10-K Annual Report
filed with the Securities and Exchange
Commission are available on
the Company’s website at
http://investor.sykes.com/annuals.cfm,
or upon written request to SYKES’
Investor Relations department in
Tampa, Florida, or by contacting:
SUBHAASH KUMAR
Vice President, Investor Relations
(813) 274-1000
Corporate Information
A n n u a
l
R e p o r
t
2 0 0 7
USA 1.800.867.9537
Intl. +1.813.274.1000
Sykes Enterprises, Incorporated
400 North Ashley Drive • Suite 2800
Tampa, Florida 33602-5089
www.sykes.com