[ ]
C O R P O R A T E P R O F I L E
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, chat and social media. Utilizing its
integrated onshore/offshore global delivery model, along with a virtual at-home
agent platform, SYKES serves its clients through two geographic operating
segments: the Americas (United States, Canada, Latin America, India and the Asia
Pacific region) and EMEA (Europe, Middle East and Africa). SYKES also provides
various enterprise support services in the Americas and fulfillment services in
EMEA, which include multi-lingual sales order processing, payment processing,
inventory control, product delivery and product returns handling. For additional
information please visit www.sykes.com.
dear shareholders:
As 2011 began to unfold, no one could have predicted how profoundly it would mirror the events of 2010, when
macro-economic turbulence seriously undermined the customer-contact management industry. As in 2010, 2011
also started on an upbeat note. There were tentative signs that the U.S. and European economies were finally
beginning to stabilize. Midway through the year, however, news of potential sovereign credit defaults in Europe —
led by Greece — triggered fears of a potential double-dip recession in the U.S. These concerns reverberated
throughout the customer-contact industry and, like many of our competitors, we faced a second consecutive year of
erratic demand. Constant currency comparable revenue growth posted a decline of 1.2% (reported revenue growth
was up 4.2% in 2011 versus 2010 as 2010 revenues included only 11-months of revenue contribution from the
ICT acquisition), reflecting weak end-market demand for our clients’ products and services. And, despite the best
efforts of our hard-working team members, the headwinds from unfavorable foreign exchange rates proved too
considerable, significantly skewing our overall operating margin performance.
Yet, even amid the intense macroeconomic cross-currents, we rose to the challenge. We maintained our focus,
protected our strong balance sheet and controlled our risk. We made meaningful progress in our revenue growth
trajectory — moderating revenue declines to 1.2% in 2011 from a decline of 4.6% in 2010 — while delivering
respectable adjusted operating margins of 7.1%* versus
7.7%** (5.6% versus 3.4% on a reported basis) in
the face of $11.2 million, or almost a 100 basis
points, in foreign exchange headwinds. We
generated record operating cash flows during
the year of $102.6 million, more than
double that of 2010, confirming the
positive financial effects of the
ICT Group acquisition. We also
announced a five-million-share
repurchase plan — the largest in
SYKES’ history — proclaiming
our confidence in the Company’s
long-term prospects. We followed
CHARLES E. SYKES
(left) President and Chief Executive Officer
W. MICHAEL KIPPHUT
(right), Executive Vice President and
Chief Financial Officer
[ 1 ]
sykes 2011 Annual Report through on several of the key initiatives discussed in our 2010
letter to shareholders. And most crucially, rather than passively
enduring the challenging macro-environment, we leveraged
it — transforming it into a catalyst for the refinement and
implementation of specific targeted strategic initiatives that,
we believe, will further sharpen our focus, strengthen our
market position and maximize potential long-term returns
for our shareholders. In the pages ahead, we will summarize
the operating environment in 2011, discuss the actions we
undertook in 2011, report our progress on 2010 strategic
initiatives, and share our long-term outlook.
[ ]
SnAPSHOT OF 2011
OPERATIng PERFORMAnCE
The operating environment in 2011 sent mixed signals.
Among our portfolio of 200-plus clients — which span key
markets that represent 80% to 90% of the end-market
demand for customer contact management services and
thus, in our view, are a better proxy for the broader state
of demand in 2011— client demand was broadly uneven.
Further compounding the demand environment was client
program attrition. This was due to several factors, among
them, product or service-support phase-outs, competitive
dislocation of certain products, counter cyclical nature of
certain programs (diminished need for soft collections of
30-days past due payments as more customers paid their bills
on time, as an example), client-driven shifts in customer
support strategy in order to streamline supply chains and
reduce the number of customer contact management vendors,
and efforts to exit programs with sub-optimal returns. The
ultimate result was revenue growth, which fluctuated from
quarter to quarter throughout the year accompanied by a
corresponding impact on margins. And the data bears that out.
As the year began, we posted low single-digit constant currency
year-over-year revenue growth, which was driven not just by
the financial services vertical, but, more surprisingly, by the
discretionary technology vertical. Even adjusted operating
margins in the first quarter came in at a respectable 6.7%***
(5.3% on a reported basis), partially helped by the EMEA
region. While first quarter results offered signs of optimism,
second quarter demand, although still up, fell short of
expectations. This was particularly the case in the EMEA
region where, unfortunately, we had begun ramping up in
anticipation of healthy client demand. As that demand failed
to materialize, combined with the lack of labor flexibility in
the region, it created a significant drag on EMEA’s operating
margins, which swung to an operating loss of $1.5 million****
on adjusted basis ($1.8 million on a reported basis), thereby
dampening the overall operating margin momentum. In fact,
by the second half of the year, we began to feel the effects
of the macro-economic volatility, as revenue growth turned
negative, weighing on operating margins. Growth drivers
narrowed even further, with the financial services vertical
providing the only consistent area of strength. And despite
new client acquisitions and existing program expansions,
it wasn’t enough to completely offset the attrition of client
programs and sluggish demand.
[ ]
STRATEgIC ACTIOnS & PROgRESS
On On-gOIng InITIATIvES
Even though demand disappointed in 2011, the year did not
amount to a lost opportunity. In fact, the tough macro-economic
backdrop spurred us to take targeted strategic actions.
One of the toughest balancing acts we face in leveraging our
global delivery model is maintaining our value proposition
of a global footprint and balancing that with our focus on
maintaining profitable growth. While not mutually exclusive,
meeting both goals requires that we invest our resources in
geographies that pass the cost-benefit test and deliver the
desired returns for our investors. To help ensure that our
One of the toughest balancing acts we face in leveraging our global delivery model
is maintaining our value proposition of a global footprint and balancing that with our focus
on maintaining profitable growth.
[ 2 ]
2011 Annual Report sykes
In addition to capacity rationalization, we continued to leverage the success of our pure-play virtual
at-home agent model in 2011. After winning our first at-home agent client — one of the leading
telecom providers in Canada — In 2010, we parlayed that success into additional momentum.
operations meet that criteria, we initiated a strategic review
of our EMEA operations in 2011 — a region in which we
have had a presence for more than 15 years — in an attempt
to focus on core markets and delivery geographies that are
strategic, have the highest potential of enhancing our long-
term revenue growth, improve our long-term profitability and
generate the best returns for our shareholders.
The result: We made the decision to exit certain non-strategic
countries within EMEA, including South Africa and Ireland,
while rationalizing capacity in the Netherlands. In addition,
we put our operations in Spain up for sale. Altogether, these
countries represented 2,000 seats in 2011 (out of roughly
6,800 seats, or approximately 30% of EMEA’s capacity),
with a combined revenue of $64 million and an operating
loss of approximately $12.0 million. Because each of the
aforementioned countries faced long-term demand and
profitability issues due to changes in our clients’ customer
service strategies and their preferences for other cost-effective
delivery geographies — a trend exacerbated by the global
economic downturn — it was a decision that,
although tough, was necessary to ensure
long-term success in the EMEA region.
announced plans to eliminate approximately 1,200 seats (out
of roughly 35,900 seats, or approximately 3% of Americas’
capacity). These seats were in smaller and underutilized centers,
such that they were misaligned with the market opportunity
and were inefficient in terms of delivering the kind of
economies of scale that we typically realize in larger centers.
In addition to capacity rationalization, we continued to
leverage the success of our pure-play virtual at-home agent
model in 2011. After winning our first at-home agent
client — one of the leading telecom providers in Canada —
in 2010, we parlayed that success into additional momentum.
We successfully cross-sold this capability into one of the
leading telecom providers in the U.S., as well as a marquee
technology client, thus further broadening our vertical
markets penetration. What is especially encouraging is that
the early adopters for our at-home agent model are established
blue-chip clients. Although the adoption curve of the at-home
agent model will likely be dictated by each company’s economics
and business strategy, we believe early indications are promising.
More importantly, these program wins with
existing clients are incremental and are not
expected to cannibalize existing business.
And they should be incremental
While the EMEA restructuring
garnered most of the attention
in 2011, and was well received
by you, our shareholders,
there were other actions
undertaken in 2011. One
of the key initiatives we
outlined in our 2010 letter
to shareholders was the
rationalization of excess
capacity associated with
the integration of the ICT
Group acquisition. We
delivered on that front as we
on a net basis over the long term
as well, as the at-home agent
delivery model broadens
the addressable market
opportunity. Ultimately,
each win will serve to
solidify our position in the
marketplace as a multi-
channel customer contact
management provider with
a holistic set of delivery
capabilities that address the
needs and best interests of
our clients.
[ 3 ]
sykes 2011 Annual Report [ ]
COnCLUSIOn
No question, 2011 was a rocky year for the customer contact
management industry. In fact, the sluggish demand of the last
two years could distort anyone’s perception of the industry.
But it is worth remembering that the customer contact
management industry is large — roughly $200 billion in
size — and is only 20%-30% penetrated. Clients continue
to outsource customer contact services as a way to turn their
fixed costs into variable costs and improve their operating
flexibility while focusing their resources and energies more
effectively on their core business. While demand will always
be driven by a certain measure of client-driven cyclicality, we
don’t expect the outsourcing paradigm to change significantly.
In fact, as we exited 2011, the demand trend in our sales
pipeline looked promising, and the conversion rates were
tracking slightly ahead of plan. Furthermore, the pricing
environment on balance has remained favorable. And even
though there are external risks — among them currencies,
the regulatory environment, political headline risks, inflation
expectations and disruptive technological shifts — we remain
confident that despite our short-term cautious optimism we
will get through this challenging environment and deliver on
our long-term target operating margin range of 8% to 10%.
We believe that the strategic actions taken in 2011 will deliver
favorable returns, both short-term and long-term. In the short
run, the combination of our bold restructuring actions in the
EMEA region and the seat optimization in the U.S. associated
with the ICT Group acquisition should begin to improve our
operating margins in the latter part of 2012. Long-term, the
above actions, coupled with investments in our at-home agent
program and social media platform as well as a sustained focus
on optimizing our business and increasing penetration in our
core vertical markets (financial services, communications and
technology), should bolster our market position. That is not
to suggest that additional adjustments won’t be required in the
future, especially if they are in the long-term strategic interests
of the Company. For now, however, we believe the measures
we have taken are properly aligned with our business mix and
are in the interests of our clients and shareholders.
In closing, however the new year plays out, we remain
operationally focused on executing our strategy and have every
confidence that we will emerge from this downturn as an even
more formidable competitor. We would like to thank you —
our shareholders, clients, employees and Board of Directors —
for your enduring trust and support.
Charles E. Sykes
President and Chief Executive Officer
W. Michael Kipphut
Executive Vice President and Chief Financial Officer
Adjusted basis is a supplemental measure of performance that is not required by, or presented in accordance with, U.S. Generally Accepted Accounting Principles (GAAP). Adjusted basis, however, is an
important indicator of performance as this non-GAAP financial measure assists readers in further understanding the Company’s results of operations and trends from period-to-period exclusive of certain
adjusting items, including the EMEA Restructuring, net gain on insurance settlement and disposal of property net of charitable contribution and corporate development costs. The term “adjusted basis”,
as referenced in this shareholder letter, includes the ICT acquisition but excludes ICT acquisition-related costs such as those associated with capacity rationalization and facilities consolidation, coupled
with other adjustments.
*The Company’s 2011 operating margin was 5.6%. On an adjusted basis — excluding ICT severance and consulting engagement costs (0.0% of revenues), ICT depreciation and amortization
of property and equipment and intangibles write-ups (1.0% of revenues), ICT merger and integration costs (0.1% of revenues), EMEA restructuring costs (0.5% of revenues), the net gain on insurance
settlement and disposal of property net of charitable contribution and corporate development costs (0.1% of revenues), the Company’s 2011 operating margin was 7.1%.
**The Company’s 2010 operating margin was 3.4%. On an adjusted basis — excluding ICT severance and consulting engagement costs (1.5% of revenues), ICT depreciation and amortization of property
and equipment and intangibles write-ups (1.1% of revenues), ICT merger and integration costs (1.9% of revenues), and an insurance settlement (0.2% of revenues), the Company’s 2010 operating
margin was 7.7%.
***The Company’s first quarter 2011 operating margin was 5.3%. On an adjusted basis — excluding ICT severance and consulting engagement costs (0.0% of revenues), ICT depreciation and amortization
of property and equipment and intangibles write-ups (1.1% of revenues), ICT merger and integration costs (0.1% of revenues) as well as impairment of long-lived assets and insurance settlement (0.2% of
revenues), the Company’s first quarter 2011 operating margin was 6.7%.
****The Company’s second quarter 2011 loss from operations in the EMEA region was $1.8 million. On an adjusted basis, excluding lease termination costs of $0.3 million, the Company’s second quarter 2011
loss from operations in the EMEA region was $1.5 million.
[ 4 ]
2011 Annual Report sykes
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, 2011
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, Suite 2800, Tampa, Florida
(Address of principal executive offices)
56-1383460
(IRS Employer
Identification No.)
33602
(Zip Code)
(813) 274-1000
(Registrant’s telephone number, including area code)
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
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 best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in 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 of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act (Check one):
Large accelerated filer [X] Accelerated filer [ ] 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, 2011, the last business day of the Registrant’s most
recently completed second fiscal quarter, was $979,138,197.
As of February 21, 2012, there were 44,097,423 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents ..............................................................................................................
Portions of the Proxy Statement for the year 2012
Annual Meeting of Shareholders .............................................................................
Form 10-K Reference
Part III Items 10–14
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 Mine Safety Disclosures ..........................................................................................................
PART II
Item 5 Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities.............................................................................................
Item 6 Selected Financial Data ............................................................................................................
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations ..
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 Disclosure ..
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
19
20
23
23
24
26
28
47
48
48
48
51
51
51
51
51
51
52
2
Item 1. Business
General
PART I
Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES,” “our,” “us” or “we”) is a global leader in
providing outsourced customer contact management solutions and services in the business process outsourcing
(“BPO”) arena. We provide an array of sophisticated customer contact management solutions to a wide range of
clients including Fortune 1000 companies, medium-sized businesses, and public institutions around the world,
primarily in the communications, financial services, technology/consumer, transportation and leisure, healthcare and
other verticals. We serve our clients through two geographic operating regions: the Americas (United States,
Canada, Latin America, Australia and the Asia Pacific Rim) and EMEA (Europe, the 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 clients’ customers. These services are delivered through
multiple communication channels including phone, e-mail, Internet, text messaging and chat. We also provide
various enterprise support services in the United States that include services for our clients’ internal support
operations, from technical staffing services to outsourced corporate 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 27, Segments and Geographic Information, of the
accompanying “Notes to Consolidated Financial Statements” for further 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 across six
continents, including North America, South America, Europe, Asia, Australia and Africa. We deliver 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 we moved our 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, Suite 2800, Tampa, Florida 33602, and our telephone number is (813) 274-1000.
In November 2011, we announced a plan to rationalize seats in certain U.S. sites and close certain locations in
EMEA in an ongoing effort to streamline excess capacity related to the acquisition of ICT Group, Inc. (“ICT”) and
align it with the needs of the market, optimize capacity utilization and improve overall profitability. The costs
associated with the plan include facility-related costs, impairments of long-lived assets, program transfer costs and
anticipated severance-related costs.
In November 2011, we committed to a plan to sell our operations in Spain. We have reflected the operating results
related to the operations in Spain as discontinued operations in the accompanying Consolidated Statements of
Operations for all periods presented and the assets and related liabilities as held for sale in the accompanying
Consolidated Balance Sheet as of December 31, 2011.
In December 2010, we sold our Argentine operations pursuant to stock purchase agreements, dated December 16,
2010 and December 29, 2010. We have reflected the operating results related to the Argentine operations as
discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented.
On February 2, 2010, we completed the acquisition of ICT, a Pennsylvania corporation and a leading global
provider of outsourced customer management and BPO solutions, pursuant to the Agreement and Plan of Merger,
dated October 5, 2009. We refer to such acquisition herein as the “ICT acquisition.” We have reflected the
combined operating results in the accompanying Consolidated Statement of Operations for the year ended December
31, 2011 and the period from February 2, 2010 to December 31, 2010.
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 Securities and Exchange Commission (“SEC”) are made available, free of charge, on or through our Internet
website at www.sykes.com (click on “Investor Relations” and then “SEC Filings” under the heading “Financial
Information”) as soon as reasonably practicable after they are filed with, or furnished to, the SEC.
3
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,
Australia, Africa, and Europe and offshore markets in the Asia Pacific Rim and Latin America.
In today’s ever-changing marketplace, companies require innovative customer contact management solutions that
allow them to enhance the end user’s experience with their products and services, strengthen and enhance their
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 of their
customer contact management needs. As a result, companies are continuing to turn 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
and niche markets, and to efficiently allocate capital within their organizations.
To address these needs, we offer global customer contact management solutions that focus on proactively
identifying and solving our clients’ business challenges. We provide consistent high-value support for our clients’
customers across the globe in a multitude of languages, leveraging our dynamic, secure communications
infrastructure and our global footprint that reaches across 23 countries (which excludes Spain as a result of the
planned sale of those operations). 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 services,
acting as a partner in our clients’ business. We anticipate trends and deliver new ways of growing our clients’
customer satisfaction and retention rates, and thus profit, through timely, insightful and proven solutions.
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-quality service is critical in our clients’ decisions to outsource and in building long-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 Science of Service®. 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 — one of our key strengths. In addition to our network of customer contact management
centers throughout North America, Australia and Europe, we continue to develop our global delivery model with
offshore and near-shore operations in The Philippines, The Peoples Republic of China, India, Costa Rica, El
Salvador, Mexico, Brazil, Egypt and Romania, offering our clients a secure, high-quality solution tailored to the
needs of their diverse and global markets.
4
Maintain a Competitive Advantage Through Technology Solutions. For more than 30 years, we have 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
enhancing the client’s relationship with its customers and generating revenue growth. This includes knowledge
solutions for agents and end customers, automatic call distributors, interactive voice response systems, intelligent
call routing and workforce management capabilities based on agent skill and availability, call tracking software,
quality management systems and computer-telephony integration (“CTI”). CTI enables our customer contact
management centers to serve as transparent extensions for our clients, receive telephone calls and data directly from
our clients’ systems, and report 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, text messaging and Internet self-service platforms. In addition, we utilize Global Direct,
our customer relationship management (“CRM”)/e-commerce application for our European fulfillment operations.
Global Direct 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.
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.
Our organic growth strategy is to target markets, clients, verticals, delivery geographies and service mix that will
expand our addressable market opportunity, and thus drive our organic growth. Entry into Brazil, Romania, Egypt
and El Salvador are examples of how we leveraged these delivery geographies to further penetrate our base of both
existing and new clients, verticals and service mix in order to drive organic growth.
Growth Strategy
Applying the key principles of our business strategy, we execute our growth strategy by focusing on the following
levers.
Maximizing Capacity Utilization Rates and Strategically Adding Seat Capacity. The key driver of our revenues is
increasing the capacity utilization rate in conjunction with seat capacity additions. We plan to sustain our focus on
increasing the capacity utilization rate by further penetrating existing clients, adding new clients and rationalizing
seat capacity as deemed necessary. Additionally, we have the ability to expand our current seat capacity of 41,300
through strategic acquisitions and organic expansion.
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 our brick-and-mortar global delivery footprint, we are able to meet both our existing and
new clients’ customer contact management needs globally as they enter new markets. At the end of 2011, our global
delivery footprint spanned 23 countries. As a multi-channel provider of phone, e-mail, Internet, text messaging and
chat customer contact management services, we continue to invest in our virtual at-home agent offering, which
augments our existing brick-and-mortar global delivery footprint. Additionally, with the rapid emergence of on-line
communities, examples of which are chat rooms, Facebook and Twitter, we continue to make on-going investments
in our social media service offerings, which can be leveraged across both our brick-and-mortar and at-home agent
delivery platforms.
Increasing Share of Seats Within Existing Clients and Winning New Clients. We provide customer contact
management support to numerous multinational companies. With this client list, we have the opportunity to grow
5
our client base. We strive to achieve this by winning a greater share of our clients’ in-house seats as well as gain
share from our competitors by providing consistently high-quality service. In addition, as we further leverage our
knowledge of verticals and business lines, we plan to win new clients as a way to broaden our base of growth.
Diversifying Verticals and Expanding Service Lines. To mitigate the impact of any negative 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/consumer, healthcare and transportation and leisure. These verticals
cover various business lines, including wireless services, broadband, retail banking, credit card/consumer fraud
protection, content moderation, telemedicine and travel portals.
Creating Value-Added Service Enhancements. To improve both revenue and margin expansion, we will continue
to introduce new service offerings and add-on enhancements. Bilingual customer support 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 the Addressable Market Opportunities. 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, from offshore regions or a combination thereof. We continually
seek ways to broaden the addressable market for our customer contact management services. We currently operate
in 17 markets, which exclude Spain as a result of the planned sale of those operations.
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 — the
Americas and EMEA. The Americas region, representing 82% of consolidated revenues in 2011, includes the
United States, Canada, Latin America, Australia and the Asia Pacific Rim. The sites within Latin America and the
Asia Pacific Rim 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 18% of consolidated revenues in 2011, includes Europe, the
Middle East and Africa. See Note 27, Segments and Geographic Information, of the accompanying “Notes to
Consolidated Financial Statements” for further information on our segments. The following is a description of our
customer contact management solutions:
Outsourced Customer Contact Management Services. Our outsourced customer contact management services
represented approximately 98% of total 2011 consolidated revenues. Each year since 2008, we have handled over
250 million customer contacts including phone, e-mail, Internet, text messaging 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) Customer care — Customer care contacts primarily include product information requests, describing product
features, activating customer accounts, resolving complaints, cross-selling/up-selling, handling billing inquiries,
changing addresses, claims handling, ordering/reservations, prequalification and warranty management,
providing health information and roadside assistance;
(cid:131) Technical support — 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 — Our acquisition services are primarily focused on inbound up-selling of our client’s products and
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
6
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 23 countries in 77 customer contact management
centers (excluding Spain), which breakdown as follows: 19 centers across Europe, Egypt and South Africa, 26
centers in the United States, 10 centers in Canada, 3 centers in Australia and 19 centers offshore, including The
Peoples Republic of China, The Philippines, Costa Rica, El Salvador, India, Mexico and Brazil.
In an effort to stay ahead of industry offshoring trends, we opened our first offshore customer contact management
centers in The Philippines and Costa Rica over ten years ago. Since then, we have expanded into centers in The
People’s Republic of China, India, El Salvador, Mexico 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 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
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 two 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
We believe that providing consistent high-quality service is critical in our clients’ decision to outsource and in
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 SYKES Science of
Service® 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 SYKES Science of Service® is a standard that was developed based on our more than 30 years of experience,
7
and best practices from industry standards such as the Malcolm Baldrige National Quality Award and Customer
Operations Performance Center. 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 SYKES’ standards. Our focus is on quality, predictability
and consistency over time, not just point in time certification.
The application of continuous improvement is based upon the five-step Six Sigma cycle, which we have fine-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 each client’s
particular needs, to form strong client relationships and encourage cross-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
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
clients’ customer satisfaction and retention rates, 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
We provide service to clients from our locations in the United States, Canada, Latin America, Australia, the Asia
Pacific Rim, Europe and Africa. These clients are Fortune 1000 corporations, medium-sized businesses and public
institutions, which span the communications, financial services, technology/consumer, transportation and leisure,
healthcare and other industries. Revenue by vertical market for 2011, as a percentage of our consolidated revenues,
was 31% for communications, 29% for financial services, 19% for technology/consumer, 7% for transportation and
leisure, 6% for healthcare, 6% for retail and 2% for all other vertical markets, including government and utilities.
We believe our globally recognized client base presents opportunities for further cross marketing of our services.
Total consolidated revenues included $132.7 million, or 11.3%, of consolidated revenues for 2011, from AT&T
Corporation, a major provider of communication services for which we provide various customer support services,
compared to $154.1 million, or 13.7% for 2010. This included $129.4 million in revenues from the Americas and
$3.3 million in revenues from EMEA for 2011 and $147.6 million in revenues from the Americas and $6.5 million
in revenues from EMEA for 2010. Our top ten clients accounted for approximately 45% of our consolidated
revenues in 2011, an increase from 42% in 2010. 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.
8
Competition
The industry in which we operate is global and, 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.
In most cases, our principal competition stems from our existing and potential clients’ in-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, 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 and IBM. There are other numerous and varied providers of such services, including
firms specializing in various CRM consulting, other customer management solutions providers, 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 we do.
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 proposal.
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? ®, ICT® and SOUND OF SERVICE®. The duration of trademark registrations 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, 2012, we had approximately 41,000 employees worldwide, including 38,100 customer contact
agents handling technical and customer support inquiries at our centers, 2,600 in management, administration,
information technology, finance, sales and marketing roles, 100 in enterprise support services, and 200 in fulfillment
services.
We have never suffered a material interruption of business as a result of a labor dispute. Due to laws in their
respective countries, Brazil and Spain require that wages are subject to collective bargaining for approximately 200
non-management employees in Brazil and approximately 1,600 in Spain. The negotiations are conducted
irrespective of the individual employee’s membership status relative to the union. We consider our relations with
our employees worldwide to be satisfactory.
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.
9
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
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
Age
49
58
62
48
45
53
56
53
49
Principal Position
President and Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
Executive Vice President, Global Operations
Executive Vice President, Global Human Resources
Executive Vice President, Global Strategy
Executive Vice President and Chief Information Officer
Executive Vice President, Global Sales and Client Management
Executive Vice President, General Counsel and Corporate Secretary
Global Vice President and Corporate Controller
Charles E. Sykes joined SYKES in 1986 and was named President and Chief Executive Officer and Director 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 — 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. In May 2010, he was named Executive Vice
President and Chief Financial Officer. 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’ customer care and enterprise support operations throughout
North America, Latin America, the Asia Pacific Rim and India, and was named Senior Vice President, Global
Operations, in January 2005. In May 2010, he was named Executive Vice President, Global Operations. 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. In May 2010, she was named Executive Vice President, Global Human Resources. 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. In May 2010, he was
named Executive Vice President, Global Strategy. Prior to joining SYKES, Mr. Hernandez served as President and
Chief Executive Officer 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.
10
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. In May 2010, he was named Executive Vice President and Chief Information Officer. 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. In May 2010, he was named Executive 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 Chief Operating Officer
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., 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. In May 2010, he was
named Executive Vice President. 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.
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. In January
2011, he was named Global Vice President and Corporate Controller. 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 Annual Report on Form 10-K 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-looking statements, from time to time. Words such as “may,” “expects,”
“projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such 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 Annual Report on Form 10-K. 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-
looking statements include, but are not limited to: the marketplace’s continued receptivity to our terms and elements
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:
Risks Related to Our Business and Industry
Unfavorable general economic conditions could negatively impact our operating results and financial condition.
Unfavorable general economic conditions could negatively affect our business. While it is often difficult to predict
the impact of general economic conditions on our business, these conditions could adversely affect the demand for
some of our clients’ products and services and, in turn, could cause a decline in the demand for our services. Also,
11
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, we may not be able to renew our
revolving credit facility at terms that are as favorable as those terms available under our 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 revenues, operating results and financial condition, as well as our ability to
access debt under comparable terms and conditions.
Our business is dependent on key clients, and the loss of a key client could adversely affect our business and
results of operations.
We derive a substantial portion of our revenues from a few key clients. Our top ten clients accounted for
approximately 45% of our consolidated revenues in 2011. 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.
Cyber attacks as well as improper disclosure or control of personal information could result in liability and harm
our reputation, which could adversely affect our business and results of operations.
Our business is heavily dependent upon our computer and voice technologies, systems and platforms. Internal or
external attacks on any of those could disrupt the normal operations of our call centers and impede our ability to
provide critical services to our clients, thereby subjecting us to liability under our contracts. Additionally, 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 of, and unauthorized access to our systems, as well as
the privacy of personal and proprietary information, it is possible that our security controls over our systems, as well
as other security practices we follow, may not prevent the improper access to or disclosure of personally identifiable
or proprietary 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 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,
which could have a material adverse effect on our business, financial condition and results of operations.
Our business is subject to 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
locations. Although we believe we can effectively meet our clients’ demands, there can be no assurance 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, price and financial strength.
12
The concentration of customer support centers in certain geographies poses risks to our operations which could
adversely affect our financial condition.
Although we have call centers in many locations throughout the world, we have a concentration of centers in certain
geographies outside of the U.S. and Canada, specifically The Philippines and Latin America. Our concentration of
operations in those geographies is a result of our ability to access significant numbers of employees with certain
language and other skills at costs that are advantageous. However, the concentration of business activities in any
geographical area creates risks which could harm operations and our financial condition. Certain risks, such as
natural disasters, armed conflict and military or civil unrest, political instability and disease transmission, as well as
the risk of interruption to our delivery systems, is magnified when the realization of these, or any other risks, would
effect a large portion of our business at once, which may result in a disproportionate increase in operating costs.
Our business is dependent on the 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.
We are subject to various 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.
Our industry is subject to rapid technological change which could affect our business and results of operations.
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.
Our business relies heavily on technology and computer systems, which subjects us to various uncertainties.
We have invested significantly in sophisticated and specialized communications and computer technology and have
focused on the application of this technology to meet our clients’ needs. We anticipate that it will be necessary 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.
13
Emergency interruption of customer contact management center operations could affect our business and results
of 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, severe 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.
Our operating results will be adversely affected if we are unable to maximize our facility capacity utilization.
Our profitability is significantly influenced by our ability to effectively manage our contact center capacity
utilization. The majority of our business involves technical support and customer care services initiated by our
clients’ customers, and as a result, our capacity utilization varies and demands on our capacity are, to some degree,
beyond our control. In order to create the additional capacity necessary to accommodate new or expanded
outsourcing projects, we may need to open new contact centers. The opening or expansion of a contact center may
result, at least in the short term, in idle capacity until we fully implement the new or expanded program.
Additionally, the occasional need to open customer contact centers fully, or primarily, dedicated to a single client,
instead of spreading the work among existing facilities with idle capacity, negatively affects capacity utilization. We
periodically assess the expected long-term capacity utilization of our contact centers. As a result, we may, if deemed
necessary, consolidate, close or partially close under-performing contact centers to maintain or improve targeted
utilization and margins. There can be no guarantee that we will be able to achieve or maintain optimal utilization of
our contact center capacity.
As part of our effort to consolidate our facilities, we may seek to sell or sublease a portion of our surplus contact
center space, if any, and recover certain costs associated with it. Failure to sell or sublease such surplus space will
negatively impact results of operations.
Increases in the cost of telephone and data services or significant interruptions in such services could adversely
affect our business.
Our business is significantly dependent on telephone and data service provided by various local and long distance
telephone companies. Accordingly, any disruption of these services could adversely affect our business. We have
taken steps to mitigate our exposure to service disruptions by investing in redundant circuits, although there is no
assurance that the redundant circuits would not also suffer disruption. Any inability to obtain telephone or data
services at favorable rates could negatively affect our business results. Where possible, we have entered into long-
term contracts with various providers to mitigate short term rate increases and fluctuations. There is no obligation,
however, for the vendors to renew their contracts with us, or to offer the same or lower rates in the future, and such
contracts are subject to termination or modification for various reasons outside of our control. A significant increase
in the cost of telephone services that is not recoverable through an increase in the price of our services could
adversely affect our business.
Our profitability may be adversely affected if we are unable to maintain and find new locations for customer
contact centers in countries with stable wage rates.
Our business is labor-intensive and therefore wages, employee benefits and employment taxes constitute the largest
component of our operating expenses. As a result, expansion of our business is dependent upon our ability to find
cost-effective locations in which to operate, both domestically and internationally. Some of our customer contact
management centers are located in countries that have experienced inflation and rising standards of living, which
requires us to increase employee wages. In addition, collective bargaining is being utilized in an increasing number
of countries in which we currently, or may in the future, desire to operate. Collective bargaining may result in
material wage and benefit increases. If wage rates and benefits increase significantly in a country where we
maintain customer contact management centers, we may not be able to pass those increased labor costs on to our
clients, requiring us to search for other cost effective delivery locations. There is no assurance that we will be able
14
to find such cost-effective locations, and even if we do, the costs of closing delivery locations and opening new
customer contact management centers can adversely affect our financial results.
Risks Related to Our International Operations
Our international operations and expansion involve various risks.
We intend to continue to pursue growth opportunities in markets outside the United States. At December 31, 2011,
our international operations were conducted from 34 customer contact management centers located in Sweden, the
Netherlands, Finland, Germany, Egypt, South Africa, Scotland, Ireland, Denmark, Norway, Hungary, Romania,
Slovakia, The Philippines, The Peoples Republic of China, India and Australia. Revenues from these international
operations for the years ended December 31, 2011, 2010, and 2009, were 43%, 42%, and 53% of consolidated
revenues, respectively. We also conduct business from 17 customer contact management centers located in Canada,
Costa Rica, El Salvador, Mexico 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, 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, Costa Rica, El Salvador and India which expire
at varying dates from 2012 through 2023. 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. 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, 2011, we had cash balances of approximately $163.9 million held in international operations,
most of which would be subject to additional taxes if repatriated to the United States.
The U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2013
Revenue Proposals” in February 2012. These proposals represent a significant shift in international tax policy, which
may materially impact U.S. taxation of international earnings. We continue to monitor these proposals and are
currently evaluating their potential impact on our financial condition, results of operations, and cash flows.
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.
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 enter into foreign currency forward and option contracts to hedge against the effect of our
foreign 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 U.S. Dollar against the currency of one or more countries where we operate may have a material
adverse effect on our financial condition and results of operations. Additionally, our hedging exposure to
counterparty credit risks is not secured by any collateral. Although each of the counterparty financial institutions
with which we place hedging contracts are investment grade rated by the national rating agencies as of the time of
the placement, we can provide no assurances as to the financial stability of any of our counterparties. If a
counterparty to one or more of our hedge transactions were to become insolvent, we would be an unsecured creditor
and our exposure at the time would depend on foreign exchange rate movements relative to the contracted foreign
exchange rate and whether any gains result that are not realized due to a counterparty default.
The fundamental shift in our industry toward global service delivery markets presents various risks to our
business.
Clients continue to require blended delivery models using a combination of onshore and offshore support. Our
offshore delivery locations include The Philippines, The Peoples Republic of China, India, Costa Rica, El Salvador
Mexico 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
15
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 “Our international operations and expansion involve various risks”). Additionally, a change 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 have a material adverse effect on our
business, financial condition and results of operations.
Our global operations expose us to numerous legal and regulatory requirements.
We provide services to our clients’ customers in 23 countries around the world, excluding Spain as a result of the
planned sale of those operations. Accordingly, we are subject to numerous legal regimes on matters such as
taxation, government sanctions, content requirements, licensing, tariffs, government affairs, data privacy and
immigration as well as internal and disclosure control obligations. In the U.S., as well as several of the other
countries in which we operate, some of our services must comply with various laws and regulations regarding the
method and timing of placing outbound telephone calls. Violations of these various laws and regulations could
result in liability for monetary damages, fines and/or criminal prosecution and unfavorable publicity. Changes in
U.S. federal, state and international laws and regulations, specifically those relating to the outsourcing of jobs to
foreign countries as well as recently enacted statutory and regulatory requirements related to derivative transactions,
may adversely affect our ability to perform our services at our overseas facilities or could result in additional taxes
on such services, or impact our flexibility to execute strategic hedges, thereby threatening or limiting our ability or
the financial benefit to continue to serve certain markets at offshore locations, or the risks associated therewith.
Risks Related to Our Employees
Our operations are substantially dependent on our 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.
Our 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.
Health epidemics could disrupt our business and adversely affect our financial results.
Our customer contact centers typically seat hundreds of employees in one location. Accordingly, an outbreak of a
contagious infection in one or more of the markets in which we do business may result in significant worker
absenteeism, lower asset utilization rates, voluntary or mandatory closure of our offices and delivery centers, travel
restrictions on our employees, and other disruptions to our business. Any prolonged or widespread health epidemic
could severely disrupt our business operations and have a material adverse effect on our business, financial
condition and results of operations.
16
Risks Related to Our Growth Strategy
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 funded with SYKES’ stock.
Our acquisition strategy involves other potential risks. These risks include:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(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;
the risk that key employees of the acquired business will leave after the acquisition;
potential liabilities of the acquired business;
unforeseen difficulties in the acquired operations;
adverse short-term effects on our operating results;
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.
We may not succeed in our continued efforts to fully integrate the operations of ICT into our own, which may
adversely affect the value of our common stock.
It is possible that the integration of the operations of ICT into our own could result in the disruption of ongoing
businesses or identify inconsistencies in standards, controls, procedures and policies that adversely affect our ability
to maintain relationships with customers, suppliers, distributors, creditors and lessors, or to achieve the full level of
anticipated benefits of the acquisition.
Specifically, issues addressed in completing the integration of the operations of ICT into our own operations in order
to realize the anticipated benefits of the acquisition include, among other things:
(cid:131)
(cid:131)
integrating our information technology systems with those of ICT;
conforming standards, controls, procedures and policies, business cultures and compensation structures between
the companies;
consolidating corporate and administrative infrastructures;
retaining existing customers and attracting new customers;
identifying and eliminating redundant and underperforming operations and assets;
coordinating geographically dispersed organizations;
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131) managing tax costs or inefficiencies associated with integrating the operations of the combined company; and
(cid:131) making any necessary modifications to operating control standards to comply with the Sarbanes-Oxley Act of
2002 and the rules and regulations promulgated thereunder.
Integration efforts between the two companies at times may divert management attention and resources. An inability
to realize the full extent of, or any of, the anticipated benefits of the acquisition, as well as any delays encountered in
the integration process, could have an adverse effect on our business and results of operations, which may affect the
value of the shares of our common stock.
In addition, the actual integration may result in additional and unforeseen expenses, and the full amount of
anticipated benefits of the integration plan may not be realized. If we are not able to adequately address these
challenges, we may be unable to fully integrate ICT’s operations into our own, or to realize the full amount of
anticipated benefits of the integration of the two companies.
17
We may incur significant cash and non-cash costs in connection with the continued rationalization of assets
resulting from acquisitions.
We may incur a number of non-recurring cash and non-cash costs associated with the continued rationalization of
assets resulting from acquisitions relating to the closing of facilities and disposition of assets.
We have substantial goodwill and if it becomes impaired, then our profits would be significantly reduced or
eliminated and shareholders’ equity would be reduced.
We recorded goodwill as a result of the ICT acquisition. On at least an annual basis, we assess whether there has
been an impairment in the value of goodwill. If the carrying value of goodwill exceeds its estimated fair value,
impairment is deemed to have occurred and the carrying value of goodwill is written down to fair value. This would
result in a charge to our operating earnings.
Risks Related to Our Common Stock
Our organizational documents contain provisions that could impede a change in control.
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.
The volatility of our 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.
Failure to adhere to laws, rules and regulations applicable to public companies operating in the U.S. may have
an adverse effect on our stock price.
Because we are a publicly traded company, we are subject to certain evolving and expensive federal, state and other
rules and regulations relating to, among other things, assessment and maintenance of internal controls and corporate
governance. Section 404 of the Sarbanes-Oxley Act of 2002, together with rules and regulations issued by the
Securities and Exchange Commission (“SEC”) require us to furnish, on an annual basis, a report by our management
(included elsewhere in this Annual Report on Form 10-K) regarding the effectiveness of our internal control over
financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal
controls over financial reporting as of the end of our fiscal year and a statement as to whether or not our internal
controls over financial reporting are effective. We must include a disclosure of any material weaknesses in our
internal control over financial reporting identified by management during the annual assessment. We have in the
past discovered, and may potentially in the future discover, areas of internal control over financial reporting which
may require improvement. If at any time we are unable to assert that our internal controls over financial reporting
are effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, our
investors could lose confidence in the accuracy and/or completeness of our financial reports, which could have an
adverse effect on our stock price.
Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) enacted in
2010 subjects us to significant additional executive compensation and corporate governance requirements and
disclosures, some of which have yet to be implemented by the SEC. Compliance with their requirements may be
costly and adversely affect our business. The Dodd-Frank Act also anticipates the enactment of regulations that may
affect the ability of financial institutions to offer credit and hedging instruments without significant additional
18
capital or other costs to them. This may make it more difficult for us to have access to foreign exchange hedging
transactions on favorable terms, which may limit the predictability of cash flows from operations and result in
increased operating expenses.
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, 2011 relating to our periodic or current reports filed under the Securities Exchange Act
of 1934.
19
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 or any space required due to expiring leases not
renewed. We operate from time to time in temporary facilities to accommodate growth before new customer contact
management centers are available. During 2011, our customer contact management centers, taken as a whole, were
utilized at average capacities of approximately 74% and were capable of supporting a higher level of market
demand. The following table sets forth additional information concerning our facilities:
Properties
AMERICAS LOCATIONS
Tampa, Florida
Nogales, Arizona
Fort Smith, Arkansas
Malvern, Arkansas
Morrilton, Arkansas
Sterling, Colorado
Lakeland, Florida
Bardstown, Kentucky
Louisville, Kentucky
Morganfield, Kentucky (1)
Perry County, Kentucky
Wilton, Maine
Amherst, New York
Bismarck, North Dakota
Ponca City, Oklahoma
Milton-Freewater, Oregon
Allentown, Pennsylvania
Bloomburg, Pennsylvania
Langhorn, Pennsylvania
Langhorn, Pennsylvania
Langhorn, Pennsylvania
Lockhaven, Pennsylvania
Newtown, Pennsylvania (2)
Greenwood, South Carolina
Greenwood, South Carolina
Kingstree, South Carolina
Sumter, South Carolina
Sumter, South Carolina
Sumter, South Carolina
Buchanan County, Virginia
Wise, Virginia
Spokane, Washington
Maitland, Australia
General Usage
Square Feet
Lease Expiration/
Company Owned
Corporate headquarters
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
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
Customer contact management center
Headquarters
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
June 2016
January 2015
67,645
44,402
40,622 April 2021
32,287 May 2019
July 2016
23,850
34,000 Company owned
July 2014
50,000
35,813
September 2019
36,860 May 2012
42,000 Company owned
42,000 Company owned
30,000 April 2012
26,296 May 2013
42,000 Company owned
42,000 Company owned
42,000 Company owned
21,115
21,800
21,641 March 2017
14,060 March 2017
1,396
June 2012
23,610
June 2012
February 2017
102,000
25,000 December 2012
15,000 December 2018
35,000 March 2028
25,000 April 2014
17,141
2,141 March 2012
42,700 Company owned
42,000 Company owned
July 2013
50,000
September 2012
10,613
September 2013
July 2014
September 2013
(1) Closed in June, 2011.
(2) Customer contact management center closed in December, 2011. Excess capacity subleased.
20
Properties
AMERICAS LOCATIONS (continued)
Rhodes (Sydney), Australia
Robina, Australia
Curitiba, Brazil
London, Ontario, Canada
Moncton, New Brunswick, Canada (3)
North Bay, Ontario, Canada (3)
Sudbury, Ontario, Canada (3)
Toronto, Ontario, Canada (3)
Ottawa, Ontario, Canada
Cornerbrook, New Foundland Labrador, Canada
Lindsay, Ontario, Canada
Miramichi, New Brunswick, Canada
Peterborough, Ontario, Canada
Riverview, New Brunswick, Canada
Sherebrook, Quebec, Canada
St. John, New Brunswick, Canada
St. John, New Foundland Labrador, Canada
Sydney, Nova Scotia, Canada
Hatillo, San Jose, Costa Rica
LaAurora, Heredia, Costa Rica (two)
Moravia, San Jose, Costa Rica
Barranquilla, Colombia
San Salvador, El Salvador
Hyderabad, India
Mexico City, Mexico
Guangzhou, The Peoples Republic of China
Shanghai, The Peoples Republic of China
Cebu City, The Philippines
Makati City, The Philippines
Makati City, The Philippines
Mandaluyong, The Philippines
Mandaluyong, The Philippines
Marikina City, The Philippines
Marikina City, The Philippines
Pasig City, The Philippines
Pasig City, The Philippines
Quezon City, The Philippines
Chesterfield, Missouri (4)
Calgary, Alberta, Canada
Bangalore, India
Makati City, The Philippines
Pasig City, The Philippines
General Usage
Square Feet
Lease Expiration/
Company Owned
g
Customer contact management center
Customer contact management center
Customer contact management center
Headquarters
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
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management centers
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
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
Office
Office
Office
Office
Office
June 2012
June 2021
June 2016
February 2014
September 2012
9,363
February 2013
9,364
25,658
July 2012
50,000 Company owned
12,714 December 2016
5,371 May 2013
4,150 December 2015
14,600
4,170
15,151
15,338
30,000 May 2012
January 2016
17,409
June 2014
49,017
January 2017
26,764
25,000
February 2015
49,000 December 2015
February 2016
27,200
July 2021
49,138
September 2023
131,912
38,481
July 2027
23,121 May 2032
119,514 November 2024
16,000
59,503 November 2014
12,971 March 2012
February 2016
70,474
149,404 December 2026
68,610 March 2023
68,268
138,716 April 2022
82,150 December 2021
74,525 March 2012
87,275
117,597 November 2023
September 2012
73,873
September 2024
84,250
January 2016
3,618
July 2012
7,782
January 2014
1,500
1,497 May 2013
1,917 August 2012
September 2013
June 2012
June 2014
(3) Considered part of the Toronto, Ontario, Canada customer contact management center.
(4) Enterprise support services location.
21
Properties
EMEA LOCATIONS
Odense, Denmark
Cairo, Egypt
Turku, Finland
Berlin, Germany
Bochum, Germany
Pasewalk, Germany
Wilhelmshaven, Germany
Wilhelmshaven, Germany
Budapest, Hungary
Dublin, Ireland (5)
Shannon, Ireland
Bergen, Norway
Bodo, Norway
Cluj, Romania
Edinburgh, Scotland
Kosice, Slovakia
Johannesburg, South Africa
La Coruña, Spain (6)
Lugo, Spain (6)
Ponferrada, Spain (6)
Ed, Sweden
Sveg, Sweden
Amsterdam, The Netherlands
Galashiels, Scotland
Rosersberg, Sweden
Frankfurt, Germany
Madrid, Spain (6)
General Usage
Square Feet
Lease Expiration/
Company Owned
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
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center/
Office/Headquarters
Customer contact management center
Customer contact management center
January 2016
13,606
January 2013
27,936
February 2013
12,508
60,278
February 2020
41,334 December 2013
46,070
February 2013
46,000 November 2012
14,300 August 2012
23,961 March 2013
9,845 March 2014
66,000
January 2013
8,654 August 2015
January 2017
4,004
32,055 April 2030
35,870
September 2019
40,023 December 2024
21,692
July 2012
Customer contact management center
10,314 December 2012
Customer contact management center
21,442
June 2012
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Fulfillment center
Fulfillment center and Sales office
Sales office
Office
16,146 December 2028
September 2019
44,061
June 2013
34,975
33,089
September 2012
126,700 Company owned
43,056
1,701
127
February 2013
September 2012
February 2013
(5) Closed in December, 2010.
(6) Classified as discontinued operations in December, 2011.
22
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 when possible and appropriate, have provided
adequate accruals related to those matters 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 pending matters involving regulatory sanctions assessed against our Spanish
subsidiary, which is classified as discontinued operations. All of these matters relate to the alleged inappropriate
acquisition of personal information in connection with two outbound client contracts. Based upon the opinion of
legal counsel regarding the likely outcome of these matters, we accrued a $1.3 million liability under ASC 450
“Contingencies” because management believed that a loss was probable and the amount of the loss could be
reasonably estimated. Due to the favorable rulings by the Spanish Supreme Court, we reversed $0.4 million and $0.5
million of the accrued liability during the years ended December 31, 2011 and 2010, respectively. The remaining
accrued liability of $0.4 million is included in “Liabilities held for sale – discontinued operations” in the
accompanying Consolidated Balance Sheet at December 31, 2011. As of December 31, 2010, the accrued liability
of $0.8 million was included in “Other accrued expenses and current liabilities” in the accompanying Consolidated
Balance Sheet. The final claim was finally decided against us on procedural grounds, but subsequent to year end,
the assessed fine associated with that claim was settled at no cost to us.
In connection with the appeal of one of these claims, we issued a bank guarantee, which is included as restricted
cash of $0.4 million in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets as of
December 31, 2010. Due to the favorable ruling by the Spanish Supreme Court mentioned above, we released the
bank guarantee during the three months ended December 31, 2011.
Item 4. Mine Safety Disclosures
Not Applicable.
23
PART II
Item 5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
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, 2011:
Fourth Quarter ……………………………… 18.96
Third Quarter ……………………………… 22.69
Second Quarter ……………………………… 22.88
First Quarter ………………………………… 21.11
$
$
13.16
10.56
18.74
17.82
Year Ended December 31, 2010:
Fourth Quarter ……………………………… 21.68
Third Quarter ……………………………… 16.70
Second Quarter ……………………………… 23.46
First Quarter ………………………………… 26.26
$
$
13.49
10.85
14.21
22.59
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 24, 2012, there were 985 holders of record of the common stock. We estimate there were
approximately 5,000 beneficial owners of our common stock.
Below is a summary of stock repurchases for the quarter ended December 31, 2011 (in thousands, except average
price per share).
Period
October 1, 2011 - October 31, 2011 ………
November 1, 2011 - November 30, 2011 …
December 1, 2011 - December 31, 2011 ……
Total ……………………………………
Total
Number of
S hares
Purchased (1)
-
275
219
494
Average
Price
Paid Per
S hare
-
14.63
14.95
Total Number of
S hares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of S hares That May
Yet Be Purchased
Under Plans or
Programs
-
275
219
494
3,000
2,725
2,506
2,506
(1)
All shares purchased as part of the repurchase plan publicly announced on August 8, 2011. T otal number of shares
approved for repurchase under the 2011 Repurchase Plan was 5.0 million with no expiration date. All of the available
shares available under the repurchase plan publicly announced on August 5, 2002 have been repurchased.
24
Five-Year Stock Performance Graph
The following graph presents a comparison of the cumulative shareholder return on the common stock with the
cumulative total return on the NASDAQ Computer and Data Processing Services Index, 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, 2006 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.
Comparison of Five-Year Cumulative Total Return
$200
SYKES
NASDAQ Computer &
Data Processing Services
Stocks
$150
NASDAQ
Telecommunications
Stocks
$100
Russell 2000® Index
S&P Small Cap 600 Index
SYKES Peer Group
$50
$0
SYKES
NASDAQ Computer & Data Processing
Services Stocks
NASDAQ Telecommunications Stocks
Russell 2000® Index
S&P Small Cap 600 Index
SYKES Peer Group
2006
$100
$100
$100
$100
$100
$100
2007
$102
$122
$109
$97
$99
$77
2008
$108
$65
$62
$63
$67
$31
2009
$144
$111
$92
$79
$83
$63
2010
$115
$130
$96
$99
$104
$63
2011
$89
$131
$84
$94
$104
$50
SYKES Peer Group
Convergys Corp.
StarTek, Inc.
TeleTech Holdings, Inc.
Ticker Symbol
CVG
SRT
TTEC
There was a change to the SYKES Peer Group with respect to APAC Customer Service, Inc. (“APAC”), which was
acquired by One Equity Partners, the private investment firm owned by JP Morgan Chase & Co. in October 2011.
With the acquisition of APAC, the Peer Group excludes the share price performance of APAC for the past 5 years as
APAC shares no longer trade on NASDAQ.
25
There can be no assurance that SYKES’ 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.
The information contained in the Stock Performance Graph section shall not be deemed to be “soliciting material”
or “filed” or incorporated by reference in future filings 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.
Item 6. Selected Financial Data
Selected Financial Data
The following selected financial data has been derived from our Consolidated Financial Statements.
During 2011, we committed to a plan to sell our operations in Spain. Also, we sold our Argentine operations during
2010. Accordingly, we have reclassified the selected financial data for all periods presented to reflect these results as
discontinued operations in accordance with Accounting Standards Codification 205-20 “Discontinued Operations”.
The information below should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and the accompanying Consolidated Financial Statements and related notes
thereto.
26
(in thousands, except per share data)
Income S tatement Data: (1)
Years Ended December 31,
2011
2010
2009
2008
2007
Revenues ………………………………………………………… 1,169,267
Income from continuing operations (2,4,6,7,8,9) ……………………… 65,535
Income from continuing operations, net of taxes (2,4,6,7,8,9) ………… 52,314
(Loss) from discontinued operations, net of taxes (3) ……..….…..
(4,532)
Gain (loss) on sale of discontinued operations, net of taxes (5) ……
559
Net income (loss) ………………………………………………… 48,341
$
$
1,121,911
$
769,353
$
749,004
$
662,033
37,981
26,115
(12,893)
(23,495)
(10,273)
71,172
44,667
(1,456)
-
43,211
64,942
60,490
71
-
60,561
55,632
44,461
(4,602)
-
39,859
Net Income (Loss) Per Common S hare: (1)
Basic:
Continuing operations (2,4,6,7,8,9)…………………………………
Discontinued operations (3,5) …………………………………
Net income (loss) per common share …………………………
1.15
(0.09)
1.06
$
$
$
$
$
0.57
(0.79)
(0.22)
1.10
(0.04)
1.06
1.49
0.00
1.49
1.10
(0.11)
0.99
$
$
$
$
$
Diluted:
Continuing operations (2,4,6,7,8,9)…………………………………
Discontinued operations (3,5) …………………………………
Net income (loss) per common share …………………………
$
1.15
(0.09)
1.06
$
$
0.57
$
1.09
$
1.48
$
1.09
(0.79)
(0.22)
$
(0.04)
1.05
$
0.00
1.48
$
(0.11)
0.98
$
Weighted Average S hares: (1)
Basic ……………………………………………………………… 45,506
Diluted ……………………………………………………………
45,607
46,030
46,133
40,707
41,026
40,618
40,961
40,387
40,699
Balance S heet Data: (1,10)
Total assets ……………………………………………………… 769,130
Shareholders' equity ……………………………………………… 573,566
$
$
794,600
583,195
$
672,471
450,674
$
529,542
384,030
$
505,475
365,321
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
T he amounts for 2011 and 2010 include the ICT acquisition complet ed on February 2, 2010.
T he amounts for 2011 include $11.8 million in ICT acquisition-related costs, a $3.7 million net gain on the sale of t he land and building in
Minot , North Dakota, a $1.7 million impairment of long-lived assets and a $0.5 million net gain on insurance settlement.
T he amounts for all periods presented include the operations in Spain, which were classified as held for sale as of December 31, 2011, and the
Argentine operat ions, which were sold in 2010.
T he amounts for 2011 includes $5.8 million related to the Fourt h Quarter 2011 Exit Plan.
T he amounts for 2011 and 2010 include the gain (loss) on sale of the Argentine operations.
T he amounts for 2010 include $46.3 million in ICT acquisition-related costs, a $3.3 million impairment of long-lived assets, a $2.0 million net
gain on insurance settlement and a $0.4 million impairment of goodwill and intangibles.
T he amounts for 2009 include $3.3 million in ICT acquisition-related costs and a $1.9 million impairment of goodwill and intangibles.
T he amounts for 2009 include a $14.7 million charge to provision for income t axes related to our change of intent in the fourth quarter of
2009 regarding the permanent reinvestment of foreign subsidiaries' accumulated and undist ributed earnings and a $2.1 million impairment loss on
our investment in SHPS.
T he amounts for 2007 include a $1.3 million provision for regulatory penalties related to privacy claims associated with t he alleged
inappropriate acquisition of personal bank account information in our Spanish subsidiary. T he amounts for 2011 and 2010 each include a $0.4
million recovery of these regulat ory penalt ies.
(10) SYKES has not declared cash dividends per common share for any of the five years presented.
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the accompanying Consolidated Financial Statements and the
notes thereto that appear elsewhere in this Annual Report on Form 10-K. The following discussion and analysis
compares the year ended December 31, 2011 (“2011”) to the year ended December 31, 2010 (“2010”), and 2010 to
the year ended December 31, 2009 (“2009”).
The following discussion and analysis and other sections of this document contain forward-looking statements that
involve risks and uncertainties. Words such as “may,” “expects,” “projects,” “anticipates,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” variations of such 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. 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 Annual Report on Form 10-K for the year ended December 31, 2011 in Item 1.A., “Risk Factors.”
Overview
We provide an array of sophisticated customer contact management solutions to a wide range of clients including
Fortune 1000 companies, medium-sized businesses, and public institutions around the world, primarily in the
communications, financial services, technology/consumer, transportation and leisure, healthcare and other
industries. We serve our clients through two geographic operating regions: the Americas (United States, Canada,
Latin America, Australia and the Asia Pacific Rim) and EMEA (Europe, the 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 include customer assistance, healthcare and roadside assistance,
technical support and product sales to our clients’ customers. These services, which represented 98% of consolidated
revenues in 2011, are delivered through multiple communication channels encompassing phone, e-mail, Internet,
text messaging and chat. We also provide various enterprise support services in the United States (“U.S.”) that
include services for our clients’ internal support operations, from technical staffing services to outsourced corporate
help desk services. In Europe, we also provide fulfillment services including multilingual sales order processing via
the Internet and phone, payment processing, inventory control, product delivery, and product returns handling. 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, Latin America, Australia, the Asia Pacific Rim, Europe and Africa.
Revenues from these services is recognized as the services are performed, which is based on either a per minute, per
hour, per call or per transaction basis, under a fully executed contractual agreement, and we record reductions to
revenues 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.
The net gain (loss) on disposal of property and equipment includes the net gain on sale in 2011 of the land and
building located in Minot, North Dakota.
The net gain on insurance settlement in 2011 and 2010 includes the insurance proceeds received for typhoon damage
to one of our customer contact management centers in The Philippines.
The impairment of goodwill and intangibles in 2010 is primarily related to customer relationships in the ICT-
acquired United Kingdom operations. The impairment of goodwill and intangibles in 2009 is related to the March
2005 acquisition of Kelly, Luthmer & Associates Limited (“KLA”), our Employee Assistance and Occupational
Health operations in Calgary, Alberta Canada.
The impairment of long-lived assets, primarily leasehold improvements and equipment, in the Americas and EMEA
segments in 2011 and 2010 were related to an ongoing effort to streamline excess capacity related to the ICT
28
acquisition and align it with the needs of the market, optimize capacity utilization and improve overall profitability.
Interest income primarily relates to interest earned on cash and cash equivalents and foreign tax refunds. Interest
expense primarily includes commitment fees charged on the unused portion of our revolving credit facility and
interest on borrowings in 2010 related to the ICT acquisition, as more fully described in this Item 7, under
“Liquidity and Capital Resources.”
Impairment (loss) on investment in SHPS represents the estimated fair value adjustment and subsequent liquidation
of our noncontrolling interest in SHPS by converting our SHPS common stock into cash for $0.000001 per share.
Other (expense) includes gains and losses on foreign currency derivative instruments not designated as hedges,
foreign currency transaction gains and losses and other miscellaneous income (expense).
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.
Discontinued Operations
In November 2011, we committed to a plan to sell our operations in Spain. We have reflected the operating results
related to the operations in Spain as discontinued operations in the accompanying Consolidated Statements of
Operations for all periods presented. The assets and related liabilities of Spain are presented as held for sale in the
accompanying Consolidated Balance Sheet as of December 31, 2011. This business was historically reported as part
of the EMEA segment.
In December 2010, we sold our Argentine operations pursuant to stock purchase agreements, dated December 16,
2010 and December 29, 2010. We have reflected the operating results related to the Argentine operations as
discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented. This
business was historically reported as part of the Americas segment.
See “Results of Operations – Discontinued Operations” later in this Item 7 for more information. Unless otherwise
noted, discussions below pertain only to our continuing operations.
Acquisition of ICT
On February 2, 2010, we completed the acquisition of ICT Group, Inc. (“ICT”), a Pennsylvania corporation and a
leading global provider of outsourced customer management and BPO solutions. We refer to such acquisition herein
as the “ICT acquisition.”
As a result of the ICT acquisition on February 2, 2010,
• each outstanding share of ICT’s common stock, par value $0.01 per share, was converted into the right to
receive $7.69 in cash, without interest, and 0.3423 of a share of SYKES common stock, par value
$0.01 per share;
• each outstanding ICT stock option, whether or not then vested and exercisable, became fully vested and
exercisable immediately prior to, and then was canceled at, the effective time of the acquisition, and
the holder of such option became entitled to receive an amount in cash, without interest and less any
applicable taxes to be withheld, equal to (i) the excess, if any, of (1) $15.38 over (2) the exercise price
per share of ICT common stock subject to such ICT stock option, multiplied by (ii) the total number of
shares of ICT common stock underlying such ICT stock option, with the aggregate amount of such
payment rounded up to the nearest cent. If the exercise price was equal to or greater than $15.38, then
the stock option was canceled without any payment to the stock option holder; and
• each outstanding ICT restricted stock unit (“RSU”) became fully vested and then was canceled and the
holder of such vested awards became entitled to receive $15.38 in cash, without interest and less any
applicable taxes to be withheld, in respect of each share of ICT common stock into which the RSU
would otherwise have been convertible.
29
The total aggregate purchase price of the transaction of $277.8 million was comprised of $141.1 million in cash and
5.6 million shares of SYKES common stock valued at $136.7 million. The transaction was funded through
borrowings consisting of a $75 million short-term loan from KeyBank National Association (“KeyBank”) in
December 2009, due March 31, 2010, and a $75 million term loan from a syndicate of banks due in varying
installments through February 1, 2013. Both of these loans were repaid during 2010 and are no longer available for
borrowings. See “Liquidity & Capital Resources” later in this Item 7 for further information.
The results of operations of ICT have been reflected in the accompanying Consolidated Statement of Operations for
the year ended December 31, 2011 and the period from February 2, 2010 to December 31, 2010.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items
reflected in the accompanying Consolidated Statements of Operations:
Years Ended December 31,
2010
2011
2009
Percentage of Revenue:
Revenues …………………………………………………
Direct salaries and related costs ……………………………
General and administrative …………………………………
Net (gain) loss on disposal of property and equipment …
Net (gain) on insurance settlement …………………………
Impairment of goodwill and intangibles……………………
Impairment of long-lived assets ……………………………
Income from continuing operations ………………………
Interest income ……………………………………………
Interest (expense) …………………………………………
Impairment (loss) on investment in SHPS…………………
Other (expense)……………………………………………
Income from continuing operations before income taxes …
Income taxes ………………………………………………
Income from continuing operations, net of taxes …………
(Loss) from discontinued operations, net of taxes …………
Net income (loss) …………………………………………
100.0%
65.3
29.2
(0.3)
-
-
0.1
5.7
0.1
(0.1)
-
(0.2)
5.5
1.0
4.5
(0.3)
4.2%
100.0%
63.8
32.7
0.0
(0.2)
-
0.3
3.4
0.1
(0.4)
-
(0.5)
2.6
0.2
2.4
(3.2)
(0.8)%
100.0%
62.6
27.8
-
-
0.2
-
9.4
0.3
-
(0.3)
-
9.4
3.4
6.0
(0.2)
5.8%
30
The following table sets forth, for the periods indicated, certain data derived from the accompanying Consolidated
Statements of Operations (in thousands):
Years Ended December 31,
2010
2011
2009
$
$
$
Revenues ………………………………………………… 1,169,267
Direct salaries and related costs …………………………… 763,930
General and administrative ………………………………… 341,586
Net (gain) loss on disposal of property and equipment …
(3,021)
Net (gain) on insurance settlement …………………………
(481)
Impairment of goodwill and intangibles……………………
-
Impairment of long-lived assets ……………………………
1,718
Income from continuing operations ………………………
65,535
Interest income ……………………………………………
1,352
Interest (expense) …………………………………………
(1,132)
Impairment (loss) on investment in SHPS…………………
-
Other (expense)……………………………………………
(2,099)
Income from continuing operations before income taxes …
63,656
Income taxes ………………………………………………
11,342
Income from continuing operations, net of taxes …………
52,314
(Loss) from discontinued operations, net of taxes …………
(3,973)
Net income (loss) …………………………………………
48,341
$
1,121,911
715,571
366,565
143
(1,991)
362
3,280
37,981
1,201
(4,963)
-
(5,907)
28,312
2,197
26,115
(36,388)
(10,273)
769,353
481,823
214,255
195
-
1,908
-
71,172
2,287
(302)
(2,089)
(283)
70,785
26,118
44,667
(1,456)
43,211
$
$
The following table summarizes our revenues for the periods indicated, by reporting segment (in thousands):
Years Ended December 31,
2011
2010
2009
Americas …………………………
$
963,142
82.4%
$
934,329
83.3%
$
565,022
EM EA …………………………
206,125
17.6%
187,582
16.7%
204,331
73.4%
26.6%
Consolidated …………………
$
1,169,267
100.0%
$
1,121,911
100.0%
$
769,353
100.0%
31
The following table summarizes certain amounts and percentages of revenues for the periods indicated, by reporting
segment (in thousands):
Years Ended December 31,
2011
2010
2009
Direct salaries and related costs:
Americas …………………………………………… 611,783
$
63.5%
$
580,741
62.2%
$
341,681
EM EA ………………………………………..……
152,147
73.8%
134,830
71.9%
140,142
Consolidated …………………………….………
$
763,930
65.3%
$
715,571
63.8%
$
481,823
General and administrative:
Americas …………………………………………… 237,899
$
24.7%
$
244,213
26.1%
$
119,998
EM EA ………………………………………..……
57,241
27.8%
Corporate …………………………………………… 46,446
-
57,714
64,638
30.8%
-
50,756
43,501
60.5%
68.6%
62.6%
21.2%
24.8%
-
Consolidated …………………………….………
$
341,586
29.2%
$
366,565
32.7%
$
214,255
27.8%
Net (gain) loss on disposal of property and
equipment:
0.0%
0.1%
0.0%
0.0%
0.0%
0.0%
0.3%
0.0%
0.2%
0.0%
0.0%
0.0%
Americas ……………………………………………
$
(3,030)
-0.3%
$
78
EM EA ………………………………………..……
9
0.0%
65
Consolidated …………………………….………
$
(3,021)
-0.3%
$
143
Net (gain) on insurance settlement:
0.0%
0.0%
0.0%
$
48
147
$
195
Americas ……………………………………………
$
(481)
EM EA ………………………………………..……
-
Consolidated …………………………….………
$
(481)
0.0%
0.0%
0.0%
$
(1,991)
-0.2%
$
-
-
0.0%
-
$
(1,991)
-0.2%
$
-
Impairment of goodwill and intangibles:
Americas ……………………………………………
$
-
EM EA ………………………………………..……
-
Consolidated …………………………….………
$
-
0.0%
0.0%
0.0%
$
-
362
$
362
0.0%
0.2%
0.0%
$
1,908
-
$
1,908
Impairment of long-lived assets:
0.1%
0.2%
0.1%
$
3,121
159
$
3,280
0.3%
0.1%
0.3%
$
-
-
$
-
Americas ……………………………………………
$
1,244
EM EA ………………………………………..……
474
Consolidated …………………………….………
$
1,718
32
2011 Compared to 2010
Revenues
For 2011, we recognized consolidated revenues of $1,169.3 million, an increase of $47.4 million or 4.2%, from
$1,121.9 million in 2010.
On a geographic segment basis, revenues from the Americas region, including the United States, Canada, Latin
America, Australia and the Asia Pacific Rim, represented 82.4%, or $963.1 million, for 2011 compared to 83.3%, or
$934.3 million, for the comparable period in 2010. Revenues from the EMEA region, including Europe, the Middle
East and Africa, represented 17.6%, or $206.2 million, for the year ended December 31, 2011 compared to 16.7%,
or $187.6 million, for the comparable period in 2010.
America’s revenues increased $28.8 million, including the positive foreign currency impact of $10.8 million, for
2011 from 2010, principally due to higher acquisition-related revenues of $4.2 million, new client programs and
higher volumes within new and certain existing clients. Revenues from our offshore operations represented 47.8% of
Americas’ revenues, compared to 47.7% in 2010. 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 programs.
EMEA’s revenues increased $18.6 million, including the positive foreign currency impact of $9.9 million, for the
year ended December 31, 2011 from the comparable period in 2010, principally due to new client programs and
higher volumes within new and certain existing clients. This $18.6 million increase is net of a $1.2 million decrease
in revenues due to the closure of certain sites in connection with the Fourth Quarter 2010 Exit Plan.
Direct Salaries and Related Costs
Direct salaries and related costs increased $48.4 million, or 6.7%, to $763.9 million for 2011 from $715.5 million in
2010.
On a reporting segment basis, direct salaries and related costs from the Americas segment increased $31.1 million,
including the negative foreign currency impact of $16.9 million, for 2011 from 2010. Direct salaries and related
costs from the EMEA segment increased $17.3 million, including the negative foreign currency impact of $7.2
million, for 2011 from 2010.
In the Americas segment, as a percentage of revenues, direct salaries and related costs increased to 63.5% for 2011
from 62.2% in 2010. This increase of 1.3%, as a percentage of revenues, was primarily attributable to higher
compensation costs of 1.4% (principally related to lower volumes within certain existing clients without a
commensurate reduction in labor costs) and higher other costs of 0.1%, partially offset by lower communication
costs of 0.2%.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs increased to 73.8% for 2011
from 71.9% in 2010. This increase of 1.9%, as a percentage of revenues, was primarily attributable to higher
severance costs of 0.7% due to the closure of certain sites in connection with the Fourth Quarter 2011 Exit Plan,
higher compensation costs of 0.6%, higher fulfillment shipping material costs of 0.4%, higher communication costs
of 0.2%, higher automobile-related costs of 0.2% and higher other costs of 0.1%, partially offset by lower travel
costs of 0.3%.
General and Administrative
General and administrative expenses decreased $25.0 million, or 6.8%, to $341.6 million for 2011 from $366.6
million in 2010.
On a reporting segment basis, general and administrative expenses from the Americas segment decreased $6.3
million, including the negative foreign currency impact of $5.3 million, for 2011 from 2010. General and
administrative expenses from the EMEA segment decreased $0.5 million, including the negative foreign currency
impact of $2.5 million, for 2011 from 2010. Corporate general and administrative expenses decreased $18.2 million
33
for 2011 from 2010. This decrease of $18.2 million was primarily attributable to lower merger and acquisition costs
of $22.9 million, partially offset by higher legal and professional fees of $1.4 million, higher charitable contributions
of $1.3 million, higher software maintenance of $0.6 million, higher compensation costs of $0.6 million, higher
consulting costs of $0.2 million, higher training costs of $0.2 million and higher other costs of $0.4 million.
In the Americas segment, as a percentage of revenues, general and administrative expenses decreased to 24.7% for
2011 from 26.1% in 2010. This decrease of 1.4%, as a percentage of revenues, was primarily attributable to lower
merger and acquisition costs of 0.9%, lower depreciation of 0.3% and lower other taxes of 0.2%.
In the EMEA segment, as a percentage of revenues, general and administrative expenses decreased to 27.8% for
2011 from 30.8% in 2010. This decrease of 3.0%, as a percentage of revenues, was primarily attributable to lower
compensation costs of 1.2%, lower merger and acquisition costs of 1.0%, lower facility-related costs of 0.6%, lower
travel costs of 0.3%, lower legal and professional fees of 0.3% and lower other costs of 0.4%, partially offset by
higher severance costs of 0.8% primarily due to the closure of certain sites in connection with the Fourth Quarter
2011 Exit Plan.
Net (Gain) Loss on Disposal of Property and Equipment
Net (gain) on disposal of property and equipment was $(3.0) million during 2011, primarily due to the gain on the
sale of land and a building located in Minot, North Dakota. Net loss on disposal of property and equipment was
$0.1 million during 2010.
Net (Gain) on Insurance Settlement
Net (gain) on insurance settlement of $(0.5) million and $(2.0) million in 2011 and 2010, respectively, primarily
relates to funds received for flood damage from Typhoon Ondoy to the building and contents of one of our customer
contact management centers located in Marikina City, The Philippines (acquired as part of the ICT acquisition). The
damaged property and equipment had been written down by ICT prior to the ICT acquisition in February 2010. No
additional funds are expected related to the Typhoon Ondoy insurance claim.
Impairment of Goodwill and Intangibles
We make certain estimates and assumptions, including, among other things, an assessment of market conditions and
projections of cash flows, investment rates and cost of capital and growth rates when estimating the value of our
intangibles. Based on actual and forecasted operating results and deterioration of the related customer base in our
ICT-acquired United Kingdom operations, the EMEA segment recorded a $0.4 million impairment of goodwill and
intangibles, primarily customer relationships, during 2010 (none in 2011).
Impairment of Long-Lived Assets
During 2011, we recorded a $1.7 million impairment of long-lived assets, primarily leasehold improvements and
equipment, consisting of $1.2 million in the Americas segment and $0.5 million in the EMEA segment. During
2010, we recorded a $3.3 million impairment of long-lived assets, primarily leasehold improvements and equipment,
consisting of $3.1 million in the Americas segment and $0.2 million in the EMEA segment. The impairments
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.
Interest Income
Interest income was $1.4 million for 2011, compared to $1.2 million in 2010. The increase of $0.2 million reflects
higher average balances of interest bearing investments in cash and cash equivalents.
Interest (Expense)
Interest (expense) was $(1.1) million for 2011, compared to $(4.9) million in 2010. The decrease of $3.8 million
reflects interest and fees on higher average levels of borrowings in 2010 related to the ICT acquisition.
Other (Expense)
Other (expense), net, was $(2.1) million for 2011, compared to $(5.9) million in 2010. The net decrease in other
34
(expense), net, of $3.8 million was primarily attributable to a decrease of $3.1 million in forward currency contract
losses (which were not designated as hedging instruments) and a decrease of $1.4 million in foreign currency
transaction losses, net of gains, partially offset by a decrease of $0.7 million in other miscellaneous income, net.
Other (expense) excludes the cumulative translation effects and unrealized gains (losses) on financial derivatives
that are included in “Accumulated other comprehensive income” in shareholders' equity in the accompanying
Consolidated Balance Sheets.
Income Taxes
The provision for income taxes of $11.3 million for 2011 was based upon pre-tax income of $63.7 million,
compared to the provision for income taxes of $2.2 million for 2010 based upon pre-tax income of $28.3 million.
The effective tax rate was 17.8% for 2011, compared to an effective tax rate of 7.8% for 2010.
The increase in the effective tax rate of 10.0% resulted primarily from the shift of earnings to higher tax
jurisdictions, partially offset by a favorable foreign tax rate differential, changes in uncertain tax positions due to the
favorable settlements of tax audits and expiring statutes of limitation, in conjunction with 2010 tax benefits related
to the ICT legal entity reorganization.
On December 17, 2010 the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
(the “Tax Relief Act”) was enacted. Included in the Tax Relief Act is the extension until December 31, 2011 of
Internal Revenue Code Section 954(c)(6). As a result of this extension, we changed our intent to distribute current
earnings from various foreign operations to their foreign parents. These tax provisions permit continued tax deferral
through 2011 on such distributions that would otherwise be taxable immediately in the United States. While the
distributions are not taxable in the United States, related withholding taxes of $2.7 million are included in the
provision for income taxes in the accompanying Consolidated Statement of Operations for 2011.
Prior to the passage of the Tax Relief Act, we determined that we intended to distribute all of the current year and
future years’ earnings of a non-U.S. subsidiary to its foreign parent. Withholding taxes of $0.9 million related to
this distribution are included in the provision for income taxes in the accompanying Consolidated Statement of
Operations for 2011.
(Loss) from Discontinued Operations
In November 2011, we committed to a plan to sell our Spanish operations. Also, in December 2010, we sold our
Argentine operations. Accordingly, we have reflected the operating results related to these operations as
discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented. The
(loss) from discontinued operations, net of taxes, totaled $(4.6) million and $(12.9) million for 2011 and 2010,
respectively. The gain (loss) on sale, net of taxes, of the Argentine operations totaled $0.5 million and $(23.5)
million for 2011 and 2010, respectively. The gain on sale during 2011 resulted from the reversal of the accrued
liability related to the expiration of the indemnification to the purchaser for the possible loss of a specific client
business.
Net Income (Loss)
As a result of the foregoing, we reported income from continuing operations for 2011 of $65.5 million, an increase
of $27.6 million from 2010. This increase was principally attributable to a $47.4 million increase in revenues, a
$25.0 million decrease in general and administrative costs, a $3.1 million increase in net gain on disposal of property
and equipment, a $1.6 million decrease in impairment of long-lived assets and a decrease in impairment of goodwill
and intangibles of $0.4 million, partially offset by a $48.4 million increase in direct salaries and related costs and a
$1.5 million decrease in net gain on insurance settlement. In addition to the $27.6 million increase in income from
continuing operations, we experienced a $3.8 million decrease in other expense, net, a decrease in interest expense
of $3.8 million, a $0.2 million increase in interest income, a decrease of $8.3 million in loss from discontinued
operations and a $24.0 million decrease in loss on sale of discontinued operations, partially offset by an increase of
$9.1 million in the tax provision, resulting in net income of $48.3 million for 2011, an increase of $58.6 million
compared to 2010.
35
2010 Compared to 2009
Revenues
In 2010, we recognized consolidated revenues of $1,121.9 million, an increase of $352.5 million or 45.8%, from
$769.4 million in 2009. Excluding the ICT revenues of $362.7 million, revenues decreased $10.2 million for 2010
compared to 2009.
On a geographic segment basis, revenues from the Americas region, including the United States, Canada, Latin
America, Australia and the Asia Pacific Rim, represented 83.3%, or $934.3 million, for 2010 compared to 73.4%, or
$565.0 million, for 2009. Revenues from the EMEA region, including Europe, the Middle East and Africa,
represented 16.7%, or $187.6 million, for 2010 compared to 26.6%, or $204.4 million, for 2009.
Americas’ revenues increased $369.3 million, including the positive foreign currency impact of $36.2 million, for
2010 from 2009, principally due to higher acquisition-related revenues of $361.5 million, partially offset by
expiration of certain client programs and lower than forecasted demand within certain clients. Revenues from our
offshore operations represented 47.7% of Americas’ revenues for 2010, compared to 57.5% 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 programs.
EMEA’s revenues decreased $16.8 million, including the negative foreign currency impact of $3.2 million, for 2010
from 2009, principally due largely to client program expirations, near-shore migration to lower cost geographies in
Egypt, Romania and Germany and sustained weakness in the technology and communication verticals. This
decrease is partially offset by a $1.2 million increase in acquisition-related revenues.
Direct Salaries and Related Costs
Direct salaries and related costs increased $233.7 million, or 48.5%, to $715.5 million for 2010 from $481.8 million
in 2009. This increase includes ICT direct salaries and related costs of $230.1 million for 2010.
On a reporting segment basis, direct salaries and related costs from the Americas segment increased $239.0 million,
including the negative foreign currency impact of $26.4 million, for 2010 from 2009. Direct salaries and related
costs from the EMEA segment decreased $5.3 million, including the positive foreign currency impact of $2.6
million, for 2010 from 2009.
In the Americas segment, as a percentage of revenues, direct salaries and related costs increased to 62.2% for 2010
from 60.5% in 2009. This increase of 1.7%, as a percentage of revenues, was primarily attributable to higher
compensation costs of 2.8% (related to lower than forecasted demand within certain clients without a commensurate
reduction in labor costs and wage increases in certain geographies), higher communication costs of 0.6% and higher
billable supply costs of 0.3%, partially offset by lower automobile tow claim costs of 1.4%, lower travel costs of
0.2%, lower bonus award costs of 0.1% and lower other costs of 0.3%.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs increased to 71.9% for 2010
from 68.6% in 2009. This increase of 3.3%, as a percentage of revenues, was primarily attributable to higher
compensation costs of 1.7% (related to near-shore migration to new facilities in Egypt, Romania and Germany and
the corresponding termination and duplicative costs), higher severance costs of 0.8%, higher recruiting costs of
0.3%, higher communication costs of 0.2%, higher travel costs of 0.2% and higher other costs of 0.1%.
General and Administrative
General and administrative expenses increased $152.3 million, or 71.1%, to $366.6 million for 2010 from $214.3
million in 2009. This increase includes ICT general and administrative costs of $139.6 million for 2010.
On a reporting segment basis, general and administrative expenses from the Americas segment increased $124.2
million, including the negative foreign currency impact of $8.3 million, for 2010 from 2009. General and
administrative expenses from the EMEA segment increased $7.0 million, including the positive foreign currency
impact of $1.3 million, for 2010 from 2009. Corporate general and administrative expenses increased $21.1 million
for 2010 from 2009. This increase of $21.1 million was primarily attributable to higher merger and acquisition costs
36
of $20.9 million, higher compensation costs of $0.6 million, higher travel costs of $0.4 million, higher dues and
subscriptions of $0.3 million and higher training costs of $0.3 million, partially offset by lower legal and
professional fees of $0.9 million and lower business development costs of $0.4 million and lower other costs of $0.1
million.
In the Americas segment, as a percentage of revenues, general and administrative expenses increased to 26.1% for
2010 from 21.2% in 2009. This increase of 4.9%, as a percentage of revenues, was primarily attributable to higher
depreciation costs of 1.9%, higher facility-related costs of 1.3%, higher merger and acquisition costs of 0.9%, higher
equipment and maintenance costs of 0.7% and higher compensation costs of 0.5%, partially offset by lower bad debt
expense of 0.2% and lower other costs of 0.2%.
In the EMEA segment, as a percentage of revenues, general and administrative expenses increased to 30.8% for
2010 from 24.8% in 2009. This increase of 6.0%, as a percentage of revenues, was primarily attributable to higher
facility-related costs of 1.9%, higher compensation costs of 0.9% (related to near-shore migration to new facilities in
Egypt, Romania and Germany in 2010 and the corresponding termination and duplicative costs), higher merger and
acquisition costs of 0.9%, higher travel costs of 0.6%, higher legal and professional fees of 0.5%, higher
depreciation costs of 0.4%, higher equipment and maintenance costs of 0.2%, higher communications costs of 0.2%
and higher other costs of 0.4%.
Net (Gain) Loss on Disposal of Property and Equipment
Net loss on disposal of property and equipment was $0.1 million during 2010, compared to $0.2 million in 2009, a
decrease of $0.1 million.
Net (Gain) on Insurance Settlement
Net (gain) on insurance settlement of $(2.0) million in 2010 (none in 2009) relates to funds received for flood
damage from Typhoon Ondoy to the building and contents of one of our customer contact management centers
located in Marikina City, The Philippines (acquired as part of the ICT acquisition). The damaged property and
equipment had been written down by ICT prior to the ICT acquisition in February 2010.
Impairment of Goodwill and Intangibles
We make certain estimates and assumptions, including, among other things, an assessment of market conditions and
projections of cash flows, investment rates and cost of capital and growth rates when estimating the value of our
intangibles. Based on actual and forecasted operating results and deterioration of the related customer base in our
ICT-acquired United Kingdom operations, the EMEA segment recorded a $0.4 million impairment of goodwill and
intangibles, primarily customer relationships, during 2010. The Americas segment recorded a $1.9 million
impairment of goodwill and intangibles during 2009 related to the March 2005 acquisition of KLA.
Impairment of Long-Lived Assets
During 2010, we recorded a $3.3 million impairment of long-lived assets, primarily leasehold improvements and
equipment, consisting of $3.1 million in the Americas segment and $0.2 million in the EMEA segment (none in
2009). The impairments 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.
Interest Income
Interest income was $1.2 million during 2010, compared to $2.3 million in 2009. The decrease of $1.1 million
reflects lower average rates earned on lower average balances of interest bearing investments in cash and cash
equivalents.
Interest (Expense)
Interest (expense) was $(4.9) million during 2010, compared to $(0.2) million in 2009. The increase of $4.7 million
reflecting interest and fees on higher average levels of borrowings in 2010 related to the ICT acquisition.
37
Impairment (Loss) on Investment in SHPS
In the Americas segment, we recorded an impairment of $2.1 million on our entire investment in SHPS during 2009
(none in 2010).
Other (Expense)
Other (expense), net, was $(5.9) million during 2010, compared to $(0.3) million in 2009. The net increase in other
(expense), net, of $5.6 million was primarily attributable to an increase of $2.6 million in forward currency contract
losses (which were not designated as hedging instruments), an increase of $2.6 million in foreign currency
transaction losses, net of gains, and a decrease of $0.4 million in other miscellaneous income, net. Other
(expense) excludes the cumulative translation effects and unrealized gains (losses) on financial derivatives that are
included in “Accumulated other comprehensive income” in shareholders' equity in the accompanying Consolidated
Balance Sheets.
Income Taxes
The provision for income taxes of $2.2 million for 2010 was based upon pre-tax income of $28.3 million, compared
to the provision for income taxes of $26.1 million for 2009 based upon pre-tax income of $70.8 million. The
effective tax rate was 7.8% for 2010 compared to an effective tax rate of 36.9% for 2009.
The decrease in the effective tax rate of 29.1% resulted primarily from the proportionately higher income under tax
holiday jurisdictions, the foreign tax rate differential, a favorable change in uncertain tax positions due to a favorable
settlement of a tax audit, expiring statutes of limitation and tax benefits related to the ICT legal entity
reorganization, and the absence of an unfavorable impact related to the $85.0 million change of intent to repatriate
foreign earnings in 2009, partially offset by the lack of a release of valuation allowances and a higher proportion of
withholding taxes in 2010.
On December 17, 2010 the Tax Relief Act was enacted. Included in the Tax Relief Act is the extension until
December 31, 2011 of Internal Revenue Code Section 954(c)(6). As a result of this extension, we changed our
intent to distribute current earnings from various foreign operations to their foreign parents. These tax provisions
permit continued tax deferral on such distributions that would otherwise be taxable immediately in the United States.
While the distributions are not taxable in the United States, related withholding taxes of $1.7 million are included in
the provision for income taxes in the accompanying Consolidated Statement of Operations for 2010.
Prior to the passage of the Tax Relief Act, we determined that we intended to distribute all of the current year and
future years’ earnings of a non-U.S. subsidiary to its foreign parent. Withholding taxes of $0.9 million related to
this distribution are included in the provision for income taxes in the accompanying Consolidated Statement of
Operations for 2010.
(Loss) from Discontinued Operations
In November 2011, we committed to a plan to sell our Spanish operations. Also, in December 2010, we sold our
Argentine operations. Accordingly, we have reflected the operating results related to these operations as
discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented. The
(loss) from discontinued operations, net of taxes, totaled $(12.9) million and $(1.5) million for 2010 and 2009,
respectively. The (loss) on sale, net of taxes, of the Argentine operations totaled $(23.5) million for 2010 (none in
2009).
Net Income (Loss)
As a result of the foregoing, we reported income from continuing operations for 2010 of $38.0 million, a decrease of
$33.2 million from 2009. This decrease was principally attributable to a $233.7 million increase in direct salaries
and related costs, a $152.3 million increase in general and administrative costs and a $3.3 million impairment of
long-lived assets, partially offset by a $352.5 million increase in revenues, a $2.0 million net gain on insurance
settlement, a decrease in impairment of goodwill and intangibles of $1.5 million and a $0.1 million decrease in net
loss on disposal of property and equipment. In addition to the $33.2 million decrease in income from continuing
operations, we experienced a $5.6 million increase in other expense, net, an increase in interest expense of $4.7
million, a $1.1 million decrease in interest income, an increase of $11.4 million of loss from discontinued operations
and a $23.5 million loss on sale of discontinued operations, partially offset by a decrease of $2.1 million due to the
38
impairment loss on investment in SHPS in 2009 and a $23.9 million lower tax provision, resulting in a net loss of
$10.3 million for 2010, a decrease of $53.5 million compared to 2009.
Quarterly Results
The following information presents our unaudited quarterly operating results from continuing operations for 2011
and 2010. During 2011, we committed to a plan to sell our operations in Spain. Also, we sold our Argentine
operations during 2010. Accordingly, we have reclassified the selected financial data for all periods presented to
reflect these results as discontinued operations in accordance with Accounting Standards Codification 205-20
“Discontinued Operations”. The data has been prepared on a basis consistent with the accompanying Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K, and includes all adjustments,
consisting of normal recurring accruals, that we consider necessary for a fair presentation thereof.
39
(in thousands, except per share data)
12/31/2011
9/30/2011
6/30/2011
3/31/2011
12/31/2010
9/30/2010
6/30/2010
3/31/2010
$
293,310
$
300,273
$
299,450
$
300,422
$
286,499
$
280,377
$
254,613
Revenues (1) …………………………………………………………… 276,234
Operating expenses:
$
Direct salaries and related costs (1,2) ………………………………… 181,978
General and administrative (1,3,4) …………………………………… 82,086
Net (gain) loss on disposal of property and equipment (5) …………
411
Net (gain) on insurance settlement …………………………………
-
Impairment of goodwill and intangibles ……………………………
Impairment of long-lived assets ……………………………………
-
954
189,082
82,553
(8)
(437)
-
38
198,779
88,370
(3,611)
-
-
-
194,091
88,577
187
(44)
-
726
Total operating expenses ………………………………………… 265,429
Income (loss) from continuing operations ………………………… 10,805
271,228
22,082
283,538
16,735
283,537
15,913
Other income (expense):
Interest income ………………………………………………………
Interest (expense) (6) ………………………………………………
Other income (expense) ……………………………………………
Total other income (expense) ……………………………………
405
(305)
173
273
Income (loss) from continuing operations before income taxes ……..
11,078
Income taxes …………………………………………………………… 5,118
Income (loss) from continuing operations, net of taxes ………………
5,960
(Loss) from discontinued operations, net of taxes (7) ………………… (1,441)
Gain (loss) on sale of discontinued operations, net of taxes (8) ………
559
Net income (loss) ……………………………………………………… 5,078
$
Net income (loss) per common share (9) :
Basic:
Continuing operations ……………………………………………
$
0.14
357
(272)
(329)
(244)
21,838
2,969
18,869
310
(288)
(378)
(356)
16,379
2,683
13,696
(755)
(1,725)
-
-
280
(267)
(1,565)
(1,552)
14,361
572
13,789
(611)
-
191,517
94,978
143
(1,991)
-
177
284,824
15,598
393
(209)
(348)
(164)
15,434
3,965
11,469
(4,925)
(23,495)
182,825
85,288
180,118
88,237
161,111
98,062
-
-
362
3,103
271,578
14,921
308
(1,214)
(589)
(1,495)
13,426
(2,267)
15,693
(2,047)
-
-
-
-
-
-
-
-
-
268,355
12,022
259,173
(4,560)
272
(1,364)
(3,553)
(4,645)
7,377
966
6,411
(3,866)
-
228
(2,176)
(1,417)
(3,365)
(7,925)
(467)
(7,458)
(2,055)
-
$
18,114
$
11,971
$
13,178
$
(16,951)
$
13,646
$
2,545
$
(9,513)
$
0.42
$
0.30
$
0.29
$
0.24
$
0.33
$
0.13
$
(0.16)
Discontinued operations …………………………………………
(0.02)
(0.02)
(0.04)
(0.01)
(0.61)
(0.04)
(0.08)
(0.05)
Net income (loss) per common share ……………………………
$
0.12
Diluted:
Continuing operations ……………………………………………
$
0.14
$
0.40
$
0.26
$
0.28
$
(0.37)
$
0.29
$
0.05
$
(0.21)
$
0.42
$
0.30
$
0.29
$
0.24
$
0.33
$
0.13
$
(0.16)
Discontinued operations …………………………………………
(0.02)
(0.02)
(0.04)
(0.01)
(0.61)
(0.04)
(0.08)
(0.05)
Net income (loss) per common share ……………………………
$
0.12
$
0.40
$
0.26
$
0.28
$
(0.37)
$
0.29
$
0.05
$
(0.21)
Weighted average shares:
Basic ……………………………………………………………… 43,659
Diluted …………………………………………………………… 43,847
45,557
45,653
46,241
46,293
46,409
46,577
46,451
46,563
46,468
46,559
46,601
46,648
44,590
44,766
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
The amounts for each of the quarters include the results of ICT as a result of the acquisition completed on February 2, 2010.
The quarter ended December 31, 2011 includes $3.5 million related to the Fourth Quarter 2011 Exit Plan.
The quarter ended December 31, 2011 includes $2.3 million related to the Fourth Quarter 2011 Exit Plan.
The quarters ended December 31, 2011, September 30, 2011, June 30, 2011, and M arch 31, 2011 include $1.9 million, $3.0 million, $3.5 million and $3.4 million, respectively,
in ICT acquisition-related costs. The quarters ended December 31, 2010, September 30, 2010, June 30, 2010, and M arch 31, 2010 include $10.8 million, $6.3 million, $6.0
million and $23.2 million, respectively, in ICT acquisition-related costs.
The quarter ended June 30, 2011 includes a $3.7 million net gain on sale of the land and building located in M inot, North Dakota.
The quarters ended September 30, 2010, June 30, 2010, and M arch 31, 2010 include interest and amortization of deferred loan fees related to the $75 million Term Loan, the
$75 million revolving credit facility and the $75 million Bermuda Credit Agreement. The Term Loan and the Bermuda Credit Agreement were paid off in September 2010 and
M arch 2010, respectively. See Note 20, Borrowings, of the accompanying "Notes to Consolidated Financial Statements".
The amounts for each of the quarters for 2011 and 2010 include the results of our operations in Spain. The amounts for each of the quarters in 2010 include the results of our
Argentine operations, which was sold in 2010.
The quarters ended December 31, 2011 and 2010 include a gain (loss) on the sale of our Argentine operations.
Net income (loss) per basic and diluted common share is computed independently for each of the quarters presented and, therefore, may not sum to the total for the year.
40
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 facility. 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, our Board authorized us to purchase up to 3.0 million shares of our outstanding common stock
(the “2002 Share Repurchase Program”) and on August 18, 2011, our Board authorized us to purchase up to 5.0
million shares of our outstanding common stock (the “2011 Share Repurchase Program”). During 2011, we
repurchased a total of 3.3 million shares of common stock under these plans.
During 2011, we repurchased 0.8 million common shares under the 2002 Share Repurchase Program at prices
ranging from $12.46 to $18.53 per share for a total cost of $12.3 million. During 2010, we repurchased 0.3 million
common shares at prices ranging from $16.92 to $17.60 per share for a total cost of $5.2 million. During 2009, we
repurchased 0.2 million common shares at prices ranging from $13.72 to $14.75 per share for a total cost of $3.2
million. All available shares under the 2002 Share Repurchase Program have been repurchased.
During 2011, we repurchased 2.5 million common shares under the 2011 Share Repurchase Program at prices
ranging from $14.18 to $16.10 per share for a total cost of $37.7 million. The shares are purchased, from time to
time, through open market purchases or in negotiated private transactions, and the purchases are based on factors,
including but not limited to, the stock price and general market conditions. The 2011 Share Repurchase Program has
no expiration date. We may make additional discretionary stock repurchases under this program in 2012.
During 2011, cash increased $102.6 million from operating activities, proceeds from sale of property and equipment
of $4.0 million, proceeds from an insurance settlement of $1.7 million and proceeds from issuance of stock of $0.3
million. Further, we used $50.0 million on the repurchase of our stock, $29.9 million for capital expenditures, $1.2
million to repurchase stock for minimum tax withholding on equity awards, $0.2 million to refund grants and $0.1
million investment in restricted cash resulting in a $21.3 million increase in available cash (including the
unfavorable effects of international currency exchange rates on cash of $5.9 million).
Net cash flows provided by operating activities for 2011 were $102.6 million, compared to $45.1 million provided
by operating activities for 2010. The $57.5 million increase in net cash flows from operating activities was due to a
$58.6 million increase in net income and a net increase of $15.0 million in cash flows from assets and liabilities,
partially offset by a $16.1 million decrease in non-cash reconciling items such as the loss on sale of discontinued
operations, depreciation and amortization, net gain on disposal of property and equipment, impairment charges,
valuation allowance on deferred tax assets and stock-based compensation. The $15.0 million increase in cash flows
from assets and liabilities was principally a result of a $19.6 million decrease in receivables, a $4.0 million increase
in deferred revenue and a $1.7 million increase in income taxes payable, partially offset by a $6.0 million decrease
in other liabilities and a $4.3 million increase in other assets. The increase in cash flows from assets and liabilities
primarily relates to the timing of receivables’ billings and subsequent payments of those billings, coupled with a
reduction in revenues in the fourth quarter in 2011 over the comparable period in 2010.
During 2011, we committed to a plan to sell our operations in Spain. During 2010, we sold our Argentine
operations. Cash flows from discontinued operations were as follows (in millions):
2011
Years Ended December 31,
2010
2009
Cash provided by (used for) operating activities of discontinued operations ……
Cash provided by (used for) investing activities of discontinued operations ………
$
(4.7)
(0.3)
$
(6.6)
(13.5)
$
2.2
(1.7)
Cash provided by (used for) operating activities of discontinued operations represents the cash provided by (used
for) the Spanish and Argentine operations in 2011, 2010 and 2009. Cash (used for) investing activities of
discontinued operations represents capital expenditures in 2011 and 2009. Cash (used for) investing activities of
discontinued operations in 2010 primarily represents cash on the balance sheet of the Argentine operations at the
time of the sale. The sale of the Argentine operations resulted in a pre-tax loss of $29.9 million, or a $23.5 million
loss, net of tax. We do not expect the absence of the cash flows from our discontinued operations in Spain to
materially affect our future liquidity and capital resources.
41
Capital expenditures, which are generally funded by cash generated from operating activities, available cash
balances and borrowings available under our credit facilities, were $29.9 million for 2011, compared to $28.5
million for 2010, an increase of $1.4 million. In 2012, we anticipate capital expenditures in the range of $33.0
million to $35.0 million, primarily for maintenance and systems infrastructure.
On February 2, 2010, we entered into a Credit Agreement (the “Credit Agreement”) with a group of lenders and
KeyBank, as Lead Arranger, Sole Book Runner and Administrative Agent. The Credit Agreement provides for a $75
million revolving credit facility, which is subject to certain borrowing limitations and includes certain customary
financial and restrictive covenants. At December 31, 2011, we were in compliance with all loan requirements of the
Credit Agreement and had no outstanding borrowings under the facility.
The $75 million revolving credit facility provided under the Credit Agreement includes a $40 million multi-currency
sub-facility, a $10 million swingline sub-facility and a $5 million letter of credit sub-facility, which may be used for
general corporate purposes including strategic acquisitions, share repurchases, working capital support, and letters of
credit, subject to certain limitations. We are not currently aware of any inability of our lenders to provide access to
the full commitment of funds that exist under the revolving credit facility, if necessary. However, there can be no
assurance that such facility will be available to us, even though it is a binding commitment. The revolving credit
facility will mature on February 1, 2013.
Borrowings under the Credit Agreement bear interest at either LIBOR or the base rate plus, in each case, an
applicable margin based on our leverage ratio. The applicable interest rate is determined quarterly based on our
leverage ratio at such time. The base rate is a rate per annum equal to the greatest of (i) the rate of interest
established by KeyBank, from time to time, as its “prime rate”; (ii) the Federal Funds effective rate in effect from
time to time, plus 1/2 of 1% per annum; and (iii) the then-applicable LIBOR rate for one month interest periods, plus
1.00%. Swingline loans bear interest only at the base rate plus the base rate margin. In addition, we are required to
pay certain customary fees, including a commitment fee of up to 0.75%, which is due quarterly in arrears and
calculated on the average unused amount of the revolving credit facility.
The Credit Agreement is guaranteed by all of our existing and future direct and indirect material U.S. subsidiaries
and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all of our direct foreign
subsidiaries and those of the guarantors.
As of December 31, 2011, we had $211.1 million in cash and cash equivalents, of which approximately 77.6% or
$163.9 million, was held in international operations and may be subject to additional taxes if repatriated to the
United States, including withholding tax applied by the country of origin and an incremental U.S. income tax, net of
allowable foreign tax credits. There are circumstances where we may be unable to repatriate some of the cash and
cash equivalents held by our international operations due to country restrictions.
We believe that our current cash levels, accessible funds under our credit facilities and cash flows generated from
future operations will be adequate to meet anticipated working capital needs, any future debt repayment
requirements, continued expansion objectives, funding of potential acquisitions, anticipated levels of capital
expenditures and contractual obligations for the next twelve months and any stock repurchases. Our cash resources
could also be affected by various risks and uncertainties, including, but not limited to the risks detailed in Item 1A,
Risk Factors.
Off-Balance Sheet Arrangements and Other
At December 31, 2011, 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
42
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
during the officer’s or director’s lifetime. The maximum potential amount of future payments 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.
Contractual Obligations
The following table summarizes our contractual cash obligations at December 31, 2011, and the effect these
obligations are expected to have on liquidity and cash flow in future periods (in thousands):
Total
Less Than
1 Year
Operating leases (1) …………………………………………
54,255
Purchase obligations and other (2) …………………………… 23,659
Accounts payable (3) ………………………………………
23,109
Accrued employee compensation and benefits (3) …………
62,430
Other accrued expenses and current liabilities (4) …………… 20,421
Long-term tax liabilities (5) …………………………………
26,475
Other long-term liabilities (6) ………………………………… 5,080
$
$
25,338
15,450
23,109
62,430
20,421
14,300
-
Payments Due By Period
1 - 3 Years
12,878
$
8,209
-
-
-
-
1,838
3 - 5 Years
7,385
$
-
-
-
-
-
1,372
After 5
Years
$
8,654
-
-
-
-
-
1,870
Other
-
$
-
-
-
-
12,175
-
$
215,429
$
161,048
$
22,925
$
8,757
$
10,524
$
12,175
(1)
(2)
(3)
(4)
(5)
(6)
Amounts represent the expected cash payments of our operating leases as discussed in Note 24 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.
Accounts payable and accrued employee compensation and benefits (See Note 16 to the accompanying Consolidated Financial Statements), which
represent amounts due vendors and employees payable within one year.
Other accrued expenses and current liabilties, which exclude deferred grants, include amounts as disclosed in Note 18 to the accompanying
Consolidated Financial Statements, primarily related to restructuring costs, legal and professional fees, telephone charges, rent, derivative contracts
and other accruals.
Long-term tax liabilities include uncertain tax positions and related penalties and interest as discussed in Note 22 to the accompanying Consolidated
Financial Statements. We cannot make reasonably reliable estimates of the cash settlement of $12.2 million of the long-term liabilities with the
taxing authority; therefore, amounts have been excluded from payments due by period.
Other long-term liabilities, which exclude deferred income taxes and other non-cash long-term liabilities, represent the expected cash payments due
under restructuring accruals (primarily lease obligations) and pension obligations. See Notes 4 and 25 to the accompanying Consolidated Financial
Statements.
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.
Unless we need to clarify a point to readers, we will refrain from citing specific section references when discussing
the application of accounting principles or addressing new or pending accounting rule changes.
43
Recognition of Revenue
We recognize revenue in accordance with ASC 605 “Revenue Recognition”.
We primarily recognize revenues from services as the services are performed, which is based on either a per minute,
per call or per transaction basis, under a fully executed contractual agreement and record reductions to revenues for
contractual penalties and holdbacks for failure to meet specified minimum service levels and other performance
based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future
product or service or meeting other specified performance conditions.
Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and
satisfaction of all obligations.
In accordance with ASC 605-25 (“ASC 605-25”) “Revenue Recognition – Multiple-Element Arrangements”,
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. Separation criteria includes 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 revenues 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 revenues between deliverable elements, there are no further changes in the
revenue allocation. If the separation criteria are met, revenues from these services are 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 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. As of December 31, 2011, our fulfillment
contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was
accounted for accordingly. We have no other contracts that contain multiple-deliverables as of December 31, 2011.
In October 2009, the Financial Accounting Standards Board amended the accounting standards for certain multiple-
deliverable revenue arrangements. We adopted this guidance on a prospective basis for applicable transactions
originated or materially modified since January 1, 2011, the adoption date. Since there were no such transactions
executed or materially modified since adoption on January 1, 2011, there was no impact on our financial condition,
results of operations and cash flows. The amended standard:
•
•
•
updates guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be
separated, and how the consideration should be allocated;
requires an entity to allocate revenue in an arrangement using the best estimated selling price of
deliverables if a vendor does not have vendor-specific objective evidence of selling price or third-party
evidence of selling price; and
eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling
price method.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts, $4.3 million as of December 31, 2011, or 1.9% of trade account
receivables, for estimated losses arising from the inability of our customers to make required payments. Our
estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and
methodologies using the publicly available credit and capital market information, a review of the current status of
our trade accounts receivable and historical collection experience of our clients. It is reasonably possible that our
44
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, both positive
and negative, 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. Establishment or reversal of certain valuation allowances may
have a significant impact on both current and future results.
As of December 31, 2011, we determined that a total valuation allowance of $38.5 million was necessary to reduce
U.S. deferred tax assets by $4.7 million and foreign deferred tax assets by $33.8 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 $22.8 million as of December 31, 2011 is dependent upon future profitability within each
tax jurisdiction. As of December 31, 2011, 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 assets will be realized.
A provision for income taxes has not been made for the undistributed earnings of foreign subsidiaries of
approximately $333.1 million as of December 31, 2011, as the earnings are indefinitely reinvested in foreign
business operations. If these earnings are repatriated or otherwise become taxable in the U.S, we would be subject
to an incremental U.S. tax expense net of any allowable foreign tax credits, in addition to any applicable foreign
withholding tax expense. 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 U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2013
Revenue Proposals” in February 2012. These proposals represent a significant shift in international tax policy,
which may materially impact U.S. taxation of international earnings. We continue to monitor these proposals and
are currently evaluating their potential impact on our financial condition, results of operations, and cash flows.
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.
We evaluate tax positions that have been taken or are expected to be taken in our tax returns, and record a liability
for uncertain tax positions in accordance with ASC 740. The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. ASC 740 contains a two-step approach to recognizing
and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence
indicates that it is more likely than not that the position will be sustained upon examination, including resolution of
related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax
benefit that has a greater than 50% likelihood of being realized upon settlement. 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.
As of December 31, 2011, we had $17.1 million of unrecognized tax benefits, a net decrease of $3.9 million from
$21.0 million as of December 31, 2010. This decrease results primarily from the expiration of statutes of limitations
on certain foreign subsidiaries and the resolution of a tax audit in the current year. Had we recognized these tax
benefits, approximately $17.1 million and $21.0 million and the related interest and penalties would favorably
impact the effective tax rate in 2011 and 2010, respectively. We believe it is reasonably possible that our
unrecognized tax benefits will decrease or be recognized in the next twelve months by up to $0.6 million due to
expiration of statutes of limitations, audit or appeal resolution in various tax jurisdictions.
Our provision for income taxes is subject to volatility and is impacted by the distribution of earnings in the various
domestic and international jurisdictions in which we operate. Our effective tax rate could be impacted by earnings
being either proportionally lower or higher in foreign countries where we have tax rates lower than the U.S. tax
rates. In addition, we have been granted tax holidays in several foreign tax jurisdictions, which have various
45
expiration dates ranging from 2012 through 2023. If we are unable to renew a tax holiday in any of these
jurisdictions, our effective tax rate could be adversely impacted. 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 permit a renewal. Our effective tax rate could also be affected by
several additional factors, including changes in the valuation of our deferred tax assets or liabilities, changing
legislation, regulations, and court interpretations that impact tax law in multiple tax jurisdictions in which we
operate, as well as new requirements, pronouncements and rulings of certain tax, regulatory and accounting
organizations.
Impairment of Goodwill, Intangibles and Other Long-Lived Assets
We review long-lived assets, which had a carrying value of $256.9 million as of December 31, 2011, including
goodwill, intangibles and property and equipment 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.
New Accounting Standards Not Yet Adopted
In May 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update
(“ASU”) 2011-04 (“ASU 2011-04”) “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments in ASU 2011-04
result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial
Reporting Standards (“IFRS”). Consequently, the amendments change the wording used to describe many of the
requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.
Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement
requirements. Other amendments change a particular principle or requirement for measuring fair value or for
disclosing information about fair value measurements. The amendments in ASU 2011-04 are to be applied
prospectively and are effective during interim and annual periods beginning after December 15, 2011. The adoption
of ASU 2011-04 as of January 1, 2012 did not have a material impact on our financial condition, results of
operations and cash flows.
In June 2011, the FASB issued ASU 2011-05 (“ASU 2011-05”) “Comprehensive Income (Topic 220) – Presentation
of Comprehensive Income”. The amendments in ASU 2011-05 require that all nonowner changes in stockholders’
equity be presented either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. In the two-statement approach, the first statement should present total net income and its
components followed consecutively by a second statement that should present total other comprehensive income, the
components of other comprehensive income, and the total of comprehensive income. The amendments in ASU
2011-05 are to be applied retrospectively and are effective during interim and annual periods beginning after
December 15, 2011, and may be early adopted. As this standard impacts presentation only, the adoption of ASU
2011-05 as of January 1, 2012 did not impact our financial condition, results of operations and cash flows.
In September 2011, the FASB issued ASU 2011-08 (“ASU 2011-08”) “Intangibles – Goodwill and Other (Topic
350) Testing Goodwill for Impairment”. The amendments in ASU 2011-08 provide entities with the option to first
assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that
it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the
totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment
test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the
reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform
the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the
amendments in ASU 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in
any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may
resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2011-08 are
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15,
46
2011, and may be early adopted. The adoption of ASU 2011-08 as of January 1, 2012 did not have a material
impact on our financial condition, results of operations and cash flows.
In December 2011, the FASB issued ASU 2011-11 (“ASU 2011-11”) “Balance Sheet (Topic 210) – Disclosures
about Offsetting Assets and Liabilities”. The amendments in ASU 2011-11 will enhance disclosures by requiring
improved information about financial and derivative instruments that are either 1) offset (netting assets and
liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards
Codification or 2) subject to an enforceable master netting arrangement or similar agreement. The amendments in
ASU 2011-11 are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those
years. An entity should provide the disclosures required by those amendments retrospectively for all comparative
periods presented. We do not expect the adoption of ASU 2011-11 to materially impact our financial condition,
results of operations and cash flows.
In December 2011, the FASB issued ASU 2011-12 (“ASU 2011-12”) “Comprehensive Income (Topic 220) –
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05”. The amendments in ASU 2011-12
defer the requirement to present reclassification adjustments for each component of accumulated other
comprehensive income in both net income and other comprehensive income on the face of the financial statements.
The amendments in ASU 2011-12 are effective at the same time as ASU 2011-05 so that entities will not be required
to comply with the presentation requirements in ASU 2011-05 that ASU 2011-05 is deferring. The amendments in
ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15,
2011. As ASU 2011-12 impacts presentation only, the adoption of ASU 2011-12 as of January 1, 2012 did not
impact our financial condition, results of operations and cash flows.
U.S. Healthcare Reform Acts
In March 2010, the President of the United States signed into law comprehensive healthcare reform legislation under
the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (the "Acts").
The Acts contain provisions that could materially impact our healthcare costs in the future, thus adversely affecting
our profitability. We are currently evaluating the potential impact of the Acts, if any, on our financial condition,
results of operations and cash flows. Preliminary analyses indicate that the increased cost of providing healthcare
benefits in the future may not materially affect our profitability; however, there are many provisions of the Acts that
have yet to be defined and which may be affected by the 2012 national elections. The effect on our healthcare costs
in the future may not be known for some time.
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 currency exchange rates. We are exposed
to foreign currency exchange rate fluctuations when subsidiaries with functional currencies other than the U.S.
Dollar (“USD”) are translated into our USD consolidated financial statements. As exchange rates vary, those results,
when translated, may vary from expectations and adversely impact profitability. The cumulative translation effects
for subsidiaries using functional currencies other than the U.S. Dollar are included in “Accumulated other
comprehensive income (loss)” in shareholders’ equity. Movements in non-U.S. Dollar 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.
We employ a foreign currency risk management program that periodically utilizes derivative instruments to protect
against unanticipated fluctuations in earnings and cash flows caused by volatility in foreign currency exchange
(“FX”) rates. Option and forward derivative contracts are used to hedge intercompany receivables and payables, and
other transactions initiated in the United States, that are denominated in a foreign currency. Additionally, we may
employ FX contracts to hedge net investments in foreign operations.
We serve a number of U.S.-based clients using customer contact management center capacity in The Philippines,
Canada and Costa Rica, which are within our Americas segment. Although the contracts with these clients are priced
in USDs, a substantial portion of the costs incurred to render services under these contracts are denominated in
Philippine Pesos (“PHP”), Canadian Dollars (“CAD”) and Costa Rican Colones (“CRC”), which represent FX
exposures.
47
In order to hedge a portion of our anticipated cash flow requirements denominated in PHP and CRC, we had
outstanding forward contracts and options as of December 31, 2011 with counterparties through September 2012
with notional amounts totaling $127.5 million. As of December 31, 2011, we had net total derivative assets
associated with these contracts with a fair value of $0.2 million, which will settle within the next 12 months. If the
USD was to weaken against the PHP and CRC by 10% from current period-end levels, we would incur a loss of
approximately $9.3 million on the underlying exposures of the derivative instruments. However, this loss would be
mitigated by corresponding gains on the underlying exposures.
We also entered into forward exchange contracts that are not designated as hedges. The purpose of these derivative
instruments is to protect against FX volatility pertaining to intercompany receivables and payables, and other assets
and liabilities that are denominated in currencies other than our subsidiaries’ functional currencies. As of December
31, 2011, the fair value of these derivatives was a net payable of $0.3 million. The potential loss in fair value at
December 31, 2011, for these contracts resulting from a hypothetical 10% adverse change in the foreign currency
exchange rates is approximately $2.6 million. However, this loss would be mitigated by corresponding gains on the
underlying exposures.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into contracts with
those considered to have minimal credit risk. We periodically monitor changes to counterparty credit quality as well
as our concentration of credit exposure to individual counterparties.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign
currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates.
As a general rule, we do not use financial instruments to hedge local currency denominated operating expenses in
countries where a natural hedge exists. For example, in many countries, revenue from the local currency services
substantially offsets the local currency denominated operating expenses.
Interest Rate Risk
Our exposure to interest rate risk results from variable debt outstanding under the revolving credit facility under our
Credit Agreement. We pay interest on outstanding borrowings at interest rates that fluctuate based upon changes in
various base rates. During the year ended December 31, 2011, we had no debt outstanding under the revolving credit
facility.
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 58 and page 39
of this report, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as of December 31, 2011. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31,
2011.
Management’s Report on Internal Control Over Financial Reporting
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
48
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, 2011. 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, 2011, our internal control over financial reporting was effective.
Attestation Report of Independent Registered Public Accounting Firm
Our independent registered public accounting firm has issued an attestation report on our internal control over
financial reporting. This report appears on page 50.
Changes to Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2011
that have materially affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
49
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, 2011, based on criteria established in Internal Control — 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
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
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, 2011, based on the criteria established in Internal Control — 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, 2011 of the Company and our report dated February 29, 2012 expressed an unqualified opinion on
those financial statements and financial statement schedule.
Certified Public Accountants
Tampa, Florida
February 29, 2012
50
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
appears in this report in Item 1 under the caption “Executive Officers”, is incorporated by reference to SYKES’
Proxy Statement for the 2012 Annual Meeting of Shareholders.
51
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 58 of this report.
(2) Financial Statements Schedule
Schedule II — Valuation and Qualifying Accounts is set forth on page 116 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 thereto.
(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
10.7
10.8
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 Anderson and Stowe, VIII, LP (“WCAS”) and Slugger
Acquisition Corp. (9)
Agreement and Plan of Merger, dated as of October 5, 2009, among ICT Group, Inc., Sykes
Enterprises, Incorporated, SH Merger Subsidiary I, Inc., and SH Merger Subsidiary II, LLC
(26)
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. (17)
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-Employee Directors’ Fee Plan. (1)*
2004 Non-Employee Directors’ Fee Plan. (15)*
First Amended and Restated 2004 Non-Employee Director’s Fee Plan. (23)*
Second Amended and Restated 2004 Non-Employee Director’s Fee Plan. (25)*
Third Amended and Restated 2004 Non-Employee Director’s Fee Plan. (27)*
Fourth Amended and Restated 2004 Non-Employee Director Fee Plan. (35)*
52
Exhibit
Number
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
10.32
10.33
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)
1997 Management Stock Incentive Plan. (3)*
1999 Employees’ Stock Purchase Plan. (7)*
2000 Stock Option Plan. (8)*
2001 Equity Incentive Plan. (11)*
Deferred Compensation Plan. (17)*
2004 Non-Employee Director Stock Option Plan. (14)*
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of March
29, 2006. (18)*
Form of Restricted Share And Bonus Award Agreement dated as of March 29, 2006. (18)*
Form of Restricted Share Award Agreement dated as of May 24, 2006. (19)*
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of
January 2, 2007. (21)*
Form of Restricted Share Award Agreement dated as of January 2, 2007. (21)*
Form of Restricted Share and Stock Appreciation Right Award Agreement dated as of January
2, 2008. (22)*
2011 Equity Incentive Plan. (36)*
Founder’s Retirement and Consulting Agreement dated December 10, 2004 between Sykes
Enterprises, Incorporated and John H. Sykes. (16)*
Amended and Restated Employment Agreement dated as of December 30, 2008 between
Sykes Enterprises, Incorporated and Charles E. Sykes. (28)*
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. (28)*
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. (28)*
Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises, Incorporated
and Jenna R. Nelson. (13)*
Stock Option Agreement dated as of October 1, 2001, between Sykes Enterprises,
Incorporated and James T. Holder. (12)*
53
Exhibit
Number
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
Exhibit Description
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and James T. Holder. (28)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and William N. Rocktoff. (28)*
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. (28)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and Daniel L. Hernandez. (28)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and David L. Pearson. (28)*
Amended and Restated Employment Agreement, dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and Lawrence R. Zingale. (28)*
Credit Agreement, dated March 30, 2009, between Sykes Enterprises, Incorporated, the
lenders party thereto and KeyBank National Association, as Lead Arranger, Sole Book Runner
and Administrative Agent (29)
First Amendment Agreement, dated as of December 11, 2009, to Credit Agreement, dated
March 30, 2009, between Sykes Enterprises, Incorporated, the lenders party thereto and
KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative
Agent (30)
Credit Agreement between Sykes (Bermuda) Holdings Limited and KeyBank National
Association, dated December 11, 2009 (30)
Guaranty of Payment of Sykes Enterprises, Incorporated in favor of KeyBank National
Association, dated December 11, 2009 (30)
Credit Agreement, dated February 2, 2010, between Sykes Enterprises, Incorporated, the
lenders party thereto and KeyBank National Association, as Lead Arranger, Sole Book Runner
and Administrative Agent (31)
First Amendment Agreement, dated April 23, 2010, to Credit Agreement, dated February 2,
2010, between Sykes Enterprises, Incorporated, the lenders party thereto and KeyBank
National Association, as Lead Arranger, Sole Book Runner and Administrative Agent. (32)
Second Amendment Agreement, dated July 16, 2010, to Credit Agreement, dated February 2,
2010, between Sykes Enterprises, Incorporated, the lenders party thereto and KeyBank
National Association, as Lead Arranger, Sole Book Runner and Administrative Agent. (32)
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. (24)
Continuing Services Agreement between Sykes Enterprises, Incorporated and JHS Equity,
LLC, dated May 28, 2008. (24)
54
Exhibit
Number
10.51
10.52
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Exhibit Description
Stock Purchase Agreement between Sykes Enterprises, Incorporated (not as a Seller), SEI
International Services S.a.r.l. (as Seller), Sykes Enterprises Incorporated Holdings, BV (as
Seller) and Antonio Marcelo Cid, Humberto Daniel Sahade as Buyers, dated December 13,
2010. (33)
Stock Purchase Agreement between Sykes Enterprises, Incorporated (not as a Seller), ICT
Group Netherlands B.V. (as Seller), ICT Group Netherlands Holdings, B.V. (as Seller) and
Carolina Gaito, Claudio Martin, Fernando A. Berrondo, Gustavo Rosetti as Buyers, dated
December 24, 2010. (34)
Code of Ethics. (37)
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.
101.INS
XBRL Instance Document (38)
101.SCH
XBRL Taxonomy Extension Schema Document (38)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (38)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (38)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (38)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (38)
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Indicates management contract or compensatory plan or arrangement.
Filed as an Exhibit to the Registrant’s Registration Statement on Form S-1 (Registration
No. 333-2324) and incorporated herein by reference.
Filed as Exhibit 2.12 to the Registrant’s Form 10-K filed with the Commission on March 16,
1998, and incorporated herein by reference.
Filed as Exhibit 10.14 to the Registrant’s Form 10-Q filed with the Commission on July 28,
1998, and incorporated herein by reference.
Filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission
on September 25, 1998, and incorporated herein by reference.
Filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-3 filed with the
Commission on October 23, 1997, and incorporated herein by reference.
Filed as Exhibit 3.2 to the Registrant’s Form 10-K filed with the Commission on March 29,
1999, and incorporated herein by reference.
Filed as Exhibit 10.19 to the Registrant’s Form 10-K filed with the Commission on March 29,
1999, and incorporated herein by reference.
Filed as Exhibit 10.23 to the Registrant’s Form 10-K filed with the Commission on March 29,
2000, and incorporated herein by reference.
Filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission
on July 17, 2000, and incorporated herein by reference.
Filed as Exhibit 10.12 to Registrant’s Form 10-Q filed with the Commission on May 7, 2001,
and incorporated herein by reference.
55
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(38)
Filed as Exhibit 10.32 to Registrant’s Form 10-Q filed with the Commission on May 7, 2001, and
incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-K filed with the Commission on March 19, 2002,
and incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-Q filed with the Commission on May 10, 2002, and
incorporated herein by reference.
Filed as an Exhibit to Registrant’s Proxy Statement for the 2004 annual meeting of shareholders
filed with the Commission April 6, 2004.
Filed as an Exhibit to Registrant’s Form 10-Q filed with the Commission on August 9, 2004, and
incorporated herein by reference.
Filed as an Exhibit to Registrant’s Current Report on Form 8-K filed with the Commission on
December 16, 2004, and incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-K filed with the Commission on March 22, 2005,
and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
April 4, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
May 31, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
July 10, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
December 28, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
January 8, 2008, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Form 10-Q filed with the Commission on May 7, 2008,
and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
May 29, 2008, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Form 10-Q filed with the Commission on November 5,
2008, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
October 9, 2009, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Proxy Statement for the 2009 annual meeting of
shareholders filed with the Commission on April 22, 2009, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission
on March 10, 2009, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
April 1, 2009, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
December 14, 2009, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
February 2, 2010, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the
Commission on August 4, 2010, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
December 22, 2010, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
December 30, 2010, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the
Commission on August 9, 2011, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the
Commission on November 8, 2011, and incorporated herein by reference.
Available on the Registrant’s website at www.sykes.com, by clicking on “Investor Relations” and
then “Corporate Governance” under the heading “Corporate Governance.”
Filed herewith.
56
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
29th day of February 2012.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
By:
/s/ W. Michael Kipphut
W. Michael Kipphut,
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting 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
/s/ Paul L. Whiting
Paul L. Whiting
/s/ Charles E. Sykes
Charles E. Sykes
Title
Chairman of the Board
Date
February 29, 2012
President and Chief Executive Officer and
Director (Principal Executive Officer)
February 29, 2012
/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.
/s/ W. Michael Kipphut
W. Michael Kipphut
Director
Director
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
Executive Vice President and Chief Financial Officer February 29, 2012
(Principal Financial and Accounting Officer)
57
Table of Contents
Report of Independent Registered Public Accounting Firm ........................................................................... ..
Consolidated Balance Sheets as of December 31, 2011 and 2010 ...................................................................
Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 ...................
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2011, 2010
and 2009 ............................................................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009 .................
Notes to Consolidated Financial Statements ....................................................................................................
Page No.
59
60
61
62
63
65
58
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, 2011 and 2010, 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, 2011. 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, 2011 and 2010, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2011, 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,
presents 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, 2011, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 29, 2012 expressed an unqualified opinion on the Company's
internal control over financial reporting.
Certified Public Accountants
Tampa, Florida
February 29, 2012
59
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, 2011
December 31, 2010
Assets
Current assets:
$
$
Cash and cash equivalents ………………………………………………………
Receivables, net …………………………………………………………………
Prepaid expenses …………………………………………………………………
Other current assets ………………………………………………………………
Assets held for sale, discontinued operations ……………………………………
Total current assets ……………………………………………………………
Property and equipment, net ………………………………………………………
Goodwill ……………………………………………………………………………
Intangibles, net ………………………………………………………………………
Deferred charges and other assets …………………………………………………
Liabilities and S hareholders' Equity
Current liabilities:
Accounts payable ………………………………………………………………
Accrued employee compensation and benefits …………………………………
Current deferred income tax liabilities ……………………………………………
Income taxes payable ……………………………………………………………
Deferred revenue …………………………………………………………………
Other accrued expenses and current liabilities ……………………………………
Liabilities held for sale, discontinued operations …………………………………
Total current liabilities…………………………………………………………
Deferred grants ……………………………………………………………………
Long-term income tax liabilities ……………………………………………………
Other long-term liabilities …………………………………………………………
Total liabilities…………………………………………………………………
Commitments and loss contingency (Note 24)
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000 shares
$
$
$
211,122
229,702
11,540
20,120
9,590
482,074
91,080
121,342
44,472
30,162
769,130
23,109
62,452
663
423
34,319
21,191
7,128
149,285
8,563
26,475
11,241
195,564
189,829
248,842
10,704
22,913
-
472,288
113,703
122,303
52,752
33,554
794,600
$
30,635
65,267
3,347
2,605
31,255
25,621
-
158,730
10,807
28,876
12,992
211,405
authorized; no shares issued and outstanding …………………………………
-
-
Common stock, $0.01 par value, 200,000 shares authorized;
44,306 and 47,066 shares issued, respectively ………………………………
Additional paid-in capital ………………………………………………………
Retained earnings …………………………………………………………………
Accumulated other comprehensive income ………………………………………
Treasury stock at cost: 299 shares and 81 shares, respectively …………………
Total shareholders' equity ……………………………………………………
443
281,157
291,803
4,436
(4,273)
573,566
769,130
471
302,911
265,676
15,108
(971)
583,195
794,600
$
$
See accompanying Notes to Consolidated Financial Statements.
60
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Years Ended December 31,
2011
2010
2009
Revenues ……………………………………………………………… 1,169,267
$
$
1,121,911
$
769,353
Operating expenses:
Direct salaries and related costs ……………………………………
General and administrative …………………………………………
Net (gain) loss on disposal of property and equipment ……………
Net (gain) on insurance settlement …………………………………
Impairment of goodwill and intangibles………………………………
Impairment of long-lived assets ……………………………………
763,930
341,586
(3,021)
(481)
-
1,718
Total operating expenses ………………………………………… 1,103,732
Income from continuing operations …………………………………
65,535
Other income (expense):
Interest income ………………………………………………………
Interest (expense) ……………………………………………………
Impairment (loss) on investment in SHPS……………………………
Other (expense)………………………………………………………
Total other income (expense) ……………………………………
Income from continuing operations before income taxes ………………
Income taxes ……………………………………………………………
Income from continuing operations, net of taxes ………………………
(Loss) from discontinued operations, net of taxes ……………………
Gain (loss) on sale of discontinued operations, net of taxes ……………
1,352
(1,132)
-
(2,099)
(1,879)
63,656
11,342
52,314
(4,532)
559
715,571
366,565
143
(1,991)
362
3,280
1,083,930
37,981
1,201
(4,963)
-
(5,907)
(9,669)
28,312
2,197
26,115
(12,893)
(23,495)
481,823
214,255
195
-
1,908
-
698,181
71,172
2,287
(302)
(2,089)
(283)
(387)
70,785
26,118
44,667
(1,456)
-
Net income (loss) ………………………………………………………
$
48,341
Net income (loss) per share common share:
Basic:
Continuing operations …………………………………………
$
1.15
$
(10,273)
$
43,211
$
0.57
$
1.10
Discontinued operations ………………………………………
(0.09)
(0.79)
(0.04)
Net income (loss) per common share …………………………
$
1.06
$
(0.22)
$
1.06
Diluted:
Continuing operations …………………………………………
$
1.15
$
0.57
$
1.09
Discontinued operations ………………………………………
(0.09)
(0.79)
(0.04)
Net income (loss) per common share …………………………
$
1.06
$
(0.22)
$
1.05
Weighted average shares:
Basic ……………………………………………………………
Diluted …………………………………………………………
45,506
45,607
46,030
46,133
40,707
41,026
See accompanying Notes to Consolidated Financial Statements.
61
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
S hares
(in thousands)
Issued
Balance at January 1, 2009 ………… 41,271
Amount
$
413
Common S tock
Additional
Paid-in
Capital
$
158,216
Retained
Earnings
$
237,188
Accumulated
Other
Comprehensive
Income (Loss)
$
(10,683)
Treasury
S tock
$
(1,104)
Total
384,030
$
Issuance of common stock ……………
Stock-based compensation expense …
Excess tax benefit from stock-
based compensation ………………
Vesting of common stock and
restricted stock under equity award
plans ………………………………
Repurchase of common stock …………
Comprehensive income ………………
291
-
-
255
-
-
2
-
-
3
-
-
3,166
5,158
878
(904)
-
-
-
-
-
-
-
43,211
Balance at December 31, 2009 ……… 41,817
418
166,514
280,399
Issuance of common stock ……………
Stock-based compensation expense …
Excess tax benefit from stock-
based compensation ………………
Vesting of common stock and
restricted stock under equity award
plans ………………………………
Repurchase of common stock …………
Retirement of treasury stock …………
Issuance of common stock for
2
-
-
204
-
(558)
business acquisition ………………… 5,601
-
Comprehensive income (loss) …………
Balance at December 31, 2010 ……… 47,066
Issuance of common stock ……………
Stock-based compensation expense …
Excess tax (provision) from stock-
based compensation ………………
Vesting of common stock and
33
-
-
restricted stock under equity award
plans ………………………………
Repurchase of common stock …………
Retirement of treasury stock ………… (3,086)
Comprehensive income (loss) …………
293
-
-
-
-
-
2
-
(6)
57
-
471
-
-
-
3
-
(31)
-
37
4,935
354
(1,083)
-
(4,462)
136,616
-
302,911
311
3,582
(8)
(979)
-
(24,660)
-
-
-
-
-
-
(4,450)
-
(10,273)
265,676
-
-
-
-
-
(22,214)
48,341
-
-
-
-
-
18,502
7,819
-
-
-
-
-
-
-
7,289
15,108
-
-
-
-
-
-
(10,672)
-
-
-
(179)
(3,193)
-
(4,476)
-
-
-
(201)
(5,212)
8,918
-
-
3,168
5,158
878
(1,080)
(3,193)
61,713
450,674
37
4,935
354
(1,282)
(5,212)
-
136,673
(2,984)
(971)
583,195
-
-
-
(214)
(49,993)
46,905
-
311
3,582
(8)
(1,190)
(49,993)
-
37,669
Balance at December 31, 2011 ……… 44,306
$
443
$
281,157
$
291,803
$
4,436
$
(4,273)
$
573,566
See accompanying Notes to Consolidated Financial Statements.
62
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income (loss) …………………………………………………………………
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Years Ended December 31,
2010
2011
2009
$
48,341
$
(10,273)
$
43,211
Depreciation and amortization, net ……………………………………………
Impairment losses ………………………………………………………………
Unrealized foreign currency transaction (gains) losses, net ………………
Stock-based compensation expense …………………………………………
Excess tax (benefit) provision from stock-based compensation …………
Deferred income tax (benefit) provision ………………………………………
Net (gain) loss on disposal of property and equipment ……………………
Bad debt expense ………………………………………………………………
Unrealized (gains) losses on financial instruments, net ……………………
(Recovery) of regulatory penalties ……………………………………………
Increase (decrease) in valuation allowance on deferred tax assets ………
Amortization of deferred loan fees ……………………………………………
Net (gain) on insurance settlement ……………………………………………
(Gain) loss on sale of discontinued operations ………………………………
Other ………………………………………………………………………………
Changes in assets and liabilities, net of acquisition:
Receivables ………………………………………………………………………
Prepaid expenses ………………………………………………………………
Other current assets ……………………………………………………………
Deferred charges and other assets ……………………………………………
Accounts payable ………………………………………………………………
Income taxes receivable / payable ……………………………………………
Accrued employee compensation and benefits ……………………………
Other accrued expenses and current liabilities ………………………………
Deferred revenue ………………………………………………………………
Other long-term liabilities ………………………………………………………
53,467
2,561
1,216
3,582
8
(3,955)
(3,035)
532
4,138
(407)
-
585
(481)
(559)
773
8,927
(1,042)
(3,442)
1,630
(6,898)
(4,529)
2,450
(2,855)
4,243
(2,636)
57,932
4,324
(4,918)
4,935
(354)
(17,142)
232
170
(1,479)
(418)
102
2,918
(1,991)
29,901
326
(10,716)
3,465
(4,797)
2,740
(2,174)
(6,180)
(6,601)
9,329
258
(4,527)
28,323
3,997
4,372
5,158
(878)
10,165
197
1,022
(437)
-
(5,807)
268
-
-
441
(9,262)
(719)
46
(2,045)
(2,186)
6,462
2,654
1,336
(679)
1,973
Net cash provided by operating activities …………………………………
102,614
45,062
87,612
Cash flows from investing activities:
Capital expenditures ………………………………………………………………
Cash paid for business acquisition, net of cash acquired ……………………
Proceeds from sale of property and equipment ………………………………
Investment in restricted cash ……………………………………………………
Release of restricted cash …………………………………………………………
Cash divested on sale of discontinued operations ……………………………
Proceeds from insurance settlement ……………………………………………
(29,890)
-
3,973
(494)
396
-
1,654
Net cash (used for) investing activities ……………………………………
(24,361)
(28,516)
(77,174)
49
(187)
80,000
(14,462)
1,991
(38,299)
(30,277)
-
216
(80,002)
839
-
-
(109,224)
63
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
(in thousands)
Cash flows from financing activities:
Years Ended December 31,
2010
2011
2009
Payment of long-term debt ………………………………………………………
Proceeds from issuance of long-term debt ……………………………………
Proceeds from issuance of stock …………………………………………………
Excess tax benefit (provision) from stock-based compensation ……………
Cash paid for repurchase of common stock ……………………………………
Proceeds from (refunds of) grants ………………………………………………
Proceeds from short-term debt …………………………………………………
Payments on short-term debt ……………………………………………………
Shares repurchased for minimum tax withholding on equity awards …………
Cash paid for loan fees related to debt …………………………………………
Net cash (used for) provided by financing activities ……………………
-
-
311
(8)
(49,993)
(225)
-
-
(1,190)
-
(51,105)
Effects of exchange rates on cash …………………………………………………
(5,855)
Net increase (decrease) in cash and cash equivalents …………………………
Cash and cash equivalents – beginning …………………………………………
21,293
189,829
Cash and cash equivalents – ending ………………………………………………
$
211,122
Supplemental disclosures of cash flow information:
Cash paid during period for interest ……………………………………………
Cash paid during period for income taxes ………………………………………
$
$
1,065
24,631
Non-cash transactions:
Property and equipment additions in accounts payable ………………………
Unrealized gain on postretirement obligation in accumulated other
$
2,434
(75,000)
75,000
37
354
(5,212)
148
-
(85,000)
(1,282)
(3,035)
(93,990)
(2,797)
(90,024)
279,853
-
-
3,168
878
(3,193)
3,491
75,000
-
(1,080)
(1,427)
76,837
5,578
60,803
219,050
$
189,829
$
279,853
$
$
2,924
20,577
$
$
1,008
14,660
$
2,317
$
1,612
comprehensive income (loss) …………………………………………………
Issuance of common stock for business acquisition …………………………
113
$
$
-
$
$
70
136,673
$
276
$
-
See accompanying Notes to Consolidated Financial Statements.
64
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Overview and Summary of Significant Accounting Policies
Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides
outsourced customer contact management solutions and services in the business process outsourcing arena to
companies, primarily within the communications, financial services, technology/consumer, transportation and
leisure, healthcare and other industries. SYKES provides flexible, high-quality outsourced customer contact
management services (with an emphasis on inbound technical support and customer service), which includes
customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers.
Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple
communication channels encompassing phone, e-mail, Internet, text messaging and chat. SYKES complements its
outsourced customer contact management services with various enterprise support services in the United States that
encompass services for a company’s internal support operations, from technical staffing services to outsourced
corporate help desk services. In Europe, SYKES also provides fulfillment services including multilingual sales order
processing via the Internet and phone, payment processing, inventory control, product delivery and product returns
handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the
United States, Canada, Latin America, India and the Asia Pacific Rim, in which the client base is primarily
companies in the United States that are using the Company’s services to support their customer management needs;
and (2) EMEA, which includes Europe, the Middle East and Africa.
Acquisition — On February 2, 2010, the Company completed the acquisition of ICT Group, Inc. (“ICT”), pursuant
to the Agreement and Plan of Merger, dated October 5, 2009. The Company has reflected the operating results in the
Consolidated Statement of Operations since February 2, 2010. See Note 2, Acquisition of ICT, for additional
information on the acquisition of this business.
Discontinued Operations — In November 2011, the Company, authorized by the Finance Committee of the
Company’s Board of Directors, decided to pursue a buyer for its operations located in Spain (“Spanish operations”)
as these operations are no longer consistent with the Company’s strategic direction. These operations met the held
for sale criteria as of December 31, 2011, therefore, the Company reflected the assets and liabilities of the Spanish
operations as “Assets held for sale, discontinued operations” and “Liabilities held for sale, discontinued operations”
in the accompanying Balance Sheet as of December 31, 2011. The Company reflected the operating results related
to the Spanish operations as discontinued operations in the Consolidated Statements of Operations for the years
ended December 31, 2011, 2010 and 2009. Cash flows from discontinued operations are included in the
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009. See Note 3,
Discontinued Operations, for additional information on the plan to sell the Spanish operations.
In December 2010, the Company sold its Argentine operations, pursuant to stock purchase agreements, dated
December 16, 2010 and December 29, 2010. The Company reflected the operating results related to the Argentine
operations as discontinued operations in the Consolidated Statements of Operations for the years ended December
31, 2010 and 2009. Cash flows from discontinued operations are included in the Consolidated Statements of Cash
Flows for the years ended December 31, 2010 and 2009. See Note 3, Discontinued Operations, for additional
information on the sale of the Argentine operations.
Principles of Consolidation — The Consolidated Financial Statements include the accounts of SYKES and its
wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
65
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance
of the consolidated financial statements. There were no material subsequent events that required recognition or
disclosure in the Consolidated Financial Statements.
Recognition of Revenue — We recognize revenue in accordance with ASC 605 “Revenue Recognition”. We
primarily recognize revenues from services as the services are performed, which is based on either a per minute, per
call or per transaction basis, under a fully executed contractual agreement and record reductions to revenues for
contractual penalties and holdbacks for failure to meet specified minimum service levels and other performance
based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future
product or service or meeting other specified performance conditions.
Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and
satisfaction of all obligations.
In accordance with ASC 605-25 (“ASC 605-25”) “Revenue Recognition – Multiple-Element Arrangements”,
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. Separation criteria includes 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 revenues 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 revenues between deliverable elements, there are no further changes in the
revenue allocation. If the separation criteria are met, revenues from these services are 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 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. As of December 31, 2011, our fulfillment
contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was
accounted for accordingly. We have no other contracts that contain multiple-deliverables as of December 31, 2011.
In October 2009, the Financial Accounting Standards Board amended the accounting standards for certain multiple-
deliverable revenue arrangements. We adopted this guidance on a prospective basis for applicable transactions
originated or materially modified since January 1, 2011, the adoption date. Since there were no such transactions
executed or materially modified since adoption on January 1, 2011, there was no impact on our financial condition,
results of operations and cash flows. The amended standard:
•
•
•
updates guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be
separated, and how the consideration should be allocated;
requires an entity to allocate revenue in an arrangement using the best estimated selling price of
deliverables if a vendor does not have vendor-specific objective evidence of selling price or third-party
evidence of selling price; and
eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling
price method.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments.
Cash in the amount of $211.1 million and $189.8 million at December 31, 2011 and 2010, respectively, was
primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash
equivalents of $163.9 million and $173.9 million at December 31, 2011 and 2010, respectively, were held in
international operations and may be subject to additional taxes if repatriated to the United States.
66
Restricted Cash – Restricted cash includes cash whereby the Company’s ability to use the funds at any time is
contractually limited or is generally designated for specific purposes arising out of certain contractual or other
obligations. Restricted cash is included in “Other current assets” and “Deferred charges and other assets” in the
accompanying Consolidated Balance Sheets.
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts on trade account
receivables for estimated losses arising from the inability of its customers to make required payments. The
Company’s estimate is based on 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 the Company’s estimate
of the allowance for doubtful accounts will change if the financial condition of the Company’s customers were to
deteriorate, resulting in a reduced ability to make payments.
Assets and Liabilities Held for Sale — The Company classifies its assets and related liabilities as held for sale when
management commits to a plan to sell the assets, the assets are ready for immediate sale in their present condition,
an active program to locate buyers and other actions required to complete the plan to sell the assets has been
initiated, the sale of the assets is probable and expected to be completed within one year, the assets are marketed at
reasonable prices in relation to their fair value and it is unlikely that significant changes will be made to the plan to
sell the assets.
The Company measures the value of assets held for sale at the lower of the carrying amount or fair value, less costs
to sell. Assets and the related liabilities held for sale in the accompanying Consolidated Balance Sheet as of
December 31, 2011 pertain to the applicable assets and liabilities of the Company’s Spanish operations. See Note 3,
Discontinued Operations, for additional information.
Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are
credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop
software upon the establishment of technological feasibility. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred.
The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360
“Property, Plant and Equipment.” For purposes of recognition and measurement of an impairment loss, assets are
grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered
to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is
measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally
determined based on appraisals or sales prices of comparable assets. Occasionally, the Company redeploys property
and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that
the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the
carrying amount of these assets. Except as discussed in Note 5, Fair Value, the Company determined that its
property and equipment were not impaired as of December 31, 2011.
Rent Expense —The Company has entered into operating lease agreements, some of which contain provisions for
future rent increases, rent free periods, or periods in which rent payments are reduced. The total amount of the rental
payments due over the lease term is being charged to rent expense on the straight-line method over the term of the
lease in accordance with ASC 840 “Leases.”
Investment in SHPS — The Company held a noncontrolling interest in SHPS, Inc. (“SHPS”), which was accounted
for at cost of approximately $2.1 million as of December 31, 2008. In June 2009, the Company received notice
from SHPS that the shareholders of SHPS had approved a merger agreement between SHPS and SHPS Acquisition,
Inc., pursuant to which the common stock of SHPS, including the common stock owned by the Company, would be
converted into the right to receive $0.000001 per share in cash. SHPS informed the Company that it believed the
estimated fair value of the SHPS common stock to be equal to such per share amount. As a result of this transaction
and evaluation of the Company’s legal options, the Company believed it was more likely than not that it would not
be able to recover the $2.1 million carrying value of the investment in SHPS. Therefore, due to the decline in value
that is other than temporary, management recorded a non-cash impairment loss of $2.1 million included in
67
“Impairment loss on investment in SHPS” during 2009. Subsequent to the recording of the impairment loss, the
Company liquidated its noncontrolling interest in SHPS by converting its SHPS common stock into cash for
$0.000001 per share during 2009.
Investments Held in Rabbi Trust for Former ICT Chief Executive Officer —Securities held in a rabbi trust for a
nonqualified plan trust agreement dated February 1, 2010 (the “Trust Agreement”) with respect to severance payable
to John Brennan, the former chief executive officer of ICT, include the fair market value of debt securities, primarily
United States (“U.S.”) Treasury Bills. See Note 13, Investments Held in Rabbi Trusts, for further information. The
fair market value of these debt securities, classified as trading securities in accordance with ASC 320 “Investment –
Debt and Equity Securities”, 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, which are
included in “Other income and expense” in the accompanying Consolidated Statements of Operations, are not
material for the years ended December 31, 2011 and 2010. For purposes of determining realized gains and losses,
the cost of securities sold is based on specific identification.
The “Accrued employee compensation and benefits” in the accompanying Consolidated Balance Sheet as of
December 31, 2010 includes a $0.1 million obligation for severance payable to the former executive due in varying
installments in accordance with the Trust Agreement. Final payment was made in January 2011.
Goodwill — The Company accounts for goodwill and other intangible assets under ASC 350 (“ASC 350”)
“Intangibles – Goodwill and Other.” The Company expects to receive future benefits from previously acquired
goodwill over an indefinite period of time. 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, and an analysis of our market capitalization.
Under ASC 350, the carrying value of assets is calculated at the reporting unit. If the fair value of the reporting unit
is less than its carrying value, goodwill is considered impaired and an impairment loss is recorded to the extent that
the fair value of the goodwill within the reporting unit is less than its carrying value.
The Company completed its annual goodwill impairment test during the three months ended September 30, 2011,
which included the consideration of certain economic factors and determined that the carrying amount of goodwill
was not impaired, except as discussed in Note 5, Fair Value.
Intangible Assets — Intangible assets, primarily customer relationships, trade names, existing technologies and
covenants not to compete, are amortized using the straight-line method over their estimated useful lives which
approximate the pattern in which the economic benefits of the assets are consumed. The Company periodically
evaluates the recoverability of intangible assets and takes into account events or changes in circumstances that
warrant revised estimates of useful lives or that indicate that impairment exists. Fair value for intangible assets is
based on discounted cash flows, market multiples and/or appraised values as appropriate. The Company does not
have intangible assets with indefinite lives. See Note 5, Fair Value, for further information regarding the impairment
of intangible assets.
Value Added Tax Receivables — The Philippine operations are subject to value added tax (“VAT”) which is usually
applied to all goods and services purchased throughout The Philippines. Upon validation and certification of the
VAT receivables by the Philippine government, the resulting value added tax certificates (“certificates”) can be
either used to offset current tax obligations or offered for sale to the Philippine government. The Philippine
government previously allowed companies to sell the certificates to third parties, but this option was eliminated
during the three months ended September 30, 2011. The VAT receivables balance is recorded at its net realizable
value.
Income Taxes — The Company accounts for income taxes under ASC 740 (“ASC 740”) “Income Taxes” which
requires recognition of deferred tax assets and liabilities to reflect tax consequences of differences between the tax
bases of assets and liabilities and their reported amounts in the accompanying Consolidated Financial Statements.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive
and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be
realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets
due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax
jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of
ASC 740, to support a change in judgment about the realizability of the related deferred tax assets. Uncertainties
68
regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those
jurisdictions.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records
a liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to
recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available
evidence indicates that it is more likely than not that the position will be sustained upon examination, including
resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest
amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company
recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the
accompanying Consolidated Financial Statements.
Self-Insurance Programs — The Company self-insures for certain levels of workers' compensation and, as of
January 1, 2011, began self-funding the medical, prescription drug and dental benefit plans in the United States.
Estimated costs of this self-insurance program are accrued at the projected settlements for known and anticipated
claims. Amounts related to this self-insurance program are included in “Accrued employee compensation and
benefits” and “Other long-term liabilities” in the accompanying Consolidated Balance Sheets.
Deferred Grants — Recognition of income associated with grants for land and the acquisition of property, buildings
and equipment (together, “property grants”) is deferred until after the completion and occupancy of the building and
title has passed to the Company, and the funds have been released from escrow. The deferred amounts for both land
and building are amortized and recognized as a reduction of depreciation expense included within general and
administrative costs over the corresponding useful lives of the related assets. Amounts received in excess of the cost
of the building are allocated to the cost of equipment and, only after the grants are released from escrow, recognized
as a reduction of depreciation expense over the weighted average useful life of the related equipment, which
approximates five years. Upon sale of the related facilities, any deferred grant balance is recognized in full and is
included in the gain on sale of property and equipment.
The Company receives government employment grants as an incentive to create and maintain permanent
employment positions for a specified time period. The grants are repayable, under certain terms and conditions, if
the Company's relevant employment levels do not meet or exceed the employment levels set forth in the grant
agreements. Accordingly, grant monies received are deferred and amortized using the proportionate performance
model over the required employment period.
Deferred Revenue — The Company receives up-front fees in connection with certain contracts. The deferred
revenue is earned over the service periods of the respective contracts, which range from 30 days to seven years.
Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets includes the up-
front fees associated with services to be provided over the next ensuing twelve month period and the up-front fees
associated with services to be provided over multiple years in connection with contracts that contain cancellation
and refund provisions, whereby the manufacturers or customers can terminate the contracts and demand pro-rata
refunds of the up-front fees with short notice. Deferred revenue included in current liabilities in the accompanying
Consolidated Balance Sheets also includes estimated penalties and holdbacks for failure to meet specified minimum
service levels in certain contracts and other performance based contingencies.
Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive
Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee
directors), approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees). All
of these plans are discussed more fully in Note 26, Stock-Based Compensation. Stock-based awards under these
plans may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock
appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and treasury
stock to satisfy stock option exercises or vesting of stock awards.
In accordance with ASC 718 (“ASC 718”) “Compensation – Stock Compensation”, the Company recognizes in its
Consolidated Statements of Operations the grant-date fair value of stock options and other equity-based
compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over
the requisite service period, usually the vesting period, while compensation expense for liability-based awards (those
usually settled in cash rather than stock) is re-measured to fair value at each balance sheet date until the awards are
settled.
69
Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to estimate that value:
• Cash, Short-Term and Other Investments, Investments Held in Rabbi Trusts and Accounts Payable - The
carrying values for cash, short-term and other investments, investments held in rabbi trusts and accounts
payable approximate their fair values.
• Forward Currency Forward Contracts and Options - Forward currency forward contracts and options,
including premiums paid on options, are recognized at fair value based on quoted market prices of
comparable instruments or, if none are available, on pricing models or formulas using current market and
model assumptions, including adjustments for credit risk.
Fair Value Measurements - ASC 820 (“ASC 820”) “Fair Value Measurements and Disclosures” defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. ASC 820-10-20 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants.
ASC 825 (“ASC 825”) “Financial Instruments” permits an entity to measure certain financial assets and financial
liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected
to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are
not already recorded at fair value.
A description of the Company’s policies regarding fair value measurement is summarized below.
Fair Value Hierarchy – ASC 820-10-35 requires disclosure about how fair value is determined for assets and
liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant
levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of
observable market data when available. These two types of inputs have created the following fair value hierarchy:
• Level 1 – Quoted prices for identical instruments in active markets.
• Level 2 – Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived valuations
in which all significant inputs and significant value drivers are observable in active
markets.
• Level 3 – Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
Determination of Fair Value - The Company generally uses quoted market prices (unadjusted) in active markets for
identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such
items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in
Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted
market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are
observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include
situations where there is little, if any, market activity for the asset or liability.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use,
where possible, current market-based or independently sourced market parameters, such as interest rates, currency
rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to
the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3
even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure fair value, including
an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
70
Money Market and Open-End Mutual Funds - The Company uses quoted market prices in active markets to
determine the fair value of money market and open-end mutual funds, which are classified in Level 1 of the fair
value hierarchy.
Foreign Currency Forward Contracts and Options - The Company enters into foreign currency forward contracts
and options over the counter and values such contracts using quoted market prices of comparable instruments or, if
none are available, on pricing models or formulas using current market and model assumptions, including
adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest
rates. These items are classified in Level 2 of the fair value hierarchy.
Investments Held in Rabbi Trusts — The investment assets of the rabbi trusts are valued using quoted market prices
in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the
deferred compensation plan, refer to Note 13, Investments Held in Rabbi Trusts, and Note 26, Stock-Based
Compensation.
Guaranteed Investment Certificates — Guaranteed investment certificates, with variable interest rates linked to the
prime rate, approximate fair value due to the automatic ability to re-price with changes in the market; such items are
classified in Level 2 of the fair value hierarchy.
Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose functional
currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income
and expenses are translated at the weighted average exchange rate during the period. The net effect of translation
gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive
income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until
the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency
transactional gains and losses are included in “Other income (expense)” in the accompanying Consolidated
Statements of Operations.
Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under
ASC 815 (“ASC 815”) “Derivatives and Hedging”. The Company generally utilizes non-deliverable forward
contracts and options expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate
fluctuations on forecasted cash flows denominated in non-functional foreign currencies and net investments in
foreign operations. In using derivative financial instruments to hedge exposures to changes in exchange rates, the
Company exposes itself to counterparty credit risk.
The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net
investment in a foreign operation; or (3) a derivative that does not qualify for hedge accounting. To qualify for
hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged
item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship.
Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the
hedge.
Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in
AOCI, until the forecasted underlying transactions occur. Any realized gains or losses resulting from the cash flow
hedges are recognized together with the hedged transaction within “Revenues”. Changes in the fair value of
derivatives that are highly effective and designated as a net investment hedge are recorded in cumulative translation
adjustment in AOCI, offsetting the change in cumulative translation adjustment attributable to the hedged portion of
the Company’s net investment in the foreign operation. Any realized gains and losses from settlements of the net
investment hedge remain in AOCI until partial or complete liquidation of the net investment. Ineffectiveness is
measured based on the change in fair value of the forward contracts and options and the fair value of the
hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is
recognized within “Revenues” for cash flow hedges and within “Other income (expense)” for net investment
hedges. Cash flows from the derivative contracts are classified within the operating section in the accompanying
Consolidated Statements of Cash Flows.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk management objective and strategy for undertaking various hedging activities. This process includes linking all
derivatives that are designated as cash flow hedges to forecasted transactions. Hedges of a net investment in a
71
foreign operation are linked to the specific foreign operation. The Company also formally assesses, both at the
hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring,
the Company discontinues hedge accounting prospectively. At December 31, 2011 and 2010, all hedges were
determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC
815. The purpose of these derivative instruments is to reduce the effects from fluctuations caused by volatility in
currency exchange rates on the Company’s operating results and cash flows. All changes in the fair value of the
derivative instruments are included in “Other income (expense)”. See Note 12, Financial Derivatives, for further
information on financial derivative instruments.
New Accounting Standards Not Yet Adopted
In May 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update
(“ASU”) 2011-04 (“ASU 2011-04”) “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments in ASU 2011-04
result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial
Reporting Standards (“IFRS”). Consequently, the amendments change the wording used to describe many of the
requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.
Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement
requirements. Other amendments change a particular principle or requirement for measuring fair value or for
disclosing information about fair value measurements. The amendments in ASU 2011-04 are to be applied
prospectively and are effective during interim and annual periods beginning after December 15, 2011. The adoption
of ASU 2011-04 as of January 1, 2012 did not have a material impact on the financial condition, results of
operations and cash flows of the Company.
In June 2011, the FASB issued ASU 2011-05 (“ASU 2011-05”) “Comprehensive Income (Topic 220) – Presentation
of Comprehensive Income”. The amendments in ASU 2011-05 require that all nonowner changes in stockholders’
equity be presented either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. In the two-statement approach, the first statement should present total net income and its
components followed consecutively by a second statement that should present total other comprehensive income, the
components of other comprehensive income, and the total of comprehensive income. The amendments in ASU
2011-05 are to be applied retrospectively and are effective during interim and annual periods beginning after
December 15, 2011, and may be early adopted. As this standard impacts presentation only, the adoption of ASU
2011-05 as of January 1, 2012 did not impact the financial condition, results of operations and cash flows of the
Company.
In September 2011, the FASB issued ASU 2011-08 (“ASU 2011-08”) “Intangibles – Goodwill and Other (Topic
350) Testing Goodwill for Impairment”. The amendments in ASU 2011-08 provide entities with the option to first
assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that
it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the
totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment
test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the
reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform
the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the
amendments in ASU 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in
any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may
resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2011-08 are
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15,
2011, and may be early adopted. The adoption of ASU 2011-08 as of January 1, 2012 did not have a material
impact on the financial condition, results of operations and cash flows of the Company.
In December 2011, the FASB issued ASU 2011-11 (“ASU 2011-11”) “Balance Sheet (Topic 210) – Disclosures
about Offsetting Assets and Liabilities”. The amendments in ASU 2011-11 will enhance disclosures by requiring
improved information about financial and derivative instruments that are either 1) offset (netting assets and
liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards
72
Codification or 2) subject to an enforceable master netting arrangement or similar agreement. The amendments in
ASU 2011-11 are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those
years. An entity should provide the disclosures required by those amendments retrospectively for all comparative
periods presented. The Company does not expect the adoption of ASU 2011-11 to materially impact its financial
condition, results of operations and cash flows.
In December 2011, the FASB issued ASU 2011-12 (“ASU 2011-12”) “Comprehensive Income (Topic 220) –
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05”. The amendments in ASU 2011-12
defer the requirement to present reclassification adjustments for each component of accumulated other
comprehensive income in both net income and other comprehensive income on the face of the financial statements.
The amendments in ASU 2011-12 are effective at the same time as ASU 2011-05 so that entities will not be required
to comply with the presentation requirements in ASU 2011-05 that ASU 2011-05 is deferring. The amendments in
ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15,
2011. As ASU 2011-12 impacts presentation only, the adoption of ASU 2011-12 as of January 1, 2012 did not
impact the financial condition, results of operations and cash flows of the Company.
Note 2. Acquisition of ICT
On February 2, 2010, the Company acquired 100% of the outstanding common shares and voting interest of ICT
through a merger of ICT with and into a subsidiary of the Company. ICT provided outsourced customer
management and business process outsourcing solutions with its operations located in the United States, Canada,
Europe, Latin America, India, Australia and The Philippines. The results of ICT’s operations have been included in
the Company’s Consolidated Financial Statements since its acquisition on February 2, 2010. The Company
acquired ICT to expand and complement its global footprint, provide entry into additional vertical markets, and
increase revenues to enhance its ability to leverage the Company’s infrastructure to produce improved sustainable
operating margins. This resulted in the Company paying a substantial premium for ICT resulting in recognition of
goodwill.
The acquisition date fair value of the consideration transferred totaled $277.8 million, which consisted of the
following (in thousands):
Total
Cash ………………………………………………………
Common stock ……………………………………………
$
141,161
136,673
277,834
$
The fair value of the 5.6 million common shares issued was determined based on the Company’s closing share price
of $24.40 on the acquisition date.
The cash portion of the acquisition was funded through borrowings consisting of a $75 million short-term loan from
KeyBank and a $75 million Term Loan, which were paid off in March 2010 and July 2010, respectively. See Note
20, Borrowings, for further information.
73
The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations”, whereby the
purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed
from ICT based on their estimated fair values as of the closing date. The Company finalized its purchase price
allocation during the three months ended December 31, 2010. The following table summarizes the estimated
acquisition date fair values of the assets acquired and liabilities assumed, the measurement period adjustments that
occurred during the three months ended December 31, 2010 and the final purchase price allocation as of February 2,
2010 (in thousands):
Cash and cash equivalents …………………………………
Receivables …………………………………………………
Income tax receivable ………………………………………
Prepaid expenses ……………………………………………
Other current assets ………………………………………
Total current assets ………………………………………
Property and equipment ……………………………………
Goodwill ……………………………………………………
Intangibles …………………………………………………
Deferred charges and other assets …………………………
Short-term debt ……………………………………………
Accounts payable …………………………………………
Accrued employee compensation and benefits ……………
Income taxes payable ………………………………………
Other accrued expenses and current liabilities ……………
Total current liabilities……………………………………
Deferred grants ……………………………………………
Long-term income tax liabilities ……………………………
Other long-term liabilities (1) ………………………………
February 2, 2010
(As initially
reported)
$
Measurement
Period
Adjustments
$
-
-
(1,941)
-
149
(1,792)
-
7,647
-
(3,965)
-
(168)
(1,309)
2,013
(464)
72
-
(19,924)
17,962
$
-
February 2,
2010 (As
adjusted)
$
63,987
75,890
903
4,846
5,099
150,725
57,910
97,770
60,310
4,013
(10,000)
(12,580)
(25,182)
(438)
(11,415)
(59,615)
(706)
(25,497)
(7,076)
277,834
$
63,987
75,890
2,844
4,846
4,950
152,517
57,910
90,123
60,310
7,978
(10,000)
(12,412)
(23,873)
(2,451)
(10,951)
(59,687)
(706)
(5,573)
(25,038)
277,834
$
(1) Includes primarily long-term deferred tax liabilities.
The above fair values of assets acquired and liabilities assumed were based on the information that was available as
of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The measurement period
adjustments relate primarily to unrecognized tax benefits and related offsets, tax liabilities relating to the
determination as of the date of the ICT acquisition that the Company intended to distribute a majority of the
accumulated and undistributed earnings of the ICT Philippine subsidiary and its direct parent, ICT Group
Netherlands B.V. to SYKES, its ultimate U.S. parent, and certain accrual adjustments related to labor and benefit
costs in Argentina. The measurement period adjustments were completed as of December 31, 2010.
The $97.8 million of goodwill was assigned to the Company’s Americas and EMEA operating segments in the
amount of $97.7 million and $0.1 million, respectively. The goodwill recognized is attributable primarily to
synergies the Company expects to achieve as the acquisition increases the opportunity for sustained long-term
operating margin expansion by leveraging general and administrative expenses over a larger revenue base. Pursuant
to federal income tax regulations, the ICT acquisition was considered to be a non-taxable transaction; therefore, no
amount of intangibles or goodwill from this acquisition will be deductible for tax purposes. The fair value of
receivables acquired was $75.9 million, with the gross contractual amount being $76.4 million, of which $0.5
million was not expected to be collected.
74
Total net assets acquired (liabilities assumed) by operating segment as of February 2, 2010, the acquisition date,
were as follows (in thousands):
Net assets (liabilities) ………………………………………
$
278,703
Americas
EMEA
$
(869)
Other
$
-
Consolidated
277,834
$
Fair values are based on management’s estimates and assumptions including variations of the income approach, the
cost approach and the market approach. The following table presents the Company’s purchased intangibles assets as
of February 2, 2010, the acquisition date (in thousands):
Customer relationships ……………………………………
Trade name …………………………………………………
Proprietary software ………………………………………
Non-compete agreements …………………………………
Amount
Assigned
$
57,900
1,000
850
560
60,310
$
Weighted
Average
Amortization
Period (years)
8
3
2
1
8
After the ICT acquisition in February, 2010, the Company paid off the $10.0 million outstanding balance plus
accrued interest of the ICT short-term debt assumed upon acquisition. The related interest expense included in
“Interest expense” in the accompanying Consolidated Statement of Operations for the year ended December 31,
2010 was not material.
The Company’s Consolidated Statement of Operations for the year ended December 31, 2010 includes ICT revenues
from continuing operations of $362.7 million and the ICT loss from continuing operations, net of taxes, of $(26.9)
million from the February 2, 2010 acquisition date through December 31, 2010.
The following table presents the unaudited pro forma combined revenues and net earnings as if ICT had been
included in the consolidated results of the Company for the entire year for the years ended December 31, 2010 and
2009. The pro forma financial information is not indicative of the results of operations that would have been
achieved if the acquisition and related borrowings had taken place on January 1, 2010 and 2009 (in thousands):
Revenues ……………………………………………………
$
Years Ended December 31,
2010
1,162,040
2009
1,154,516
$
Income from continuing operations, net of taxes …………
$
48,504
$
44,571
Income from continuing operations per common share:
Basic ……………………………………………………
$
1.04
$
0.96
Diluted …………………………………………………
$
1.04
$
0.96
These amounts have been calculated to reflect the additional depreciation, amortization, and interest expense that
would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2010,
together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly
attributable to the acquisition, and which do not have a continuing impact on the combined companies operating
results. Included in these costs are severance, advisory and legal costs, net of the consequential tax effects.
75
The following table presents acquisition-related costs included in “General and administrative” costs in the
accompanying Consolidated Statements of Operations (in thousands):
Years Ended December 31,
2010
2009
2011
Severance costs:
Americas …………………………………………………
EM EA ……………………………………………………
Corporate ………………………………………………
$
-
-
126
126
$
1,234
185
14,928
16,347
$
-
-
-
-
Lease termination and other costs: (1)
Americas …………………………………………………
EM EA ……………………………………………………
Transaction and integration costs:
Corporate ………………………………………………
Depreciation and amortization: (2)
Americas …………………………………………………
EM EA ……………………………………………………
(277)
(206)
(483)
13
13
12,168
-
12,168
7,220
1,654
8,874
9,302
9,302
11,770
25
11,795
-
-
-
3,349
3,349
-
-
-
Total acquisition-related costs ……………………………
$
11,824
$
46,318
$
3,349
(1)
(2)
Amounts related to the Third Quarter 2010 Exit Plan and the Fourth Quarter 2010 Exit Plan. See Note 4.
Depreciation resulted from the adjustment to fair values of the acquired property and equipment and amortization
of the fair values of the acquired intangibles.
Note 3. Discontinued Operations
The results of discontinued operations, which consist of the Spanish and Argentine operations, were as follows (in
thousands):
Revenues:
2011
Years Ended December 31,
2010
2009
Spain ……………………………………………………………………………
Argentina ………………………………………………………………………
$
39,341
-
$
36,806
40,676
$
44,221
32,467
Income (loss) from discontinued operations before income taxes:
$
39,341
$
77,482
$
76,688
Spain ……………………………………………………………………………
$
(4,532)
$
(6,417)
$
1,475
Argentina ………………………………………………………………………
-
(4,532)
(6,476)
(12,893)
(2,931)
(1,456)
Income taxes: (1)
Spain ……………………………………………………………………………
Argentina ………………………………………………………………………
-
-
-
-
-
-
-
-
-
Income (loss) from discontinued operations, net of taxes:
Spain ……………………………………………………………………………
Argentina ………………………………………………………………………
(4,532)
-
(6,417)
(6,476)
1,475
(2,931)
$
(4,532)
$
(12,893)
$
(1,456)
(1)
There were no income taxes on the loss from discontinued operations as any tax benefit from the losses would be offset by a valuation
allowance.
76
Spanish Operations Held for Sale
In November 2011, the Finance Committee of the Board of Directors of the Company authorized management to
pursue the sale of the Company’s Spanish operations. Management concluded the operations were no longer
consistent with the Company’s strategic direction. These operations met the held for sale criteria as of December
31, 2011; therefore, the Company reflected the assets and related liabilities of the Spanish operations as “Assets held
for sale, discontinued operations” and “Liabilities held for sale, discontinued operations” in the accompanying
Balance Sheet as of December 31, 2011. The Company reflected the operating results related to the Spanish
operations as discontinued operations in the Consolidated Statements of Operations for the years ended December
31, 2011, 2010 and 2009. Cash flows from discontinued operations are included in the Consolidated Statements of
Cash Flows for the years ended December 31, 2011, 2010 and 2009. This business was historically reported by the
Company as part of the EMEA segment.
The assets and liabilities of the Spanish operations in the accompanying Consolidated Balance Sheets were as
follows (in thousands):
Assets (1)
Current assets:
December 31,
2011
2010
Cash and cash equivalents …………………………………………………
Receivables, net ……………………………………………………………
Prepaid expenses …………………………………………………………
Total current assets ……………………………………………………
Property and equipment, net …………………………………………………
Deferred charges and other assets ……………………………………………
Total assets (2) …………………………………………………………
-
$
8,970
23
8,993
-
597
$
1,245
15,397
-
16,642
1,183
736
9,590
18,561
Liabilities (1)
Current liabilities:
Accounts payable …………………………………………………………
Accrued employee compensation and benefits ……………………………
Deferred revenue …………………………………………………………
Other accrued expenses and current liabilities ……………………………
Total current liabilities (3) ………………………………………………
Total net assets………………………………………………………
$
1,191
4,592
335
1,010
7,128
2,462
1,576
2,301
258
1,993
6,128
12,433
$
(1)
(2)
(3)
Classifed and included in the respective line items in the accompanying Consolidated Balance Sheet as of December
31, 2010.
Classifed as current and included in "Assets held for sale, discontinued operations" in the accompanying
Consolidated Balance Sheet as of December 31, 2011, as the Spanish operations are expected to be sold within the
next 12 months.
Classified as current and included in "Liabilities held for sale, discontinued operations" in the accompanying
Consolidated Balance Sheet as of December 31, 2011, as the Spanish operations are expected to be sold within the
next 12 months.
During the three months ended December 31, 2011, the Company recorded an impairment of $0.8 million related to
the write-down of property and equipment, primarily leasehold improvements and software, in conjunction with the
classification of the Spanish operations as held for sale. The impairment charges represented the amount by which
the carrying value exceeded the fair value of these assets, as defined in ASC 820, and are included in discontinued
operations in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011.
Sale of Argentine Operations in 2010
On December 16, 2010, the Board of Directors (the “Board”) of SYKES, upon the recommendation of its Finance
Committee, sold its Argentina operations, which were operated through two Argentine subsidiaries: Centro
Interaccion Multimedia S.A. (“CIMSA”) and ICT Services of Argentina, S.A. (“ICT Argentina”), together the
“Argentine operations.” CIMSA and ICT Argentina were offshore contact centers providing contact center services
77
through a total of three centers in Argentina to clients in the United States and in the Republic of Argentina. The
decision to exit Argentina was made due to surging costs, primarily chronic wage increases, which dramatically
reduced the appeal of the Argentina footprint among the Company’s existing and new global clients and thus the
overall future profitability of the Argentine operations.
On December 13, 2010, the Company entered a stock purchase agreement, and pursuant thereto, the Company sold
all of the shares of capital stock of CIMSA to individual purchasers for a nominal price. Pursuant to the CIMSA
stock purchase agreement, immediately prior to closing, the Company made a capital contribution of $9.5 million to
CIMSA to cover a portion of CIMSA’s liabilities. Immediately after closing, the purchasers made a capital
contribution to CIMSA of $1.0 million, and CIMSA repaid a loan of $1.0 million to one of the Company’s
subsidiaries. As this was a stock transaction, the Company has no future obligation with regard to CIMSA and there
are no material post closing obligations.
Additionally, on December 22, 2010, the Company entered into a letter of intent (the “ICT Letter of Intent”) to sell
all of the shares of capital stock of ICT Argentina to a group of individual purchasers for a nominal purchase price.
Pursuant to the ICT Letter of Intent, immediately prior to closing, the Company funded ICT Argentina with a capital
contribution of $3.5 million to cover a portion of ICT Argentina’s liabilities. Also on December 24, 2010, the
Company entered into the stock purchase agreement, and pursuant thereto, completed the sale transaction. As this
was a stock transaction, the Company has no future obligation with regard to ICT Argentina and there are no
material post closing obligations.
The loss on the sale of the Argentine operations amounted to $29.9 million pre-tax and $23.5 million after tax at
December 31, 2010. The sale of Argentine operations was a taxable transaction that resulted in a $6.4 million tax
benefit. The effective tax rate on the loss on the sale of Argentina of 21.4% differs from the expected 35.0%
statutory rate due to a valuation allowance established on the foreign deferred tax asset recognized as a result of the
sale, partially offset by a reduction in U.S. taxes related to foreign earnings distributions and the write off of
intercompany receivables resulting in tax benefits of $2.9 million and $3.5 million, respectively. During the three
months ended December 31, 2011, the Company reversed the accrued liability related to the expiration of the
indemnification to the purchaser for the possible loss of a specific client business, which reduced the net loss on sale
of the Argentine operations by $0.6 million. There was no related income tax effect.
As a result of the sale of the Argentine operations, the operating results related to the Argentine operations have
been reflected as discontinued operations in the accompanying Consolidated Statements of Operations for the years
ended December 31, 2010 and 2009. This business was historically reported by the Company as part of the
Americas segment.
During 2010, the Company recorded an impairment of $0.7 million related to the write-down of long-lived assets in
Argentina, primarily leasehold improvements and software, which were no longer recoverable. The impairment
charge represented the amount by which the carrying value exceeded the fair value of these assets which cannot be
redeployed to other locations and are included in discontinued operations in the accompanying Consolidated
Statement of Operations for 2010.
Note 4. Costs Associated with Exit or Disposal Activities
Fourth Quarter 2011 Exit Plan
During the three months ended December 31, 2011, the Company announced a plan to rationalize seats in certain
U.S. sites and close certain locations in EMEA (the “Fourth Quarter 2011 Exit Plan”). The details are described
below, by segment.
Americas
During the three months ended December 31, 2011, as part of an on-going effort to streamline excess capacity
related to the integration of the ICT acquisition and align it with the needs of the market, the Company announced a
plan to rationalize approximately 1,200 seats in the U.S., some of which are revenue generating, with plans to
migrate the associated revenues to other locations within the U.S. Approximately 500 employees are expected to be
affected and the Company expects to complete the actions associated with the Americas plan on or before October
31, 2012.
78
The major costs estimated to be incurred as a result of these actions are program transfer costs, facility-related costs
(primarily consisting of those costs associated with the real estate leases), and impairments of long-lived assets
(primarily leasehold improvements and equipment) estimated at $1.0 million. The Company recorded $0.5 million
of the costs associated with these actions as non-cash impairment charges included in “Impairment of long-lived
assets” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011, while
approximately $0.5 million represents cash expenditures for program transfer and facility-related costs, including
obligations under the leases, the last of which ends in January 2013. There is no accrual as no actions have taken
place to transfer programs or close the facilities as of December 31, 2011. No cash has been paid through December
31, 2011 for the program transfer costs or facility-related costs.
EMEA
During the three months ended December 31, 2011, in an effort to improve the Company’s overall profitability in
the EMEA region, the Company committed to close a customer contact management center in South Africa and a
customer contact management center in Ireland, as well as some capacity rationalization in the Netherlands, all
components of the EMEA segment. Through these actions, the Company expects to improve its cost structure in the
EMEA region by optimizing its capacity utilization. While the Company plans to migrate approximately $3.2
million of annualized call volumes of the Ireland facility to other facilities within EMEA, the Company does not
anticipate the remaining call volume in Ireland or any of the annualized revenue from the Netherlands or South
Africa facilities, which was $18.8 million, will be captured and migrated to other facilities within the region. The
number of seats anticipated for rationalization across the EMEA region approximates 900 with an anticipated total
of approximately 500 employees affected by the actions. The Company expects to close these facilities by July
2012 and substantially complete the actions associated with the EMEA plan on or before September 30, 2012.
The major costs estimated to be incurred as a result of these actions are facility-related costs (primarily consisting of
those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold
improvements and equipment) and anticipated severance-related costs estimated at $7.6 million. The Company
recorded $0.5 million of the costs associated with these actions as non-cash impairment charges included in
“Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations for the year ended
December 31, 2011, while approximately $7.1 million will be cash expenditures for severance-related costs and
facility-related costs, primarily rent obligations to be paid through the remainder of the noncancelable term of the
leases, the last of which ends in March 2013. The Company has paid $0.7 million in cash through December 31,
2011 of the severance-related and legal-related costs.
The following table summarizes the accrued liability associated with EMEA’s Fourth Quarter 2011 Exit Plan’s exit
or disposal activities and related charges (none in 2010 or 2009) (in thousands):
Beginning
Accrual at
January 1,
2011
Charges
(Reversals) for
the Year Ended
December 31,
2011 (1)
Cash
Payments
Other Non-
Cash
Changes (2)
Ending Accrual
at December
31, 2011
S hort-term (3)
Long-term
Lease obligations and facility exit costs ……….
$
-
$
587
$
-
$
(10)
$
577
$
577
$
-
Severance and related costs …………….....……..
-
5,185
(653)
(62)
4,470
4,470
-
Legal-related costs …………….....……………….
$
-
-
21
5,793
$
$
(8)
(661)
$
-
(72)
13
5,060
$
13
5,060
$
$
-
-
(1)
(2)
(3)
During 2011, the Company recorded charges related to the initiation of the Fourth Quarter 2011 Exit Plan.
Effect of foreign currency translation.
Included in "Other accrued expenses and current liabilities" in the accompanying Consolidated Balance Sheet.
Fourth Quarter 2010 Exit Plan
During the quarter ended December 31, 2010, in furtherance of the Company’s long-term goals to manage and
optimize capacity utilization, the Company committed to and closed a customer contact management center in the
United Kingdom and a customer contact management center in Ireland, both components of the EMEA segment (the
"Fourth Quarter 2010 Exit Plan"). These actions further enabled the Company to reduce operating costs by
eliminating additional redundant space and to optimize capacity utilization rates where overlap exists. These actions
were substantially completed by January 31, 2011. None of the revenues from the United Kingdom or Ireland
facilities, which were approximately $1.3 million on an annualized basis, were captured and migrated to other
facilities within the region. Loss from operations of the United Kingdom and Ireland are not material to the
consolidated income (loss) from continuing operations; therefore, their results of operations have not been presented
as discontinued operations in the accompanying Consolidated Statements of Operations.
79
The major costs incurred as a result of these actions were facility-related costs (primarily consisting of those costs
associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and
equipment) and severance-related costs totaling $2.2 million as of December 31, 2011 ($2.1 million as of December
31, 2010). This increase of $0.1 million included in “General and administrative” costs in the accompanying
Consolidated Statement of Operations during the year ended December 31, 2011 is primarily due to the change in
estimate of lease termination costs. The Company recorded $0.2 million of the costs associated with the Fourth
Quarter 2010 Exit Plan as non-cash impairment charges (see Note 3, Discontinued Operations, for further
information). Approximately $1.8 million represents cash expenditures for facility-related costs, primarily rent
obligations to be paid through the remainder of the lease terms, the last of which ends in March 2014, and
$0.2 million represents cash expenditures for severance-related costs. The Company has paid $1.1 million in cash
through December 31, 2011 of the facility-related and severance-related costs.
The following table summarizes the accrued liability associated with the Fourth Quarter 2010 Exit Plan’s exit or
disposal activities and related charges (none in 2009) (in thousands):
Lease obligations and facility exit costs ……….
Severance and related costs …………….....…....
Beginning
Accrual at
January 1,
2011
$
1,711
-
1,711
Charges
(Reversals) for
the Year Ended
December 31,
2011 (1)
$
Cash
Payments
$
(886)
-
(886)
70
-
70
$
$
$
$
Lease obligations and facility exit costs ……….
Severance and related costs …………….....…....
Beginning
Accrual at
January 1,
2010
-
$
-
$
-
Charges
(Reversals) for
the Year Ended
December 31,
2010 (1)
$
1,711
185
1,896
Cash
Payments
$
-
(185)
(185)
$
$
$
Other Non-
Cash
Changes (2)
(60)
$
-
(60)
$
Other Non-
Cash
Changes (2)
-
$
-
$
-
Ending Accrual
at December
31, 2011
$
835
-
835
Ending Accrual
at December
31, 2010
$
1,711
-
1,711
S hort-term (3)
398
$
-
398
$
Long-term (4)
437
$
-
437
$
S hort-term (3)
941
$
-
941
$
Long-term (4)
770
$
-
770
$
(1)
(2)
(3)
(4)
During 2011, the Company recorded additional lease termination costs, which are included in "General and administrative" costs in the accompanying Consolidated Statement
of Operations. During 2010, the Company recorded charges related to the initiation of the Fourth Quarter 2010 Exit Plan.
Effect of foreign currency translation.
Included in "Other accrued expenses and current liabilities" in the accompanying Consolidated Balance Sheets.
Included in "Other long-term liabilities" in the accompanying Consolidated Balance Sheets.
See Note 3, Discontinued Operations, for impairment charges recorded in 2010 related to the Company’s Argentine
operations, which were sold in December 2010.
Third Quarter 2010 Exit Plan
During the quarter ended September 30, 2010, consistent with the Company’s long-term goals to manage and
optimize capacity utilization, the Company closed or committed to close four customer contact management centers
in The Philippines and consolidated or committed to consolidate leased space in our Wilmington, Delaware and
Newtown, Pennsylvania locations (the "Third Quarter 2010 Exit Plan"). These actions were in response to the
facilities consolidation and capacity rationalization related to the ICT acquisition, enabling the Company to reduce
operating costs by eliminating redundant space and to optimize capacity utilization rates where overlap exists. There
were no employees affected by the Third Quarter 2010 Exit Plan. These actions were substantially completed by
January 31, 2011.
The major costs incurred as a result of these actions were impairments of long-lived assets (primarily leasehold
improvements) and facility-related costs (primarily consisting of those costs associated with the real estate leases)
estimated at $10.5 million as of December 31, 2011 ($10.0 million as of December 31, 2010), all of which are in the
Americas segment. The increase of $0.5 million during the year ended December 31, 2011 is primarily due to the
change in assumptions related to the redeployment of property and equipment and a change in estimate of lease
termination costs. The Company recorded $3.8 million of the costs associated with the Third Quarter 2010 Exit Plan
as non-cash impairment charges, of which $0.7 million is included in “Impairment of long-lived assets” in the
accompanying Consolidated Statement of Operations for the year ended December 31, 2011 (see Note 5, Fair Value,
for further information). The remaining $6.7 million represents cash expenditures for facility-related costs, primarily
80
rent obligations to be paid through the remainder of the lease terms, the last of which ends in February 2017. The
Company has paid $3.2 million in cash through December 31, 2011 related to these facility-related costs.
The following table summarizes the accrued liability associated with the Third Quarter 2010 Exit Plan’s exit or
disposal activities and related charges (none in 2009) (in thousands):
Beginning
Accrual at
January 1,
2011
$
6,141
Charges
(Reversals) for
the Year Ended
December 31,
2011 (1)
$
(276)
Cash
Payments
$
(2,443)
Other Non-
Cash
Changes (2)
$
5
Ending Accrual
at December
31, 2011
$
3,427
S hort-term (3)
$
843
Long-term (4)
$
2,584
Lease obligations and facility exit costs ……….
Beginning
Accrual at
January 1,
2010
Charges
(Reversals) for
the Year Ended
December 31,
2010 (1)
Cash
Payments
Lease obligations and facility exit costs ……….
$
-
$
6,944
$
(803)
Other Non-
Cash
Changes (2)
$
-
Ending Accrual
at December
31, 2010
$
6,141
S hort-term (3)
$
2,199
Long-term (4)
$
3,942
(1)
(2)
(3)
(4)
During 2011, the Company reversed accruals related to lease termination costs due to an unanticipated sublease at one of the sites, which reduced "General and administrative"
costs in the accompanying Consolidated Statement of Operations. This amount was partially offset by additional lease termination costs for one of the sites. During 2010, the
Company recorded charges related to the initiation of the Third Quarter 2010 Exit Plan.
Effect of foreign currency translation.
Included in "Other accrued expenses and current liabilities" in the accompanying Consolidated Balance Sheets.
Included in "Other long-term liabilities" in the accompanying Consolidated Balance Sheets.
ICT Restructuring Plan
As of February 2, 2010, the Company assumed the liabilities of ICT, including restructuring accruals in connection
with ICT’s plans to reduce its overall cost structure and adapt to changing economic conditions by closing various
customer contact management centers in Europe and Canada prior to the end of their existing lease terms (the “ICT
Restructuring Plan”). These remaining restructuring accruals, which related to ongoing lease and other contractual
obligations, were paid in December 2011. Since acquiring ICT in February 2010, the Company has paid $1.9 million
in cash through December 31, 2011 related to the ICT Restructuring Plan.
The following tables summarize the accrued liability associated with the ICT Restructuring Plan’s exit or disposal
activities (none in 2009) (in thousands):
Beginning
Accrual at
January 1,
2011
$
1,462
Charges
(Reversals) for
the Year Ended
December 31,
2011 (1)
$
(276)
Cash
Payments
$
(1,139)
Other Non-
Cash
Changes (2)
$
(47)
Ending Accrual
at December
31, 2011
$
-
S hort-term (3)
$
-
Long-term (4)
$
-
Lease obligations and facility exit costs ……….
Lease obligations and facility exit costs ……….
$
-
Beginning
Accrual at
January 1,
2010
Accrual
assumed upon
acquisition of
ICT on
February 2,
2010 (1)
$
2,197
Cash
Payments
$
(735)
Other Non-
Cash
Changes
$
-
Ending Accrual
at December
31, 2010
$
1,462
S hort-term (3)
$
1,462
Long-term (4)
$
-
(1)
(2)
(3)
(4)
During 2011, the Company reversed accruals related to the final settlement of termination costs, which reduced "General and administrative" costs in the accompanying
Consolidated Statement of Operations. During 2010, upon acquisition of ICT on February 2, 2010, the Company assumed ICT's restructuring accruals.
Effect of foreign currency translation.
Included in "Other accrued expenses and current liabilities" in the accompanying Consolidated Balance Sheet.
Included in "Other long-term liabilities" in the accompanying Consolidated Balance Sheet.
81
Note 5. Fair Value
The Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 subject to
the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2011 Using:
Quoted Prices
in Active
Markets For
Identical Assets
Level (1)
S ignificant
Other
Observable
Inputs
Level (2)
S ignificant
Unobservable
Inputs
Level (3)
Balance at
December 31, 2011
Assets:
M oney market funds and open-end mutual
funds included in "Cash and cash equivalents" ……(1)
$
68,651
$
68,651
$
-
$
-
M oney market funds and open-end mutual
funds in "Deferred charges and other assets" ………(1)
Foreign currency forward contracts ………………… (2)
Foreign currency option contracts ……………………(2)
Equity investments held in a rabbi trust
12
536
174
12
-
-
for the Deferred Compensation Plan ………………(3)
2,817
2,817
-
536
174
-
-
-
-
-
Debt investments held in a rabbi trust
for the Deferred Compensation Plan ………………(3)
Guaranteed investment certificates ……………………(4)
Liabilities:
Foreign currency forward contracts ………………… (5)
1,365
65
73,620
$
1,365
-
72,845
$
-
65
775
$
-
-
$
-
$
$
752
752
$
-
$
-
$
$
752
752
$
-
$
-
(1)
(2)
(3)
(4)
(5)
In the accompanying Consolidated Balance Sheet.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 12.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13.
Included in “ Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. See Note 15.
Included in “ Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 18.
82
The Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 subject to
the requirements of ASC 820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2010 Using:
Quoted Prices
in Active
Markets For
Identical Assets
Level (1)
S ignificant
Other
Observable
Inputs
Level (2)
S ignificant
Unobservable
Inputs
Level (3)
Balance at
December 31, 2010
Assets:
M oney market funds and open-end mutual
funds included in "Cash and cash equivalents" ……(1)
$
5,893
$
5,893
$
-
$
-
M oney market funds and open-end mutual
funds in "Deferred charges and other assets" ………(1)
Foreign currency forward contracts ………………… (2)
Foreign currency option contracts ……………………(2)
Equity investments held in a rabbi trust
for the Deferred Compensation Plan ………………(3)
Debt investments held in a rabbi trust
for the Deferred Compensation Plan ………………(3)
U.S. Treasury Bills held in a rabbi trust for the
former ICT chief executive officer …………………(3)
Guaranteed investment certificates ……………………(4)
Liabilities:
Foreign currency forward contracts ………………… (5)
747
1,283
4,951
2,647
789
118
747
-
-
2,647
789
118
-
1,283
4,951
-
-
-
-
-
-
-
-
-
$
53
16,481
-
10,194
$
$
53
6,287
-
$
-
$
$
735
735
$
-
$
-
$
$
735
735
$
-
$
-
(1)
(2)
(3)
(4)
(5)
In the accompanying Consolidated Balance Sheet.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 12.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13.
Included in “ Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. See Note 15.
Included in “ Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 18.
83
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as
described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with acquired
businesses, including goodwill 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. The following table summarizes the adjusted carrying values for assets measured at fair
value on a nonrecurring basis (no liabilities) subject to the requirements of ASC 820 (in thousands):
Americas:
December 31,
2011
2010
$
122,303
52,752
-
99,089
-
-
14,614
-
1,183
Goodwill ………………..…...........................................
Intangibles, net …………………………...………………
Investment in SHPS …..………………….……..…………
Property and equipment, net …..…………………………
$
121,342
44,472
-
79,874
EM EA:
Goodwill ………………..…...........................................
Intangibles, net …………………………...………………
Property and equipment, net …..…………………………
Discontinued Operations:
Americas - Property and equipment, net …..……………
EM EA - Property and equipment, net …..………………
-
-
11,206
-
-
84
The following table summarizes the total impairment losses related to nonrecurring fair value measurements of
certain assets (no liabilities) subject to the requirements of ASC 820 (in thousands):
Americas:
Goodwill (1) ………………..…......................................
Intangibles, net (1)…………………………...……………
-
$
-
-
$
-
$
(629)
(1,279)
Total Impairment (Losses)
Years Ended December 31,
2010
2009
2011
Investment in SHPS (2) …..………………...………………
Property and equipment, net (3) …..………………………
EM EA:
Goodwill (3) ………………..…........................................
Intangibles, net (3)…………………………………………
Property and equipment, net (3) …..………………………
Discontinued Operations:
Americas - Property and equipment, net (3), (4) …..………
EM EA - Property and equipment, net (3), (4) …..…………
-
-
-
(474)
(1,718)
-
(843)
-
-
-
-
(1,244)
(3,121)
(1,908)
(2,089)
-
-
-
-
-
(84)
(278)
(362)
(159)
(3,642)
(3,997)
(682)
-
-
-
$
(2,561)
$
(4,324)
$
(3,997)
(1)
(2)
(3)
See this Note 5 for additional information regarding the KLA fair value measurement.
See Note 1 for additional information regarding the SHPS fair value measurement.
See Note 1 for additional information regarding the fair value measurement.
(4) See Note 3 for additional information regarding the impairments related to discontinued operations.
Impairment of Long-Lived Assets
During 2011, in connection with the Fourth Quarter 2011 Exit Plan, as discussed more fully in Note 4, Costs
Associated with Exit or Disposal Activities, the Company recorded impairment charges of $0.5 million in the
Americas segment and $0.5 million in the EMEA segment, related to the write-down of long-lived assets, primarily
leasehold improvements and equipment.
During 2011, in connection with the Third Quarter 2010 Exit Plan within the Americas segment, as discussed more
fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded an impairment charge of
$0.7 million, resulting from a change in assumptions related to the redeployment of property and equipment.
During 2010, in connection with a plan to close and consolidate facilities within the EMEA segment, as discussed
more fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded an impairment
charge of $0.2 million, related to the impairment of long-lived assets for leasehold improvements and equipment in
certain of its underutilized customer contact management centers in the United Kingdom and Ireland. In addition,
during 2010, based on actual and forecasted operating results and deterioration of the related customer base in the
Company's United Kingdom operations, the EMEA segment recorded a $0.1 million impairment loss on goodwill
and a $0.3 million impairment loss on intangibles (primarily customer relationships).
During 2010, in connection with a plan to close and consolidate facilities within the Americas segment, as discussed
more fully in Note 4, Costs Associated with Exit or Disposal Activities, the Company recorded an impairment
charge of $3.1 million, comprised of a $2.9 million impairment of long-lived assets for leasehold improvements in
certain of its underutilized customer contact management centers in The Philippines and a $0.2 million impairment
of long-lived assets for leasehold improvements related to a plan to consolidate corporate leased space in the United
States.
85
During 2009, the Company committed to a plan to sell or close its Employee Assistance and Occupational Health
operations in Calgary, Alberta, Canada, which was originally acquired on March 1, 2005 when the Company
purchased the shares of Kelly, Luthmer & Associates Limited (“KLA”). As a result of KLA’s actual and forecasted
operating results for 2009, deterioration of the KLA customer base and loss of key employees, the Company
determined to sell or close the Calgary operations on or before December 31, 2009 for less than its current carrying
value. This decline in value was other than temporary, therefore, the Company recorded a non-cash impairment loss
of $1.3 million related to intangible assets (primarily customer relationships) and $0.6 million related to goodwill
included in “Impairment loss on goodwill and intangibles” during 2009. The accompanying Consolidated Statement
of Operations for 2009 includes “Impairment loss on goodwill and intangibles” of $1.9 million related to the
Calgary operations (none in 2010 or 2008). As of December 31, 2010, $0.3 million and $0.2 million were included
in “Other accrued expenses and current liabilities” and “Other long-term liabilities”, respectively, in the
accompanying Consolidated Balance Sheet related to the lease obligation, net of the underlying sublease amounts.
This lease obligation is expected to be paid through the remainder of the lease term ending July 2012. In addition, in
2009, the Company paid $0.1 million in one-time employee termination benefits. The loss from operations for KLA
for 2009 was $3.4 million, which was not material to the consolidated income from continuing operations; therefore,
the results of operations of KLA have not been presented as discontinued operations in the accompanying
Consolidated Statement of Operations.
Additionally, during 2009 the Company recorded an impairment loss of $2.1 million on its investment in SHPS.
Note 6. Goodwill and Intangible Assets
The following table presents the Company’s purchased intangible assets as of December 31, 2011 (in thousands):
Customer relationships ……………………………
Trade name ………………………………………
Non-compete agreements …………………………
Proprietary software ………………………………
Gross
Intangibles
$
58,027
1,000
560
850
60,437
Accumulated
Amortization
(14,056)
$
(639)
(560)
(710)
(15,965)
$
Net
Intangibles
$
43,971
361
-
140
44,472
$
$
Weighted
Average
Amortization
Period (years)
8
3
1
2
8
The following table presents the Company’s purchased intangible assets as of December 31, 2010 (in thousands):
Customer relationships ……………………………
Trade name ………………………………………
Non-compete agreements …………………………
Proprietary software ………………………………
Gross
Intangibles
$
58,471
1,000
560
850
60,881
Accumulated
Amortization
(6,839)
$
(306)
(513)
(471)
(8,129)
$
Net
Intangibles
$
51,632
694
47
379
52,752
$
$
Weighted
Average
Amortization
Period (years)
8
3
1
2
8
The following table presents amortization expense, related to the purchased intangible assets resulting from
acquisitions (other than goodwill), included in “General and administrative” costs in the accompanying
Consolidated Statements of Operations (in thousands):
Amortization expense ………………………
2011
$
7,961
Years Ended December 31,
2010
$
7,879
2009
$
100
86
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible
assets resulting from acquisitions completed prior to December 31, 2011, is as follows (in thousands):
Years Ending December 31,
2012 …………………………………………………………………………
2013…………………………………………………………………………
2014 …………………………………………………………………………
2015 …………………………………………………………………………
2016 …………………………………………………………………………
2017 and thereafter …………………………………………………………
Amount
$
7,684
7,285
7,223
7,220
7,220
7,840
Changes in goodwill for the year ended December 31, 2011 consist of the following (in thousands):
Americas:
Gross Amount
Accumulated
Impairment
Losses
Net Amount
Balance at January 1, 2011 ……………………………
Foreign currency translation ……………………………
Balance at December 31, 2011 ………………………
$
122,932
(961)
121,971
EMEA:
Balance at January 1, 2011 ……………………………
Foreign currency translation ……………………………
Balance at December 31, 2011 ………………………
84
-
84
122,055
$
$
(629)
-
(629)
$
122,303
(961)
121,342
(84)
-
(84)
(713)
$
-
-
-
$
121,342
Changes in goodwill for the year ended December 31, 2010 consist of the following (in thousands):
Americas:
Gross Amount
Balance at January 1, 2010 ……………………………
Acquisition of ICT (See Note 2)………………………
Foreign currency translation ……………………………
Balance at December 31, 2010 ………………………
$
21,838
97,683
3,411
122,932
EMEA:
Balance at January 1, 2010 ……………………………
Acquisition of ICT (See Note 2)………………………
Foreign currency translation ……………………………
Balance at December 31, 2010 ………………………
-
87
(3)
84
123,016
$
Accumulated
Impairment
Losses
$
(629)
-
-
(629)
-
(87)
3
(84)
(713)
$
Net Amount
$
21,209
97,683
3,411
122,303
-
-
-
-
$
122,303
See Note 5, Fair Value, for additional information regarding the impairment of the Americas and EMEA goodwill.
Note 7. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets
in which the Company’s services are sold. See Note 12, Financial Derivatives, for a discussion of the Company’s
credit risk relating to financial derivative instruments, and Note 27, Segments and Geographic Information, for a
discussion of the Company’s customer concentration.
87
Note 8. Receivables, Net
Receivables, net consist of the following (in thousands):
December 31,
2011
2010
Trade accounts receivable ……………………………………………
Income taxes receivable ………………………………………………
Other …………………………………………………………………
$
$
Less: Allowance for doubtful accounts ………………………………
227,512
3,853
2,641
234,006
4,304
229,702
249,719
1,488
1,574
252,781
3,939
248,842
$
$
Allowance for doubtful accounts as a percent of trade receivables …
1.9%
1.6%
Note 9. Prepaid Expenses
Prepaid expenses consist of the following (in thousands):
December 31,
Prepaid maintenance …………………………
Prepaid rent ……………………………………
Inventory, at cost …………….………………
Prepaid insurance ……………………………
Prepaid other …………………………………
2011
$
2010
$
$
$
Note 10. Other Current Assets
Other current assets consist of the following (in thousands):
December 31,
Deferred tax assets (Note 22)…………………
Financial derivatives (Note 12)………………
Investments held in rabbi trust (Note 13)……
Value added tax certificates (Note 11)…………
Other current assets …………………………
2011
$
2010
$
$
$
4,191
2,850
508
1,564
2,427
11,540
8,044
710
4,182
2,386
4,798
20,120
3,195
1,935
1,706
1,164
2,704
10,704
7,951
6,234
3,554
2,030
3,144
22,913
Note 11. Value Added Tax Receivables
The VAT receivables balances, and the respective locations in the accompanying Consolidated Balance Sheets, are
presented below (in thousands):
VAT included in:
December 31,
2011
2010
Other current assets (Note 10)…………………
Deferred charges and other assets (Note 15)……
$
$
2,386
5,191
7,577
2,030
5,710
7,740
$
$
88
During the years ended December 31, 2011, 2010 and 2009, the Company wrote down the VAT receivables
balances by the following amounts, which are reflected in the accompanying Consolidated Statements of Operations
(in thousands):
Years Ended December 31,
2010
2011
2009
Write-down of value added tax receivables………
$
504
$
551
$
536
Note 12. Financial Derivatives
Cash Flow Hedges – The Company had derivative assets and liabilities relating to outstanding forward contracts
and options, designated as cash flow hedges, as defined under ASC 815, consisting of Philippine Peso contracts,
Canadian Dollar contracts and Costa Rican Colones contracts. These contracts are entered into to protect against the
risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange
rates.
The deferred gains and related taxes on the Company’s derivative instruments recorded in “Accumulated other
comprehensive income (loss)” in the accompanying Consolidated Balance Sheets are as follows (in thousands):
December 31,
2011
2010
Deferred gains (losses) in AOCI …………………………………
Tax on deferred gains (losses) in AOCI ………………...………
Deferred gains (losses), net of taxes in AOCI ……….…………
(670)
232
(438)
$
$
$
$
2,674
(528)
2,146
Deferred (losses) expected to be reclassified to "Revenues"
from AOCI during the next twelve months ……………………
$
(670)
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the
underlying market price of the forward contracts and options.
Net Investment Hedge – During 2010, the Company entered into foreign exchange forward contracts to hedge its
net investment in a foreign operation, as defined under ASC 815, with an aggregate notional value of $26.1 million.
These hedges settled in 2010 and the Company recorded deferred (losses) of $(2.6) million, net of taxes, for 2010 as
a currency translation adjustment, a component of AOCI, offsetting foreign exchange losses attributable to the
translation of the net investment. The Company did not hedge net investments in foreign operations during 2011.
Other Hedges – The Company also periodically enters into foreign currency hedge contracts that are not designated
as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect our interests against
adverse foreign currency moves pertaining to intercompany receivables and payables, and other assets and liabilities
that are denominated in currencies other than the Company’s subsidiaries functional currencies. These contracts
generally do not exceed 90 days in duration.
89
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
Contract Type
Cash flow hedge: (1)
Options:
Philippine Pesos
Forwards:
Philippine Pesos
Canadian Dollars
Costa Rican Colones
Not designated as hedge: (2)
Forwards
As of December 31, 2011
As of December 31, 2010
Notional
Amount in
US D
S ettle Through
Date
Notional
Amount in
US D
S ettle Through
Date
$ 85,500
September 2012
$ 81,100
December 2011
12,000
-
30,000
M arch 2012
-
September 2012
28,000
7,200
-
September 2011
December 2011
-
27,192
M arch 2012
57,791
February 2011
(1)
(2)
Cash flow hedge as defined under ASC 815. Purpose is to protect against the risk that eventual cash flows resulting
from such transactions will be adversely affected by changes in exchange rates.
Foreign currency hedge contract not designated as a hedge as defined under ASC 815. Purpose is to reduce the effects
on the Company's operating results and cash flows from fluctuations caused by volatility in currency exchange rates,
primarily related to intercompany loan payments and cash held in non-functional currencies.
See Note 1, Overview and Summary of Significant Accounting Policies, for additional information on the
Company's purpose for entering into derivatives not designated as hedging instruments and its overall risk
management strategies.
As of December 31, 2011, the maximum amount of loss due to credit risk that, based on the gross fair value of the
financial instruments, the Company would incur if parties to the financial instruments that make up the
concentration failed to perform according to the terms of the contracts is $0.7 million.
90
The following tables present the fair value of the Company’s derivative instruments as of December 31, 2011 and
2010 included in the accompanying Consolidated Balance Sheets (in thousands):
Derivative Assets
December 31, 2011
December 31, 2010
Balance S heet
Location
Fair Value
Balance S heet
Location
Fair Value
Derivatives designated as cash flow
hedging instruments under AS C
815:
Foreign currency forward contracts …
Foreign currency options ………………
Derivatives not designated as
hedging instruments under AS C
815:
Other current
assets
Other current
assets
$
530
174
704
Other current
assets
Other current
assets
$
1,009
4,951
5,960
Foreign currency forward contracts …
Other current
assets
Total derivative assets …………………………………
$
6
710
Other current
assets
274
6,234
$
Derivative Liabilities
December 31, 2011
December 31, 2010
Balance S heet
Location
Fair Value
Balance S heet
Location
Fair Value
Derivatives designated as cash flow
hedging instruments under AS C
815:
Foreign currency forward contracts …
Other accrued
expenses and
current liabilities
Other accrued
expenses and
current liabilities
$
27
$
-
Foreign currency options ………………
Other accrued
expenses and
current liabilities
485
485
-
27
Derivatives not designated as
hedging instruments under AS C
815:
Foreign currency forward contracts …
Total derivative liabilities ………………………………
$
267
752
Other accrued
expenses and
current liabilities
Other accrued
expenses and
current liabilities
$
708
735
91
The following tables present the effect of the Company’s derivative instruments for the years ended December 31,
2011, 2010 and 2009 in the accompanying Consolidated Financial Statements (in thousands):
Gain (Loss) Recognized in AOCI
on Derivatives (Effective Portion)
December 31,
2010
2011
2009
S tatement of
Operations
Location
Gain (Loss) Reclassified From
Accumulated AOCI Into Income
(Effective Portion)
Gain (Loss) Recognized in Income
on Derivatives (Ineffective Portion)
December 31,
2010
2011
2009
2011
December 31,
2010
2009
Derivatives designated as cash flow
hedging instruments under AS C
815:
Foreign currency forward contracts …
$
920
$
2,586
$
5,082
Revenues
$
1,365
$
4,515
$
(9,257)
$
2
$
-
$
-
Foreign currency option contracts ….
(2,403)
(1,483)
2,350
4,936
-
5,082
Revenues
488
1,853
658
5,173
-
(9,257)
-
2
-
-
-
-
Derivatives designated as a net
investment hedge under AS C 815:
Foreign currency forward contracts …
-
(1,483)
$
(3,955)
981
$
-
5,082
$
-
1,853
$
-
5,173
$
-
(9,257)
$
-
$
2
-
$
-
-
$
-
S tatement of
Operations
Location
Gain (Loss) Recognized in Income on
Derivatives
December 31,
2011
2010
2009
Derivatives not designated as
hedging instruments under AS C
815:
Foreign currency forward contracts ………
Other income
and (expense)
$
(1,444)
$
(4,717)
$
(1,928)
Foreign currency forward contracts ……… Revenues
-
(1,444)
$
-
(4,717)
$
(53)
(1,981)
$
Note 13. Investments Held in Rabbi Trusts
The Company’s investments held in rabbi trusts, classified as trading securities and included in “Other current
assets” in the accompanying Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
As of December 31, 2011
As of December 31, 2010
M utual funds ……………………………………………
U.S. Treasury Bills (1) ……………………………………
Cost
$
$
3,938
-
3,938
Fair Value
4,182
$
-
4,182
$
Cost
$
3,058
118
3,176
$
Fair Value
3,436
$
118
3,554
$
(1) M atured in January 2011.
92
The mutual funds held in the rabbi trusts were 67% equity-based and 33% debt-based as of December 31, 2011.
Investment income, included in “Other income (expense)” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2011, 2010 and 2009 consists of the following (in thousands):
2011
$
Years Ended December 31,
2010
2009
$
$
Gross realized gains from sale of trading securities ………
Gross realized (losses) from sale of trading securities ……
Dividend and interest income ……………………………
Net unrealized holding gains (losses) ……………………
Net investment income (losses) …………………………
201
(20)
69
(383)
(133)
54
(5)
37
313
399
41
(21)
46
341
407
$
$
$
Note 14. Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
Land …………...……………………………………….
Buildings and leasehold improvements …………………
Equipment, furniture and fixtures ………………………
Capitalized software development costs ………………
Transportation equipment ………………………………
Construction in progress ………………………………
Less: Accumulated depreciation …………………………
2011
$
2010
$
4,191
74,221
231,789
2,903
716
1,479
315,299
224,219
91,080
4,381
79,504
249,319
3,005
764
1,911
338,884
225,181
113,703
$
$
Depreciation expense included in “General and administrative” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2011, 2010 and 2009 was as follows (in thousands):
Depreciation expense ……………………………………
2011
$
47,139
Years Ended December 31,
2010
$
47,902
2009
$
25,798
Sale of Land and Building Located in Minot, North Dakota
On June 1, 2011, the Company sold the land and building located in Minot, North Dakota, which were held for sale,
for cash of $3.9 million (net of selling costs of $0.2 million) resulting in a net gain on sale of $3.7 million. The
carrying value of these assets of $0.8 million was offset by the related deferred grants of $0.6 million. The net gain
on the sale of $3.7 million is included in “Net gain on disposal of property and equipment” in the accompanying
Consolidated Statement of Operations for 2011. These assets, previously classified as held and used with a carrying
value of $0.9 million, were included in “Property and equipment” in the accompanying Consolidated Balance Sheet
as of December 31, 2010. Related to these assets were deferred grants of $0.6 million, which were included in
"Deferred grants" in the accompanying Consolidated Balance Sheet as of December 31, 2010.
Tornado Damage to the Ponca City, Oklahoma Customer Contact Management Center
In April 2011, the customer contact management center (the “facility”) located in Ponca City, Oklahoma
experienced significant damage to its building and contents as a result of a tornado. The Company filed an
insurance claim with its property insurance company to recover losses of $1.4 million. During 2011, the insurance
company paid $1.2 million to the Company for costs to clean up and repair the facility of $0.9 million and for
reimbursement of a portion of the Company’s out-of-pocket costs of $0.3 million. The Company completed the
repairs to the facility during 2011 and collected the remaining $0.2 million in February 2012.
93
Typhoon Damage to the Marikina City, The Philippines Customer Contact Management Center
In September 2009, the building and contents of one of the Company's customer contact management centers
located in Marikina City, The Philippines (acquired as part of the ICT acquisition) was severely damaged by
flooding from Typhoon Ondoy. Upon settlement with the insurer in November 2010, the Company recognized a net
gain of $2.0 million in 2010. The damaged property and equipment had been written down by ICT prior to the ICT
acquisition in February 2010. In August 2011, the Company received an additional $0.4 million from the insurer for
rent payments made during the claim period and recognized a net gain on insurance settlement in 2011. This net
gain on insurance settlement is included in “General and administrative” expenses in the accompanying
Consolidated Statement of Operations in 2011. No additional funds are expected.
Note 15. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
December 31,
Non-current deferred tax assets (Note 22)………………
Non-current value added tax certificates (Note 11)………
Deposits …………………………………………………
Other ……………………………………………………
2011
$
2010
$
20,389
5,191
2,278
2,304
30,162
19,564
5,710
5,118
3,162
33,554
$
$
Note 16. Accrued Employee Compensation and Benefits
Accrued employee compensation and benefits consist of the following (in thousands):
December 31,
Accrued compensation ………………………
Accrued vacation ……………………………
Accrued bonus and commissions ……………
Accrued employment taxes …………………
Other …………………………………………
2011
$
2010
$
20,892
13,965
12,566
9,757
5,272
62,452
27,063
13,700
11,227
10,061
3,216
65,267
$
$
Note 17. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
December 31,
2011
2010
Future service ……………………………………
Estimated potential penalties and holdbacks ……
$
$
25,809
8,510
34,319
23,919
7,336
31,255
$
$
94
Note 18. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consist of the following (in thousands):
December 31,
Accrued restructuring (Note 4)…………………………
Accrued legal and professional fees ………………………
Accrued telephone charges ………………………………
Accrued roadside assistance claim costs …………………
Accrued rent………………………………………………
Forward contracts (Note 12)……………………………
Option contracts (Note 12)………………………………
Other ……………………………………………………
2011
$
2010
$
6,301
2,623
518
1,691
1,297
267
485
8,009
21,191
4,602
3,160
2,266
1,980
1,053
735
-
11,825
25,621
$
$
Note 19. Deferred Grants
The components of deferred grants consist of the following (in thousands):
Years Ended December 31,
2011
2010
Property grants ………...………………………
Employment grants ………...……………………
Total deferred grants ………………………
Less: Property grants - short-term (1) ………...…
Less: Employment grants - short-term (1) ………
Total long-term deferred grants (2) ………...
$
8,210
1,123
9,333
-
770
$
8,563
$
9,787
2,672
12,459
-
1,652
$
10,807
(1)
(2)
Included in "Other accrued expenses and current liabilities" in the
accompanying Consolidated Balance Sheets.
Included in "Deferred grants" in the accompanying Consolidated Balance
Sheets.
Amortization of the Company’s property grants included as a reduction to “General and administrative” costs and
amortization of the Company’s employment grants included as a reduction to “Direct salaries and related costs” in
the accompanying Consolidated Statements of Operations consist of the following (in thousands):
Years Ended December 31,
Amortization of property grants ……...………
Amortization of employment grants ……...……
2011
$
2010
$
2009
$
$
$
$
1,047
58
1,105
1,035
144
1,179
956
1,344
2,300
95
Note 20. Borrowings
The Company had no outstanding borrowings as of December 31, 2011 and 2010.
On February 2, 2010, the Company entered into a credit agreement (the “Credit Agreement”) with a group of
lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent
(“KeyBank”). The Credit Agreement provides for a $75 million term loan (the “Term Loan”) and a $75 million
revolving credit facility, the amount which is subject to certain borrowing limitations and includes certain customary
financial and restrictive covenants. The Company drew down the full $75 million Term Loan on February 2, 2010
in connection with the acquisition of ICT on such date. See Note 2, Acquisition of ICT, for further information. The
Company paid off the Term Loan balance in 2010, earlier than the scheduled maturity, plus accrued interest. The
Term Loan is no longer available for borrowings.
The $75 million revolving credit facility provided under the Credit Agreement includes a $40 million multi-currency
sub-facility, a $10 million swingline sub-facility and a $5 million letter of credit sub-facility, which may be used for
general corporate purposes including strategic acquisitions, share repurchases, working capital support, and letters of
credit, subject to certain limitations. The Company is not currently aware of any inability of its lenders to provide
access to the full commitment of funds that exist under the revolving credit facility, if necessary. However, there
can be no assurance that such facility will be available to the Company, even though it is a binding commitment of
the financial institutions. The revolving credit facility will mature on February 1, 2013.
Borrowings under the Credit Agreement bear interest at either LIBOR or the base rate plus, in each case, an
applicable margin based on the Company’s leverage ratio. The applicable interest rate is determined quarterly based
on the Company’s leverage ratio at such time. The base rate is a rate per annum equal to the greatest of (i) the rate of
interest established by KeyBank, from time to time, as its “prime rate”; (ii) the Federal Funds effective rate in effect
from time to time, plus 1/2 of 1% per annum; and (iii) the then-applicable LIBOR rate for one month interest
periods, plus 1.00%. Swingline loans bear interest only at the base rate plus the base rate margin. In addition, the
Company is required to pay certain customary fees, including a commitment fee of up to 0.75%, which is due
quarterly in arrears and calculated on the average unused amount of the revolving credit facility.
In 2010, the Company paid an underwriting fee of $3.0 million for the Credit Agreement, which is deferred and
amortized over the term of the loan. In addition, the Company pays a quarterly commitment fee on the Credit
Agreement. The related interest expense and amortization of deferred loan fees on the Credit Agreement of $1.2
million and $3.6 million are included in “Interest expense” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2011 and 2010, respectively (none in 2009). The $75 million Term
Loan had a weighted average interest rate of 3.93% for the year ended December 31, 2010.
The Credit Agreement is guaranteed by all of the Company’s existing and future direct and indirect material
U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the
direct foreign subsidiaries of the Company and those of the guarantors.
In December 2009, Sykes (Bermuda) Holdings Limited, a Bermuda exempted company (“Sykes Bermuda”) which
is an indirect wholly-owned subsidiary of the Company, entered into a credit agreement with KeyBank (the
“Bermuda Credit Agreement”). The Bermuda Credit Agreement provided for a $75 million short-term loan to Sykes
Bermuda with a maturity date of March 31, 2010. Sykes Bermuda drew down the full $75 million on December 11,
2009. The Bermuda Credit Agreement required that Sykes Bermuda and its direct subsidiaries maintain cash and
cash equivalents of at least $80 million until the loan was repaid in its entirety. Interest was charged on outstanding
amounts, at the option of Sykes Bermuda, at either a Eurodollar Rate (as defined in the Bermuda Credit Agreement)
or a Base Rate (as defined in the Bermuda Credit Agreement) plus, in each case, an applicable margin specified in
the Bermuda Credit Agreement. The underwriting fee paid of $0.8 million was deferred and amortized over the term
of the loan. Sykes Bermuda repaid the entire outstanding amount plus accrued interest on March 31, 2010. The
related interest expense and amortization of deferred loan fees of $1.4 million and $0.3 million are included in
“Interest expense” in the accompanying Consolidated Statement of Operations for the years ended December 31,
2010 and 2009, respectively (none in 2011).
96
Note 21. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Consolidated Statements of Changes in Shareholders’ Equity in accordance with
ASC 220 (“ASC 220”) “Comprehensive Income”. ASC 220 establishes rules for the reporting of comprehensive
income (loss) and its components. The components of accumulated other comprehensive income (loss) consist of
the following (in thousands):
Unrealized
Actuarial Gain
(Loss) Related
to Pension
Liability
$
Unrealized
Gain (Loss) on
Cash Flow
Hedging
Instruments
$
Foreign
Currency
Translation
Adjustment
$
Unrealized
(Loss) on Net
Investment
Hedge
$
-
-
-
-
-
-
(3,955)
1,390
-
-
(2,565)
-
-
-
-
(2,565)
$
(4,236)
8,360
-
3
190
4,317
9,790
-
(7)
(108)
13,992
(7,613)
-
(389)
5
5,995
Balance at January 1, 2009 ………
Pre-tax amount …………………
Tax (provision) benefit …………
Reclassification to net income …
Foreign currency translation ……
Balance at December 31, 2009……
Pre-tax amount …………………
Tax benefit ………………………
Reclassification to net loss ………
Foreign currency translation ……
Balance at December 31, 2010……
Pre-tax amount …………………
Tax benefit ………………………
Reclassification to net income …
Foreign currency translation ……
Balance at December 31, 2011……
1,387
(279)
121
(63)
41
1,207
(31)
-
(52)
65
1,189
(184)
34
(55)
1
985
$
$
$
Unrealized
Gain (Loss) on
Post
Retirement
Obligation
-
$
307
-
(31)
-
276
104
-
(34)
-
346
153
-
(40)
-
459
$
Total
$
(10,683)
13,470
(4,134)
9,166
-
7,819
10,844
1,711
(5,266)
-
15,108
(9,126)
793
(2,339)
-
4,436
$
(7,834)
5,082
(4,255)
9,257
(231)
2,019
4,936
321
(5,173)
43
2,146
(1,482)
759
(1,855)
(6)
(438)
Except as discussed in Note 22, Income Taxes, earnings associated with the Company’s investments in its
subsidiaries are considered to be permanently invested and no provision for income taxes on those earnings or
translation adjustments have been provided.
Note 22. Income Taxes
The income (loss) from continuing operations before income taxes includes the following components (in
thousands):
Years Ended December 31,
2010
2011
2009
Domestic (U.S., state and local) ………………………………………
Foreign ………………………………………………………………
Total income from continuing operations before income taxes ……
(14,170)
77,826
63,656
(24,662)
52,974
28,312
$
$
$
$
$
$
439
70,346
70,785
97
Significant components of the income tax provision are as follows (in thousands):
Years Ended December 31,
2010
2011
2009
Current:
U.S. federal ………………………………………………...……….
State and local …………………………………………...………….
Foreign ………………………………………………………………
Total current provision for income taxes …………………………
$
(3,446)
-
18,743
15,297
$
4,836
(24)
14,527
19,339
$
1,406
-
14,547
15,953
Deferred:
U.S. federal …………………...…………………………………….
State and local ……………...……………………………………….
Foreign ………………………………………………………………
Total deferred provision (benefit) for income taxes ………………
148
143
(4,246)
(3,955)
(15,160)
(314)
(1,668)
(17,142)
11,791
158
(1,784)
10,165
Total provision for income taxes …………………………………
$
11,342
$
2,197
$
26,118
The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as
follows (in thousands):
2011
$
Years Ended December 31,
2010
$
2009
$
Accrued expenses/liabilities …………………………………………
Net operating loss and tax credit carryforwards ……………………
Depreciation and amortization ………………………………………
Deferred revenue ……………………………………………………
Deferred statutory income ……………………………………………
Valuation allowance …………………………………………………
Other …………………………………………………………………
Total deferred provision (benefit) for income taxes ………………
(31,111)
47,849
(2,083)
-
(839)
(17,779)
8
(3,955)
$
$
$
The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s
effective income tax provision is as follows (in thousands):
2011
$
Years Ended December 31,
2010
$
2009
$
Tax at U.S. federal statutory tax 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 …………………………………
Change of assertion related to foreign earnings distribution…………
Tax credits ……………………………………………………………
Total provision for income taxes …………………………………
22,280
143
(7,532)
610
(5,765)
(2,748)
915
4,546
(255)
(852)
11,342
$
$
$
The Company changed its intent to distribute current earnings from various foreign operations to their foreign
parents to take advantage of the December 2011 extension of tax provisions of Internal Revenue Code 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 distributions are not taxable in the United States, related withholding
taxes of $2.7 million are included in the provision for income taxes in the Consolidated Statement of Operations for
2011.
98
(25,358)
7,158
(3,433)
(580)
-
5,028
43
(17,142)
9,909
(333)
(6,798)
3,328
(3,875)
(3,830)
985
3,207
(1,865)
1,469
2,197
14,831
2,989
(863)
(722)
474
(6,608)
64
10,165
24,775
158
(13,841)
(4,473)
(7,499)
594
6,529
4,048
16,281
(454)
26,118
In addition, the Company changed its intent to distribute all of the current year and future years’ earnings of a non-
U.S. subsidiary to its foreign parent. Withholding taxes of $0.9 million related to this distribution are included in the
provision for income taxes in the Consolidated Statement of Operations for 2011.
In connection with the Company’s borrowing of a $75 million Term Loan on February 2, 2010, related to the ICT
acquisition, the Company was deemed to have changed its intent regarding the permanent reinvestment of $85.0
million of foreign subsidiaries’ accumulated and undistributed earnings. Accordingly, a net deferred tax provision of
$14.7 million was recorded in 2009. Of the $85.0 million change of intent, $50.0 million was distributed in 2010 and
the remaining $35.0 million was distributed in 2011 and the related deferred tax liability was realized.
Except as previously mentioned, a provision for income taxes has not been made for the undistributed earnings of
foreign subsidiaries of approximately $333.1 million at December 31, 2011, 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 has been granted tax holidays in The Philippines, Costa Rica, El Salvador and India. The tax holidays
have various expiration dates ranging from 2012 through 2023. 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 future adverse tax
consequences. The Company’s tax holidays decreased the provision for income taxes by $7.5 million ($0.17 per
diluted share), $6.8 million ($0.15 per diluted share) and $13.8 million ($0.34 per diluted share) for the years ended
December 31, 2011, 2010 and 2009, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for income taxes. The temporary differences that
give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):
Deferred tax assets:
December 31,
2011
2010
Accrued expenses ……………………………………………………
Net operating loss and tax credit carryforwards ……………………
Depreciation and amortization ………………………………………
Deferred revenue ……………………………………………………
Valuation allowance ………………...………………………………
Other …………………………………………………………………
$
Deferred tax liabilities:
Accrued liabilities ……………………………………………………
Depreciation and amortization ………………………………………
Deferred statutory income ……………………………………………
Other …………………………………………………………………
Net deferred tax assets …………………………………………..
$
21,313
50,525
2,111
5,017
(38,544)
6
40,428
(643)
(14,983)
(1,984)
(25)
(17,635)
22,793
$
22,707
83,914
3,346
4,161
(60,091)
-
54,037
(16,691)
(18,221)
(836)
(24)
(35,772)
18,265
$
Classified as follows:
December 31,
2011
2010
Other current assets (Note 10) ………………………………………
Deferred charges and other assets (Note 15)…………………………
Current deferred income tax liabilities ………………………………
Other long-term liabilities ………………………………………..
$
$
8,044
20,389
(663)
(4,977)
22,793
7,951
19,564
(3,347)
(5,903)
18,265
Net deferred tax assets …………………………………………
$
$
In 2011, the Company’s valuation allowance decreased by $21.5 million, primarily related to the write-off of tax
benefits resulting from the closure of the United Kingdom operations under the Fourth Quarter 2010 Exit Plan, the
liquidation of inactive subsidiaries and the reclassification of Spain as held for sale in the accompanying
99
Consolidated Balance Sheet as of December 31, 2011.
There are approximately $298.9 million of income tax loss carryforwards as of December 31, 2011 with varying
expiration dates, approximately $132.9 million relating to foreign operations and $166.0 million relating to U.S.
state operations. For U.S. federal purposes, $14.9 million of tax credits are available for carryforward as of
December 31, 2011, with the latest expiration date ending December 31, 2032. Regarding the U.S. state operations,
no benefit has been recognized for the $166.0 million as it is more likely than not that these losses will expire
without realization of tax benefits. With respect to foreign operations, $106.6 million of the net operating loss
carryforwards have an indefinite expiration date and the remaining $26.3 million net operating loss carryforwards
have varying expiration dates through December 2020.
As of December 31, 2011, the Company had $17.1 million of unrecognized tax benefits, a net decrease of $3.9
million from $21.0 million as of December 31, 2010. This decrease results primarily from the expiration of statutes
of limitations on certain foreign subsidiaries and the resolution of a tax audit in the current year. Had the Company
recognized these tax benefits, approximately $17.1 million and $21.0 million and the related interest and penalties
would favorably impact the effective tax rate in 2011 and 2010, respectively. 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 $0.6
million due to expiration of statutes of limitations, 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 $10.2 million and $10.2 million accrued for interest and penalties as of December 31, 2011
and 2010, respectively. Of the accrued interest and penalties at December 31, 2011 and 2010, $3.8 million and $4.1
million, respectively, relate to statutory penalties. The amount of interest and penalties, net, recognized in the
accompanying Consolidated Statement of Operations for 2010 and 2009 was $(0.4) million and $0.2 million,
respectively (none in 2011).
The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):
2011
$
Years Ended December 31,
2010
$
3,810
2009
$
3,358
Gross unrecognized tax benefits as of January 1, …………………
Prior period tax position increases (decreases) (1) ……………………
Decreases from settlements with tax authorities ……………………
Decreases due to lapse in applicable statute of limitations …………
Foreign currency translation increases (decreases) …………………
Gross unrecognized tax benefits as of December 31, ...……………
$
21,036
-
(3,076)
(346)
(478)
17,136
19,287
(1,283)
(2,104)
1,326
21,036
$
458
-
(120)
114
3,810
$
(1)
Includes amounts assumed upon acquisition of ICT on February 2, 2010.
The Company is currently under audit in several tax jurisdictions. However, the only significant jurisdictions
currently under audit are Canada and The Philippines. The Company is under audit in Canada for tax years 2003
through 2009. In The Philippines, the Company is being audited for tax years 2007 through 2010. Although the
outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved
for these audits and that resolutions of them are not expected to have a material impact on its financial condition and
results of operations.
The Company and its subsidiaries file federal, state and local income tax returns as required in the U.S. and in
various foreign tax jurisdictions. The following table presents the major tax jurisdictions and tax years that are open
and subject to examination by the respective tax authorities as of December 31, 2011:
Tax Jurisdiction
Canada ……………………………………………………………...…
Philippines ……………………………………………………………
United States …………………………………………………………
Tax Year Ended
2003 to present
2007 to present
1997 to 1999 (1), 2002-2007 (1) and 2008 to present
(1)
These tax years are open to the extent of the net operating loss carryforward amount.
100
Note 23. Earnings Per Share
Basic earnings per share are based on the weighted average number of common shares outstanding during the
periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the
respective periods and the further dilutive effect, if any, from stock options, stock appreciation rights, restricted
stock, restricted stock units, common stock units and shares held in a rabbi trusts using the treasury stock method.
The numbers of shares used in the earnings per share computation are as follows (in thousands):
Years Ended December 31,
2010
2009
2011
Basic:
Weighted average common shares outstanding …………… 45,506
46,030
40,707
Diluted:
Dilutive effect of stock options, stock appreciation
rights, restricted stock, restricted stock units, common
stock units and shares held in a rabbi trust ……………
101
Total weighted average diluted shares outstanding …………… 45,607
103
46,133
319
41,026
Anti-dilutive shares excluded from the diluted earnings per
share calculation ……………..………………………………
315
153
79
On August 18, 2011, the Company’s Board authorized the Company to purchase up to 5.0 million shares of its
outstanding common stock (the “2011 Share Repurchase Program”). A total of 2.5 million shares have been
repurchased under the 2011 Share Repurchase Program since inception. The shares are purchased, from time to
time, through open market purchases or in negotiated private transactions, and the purchases are based on factors,
including but not limited to, the stock price and general market conditions. The 2011 Share Repurchase Program has
no expiration date. The Company’s Board previously authorized the Company on August 5, 2002 to purchase up to
3.0 million shares of its outstanding common stock, of which all available shares have been repurchased.
The shares repurchased during the years ended December 31, 2011, 2010 and 2009 were as follows (in thousands,
except per share amounts):
For the Years Ended
Total Number
of S hares
Repurchased
Range of Prices Paid Per S hare
Low
High
Total Cost of
S hares
Repurchased
December 31, 2011 ………
3,292
$
12.46
$
18.53
$
49,993
December 31, 2010 ………
December 31, 2009 ………
300
200
$
16.92
$
17.60
$
5,212
$
13.72
$
14.75
$
3,193
Note 24. Commitments and Loss Contingency
Lease and Purchase Commitments
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 was as follows (in thousands):
Rental expense ……………………………………………
2011
$
43,147
Years Ended December 31,
2010
$
50,846
2009
$
21,810
101
The following is a schedule of future minimum rental payments required under operating leases that have
noncancelable lease terms as of December 31, 2011 (in thousands):
Amount
2012 ………………………………………………………
2013 ………………………………………………………
2014 ………………………………………………………
2015 ………………………………………………………
2016 ………………………………………………………
2017 and thereafter ………………………………………
Total minimum payments required ……………………
$
25,338
8,209
4,669
3,837
3,548
8,654
54,255
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, 2011
(in thousands):
Amount
$
2012 ………………………………………………………
2013 ………………………………………………………
2014 ………………………………………………………
2015 ………………………………………………………
2016 ………………………………………………………
2017 and thereafter ………………………………………
Total minimum payments required ……………………
$
15,450
7,847
362
-
-
-
23,659
Indemnities, Commitments and Guarantees
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 certain events or
occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The
indemnification period covers all pertinent events and occurrences during the officer’s or director’s 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 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.
Loss Contingency
The Company has previously disclosed pending matters involving regulatory sanctions assessed against the
102
Company’s Spanish subsidiary, which is classified as discontinued operations. All of these matters relate to the
alleged inappropriate acquisition of personal information in connection with two outbound client contracts. Based
upon the opinion of legal counsel regarding the likely outcome of these matters, the Company accrued a $1.3 million
liability under ASC 450 “Contingencies” because management believed that a loss was probable and the amount of
the loss could be reasonably estimated. Due to the favorable rulings by the Spanish Supreme Court, the Company
reversed $0.4 million and $0.5 million of the accrued liability during the years ended December 31, 2011 and 2010,
respectively. The remaining accrued liability of $0.4 million is included in “Liabilities held for sale – discontinued
operations” in the accompanying Consolidated Balance Sheet at December 31, 2011. As of December 31, 2010, the
accrued liability of $0.8 million was included in “Other accrued expenses and current liabilities” in the
accompanying Consolidated Balance Sheet. The final claim was finally decided against the Company on procedural
grounds, but subsequent to year end, the assessed fine associated with that claim was settled at no cost to the
Company.
In connection with the appeal of one of these claims, the Company issued a bank guarantee, which is included as
restricted cash of $0.4 million in “Deferred charges and other assets” in the accompanying Consolidated Balance
Sheets as of December 31, 2010. Due to the favorable ruling by the Spanish Supreme Court mentioned above, the
Company released the bank guarantee during the three months ended December 31, 2011.
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 when possible and
appropriate, provided adequate accruals related to those matters such that the ultimate outcome will not have a
material adverse effect on the Company’s financial position or results of operations.
Note 25. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The Company sponsors two non-contributory defined benefit pension plans (the “Pension Plans”) for its covered
employees in The Philippines. The Pension Plans provide 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 Plans.
As of December 31, 2011, the Pension Plans were unfunded. The Company expects to make cash contributions to its
Pension Plans during 2012 of less than $0.1 million.
The following tables provide a reconciliation of the change in the benefit obligation for the Pension Plans and the
net amount recognized, included in “Other long-term liabilities”, in the accompanying Consolidated Balance Sheets
(in thousands):
2011
$
December 31,
2010
$
Beginning benefit obligation ……………………………
Service cost ………………………………………………
Interest cost ………………………………………………
Actuarial gains …………………………………………
Benefit obligation assumed with acquisition of ICT……
Effect of foreign currency translation ……………………
Ending benefit obligation …………………………
1,345
237
102
184
-
(8)
1,860
$
$
731
272
90
31
174
47
1,345
Unfunded status …………………………………………
Net amount recognized ……………………………
$
(1,860)
(1,860)
(1,345)
(1,345)
$
Weighted average actuarial assumptions used to determine the benefit obligations and net periodic benefit cost for
the Pension Plans were as follows:
Discount rate ……………………………………………
Rate of compensation increase …………………………
6.3%
3.2%
8.3%
3.2%
9.1%
7.0%
Years Ended December 31,
2010
2011
2009
103
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 Plans (in thousands):
Years Ended December 31,
2011
2010
2009
Service cost …………………………………………………
$
237
$
272
$
63
Interest cost …………………………………………………
Recognized actuarial (gains) ………………………………
Net periodic benefit cost ……………………………………
Unrealized net actuarial (gains), net of tax …………………
Total amount recognized in net periodic benefit cost
and other accumulated comprehensive income (loss) ……
102
(55)
284
(985)
90
(51)
311
36
(61)
38
(1,189)
(1,207)
$
(701)
$
(878)
$
(1,169)
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):
Years Ending December 31,
2012 …………………………………………………
2013 …………………………………………………
2014 …………………………………………………
2015 …………………………………………………
2016 …………………………………………………
2017 - 2021 …………………………………………
Amount
$
20
7
9
40
159
1,170
The Company expects to recognize less than $0.1 million of net actuarial gains as a component of net periodic
benefit cost in 2012.
Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements.
Under the plan provisions, the Company matches 50% of participant contributions to a maximum matching amount
of 2% of participant compensation. The Company’s contributions included in the accompanying Consolidated
Statement of Operations were as follows (in thousands):
401(k) plan contributions ………………………
$
953
$
757
$
998
Years Ended December 31,
2010
2009
2011
In connection with the acquisition of ICT in February 2010, the Company assumed ICT's profit sharing plan
(Section 401(k)). Under this profit sharing plan, the Company matches 50% of employee contributions for all
qualified employees, as defined, up to a maximum of 6% of the employee's compensation; however, it may also
make additional contributions to the plan based upon profit levels and other factors. No contributions were made
during the years ended December 31, 2011, 2010 and 2009, respectively. Employees are fully vested in their
contributions, while full vesting in the Company's contributions occurs upon death, disability, retirement or
completion of five years of service.
104
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and
Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral
interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation
included in “Other long-term liabilities” and the unrealized gain included in “Accumulated other comprehensive
income” in the accompanying Consolidated Balance Sheets were as follows (in thousands):
Postretirement benefit obligation ………………
Unrealized gain in AOCI (1) ……………………
(1)
Unrealized gain is due to changes in discount rates related to the postretirement
obligation.
December 31,
2011
2010
$
114
$
186
459
346
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 26. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the 2004 Non-Employee
Director Fee Plan and the Deferred Compensation Plan.
The following table summarizes the stock-based compensation expense (primarily in the Americas), income tax
benefits related to the stock-based compensation and excess tax benefits (provision) (in thousands):
Years Ended December 31,
2011
2010
2009
Stock-based compensation expense (1) ……………………………………
Income tax (benefit) (2) ……………………………………………………
Excess tax (benefit) provision from the exercise of stock options (3) ………
$
3,582
$
4,935
$
5,158
(1,397)
8
(1,925)
(354)
(2,012)
(878)
(1)
(2)
(3)
Included in "General and administrative" costs in the accompanying Consolidated Statements of Operations.
Included in "Income taxes" in the accompanying Consolidated Statements of Operations.
Included in "Additional paid-in capital" in the accompanying Consolidated Statements of Changes in Shareholder's Equity.
There were no capitalized stock-based compensation costs at December 31, 2011, 2010 and 2009.
2011 Equity Incentive Plan — The Board adopted the Sykes Enterprises, Incorporated 2011 Equity Incentive Plan
(the "2011 Plan”) on March 23, 2011. The Board subsequently amended the 2011 Plan on May 11, 2011 to reduce
the number of shares of common stock available under the 2011 Plan from 5.7 million shares to 4.0 million shares.
The 2011 Plan was approved by the shareholders at the May 2011 Annual Meeting. The 2011 Plan replaced and
superseded the Company’s 2001 Equity Incentive Plan (the “2001 Plan”), which expired on March 14, 2011. The
outstanding awards granted under the 2001 Plan will remain in effect until their exercise, expiration, or termination.
The 2011 Plan permits the grant of stock options, stock appreciation rights and other stock-based awards to certain
employees of the Company, and certain non-employees who provide services to the Company in order to encourage
them to remain in the employment of or to faithfully provide services to the Company and to increase their interest
in the Company’s success.
Stock 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 volatility is based on historical volatility of the Company’s stock. The risk-free rate
105
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.
The following table summarizes stock option activity as of December 31, 2011 and for the year then ended:
S tock Options
S hares (000s)
Outstanding at January 1, 2011………………………………………..……
Granted ……………………………………………………………………
43
-
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (000s)
Weighted
Average
Exercise Price
$
8.54
$
-
Exercised …………………………………………………………………..
(33)
$
9.33
Forfeited or expired ……………………………………………………….
Outstanding at December 31, 2011 ……………………………………
Vested or expected to vest at December 31, 2011 ………………………
Exercisable at December 31, 2011 ………………………………..……
-
10
10
10
$
-
$
5.89
$
5.89
$
5.89
1.6
1.6
1.6
$
98
$
98
$
98
No stock options were granted during the years ended December 31, 2011, 2010 and 2009.
The following table summarizes information regarding the exercise of stock options (in thousands):
Years Ended December 31,
2011
2010
2009
Number of stock options exercised …………………………………………
33
3
259
Intrinsic value of stock options exercised …………………………………
$
165
$
33
$
2,609
Cash received upon exercise of stock options ……………………………
$
311
$
11
$
3,327
All options were fully vested as of December 31, 2006 and there is no unrecognized compensation cost as of
December 31, 2011 related to the options (the effect of estimated forfeitures is not material).
Stock Appreciation Rights – The Company’s Board of Directors, at the recommendation of the Compensation and
Human Resource Development Committee (the “Committee”), approves awards of stock-settled stock appreciation
rights (“SARs”) 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.
The SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest
one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the
Company on such date. The SARs have a term of 10 years from the date of grant. 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
participant’s employment with the Company, if and to the extent the SARs were exercisable immediately prior to
such termination. If the participant’s employment is 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 the historical volatility of the Company’s stock. The risk-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
106
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.
The following table summarizes the assumptions used to estimate the fair value of SARs granted:
Years Ended December 31,
2011
2010
2009
Expected volatility …………………………………………………………
Weighted average volatility ……………………………..………………..
Expected dividend rate ……………………………………………………
Expected term (in years) ……………..……………………………………
Risk-free rate ……………..………..……………………………………..
44.3%
44.3%
0.0%
4.6
2.0%
45.2%
45.2%
0.0%
4.4
2.4%
46.8%
46.8%
0.0%
4.0
1.3%
The following table summarizes SARs activity as of December 31, 2011 and for the year then ended:
S tock Appreciation Rights
S hares (000s)
Outstanding at January 1, 2011………………………………………..……
Granted ……………………………………..………………….…………
Exercised …………………………...………………………………………
Forfeited or expired ……………………………………………………….
Outstanding at December 31, 2011 ……………………………………
Vested or expected to vest at December 31, 2011 ………………………
Exercisable at December 31, 2011 ………………………………….……
442
215
-
-
657
657
296
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (000s)
7.6
7.6
6.4
$
29
$
29
$
29
Weighted
Average
Exercise Price
$
-
$
-
$
-
$
-
$
-
$
-
$
-
The following table summarizes the weighted average grant-date fair value of the SARs granted and the total
intrinsic value of the SARs exercised (in thousands, except per SAR amounts):
Years Ended December 31,
2011
2010
2009
Weighted average grant-date fair value per SAR ……………………………
$
7.10
$
10.21
$
7.42
Intrinsic value of SARs exercised …………………………………………
$
-
$
591
$
1,108
The following table summarizes the status of nonvested SARs as of December 31, 2011 and for the year then ended:
Nonvested S tock Appreciation Rights
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2011 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
293
215
$
8.63
$
7.10
Vested ……………………………………………………………..…………………………
(146)
$
8.18
Forfeited or expired ……………………………………………..…………………………
-
$
-
Nonvested at December 31, 2011 ………………………………………………...…………
362
$
7.90
As of December 31, 2011, there was $1.7 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested SARs granted under the Plan. This cost is expected to be recognized over a
weighted average period of 1.7 years. SARs that vested during 2010 had a fair value of $0.6 million as of the vesting
date (no fair value related to the vested shares in 2011 and 2009).
107
Restricted Shares – The Company’s Board of Directors, at the recommendation of the Committee, approves awards
of performance and employment-based restricted shares (“Restricted Shares”) for eligible participants. In some
instances, where the issuance of Restricted Shares has adverse tax consequences to the recipient, the Board will
instead issue restricted stock units (“RSUs”). The Restricted Shares are shares of the Company’s common stock (or
in the case of RSUs, represent an equivalent number of shares of the Company’s common stock) which are issued to
the participant subject to (a) restrictions on transfer for a period of time and (b) forfeiture under certain conditions.
The performance goals, including revenue growth and income from operations targets, provide a range of vesting
possibilities from 0% to 100% and will be measured at the end of the performance period. If the performance
conditions are met for the performance period, the shares will vest and all restrictions on the transfer of the
Restricted Shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common
stock will be issued to the recipient). The Company recognizes compensation cost, net of estimated forfeitures based
on the fair value (which approximates the current market price) of the Restricted Shares (and RSUs) on the date of
grant ratably over the requisite service period based on the probability of achieving the performance goals.
Changes in the probability of achieving the performance goals from period to period will result in corresponding
changes in compensation expense. The employment-based restricted shares vest one-third on each of the first three
anniversaries of the date of grant, provided the participant is employed by the Company on such date. 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.
If the participant’s employment with the Company is terminated for 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 following table summarizes the status of nonvested Restricted Shares/RSUs as of December 31, 2011 and for
the year then ended:
Nonvested Restricted S hares / RS Us
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2011 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
653
339
$
20.30
$
18.68
Vested ……………………………………………………………..…………………………
(199)
$
18.02
Forfeited or expired ……………………………………………..…………………………
-
$
-
Nonvested at December 31, 2011 ………………………………………………...…………
793
$
20.39
The following table summarizes the weighted average grant-date fair value of the Restricted Shares/RSUs granted
and the total fair value of the Restricted Shares/RSUs that vested (in thousands, except per Restricted Share/RSU
amounts):
Weighted average grant-date fair value per Restricted Share/RSU …………
$
18.68
$
23.88
$
19.69
Fair value of Restricted Stock/RSUs vested ………………………………
$
4,392
$
4,765
$
3,634
Years Ended December 31,
2011
2010
2009
As of December 31, 2011, based on the probability of achieving the performance goals, there was $12.7 million of
total unrecognized compensation cost, net of estimated forfeitures, related to nonvested Restricted Shares/RSUs
granted under the Plan. This cost is expected to be recognized over a weighted average period of 1.6 years.
2004 Non-Employee Director Fee Plan — The Company’s 2004 Non-Employee Director Fee Plan (the “2004 Fee
Plan”) provides that all new non-employee directors joining the Board will receive an initial grant of shares of
common stock on the date the new director is elected or appointed, the number of which will be determined by
108
dividing $60,000 by the closing price of the Company’s common stock on the trading day immediately preceding
the date a new director is elected or appointed, rounded to the nearest whole number of shares. The initial grant of
shares vests in twelve equal quarterly installments, one-twelfth on the date of grant and an additional one-twelfth on
each successive third monthly anniversary of the date of grant. The award lapses with respect to all unvested shares
in the event the non-employee director ceases to be a director of the Company, and any unvested shares are
forfeited.
The 2004 Fee Plan also provides that each non-employee director will receive, on the day after the annual
shareholders meeting, an annual retainer for service as a non-employee director (the “Annual Retainer”). The
Annual Retainer consists of shares of the Company’s common stock and cash. Prior to May 20, 2011, the total
value of the Annual Retainer was $77,500, payable $32,500 in cash and the remainder paid in stock, the amount of
which was determined by dividing $45,000 by the closing price of the Company’s common stock on the date of the
annual meeting of shareholders, rounded to the nearest whole number of shares. On May 20, 2011, upon the
recommendation of the Compensation and Human Resource Development Committee, the Board adopted the Fourth
Amended and Restated 2004 Non-Employee Director Fee Plan, which increased the cash component of the Annual
Retainer by $17,500, resulting in a total Annual Retainer of $95,000, of which $50,000 is payable in cash, and the
remainder paid in stock. The method of calculating the number of shares constituting the equity portion of the
Annual Retainer remained unchanged.
In addition to the Annual Retainer award, the 2004 Fee Plan also provides for any non-employee Chairman of the
Board to receive an additional annual cash award of $100,000, and each non-employee director serving on a
committee of the Board to receive an additional annual cash award. The additional annual cash award for the
Chairperson of the Audit Committee is $20,000 and Audit Committee members’ are entitled to an annual cash
award of $10,000. Prior to May 20, 2011, the annual cash awards for the Chairpersons of the Compensation and
Human Resource Development Committee, Finance Committee and Nominating and Corporate Governance
Committee were $12,500 and the members of such committees were entitled to an annual cash award of $7,500. On
May 20, 2011, the Board increased the additional annual cash award to the Chairperson of the Compensation and
Human Resource Development Committee to $15,000. All other additional cash awards remained unchanged.
The annual grant of cash, including all amounts paid to a non-employee Chairman of the Board and all amounts paid
to non-employee directors serving on committees of the Board, vests in four equal quarterly installments, one-fourth
on the day following the annual meeting of shareholders, and an additional one-fourth on each successive third
monthly anniversary of the date of grant. The annual grant of shares paid to non-employee directors vests in eight
equal quarterly installments, one-eighth on the day following the annual meeting of shareholders, and an additional
one-eighth on each successive third monthly anniversary of the date of grant. The award lapses with respect to all
unpaid cash and unvested shares in the event the non-employee director ceases to be a director of the company, and
any unvested shares and unpaid cash are forfeited.
The Board may pay additional cash compensation to any non-employee director for services on behalf of the Board
over and above those typically expected of directors, including but not limited to service on a special committee of
the Board.
Prior to 2008, the grants were comprised of CSUs rather than shares of common stock. A CSU is a bookkeeping
entry on the Company’s books that records the equivalent of one share of common stock.
The following table summarizes the status of the nonvested CSUs and share awards as of December 31, 2011 and
for the year then ended:
Nonvested Common S tock Units / S hare Awards
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2011 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
18
21
$
18.67
$
21.83
Vested ……………………………………………………………..…………………………
(23)
$
19.47
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2011 ………………………………………………...…………
-
16
$
-
$
21.08
109
The following table summarizes the weighted average grant-date fair value of the CSUs and share awards granted
and the total fair value of the CSUs and share awards that vested during the years ended December 31, 2011, 2010
and 2009 (in thousands, except per CSU/share award amounts):
Weighted average grant-date fair value per Common Stock Unit/Share ……
Fair value of Common Stock Units/Shares vested …………………………
2011
$
$
21.83
407
Years Ended December 31,
2010
$
$
19.11
458
2009
$
$
16.76
326
As of December 31, 2011, there was $0.3 million of total unrecognized compensation costs, net of estimated
forfeitures, related to nonvested CSUs granted since March 2008 under the Plan. This cost is expected to be
recognized over a weighted average period of 1.0 years.
Deferred Compensation Plan — The Company’s non-qualified Deferred Compensation Plan (the “Deferred
Compensation Plan”), which 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
ability to defer any portion of their compensation until the participant’s retirement, termination, disability or death,
or a change in control of the Company. Using the Company’s common stock, the Company matches 50% of the
amounts deferred by certain senior management participants on a quarterly basis up to a total of $12,000 per year for
the president and senior vice presidents and $7,500 per year for vice presidents (participants below the level of vice
president are not eligible to receive matching contributions from the Company). Matching contributions and the
associated earnings vest over a seven year service period. Deferred compensation amounts used to pay benefits,
which are held in a rabbi trust, include investments in various mutual funds and shares of the Company’s common
stock (See Note 13, Investments Held in Rabbi Trusts.) As of December 31, 2011 and 2010, liabilities of $4.2
million and $3.4 million, respectively, of the Deferred Compensation Plan were recorded in “Accrued employee
compensation and benefits” in the accompanying Consolidated Balance Sheets.
Additionally, the Company’s common stock match associated with the Deferred Compensation Plan, with a carrying
value of approximately $1.2 million and $1.0 million at December 31, 2011 and 2010, respectively, is included in
“Treasury stock” in the accompanying Consolidated Balance Sheets.
The following table summarizes the status of the nonvested common stock issued as of December 31, 2011 and for
the year then ended:
Nonvested Common S tock
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2011 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
8
11
$
18.00
$
18.93
Vested ……………………………………………………………..…………………………
(11)
$
18.36
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2011 ………………………………………………...…………
-
8
$
-
$
18.30
The following table summarizes the weighted average grant-date fair value of the common stock awarded, the total
fair value of the common stock that vested and the cash used to settle the Company’s obligation under the Deferred
Compensation Plan (in thousands, except per common stock amounts):
Weighted average grant-date fair value per common stock …………………
Fair value of common stock vested …………………………………………
Cash used to settle the obligation …………………………………………
2011
$
18.93
$
169
$
2
Years Ended December 31,
2010
$
$
$
18.91
185
32
2009
17.77
$
$
227
$
-
As of December 31, 2011, there was $0.1 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected
to be recognized over a weighted average period of 3.8 years.
110
Note 27. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment
comprised of aggregated regional operating segments, which portray similar economic characteristics. The
Company aligns its business into two segments to effectively manage the business and support the customer care
needs of every client and to respond to the demands of the Company’s global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America,
Australia and the Asia Pacific Rim, and provides outsourced customer contact management solutions (with an
emphasis on technical support and customer service) and technical staffing and (2) EMEA, which includes Europe,
the Middle East and Africa, and provides outsourced customer contact management solutions (with an emphasis on
technical support and customer service) and fulfillment services. The sites within Latin America, India and the Asia
Pacific Rim are included in the Americas segment given the nature of the business and client profile, which is
primarily made up of U.S.-based companies that are using the Company’s services in these locations to support their
customer contact management needs.
111
Information about the Company’s reportable segments for the years ended December 31, 2011, 2010 and 2009 is as
follows (in thousands):
Americas
EMEA
Other (1)
Consolidated
Year Ended December 31, 2011:
Revenues (2) …………………………………………………………
Percentage of revenues ………………………………………………
$
963,142
82.4%
Depreciation and amortization (2) ……………………………………
$
47,747
$
206,125
17.6%
$
1,169,267
100.0%
$
5,052
$
52,799
Income (loss) from continuing operations …………………………
Other (expense), net …………………………………………………
Income taxes …………………………………………………………
Income from continuing operations, net of taxes ……………………
Income (loss) from discontinued operations, net of taxes (3) ………
Net income …………………………………………………………
$
115,727
$
559
$
(3,746)
$
(46,446)
(1,879)
(11,342)
$
(4,532)
$
65,535
(1,879)
(11,342)
52,314
(3,973)
48,341
$
Total assets as of December 31, 2011 ………………………….
$
1,112,252
$
1,131,719
$
(1,474,841)
$
769,130
Year Ended December 31, 2010:
Revenues (2) …………………………………………………………
Percentage of revenues ………………………………………………
$
934,329
83.3%
Depreciation and amortization (2) ……………………………………
$
49,910
$
187,582
16.7%
$
1,121,911
100.0%
$
4,728
$
54,638
Income (loss) from continuing operations …………………………
Other (expense), net …………………………………………………
Income taxes …………………………………………………………
Income from continuing operations, net of taxes ……………………
(Loss) from discontinued operations, net of tax (3) …………………
Net (loss) ……………………………………………………………
$
108,167
$
(6,476)
$
(5,548)
$
(64,638)
(9,669)
(2,197)
$
(6,417)
(23,495)
$
37,981
(9,669)
(2,197)
26,115
(36,388)
(10,273)
$
Total assets as of December 31, 2010 ………………………….
$
1,357,709
$
1,112,392
$
(1,675,501)
$
794,600
Year Ended December 31, 2009:
Revenues (2) …………………………………………………………
Percentage of revenues ………………………………………………
$
565,022
73.4%
Depreciation and amortization (2) ……………………………………
$
20,290
$
204,331
26.6%
$
769,353
100.0%
$
4,427
$
24,717
Income (loss) from continuing operations …………………………
Other (expense), net …………………………………………………
Income taxes …………………………………………………………
Income from continuing operations, net of taxes ……………………
Income (loss) from discontinued operations, net of taxes …………
Net income …………………………………………………………
$
101,388
$
13,285
$
(43,501)
(387)
(26,118)
$
$
(2,931)
$
1,475
71,172
(387)
(26,118)
44,667
(1,456)
43,211
$
Total assets as of December 31, 2009 ………………………….
$
711,253
$
842,608
$
(881,390)
$
672,471
(1)
Other items (including corporate costs, provision for regulatory penalties, impairment costs, other income and expense, and income taxes)
are shown for purposes of reconciling to the Company’s consolidated totals as shown in the table above for the three years in the period
ended December 31, 2011. T he accounting policies of the reportable segments are the same as those described in Note 1 to the
accompanying Consolidated Financial Statements.
Inter-segment revenues are not material to the Americas and EMEA segment results.
T he Company evaluates the performance of its geographic segments based on revenue and income (loss) from operations, and does not
include segment assets or other income and expense items for management reporting purposes.
(2)
(3)
Revenues and depreciation and amortization include results from continuing operations only.
Includes the income (loss) from discontinued operations, net of taxes, as well as the gain (loss) on sale of discontinued operations, net of
taxes.
112
Revenues by segment from AT&T Corporation, a major provider of communication services for which the
Company provides various customer support services, were as follows (in thousands):
2011
Years Ended December 31,
2010
2009
Amount
Percentage
Amount
Percentage
Amount
Percentage
Americas………………
EM EA………………
$
129,331
3,343
132,674
$
11.1%
0.2%
11.3%
$
$
147,673
6,457
154,130
13.2%
0.5%
13.7%
$
$
102,123
9,206
111,329
13.3%
1.2%
14.5%
The Company’s top ten clients accounted for approximately 45% of its consolidated revenues in 2011, an increase
from 42% in 2010. The loss of (or the failure to retain a significant amount of business with) any of the Company’s
key clients could have a material adverse effect on its performance. Many of the Company’s 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 the Company’s services under its contracts without penalty.
Information about the Company’s operations by geographic location is as follows (in thousands):
Revenues: (1)
Years Ended December 31,
2010
2011
2009
$
$
$
139,023
12,436
101,064
77,528
30,770
182,095
-
-
22,106
565,022
73,250
49,872
27,905
21,284
9,653
-
22,367
204,331
769,353
United States ………………………………………………
Argentina (2) …………………………………………………
Canada ………………………………………………………
Costa Rica …………………………………………………
El Salvador …………………………………………………
Philippines …………………………………………………
Australia ……………………………………………………
M exico ………………………………………………………
Other ………………………………………………………
Total Americas …………………………………………
Germany ……………………………………………………
United Kingdom ……………………………………………
Sweden ………………………………………………………
Netherlands …………………………………………………
Hungary ……………………………………………………
Romania ……………………………………………………
Other ………………………………………………………
Total EM EA ……………………………………………
299,606
-
203,313
94,133
43,016
244,936
25,892
23,133
29,113
963,142
76,362
41,476
30,072
14,268
6,695
9,038
28,214
206,125
1,169,267
293,179
7,670
195,301
89,830
35,366
249,010
18,639
20,514
24,820
934,329
65,145
46,847
27,311
14,026
8,186
3,743
22,324
187,582
1,121,911
$
$
$
(1)
(2)
Revenues are attributed to countries based on location of customer, except for revenues for Costa Rica,
Philippines, China and India which are primarily comprised of customers located in the U.S., but serviced by
centers in those respective geographic locations.
Revenues attributable to Argentina relate to clients retained by the Company subsequent to the sale of the
Argentine operations, which were fully migrated to other countries during 2011.
113
Long-Lived Assets: (1)
December 31,
2011
2010
$
$
United States ………………………………………………
Canada ………………………………………………………
Costa Rica …………………………………………………
El Salvador …………………………………………………
Philippines …………………………………………………
Australia ……………………………………………………
M exico ………………………………………………………
Other ………………………………………………………
Total Americas …………………………………………
Germany ……………………………………………………
United Kingdom ……………………………………………
Sweden ………………………………………………………
Spain ………………………………………………………
Netherlands …………………………………………………
Hungary ……………………………………………………
Romania ……………………………………………………
Other ………………………………………………………
Total EM EA ……………………………………………
70,768
22,943
6,664
3,416
12,348
2,378
2,317
3,512
124,346
2,362
4,969
810
-
95
214
1,056
1,700
11,206
135,552
84,285
26,748
7,063
3,823
21,870
2,304
2,566
3,182
151,841
2,975
5,211
854
1,183
217
415
1,340
2,419
14,614
166,455
$
$
(1)
Long-lived assets include property and equipment, net, and intangibles, net.
Goodwill:
December 31,
2011
2010
Americas …………………………………………………
EM EA ……………………………………………………
$
121,342
-
121,342
$
122,303
-
122,303
$
$
Revenues for the Company’s products and services are as follows (in thousands):
Outsourced customer contract management services ………
Fulfillment services …………………………………………
Enterprise support services …………………………………
$
$
Years Ended December 31,
2010
1,096,869
16,934
8,108
1,121,911
$
2011
1,145,002
16,717
7,548
1,169,267
2009
$
742,841
17,376
9,136
769,353
$
$
Note 28. Other (Expense)
Gains and losses resulting from foreign currency transactions are recorded in “Other (expense)” in the
accompanying Consolidated Statements of Operations during the period in which they occur. Other (expense)
consists of the following (in thousands):
Other (expense):
Years Ended December 31,
2010
2009
2011
Foreign currency transaction gains (losses) ………………………………………………
(Losses) on foreign currency derivative instruments not designated as hedges …………
Other miscellaneous income ……………...……………………………………………..
$
$
$
(749)
(1,444)
94
(2,099)
(2,108)
(4,532)
733
(5,907)
$
$
$
524
(1,928)
1,121
(283)
114
Note 29. Related Party Transactions
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, $0.1 million and less than $0.1 million, for the use of his private jet during the years ended December
31, 2010 and 2009, respectively, (none in 2011) which is based on two times fuel costs and other actual costs
incurred for each trip.
In January 2008, the Company entered into a lease for a customer contact management center located in Kingstree,
South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes. The lease
payments on the 20 year lease were negotiated at or below market rates, and the lease is cancellable at the option of
the Company. There are significant penalties for early cancellation which decrease over time. The Company paid
$0.4 million, $0.4 million and $0.4 million to the landlord during the years ended December 31, 2011, 2010 and
2009, respectively, under the terms of the lease.
115
Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2011, 2010 and 2009
(in thousands)
Allowance for doubtful accounts:
Charged
(Credited)
to Costs
and
Expenses
Balance at
Beginning
of Period
Beginning
Balance of
Acquired
Company
Balance at
End of
Period
Additions
(Deductions)
Year ended December 31, 2011 ……………………
Year ended December 31, 2010 ………………………
Year ended December 31, 2009 ………………………
$
3,939
3,530
3,071
450
170
1,022
$
(85)
239
(563)
(1)
(2)
(2)
-
$
-
-
$
4,304
3,939
3,530
Valuation allowance for net deferred tax assets:
Year ended December 31, 2011 …………………… 60,091
Year ended December 31, 2010 ……………………… 32,126
Year ended December 31, 2009 ……………………… 30,618
$
$
(17,758)
12,256
1,508
$
(3,789)
-
-
(1)
$
-
15,709
-
$
38,544
60,091
32,126
Reserves for value added tax receivables:
Year ended December 31, 2011 ……………………
Year ended December 31, 2010 ………………………
Year ended December 31, 2009 ………………………
$
2,338
1,881
1,853
$
504
551
536
$
(487)
(94)
(508)
$
-
-
-
$
2,355
2,338
1,881
(1)
(2)
Net write-offs and recoveries and the impact of the reclassification of the Company's Spanish operations to assets held for sale in
2011.
Net write-offs and recoveries.
116
[ ]
BOARD OF DIRECTORS
PAUL L. WHITIng
Chairman of the Board
President, Seabreeze Holdings, Inc.
Chief Executive Officer (retired)
Spalding & Evenflo Companies, Inc.
CHARLES E. SYKES
Director (Principal Executive Officer)
President and Chief Executive Officer
Sykes Enterprises, Incorporated
MARK C. BOzEK
Director
President
Galgos Entertainment LLC
FURMAn P. BODEnHEIMER, JR.
Director
Chairman and Chief Executive Officer
Zickgraf Enterprises, Inc.
LT. gEn. MICHAEL P. DELOng (retired)
Director
Vice President
Boeing International Corporation
H. PARKS HELMS, ESQ.
Director
President and Manager
Helms, Henderson & Associates, P.A.
[ ]
PRInCIPAL OFFICERS
CHARLES E. SYKES
President and
Chief Executive Officer
W. MICHAEL KIPPHUT
Executive Vice President and
Chief Financial Officer
DAvID L. PEARSOn
Executive Vice President and
Chief Information Officer
JEnnA R. nELSOn
Executive Vice President,
Human Resources
IAIn A. MACDOnALD
Director
Chairman and Director of Yakara plc
JAMES S. MACLEOD
Director
Chairman and CEO of CoastalSouth
Bancshares, Inc.
DR. LInDA F. MCCLInTOCK-gRECO
Director
President and Chief Executive Officer
Age-Less Medicine LLC
President
Age-Less Vitamin & Nutrients
WILLIAM J. MEURER
Director
Private Financial Consultant
Director of Eagle Family of Funds
Director of Walter Investment
Management Corporation
Managing Partner (retired) for Arthur
Andersen’s Central Florida Operations
JAMES (JACK) K. MURRAY, JR.
Director
Chairman, Murray Corporation
Chairman, Advisory Board
HealthEdge Investment Fund II, L.P.
Chairman, Investment Committee
HealthEdge Investment Fund II, L.P.
LAWREnCE (LAnCE) R. zIngALE
Executive Vice President,
Global Sales and
Client Management
JAMES C. HOBBY
Executive Vice President,
Global Operations
JAMES T. HOLDER
Executive Vice President,
General Counsel and
Corporate Secretary
DAnIEL L. HERnAnDEz
Executive Vice President,
Global Strategy
[ ]
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) 962-4284
SYKES’ shares trade on
The nasdaqgS Stock Market
under the symbol “SYKE”
Annual Meeting
SYKES’ annual meeting of
shareholders will be held at:
9:00 a.m. (ET)
Thursday, May 17, 2012
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 or upon written request to
SYKES’ Investor Relations department
in Tampa, Florida, or by contacting:
Subhaash Kumar
global vice President,
Finance and Investor Relations
(813) 274-1000
Sykes Enterprises, Incorporated
400 North Ashley Drive
Suite 2800
Tampa, Florida 33602-5089
USA 1.800.867.9537
Intl. +1.813.274.1000
www.sykes.com