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2 011 P R o d u c t o f t h e Y e a R f o r o n l i n e S u P P o R t co mm u n i t i e S
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sykes is a global leader in providing comprehensive 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.
left: charles e. syKes
president and Chief executive officer
right: W. Michael Kipphut
executive Vice president and Chief Financial officer
DEAR ShAREhOLDERS:
What does the path of progress look like for SYKeS? In our view, it is one where mid-single-digit revenue growth
accompanied by strong operating leverage leads to sustainable long-term operating margins of 8 percent to 10 percent.
It is a path on which we are well along, due in part to actions taken in 2012. Despite a demanding year, we delivered on
key initiatives in the eMeA (europe, Middle east & Africa) region, which enhanced our operating momentum. We put our
solid balance sheet to work and accelerated our virtualization strategy with the acquisition of Alpine Access. And we
made slight-but-substantive enhancements to our operating model. All of this positions the Company well for 2013. In this
letter, we will discuss the highlights of 2012, provide insights on the industry and outline our priorities for 2013.
RESTORIng EMEA TO SuSTAInAbLE PROFITAbILITy
the global economic downturn has had a profound impact on our client portfolio and operations in eMeA region. So much so,
that, in 2011, we launched a strategic review of our operations with a long-term view. to recap, we faced the challenge of
demand contraction across a number of our global clients with operations in the region. Clients who focused on the product
side of the business (i.e., technology clients), in particular, were disproportionately impacted. At the same time, we saw some
of those very same clients change their customer service strategies and switch to other cost-effective delivery geographies.
the end result was a direct hit to our profitability. our goal was straightforward: stem the operating losses in eMeA and
restore our financial position in that region to one of strength. this was no small feat, given the limited operating flexibility.
When we began executing on our strategic plan in the fourth quarter of 2011, the eMeA region posted an operating loss
of $4.9 million (or a -10.1 percent segment operating margin) on a revenue base of $48.7 million. the strategic plan included
The art elements featured in this year’s annual report are inspired by our company video illustrating
the story of SyKES and Alpine Access coming together to form a new brand, SyKES home Powered by
Alpine Access.: www.youtube.com/sykesvideo
2012 AnnuAl RepoRt * SykES
1
divesting our operations in Spain, which we accomplished in
the first quarter of 2012. In addition to our actions in Spain,
the plan entailed targeting markets in eMeA with growth and
profit potential while exiting non-strategic markets. to that
end, we exited South Africa and Ireland, while rationalizing
capacity in the netherlands. these three countries had an
annualized revenue run-rate of approximately $22 million,
but were a meaningful drag on profitability. ultimately,
Whether organically or through acquisitions,
SyKES has continually embraced innovation
and implemented best practices in service
delivery ever since we entered the customer
care business.
thanks to the hard work of the eMeA leadership, the
initiative launched at the end of 2011 was concluded with
precision in less than a year. the result: by the fourth quarter
of 2012, eMeA had catapulted to an operating profit of
$3.6 million (or a 7.9 percent segment operating margin)
on a revenue base six percent below that of fourth quarter
2011. In addition, our capacity utilization rate in the region
— one of our key business drivers — rose dramatically
from 71 percent in Q4 2011 to 82 percent in Q4 2012. We
believe we now have a footprint in eMeA that is not only
more focused and more aligned with the marketplace,
but also one that provides us with a strong foundation for
funding strategic, regional investments that will generate
sustainable financial returns. naturally, we are committed
to preserving the hard-won gains we have achieved. In
order to do so, we are ready to make further adjustments
to our eMeA footprint as such actions become necessary.
DRIvIng DIFFEREnTIATIOn ThROugh
vIRTuALIzATIOn
the ability to differentiate how a company delivers customer
care and drives benefits to its clients’ businesses can be the
bedrock of a winning business strategy. Whether organically
or through acquisitions, SYKeS has continually embraced
innovation and implemented best practices in service
delivery ever since we entered the customer care business.
And each time we have done so, it has strengthened our
value proposition with clients and generated success for
our Company. In the 1990s, when the industry was in
its early stages of growth, our acquisition of a rural
customer-care company helped us forge a differentiated
proposition in both cost and quality as we recognized the
value of establishing call centers in rural areas instead of
expensive urban markets, which was the standard at that
time. our proactive stance delivered value to our clients
while driving market share for SYKeS. When the dot-com
recession hit in 2000, and many companies sought ways
to quickly cut costs, we led the industry in innovation once
again by leveraging our offshore delivery capability, made
possible by a series of acquisitions in the late 1990s. the
result was nearly a doubling of the Company’s revenues
between 2004 and 2009, to $769 million.
In August 2012, we took a similar bold step to enhance
and differentiate our delivery platform, with attention to
both quality and cost. We acquired Alpine Access, a best-
of-breed virtual at-home agent player. the purchase price
was $149 million, which was financed through a combination
of cash on hand and borrowings under a credit facility. We
believe the acquisition of Alpine Access will prove to be one
of the most significant and strategic developments in the
Company’s history, one that will streamline our success in:
Creating significant competitive differentiation
for SYKeS in quality, speed to market, scalability
and flexibility
Dramatically strengthening the Company’s current
service portfolio and go-to-market offerings
expanding the breadth of clients with minimal
client overlap
Broadening opportunities within existing and
new vertical markets and client accounts
expanding our pool of skilled labor
Allowing SYKeS to leverage operational best practices
across its global platform, with the potential to
convert more fixed costs to variable costs
Driving shareholder value by further enhancing
SYKeS’ growth and margin profile
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SykES * 2012 AnnuAl RepoRt
the strategy is already paying off. By acquiring Alpine
Access, we dramatically accelerated our critical mass in
the at-home market. As a result, our revenue mix from
at-home agents has increased tenfold, from less than
1 percent in 2011 to approximately 10 percent in 2012.
this is significant. In the near term, it gives us the ability
to capitalize on the growth of the at-home agent segment,
by acquiring Alpine Access, we dramatically
accelerated our critical mass in the at-home
market. As a result, our revenue mix from
at-home agent has increased 10-fold, from
less than 1 percent in 2011 to approximately
10 percent in 2012.
which is expected to grow at a 18 percent compound
annual growth rate on a global basis over the next three
years according to an industry analyst firm ovum. In
addition, having the demonstrated scale and credibility will
enable us to successfully leverage this solution across
our client portfolio while also attracting new clients and
gaining market share. the long-term significance will
hinge on how elements of the technology can be leveraged
across our world-wide brick-and-mortar infrastructure,
thereby driving speed and efficiency across a range of
activities. this includes not just training, recruiting and
on-boarding, but also better correlating our operating
costs and asset utilization with demand.
ShARPEnIng OuR FOCuS WITh A
CLIEnT-CEnTRIC OPERATIng MODEL
As SYKeS has more than doubled in size since 2004, our
client relationships have simultaneously become larger
and more complex. With a portfolio of 100-plus clients,
the challenge is how best to target, manage and grow
strategic relationships, i.e., client opportunities with the
potential to scale beyond 1,000 seats. to manage this
complexity, we felt it was imperative to align ourselves
around our clients, a pivot from our previous, more
geo-centric operating model. We believe this new client-
centric model has many advantages. It creates greater
internal transparency and accountability up and down the
management and operations chain. It sharpens our focus
on everything from client engagement to account
management and operations, while simultaneously creating
better alignment between key performing indicators (KpIs)
and compensation. It expedites decision making, enabling
us to adapt rapidly to our clients’ evolving business needs
and prevail, as vendor consolidation continues to occur in
our industry. All of this should translate into higher client
retention rates over time — something of particular
2012 AnnuAl RepoRt * SykES
3
B2B advanced tech support and channel management,
and many others continue to provide good underpinnings
for long-term growth. As the shift from in-house to
outsource continues, we also continue to see a trend
toward vendor consolidation, which is another driver of
growth for us. In order to simplify their supply chains, a
growing number of clients are narrowing their customer
contact management vendor ecosystem to providers
that have a global footprint; that have a comprehensive
approach to customer life cycle support; that have a broad
service suite; that are diversified vertically; and that are
financially strong. the trend toward vendor consolidation
has been afoot over the last few years and plays greatly to
our strengths now and well into the future.
beyond size, one of the attractive aspects
of our industry has always been that
clients value the flexibility outsourcing
brings to their business. During good times,
clients outsource to meet growth in demand.
And during challenging times, clients
outsource to reduce costs by turning their
fixed costs into variable costs.
As large and underpenetrated as the customer contact
management industry is, the overall demand environment
has remained uneven over the last few years. Many
observers believe that, as consumers have become more
informed (thanks in large part to the Internet), many
simple call types, such as address changes, account
balance inquiries, etc., have been deflected, or migrated,
to self-help channels such as the Interactive Voice
Response (IVR) or the web. not surprisingly, some of the
noise around call deflection has touched off concerns
about the underlying health of the industry. Although call
deflection technologies have been around a long time
(IVRs have been in wide use since the 1990s) there is little
empirical data quantifying and substantiating the extent
of the impact from call deflection. that said, the absence
of empirical data does not mean that some transactions
have not been deflected. However, we continue to see an
importance since roughly 80 percent of our long-term
growth is expected to be driven by existing clients.
now that we have led several successful pilots with the
new operating structure, we have rolled it out to more
than half of our revenues base. When fully implemented,
we believe that our new client-centric model will help us
through the next iteration of growth.
gAugIng ThE InDuSTRy
the customer contact management industry is sizeable.
According to industry analyst firms ovum and Datamonitor,
it is estimated that there are roughly 9 million people
employed in the customer contact management industry
worldwide. And the industry is estimated to be only 20
percent penetrated in terms of outsourcing. Beyond size,
one of the attractive aspects of our industry has always
been that clients value the flexibility outsourcing brings to
their business. During good times, clients outsource
to meet growth in demand. And during challenging times,
clients outsource to reduce costs by turning their fixed
costs into variable costs. In this current economic
environment, we continue to see clients shifting their
in-house customer care operations to third-party providers
like us. Broadly speaking, we continue to see outsourcing
opportunities within the communications, financial
services and healthcare verticals, along with the technology
vertical to a limited extent. More specifically, industries
such as wireless, broadband, retail banking, insurance,
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SykES * 2012 AnnuAl RepoRt
It is also our view that social media channels, along with pervasive Internet connectivity
and computing capability — whether through mobile devices or desktop computers — create
more avenues for interaction between our clients and their end consumers.
increase in more complex, longer duration transactions
(for example, the syncing of mobile devices and digital
appliances, consultative sales of myriad wireless and/or
broadband voice and data plans, troubleshooting credit
card fraud issues and more). It is also our view that social
media channels, along with pervasive Internet connectivity
and computing capability — whether through mobile
devices or desktop computers — create more avenues for
interaction between our clients and their end consumers.
this, in turn, drives demand for greater customer service.
We believe that today’s sluggish demand environment
hinges less on these various aforementioned secular issues
and is more a result of cyclical economic volatility and sub-
par economic growth. ultimately, we believe the concerns
surrounding automation in the industry are overstated.
Finally, no discussion about the industry would be complete
without a quick word on the general state of competition.
Given the industry’s size and fragmentation, competition
varies by client, vertical and geography. We have direct
and tangential competitors, including It services firms,
and many of our competitors are formidable. As intense
as competition is, and always has been throughout the
economic downturn, pricing in the industry has remained
relatively stable with the exception of the eMeA region.
It is primarily smaller private and local players in the eMeA
region that have used price as their key dimension of
value. And where price has been used to secure a win,
relationships have been short-lived due to issues
surrounding quality of service and financial stability. We
have not witnessed the emergence of any new significant
competitors. If anything, we continue to see the consolidation
of smaller players. the last time we experienced any
noteworthy new competitive threat was the rise of the
pure-play offshore customer contact management providers
between 2004 and 2008. Because many of them were
extremely narrow in their offerings and service delivery
capabilities, their success was short-lived and several
eventually were consolidated into larger and more diversified
2012 AnnuAl RepoRt * SykES
5
global players. While competition is intense, it remains
manageable. As competitors come and go, we are well
positioned and expect to remain a driving force in the
evolution of our industry.
ROADMAP FOR 2013
We are tremendously proud of our achievements in 2012,
but much remains to be done. In 2013, our focus will be on
fully integrating Alpine Access’ operations into our own.
We took a major step in that direction with the appointment
of former Alpine Access Ceo Chris Carrington as head of
global delivery for key geographies within the Americas
region. As we have indicated, the integration process of
Alpine Access will likely take eight to 12 months. At the
same time, we will continue to roll out our client-centric
operating model, with Company-wide implementation
expected by mid-year 2013. We will also carry on our
rationalization of underutilized capacity — in part through
facility transfers — even as we continue to invest for growth
where it makes financial and strategic sense. Although we
made great strides toward the rationalization of a net 2,000
seats as promised, opportunities still exist for further gains,
particularly in the Americas. this should help us increase
our capacity utilization rate in the region above 2012 levels.
As we proceed through 2013, we are mindful that progress
seldom follows a linear path. our planned course will
inevitably include some unexpected twists and turns, but
we are steadfast in our commitment to continue moving
forward to achieve our long-term financial objectives —
and we believe we are on the right track. We have a strong
foundation, which is reinforced by a comprehensive
delivery capability, a breadth and depth of service offerings,
a diverse vertical mix, a low-risk profile and a solid balance
sheet. Coupled with a strengthened market position, thanks
to the Alpine Access acquisition, and the continued success
of our operational optimization efforts and sustained
investments in our service offerings (such as social media,
analytics, etc.), we believe will be able to monetize
opportunities and drive value creation for our shareholders.
We would like to thank you — our shareholders, clients,
employees and Board members — for your enduring trust
and support.
charles e. syKes
president and
Chief executive officer
W. Michael Kipphut
executive Vice president and
Chief Financial officer
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SykES * 2012 AnnuAl RepoRt
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the fiscal year ended December 31, 2012
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 29, 2012, the last business day of the Registrant’s most
recently completed second fiscal quarter, was $679,850,254.
As of February 21, 2013, there were 43,778,918 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents ..............................................................................................................
Portions of the Proxy Statement for the year 2013
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 ...........................................................................
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Item 1. Business
General
PART I
Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES,” “our,” “us” or “we”) is a global leader in
providing comprehensive 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 28, 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 August 2012, we completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation and an
industry leader in the at-home agent space, pursuant to the Agreement and Plan of Merger, dated July 27, 2012. We
refer to such acquisition herein as the “Alpine acquisition.” We have reflected the combined operating results in the
accompanying Consolidated Statement of Operations for the period from August 20, 2012 to December 31, 2012.
In March 2012, we sold our operations in Spain (the “Spanish operations”) pursuant to an asset purchase agreement
dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. We have reflected the operating
results related to the Spanish operations 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.
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.
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 and Europe and offshore markets in the Asia Pacific Rim and Latin America, and also the delivery of
services through our virtual home-based agent delivery platform.
In today’s marketplace, companies require innovative customer contact management solutions that allow them to
3
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 speedily, and to efficiently allocate capital within their organizations.
To address these needs, we offer comprehensive global customer contact management solutions that leverage both
brick-and-mortar and virtual delivery infrastructure. 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 20 countries. This global footprint includes established
brick-and-mortar 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. We further complement
our brick-and-mortar global delivery model with a highly differentiated and ready-made best-in-class virtual at-
home agent delivery model, which we acquired through the Alpine acquisition.
Business Strategy
Our goal is to provide enhanced and value-added customer contact management solutions and services, acting as a
partner in our clients’ business. We seek to 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 Customer Service 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. Furthermore, we are leveraging our expansive virtual infrastructure to
deliver home-based agent solutions to our clients across North America.
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 of 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.
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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.
Strategic Rationale for the Alpine Acquisition
We completed the acquisition of Alpine Access, Inc. in August 2012. The Alpine acquisition, through use of at-
home agents rather than agents who work at brick-and-mortar centers:
• Creates significant competitive differentiation for quality, speed to market, scalability and flexibility driven
by proprietary, internally-developed software, systems, processes and other intellectual property which
uniquely overcome the challenges of the at-home delivery model;
• Dramatically strengthens the Company’s current service portfolio and go-to-market offering while
expanding the breadth of clients with minimal client overlap;
• Broadens the addressable market opportunity within existing and new verticals as well as clients;
• Expands the addressable pool of skilled labor;
• Allows SYKES to leverage operational best practices across its global platform, with the potential to
convert more of the fixed cost to variable cost; and
• Further enhances the growth and margin profile of SYKES to drive shareholder value.
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. Revenues and profitability growth
is driven by 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 underutilized seat capacity as deemed necessary. With greater operating flexibility resulting from the
Alpine acquisition, we can rationalize underutilized capacity more efficiently and drive capacity utilization rates.
Broadening Global Delivery Footprint. Just as increased capacity utilization rates and increased seat capacity are
key drivers of our revenues and profitability growth, 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 2012, our global delivery footprint spanned 20 countries. As a multi-channel provider of
phone, e-mail, Internet, text messaging and chat customer contact management services, we provide comprehensive
customer contact management solutions through our recently acquired best-in-class virtual at-home agent offering,
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which further augments and strengthens 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
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
newly-acquired and highly differentiated virtual customer contact delivery capability, along with the 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 in-country centers, centers in 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 15 markets.
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 84% of consolidated revenues in 2012, 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. In addition, the Americas region also includes revenues from our virtual customer contact
solution, which serves markets in both the U.S. and Canada. The EMEA region, representing 16% of consolidated
revenues in 2012, includes Europe, the Middle East and Africa. See Note 28, 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 2012 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:
• 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;
• Technical support — Technical support contacts primarily include handling inquiries regarding hardware,
software, communications services, communications equipment, Internet access technology and Internet
portal usage; and
• Acquisition — Our acquisition services are primarily focused on inbound up-selling of our clients’
products and services.
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We provide these services, primarily inbound customer calls, through our extensive global network of customer
contact management centers in a multitude of languages. Our technology infrastructure and managed service
solutions allow for effective distribution of calls to one or more centers. These technology offerings provide our
clients and us with the leading edge tools needed to maximize quality and customer satisfaction while controlling
and minimizing costs.
Fulfillment Services. In Europe, we offer fulfillment services that are integrated with our customer care and
technical support services. Our fulfillment solutions include multilingual sales order processing via the Internet and
phone, payment processing, inventory control, product delivery and product returns handling.
Enterprise Support Services. In the United States, we provide a range of enterprise support services including
technical staffing services and outsourced corporate help desk solutions.
Operations
Customer Contact Management Centers. We operate across 20 countries in 69 customer contact management
centers, which breakdown as follows: 16 centers across Europe and Egypt, 22 centers in the United States, 10
centers in Canada, 3 centers in Australia and 18 centers offshore, including The Peoples Republic of China, The
Philippines, Costa Rica, El Salvador, India, Mexico and Brazil. In addition to our customer contact management
centers, we employ approximately 6,700 virtual customer contact agents across 40 states in the U.S. and across eight
provinces in Canada.
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 enterprise support services office, located in a metropolitan area in the
United States, provides 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
7
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:
• The certification of client accounts and customer contact management centers to the SYKES Science of
Service® and Site of Excellence programs;
• The application of continuous improvement through application of our Data Analytics and Six Sigma
techniques; and
• 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,
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 and virtual delivery operations, 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 2012, as a percentage of our consolidated revenues,
was 31% for communications, 30% for financial services, 16% for technology/consumer, 9% for transportation and
leisure, 8% for healthcare, 2% for retail and 4% for all other vertical markets, including government and utilities.
8
We believe our globally recognized client base presents opportunities for further cross marketing of our services.
Total consolidated revenues included $133.1 million, or 11.8%, of consolidated revenues for 2012, from AT&T
Corporation, a major provider of communication services for which we provide various customer support services,
compared to $132.7 million, or 11.3%, for 2011 and $154.1 million, or 13.7%, for 2010. This included $130.1
million in revenues from the Americas and $3.0 million in revenues from EMEA for 2012, $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 next largest clients in each of the years,
which are in the financial services vertical market, accounted for 6.2%, 5.6% and 4.5% of consolidated revenues for
the years ended December 31, 2012, 2011 and 2010, respectively. Our top ten clients accounted for approximately
48% of our consolidated revenues in 2012, an increase from 45% in 2011.
We have multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire between
2013 and 2015. We have historically renewed most of these contracts. However, there is no assurance that these
contracts will be renewed, or if renewed, will be on terms as favorable as the existing contracts. Each line of
business is governed by separate business terms, conditions and metrics. Each line of business also has a separate
decision maker such that a loss of one line of business would not necessarily impact our relationship with the client
and decision makers on other lines of business. The loss of (or the failure to retain a significant amount of business
with) any of our key clients, including AT&T, could have a material adverse effect on our performance. Many of
our contracts contain penalty provisions for failure to meet minimum service levels and are cancelable by the client
at any time or on short notice. Also, clients may unilaterally reduce their use of our services under our contracts
without penalty.
Competition
The industry in which we operate is global 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, StarTek,
Atento, Teleperformance, Expert Global Solutions, LiveOps, Working Solutions and Arise, as well as the customer
care arm of such companies as Accenture, Wipro, Infosys, Mahindra Satyam and IBM, among others. 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, without limitation,
SYKES®, REAL PEOPLE. REAL SOLUTIONS®, SCIENCE OF SERVICE®, CLEARCALL®, I AM SYKES.
HOW FAR WILL YOU LET ME TAKE YOU?®, ICT®, SOUND OF SERVICE®, ONEVIEW®, ALPINE
ACCESS®, ALPINE ACCESS UNIVERSITY® and ALPINE ACCESS CONSULTING®. 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.
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Employees
As of January 31, 2013, we had approximately 46,200 employees worldwide, including 36,800 customer contact
agents handling technical and customer support inquiries at our centers, 6,700 at-home customer contact agents
handling technical and customer support inquiries, 2,400 in management, administration, information technology,
finance, sales and marketing roles, 100 in enterprise support services and 200 in fulfillment services. Our
employees, with the exception of approximately 700 employees in Brazil and various European countries, are not
union members and we have never suffered a material interruption of business as a result of a labor dispute. 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.
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
Christopher M. Carrington
Lawrence R. Zingale
Jenna R. Nelson
Daniel L. Hernandez
David L. Pearson
James T. Holder
William N. Rocktoff
Age Principal Position
50
59
51
57
49
46
54
54
50
President and Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
Executive Vice President, Global Delivery
Executive Vice President, General Manager of Major Markets
Executive Vice President, Human Resources
Executive Vice President, Global Strategy
Executive Vice President and Chief Information Officer
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.
Christopher M. Carrington former President and CEO of Alpine Access, assumed the post of Executive Vice
President, Global Delivery for SYKES in September 2012. Prior to his role at SYKES, Mr. Carrington served as a
board member and President and CEO of Alpine Access, a market leader in the virtual contact center solutions and
services market. Prior to joining Alpine Access, Mr. Carrington served as President of Americas Outsourcing
Services for Capgemini, President and CEO of the Interlink Group and President of the Americas E-business
consulting practice for EDS.
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 and in
September 2012, he was named Executive Vice President and General Manager of Major Markets. Prior to joining
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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.
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.
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.
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
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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,
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 48% of our consolidated revenues in 2012. 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
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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.
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.
13
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.
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.
14
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
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, 2012,
our international operations were conducted from 30 customer contact management centers located in Sweden,
Finland, Germany, Egypt, 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, 2012, 2011, and 2010, were 40%, 43%, and 42% 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 and El Salvador which expire at
varying dates from 2013 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, 2012, we had cash balances of approximately $182.9 million held in international operations,
most of which would be subject to additional taxes if repatriated to the United States. 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.
In addition, The American Taxpayer Relief Act of 2012 was passed on January 2, 2013, with many provisions
retroactively effective to January 1, 2012. We are currently evaluating the net retroactive impact of this law change
on our financial condition, results of operations and cash flows.
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
15
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
adverse effect on our business, financial condition, and results of operations. The success of our offshore operations
will be subject to numerous factors, 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 20 countries around the world. 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
16
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.
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
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 Alpine into our own, which may
adversely affect our business and the value of our common stock.
It is possible that the integration of the operations of Alpine 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.
17
Specifically, issues addressed in completing the integration of the operations of Alpine into our own operations in
order to realize the anticipated benefits of the acquisition include, among other things:
•
•
integrating our information technology systems with those of Alpine;
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;
•
•
•
•
• managing tax costs or inefficiencies associated with integrating the operations of the combined company;
and
• 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 Alpine’s operations into our own, or to realize the full amount of
anticipated benefits of the integration of the two companies.
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 and Alpine acquisitions. 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
18
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 these 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
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, 2012 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 2012, our customer contact management centers, taken as a whole, were
utilized at average capacities of approximately 77% 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
Fort Smith, Arkansas
Malvern, Arkansas
Morrilton, Arkansas
Sterling, Colorado
Lakeland, Florida
Lakeland, Florida
Bardstown, Kentucky
Morganfield, Kentucky (1)
Perry County, Kentucky
Wilton, Maine
Amherst, New York
Bismarck, North Dakota
Fayetteville, North Carolina
Fayetteville, North Carolina
Ponca City, Oklahoma (2)
Milton-Freewater, Oregon
Allentown, Pennsylvania
Bloomburg, Pennsylvania
Langhorne, Pennsylvania
Langhorne, Pennsylvania
Lockhaven, Pennsylvania
Newtown, Pennsylvania (3)
Greenwood, South Carolina
Greenwood, South Carolina
Kingstree, 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
September 2023
July 2014
September 2019
67,645
June 2016
40,622 April 2021
34,635 May 2019
23,850
July 2016
34,000 Company owned
89,840 August 2022
50,000
30,488
42,000 Company owned
42,000 Company owned
30,000 April 2014
26,296 May 2013
42,000 Company owned
15,000 August 2013
49,650
42,000 Company owned
42,000 Company owned
21,115
21,800
21,641 March 2017
14,060 March 2013
June 2013
23,610
102,000
February 2017
25,000 December 2018
15,000 December 2018
35,000 March 2028
25,000 April 2019
17,141
42,700 Company owned
42,000 Company owned
July 2013
50,000
September 2014
10,613
September 2013
July 2014
September 2013
(1) Closed in June, 2011.
(2) Closed in September, 2012.
(3) Customer contact management center closed in December, 2011. Excess capacity subleased.
20
Properties
AMERICAS LOCATIONS (continued)
Rhodes (Sydney), Australia
Robina, Australia
Curitiba, Brazil
Cornerbrook, New Foundland Labrador, Canada
Lindsay, Nova Scotia, Canada
London, Ontario, Canada
Miramichi, New Brunswick, Canada
Moncton, New Brunswick, Canada (4)
North Bay, Ontario, Canada (4)
Ottawa, Ontario, Canada
Peterborough, Ontario, Canada
Riverview, New Brunswick, Canada
Sherebrook, Quebec, Canada
St. John, New Brunswick, Canada
St. John's, New Foundland Labrador, Canada
Sudbury, Ontario, Canada (4)
Sydney, Nova Scotia, Canada
Toronto, Ontario, Canada (4)
Barranquilla, Colombia
Hatillo, San Jose, Costa Rica
LaAurora, Heredia, Costa Rica
Moravia, San Jose, Costa Rica
San Salvador, El Salvador
Hyderabad, India
Mexico City, Mexico
Changshu, The Peoples Republic of China
Guangzhou, The Peoples Republic of China
Shanghai, The Peoples Republic of China
Cebu City, The Philippines
Makati City, The Philippines
Makati City, The Philippines
Makati City, The Philippines
Mandaluyong, The Philippines
Mandaluyong, The Philippines
Pasig City, The Philippines
Quezon City, The Philippines
(5)
Chesterfield, Missouri
Chicago, Illinois
Denver, Colorado
Denver, Colorado
Bangalore, India
Makati City, The Philippines
Pasig City, The Philippines
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/ 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
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
Office
Office
September 2016
February 2014
July 2014
June 2016
February 2016
9,363
9,364
25,658
15,151
14,500
50,000 Company owned
30,000 May 2014
8,248 December 2016
5,371 May 2014
June 2021
4,170
January 2016
17,409
June 2015
49,000
January 2017
26,764
25,000
February 2015
30,200 December 2013
4,150 December 2015
February 2016
14,500
7,822
23,228
49,138
131,912
38,481
July 2017
July 2032
July 2021
September 2023
July 2027
119,514 November 2024
June 2014
16,000
59,503 November 2014
54,918 April 2017
11,417 March 2015
70,474
February 2016
119,394 December 2026
68,610 March 2023
68,268
September 2013
202,038 April 2018
88,904
June 2022
193,170 April 2022
68,705 November 2023
September 2024
84,250
January 2016
3,618
8,479 May 2016
14,281
July 2013
22,006 August 2014
1,500
January 2014
1,497 May 2013
1,917 August 2013
(4) Considered part of the Toronto, Ontario, Canada customer contact management center.
(5) Enterprise support services location.
21
Properties
EMEA LOCATIONS
Odense, Denmark
(6)
Cairo, Egypt
Turku, Finland
Berlin, Germany
Bochum, Germany
Pasewalk, Germany
Wilhelmshaven, Germany
Wilhelmshaven, Germany
Budapest, Hungary
Dublin, Ireland (7)
Bergen, Norway
Bodo, Norway
Cluj, Romania
Edinburgh, Scotland
Kosice, Slovakia
Ed, Sweden
Gothenburg, Sweden
Sveg, Sweden
Galashiels, Scotland
Rosersberg, Sweden
Frankfurt, Germany
(6) Renewal negotiations are currently in process.
(7) Closed in December, 2010.
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/
Office/Headquarters
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
13,606
28,483
January 2016
January 2013
February 2014
12,508
61,010
February 2020
46,780 December 2014
February 2014
46,070
46,000 November 2013
17,788 August 2013
23,961 March 2014
9,845 April 2014
8,654 August 2015
4,004
January 2017
42,517 April 2030
35,870
September 2019
55,148 December 2024
September 2013
44,061
20,225 March 2018
34,975
June 2014
126,700 Company owned
43,056
1,701
February 2014
September 2013
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.
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, 2012:
Fourth Quarter ……………………………… 16.39
Third Quarter ……………………………… 16.52
Second Quarter ……………………………… 16.52
First Quarter ………………………………… 18.61
$
$
12.87
12.81
14.28
13.62
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
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 21, 2013, there were 896 holders of record of the common stock. We estimate there were
approximately 7,700 beneficial owners of our common stock.
Below is a summary of stock repurchases for the quarter ended December 31, 2012 (in thousands, except average
price per share).
Period
October 1, 2012 - October 31, 2012 …………
Total
Number of
S hares
Purchased (1)
-
November 1, 2012 - November 30, 2012 ………
December 1, 2012 - December 31, 2012 ………
Total …………………………………………
-
-
-
Average
Price
Paid Per
S hare
$
-
$
-
$
-
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
-
-
-
-
1,969
1,969
1,969
1,969
(1)
All shares purchased as part of the repurchase plan publicly announced on August 18, 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, 2007 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
SYKES
$150
NASDAQ Computer &
Data Processing
Services Stocks
NASDAQ
Telecommunications
Stocks
Russell 2000® Index
S&P Small Cap 600
Index
SYKES Peer Group
$100
$50
$0
SYKES
NASDAQ Computer & Data
Processing Services Stocks
NASDAQ Telecommunications Stocks
Russell 2000® Index
S&P Small Cap 600 Index
SYKES Peer Group
2007
$100
$100
$100
$100
$100
$100
2008
$106
$53
$57
$65
$68
$41
2009
$142
$91
$85
$82
$84
$81
2010
$113
$107
$88
$102
$105
$83
2011
$87
$107
$77
$97
$105
$66
2012
$85
$121
$78
$111
$121
$81
SYKES Peer Group
Convergys Corp.
StarTek, Inc.
TeleTech Holdings, Inc.
Ticker Symbol
CVG
SRT
TTEC
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.
26
Item 6. Selected Financial Data
Selected Financial Data
The following selected financial data has been derived from our consolidated financial statements.
We sold our operations in Spain and Argentina during 2012 and 2010, respectively. 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.
(in thousands, except per share data)
Income S tatement Data: (1)
2012
2011
2010
2009
2008
Years Ended December 31,
Revenues ……………………………………………………………
Income from continuing operations (2,3,5,7,8,9,10) ……………………
Income from continuing operations, net of taxes (2,3,5,7,8,9,10) ………
Gain (loss) from discontinued operations, net of taxes (4) ……..….
Gain (loss) on sale of discontinued operations, net of taxes (6) ……
Net income (loss) …………………………………..………………
$
1,127,698
$
1,169,267
$
1,121,911
$
769,353
$
749,004
47,779
39,950
(820)
(10,707)
28,423
65,535
52,314
(4,532)
559
48,341
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
Net Income (Loss) Per Common S hare: (1)
Basic:
Continuing operations (2,3,5,7,8,9,10)………………………………
Discontinued operations (4,6) ……………………………………
Net income (loss) per common share …………………………
$
0.93
$
(0.27)
0.66
Diluted:
Continuing operations (2,3,5,7,8,9,10)………………………………
Discontinued operations (4,6) ……………………………………
Net income (loss) per common share …………………………
$
0.93
$
(0.27)
0.66
$
1.15
$
0.57
$
1.10
$
1.49
$
(0.09)
1.06
$
(0.79)
(0.22)
$
(0.04)
1.06
$
0.00
1.49
$
1.15
$
0.57
$
1.09
$
1.48
$
(0.09)
1.06
$
(0.79)
(0.22)
$
(0.04)
1.05
$
0.00
1.48
Weighted Average Common S hares: (1)
Basic ………………………………………………………………
Diluted ………………………………………………………………
43,105
43,148
45,506
45,607
46,030
46,133
40,707
41,026
40,618
40,961
Balance S heet Data: (1,11)
Total assets ……………………………………………………….
$
908,689
$
769,130
$
794,600
$
672,471
$
529,542
Long-term debt ………………………………………………..
Shareholders' equity ……………………………………………….
91,000
606,264
-
573,566
-
583,195
-
450,674
-
384,030
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
T he amounts for 2012 include the Alpine acquisition completed on August 20, 2012. T he amounts for 2011 and 2010 include the ICT acquisition completed on February 2,
2010. See Notes 2 and 3, respectively.
T he amounts for 2012 include $4.8 million in Alpine acquisition-related costs, a $0.4 million net loss on the sale of property and equipment, a $0.1 million gain on
insurance settlement and a $0.4 million impairment of long-lived assets.
T he amounts for 2011 include $11.8 million in ICT acquisition-related costs, a $3.7 million net gain on the sale of the land and building in Minot, North Dakota, a $0.5
million net gain on insurance settlement and a $1.7 million impairment of long-lived assets.
T he amounts for all periods presented include the operations in Spain and Argentina, which were sold in 2012 and 2010, respectively. See Note 4.
T he amounts for 2012 and 2011 include $1.8 million and $5.8 million, respectively, related to the Fourth Quarter 2011 Exit Plan. See Note 5.
T he amounts include the gain (loss) on sale of the operations in Spain in 2012 and Argentina in 2011 and 2010.
T he amounts for 2011 and 2010 each include a $0.4 million recovery of these regulatory penalties.
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 taxes related to our change of intent in the fourth quarter of 2009 regarding the permanent
reinvestment of foreign subsidiaries' accumulated and undistributed earnings and a $2.1 million impairment loss on our investment in SHPS.
(11) 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, 2012 (“2012”) to the year ended December 31, 2011 (“2011”), and 2011 to
the year ended December 31, 2010 (“2010”).
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, 2012 in Item 1.A., “Risk Factors.”
Executive Summary
We provide comprehensive customer contact management solutions and services 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 and healthcare 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 2012, 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 and Europe.
Revenues from these services is recognized as the services are performed, which is based on either a per minute, per
hour, per call, per transaction or per time and material 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 represents the difference between the amount of proceeds
received, if any, and the carrying value of the asset.
The net gain on insurance settlement includes the insurance proceeds received for damages to our customer contact
management centers.
The impairment of goodwill and intangibles in 2010 is primarily related to customer relationships in the ICT-
acquired United Kingdom operations.
28
The impairment of long-lived assets represents the amount by which the carrying value of the asset exceeds the
estimated fair value and relates to an ongoing effort to streamline excess capacity related to the ICT 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.
Interest expense includes interest on outstanding borrowings and commitment fees charged on the unused portion of
our revolving credit facility, as more fully described in this Item 7, under “Liquidity and Capital Resources.”
Other (expense) includes gains and losses on foreign currency derivative instruments not designated as hedges,
foreign currency transaction gains and losses, gains and losses on the liquidation of foreign subsidiaries 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.
Acquisition of Alpine Access, Inc.
On August 20, 2012, we completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation and an
industry leader in the at-home agent space – recruiting, training, managing and delivering award-winning customer
contact management services through a secured and proprietary virtual call center environment with its operations
located in the United States and Canada. We refer to such acquisition herein as the “Alpine acquisition.”
The Company acquired Alpine to: create significant competitive differentiation for quality, speed to market,
scalability and flexibility driven by proprietary, internally-developed software, systems, processes and other
intellectual property which uniquely overcome the challenges of the at-home delivery model; strengthen the
Company’s current service portfolio and go-to-market offering while expanding the breadth of clients with minimal
client overlap; broaden the addressable market opportunity within existing and new verticals as well as clients;
expand the addressable pool of skilled labor; leverage operational best practices across the Company’s global
platform, with the potential to convert more of its fixed cost to variable cost; and to further enhance the growth and
margin profile of the Company to drive shareholder value. This resulted in the Company paying a substantial
premium for Alpine resulting in the recognition of goodwill.
The total purchase price of $149.0 million was funded by $41.0 million in cash on hand and borrowings of
$108.0 million under our credit agreement with KeyBank National Association (“KeyBank”), dated May 3, 2012.
We repaid $17.0 million of the initial borrowing and had $154.0 million available for future borrowings under our
2012 Credit Agreement at December 31, 2012. See “Liquidity & Capital Resources” later in this Item 7 and Note
21, Borrowings, of “Notes to Consolidated Financial Statements” for further information.
The results of operations of Alpine have been reflected in the accompanying Consolidated Statement of Operations
for the period from August 20, 2012 to December 31, 2012.
Acquisition of ICT Group, Inc.
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.”
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.
29
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.
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 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 Statements of Operations for
the years ended December 31, 2012 and 2011 and the period from February 2, 2010 to December 31, 2010.
Discontinued Operations
In March 2012, we sold our operations in Spain (the “Spanish operations”), pursuant to an asset purchase agreement
dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. 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 operations in Argentina (the “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.
30
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,
2011
2012
2010
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) …………………………………………
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%
65.4
30.3
0.0
(0.0)
-
0.0
4.3
0.1
(0.1)
(0.2)
4.1
0.5
3.6
(1.0)
2.6%
100.0%
65.3
29.2
(0.3)
(0.0)
-
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)
0.0
0.3
3.4
0.1
(0.4)
(0.5)
2.6
0.2
2.4
(3.2)
(0.8%)
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,
2011
2012
2010
$
Revenues …………………………………………………
1,127,698
Direct salaries and related costs ……………………………
737,952
General and administrative ………………………………… 341,354
Net (gain) loss on disposal of property and equipment …
391
Net (gain) on insurance settlement …………………………
(133)
Impairment of goodwill and intangibles……………………
-
Impairment of long-lived assets ……………………………
355
Income from continuing operations ………………………
47,779
Interest income ……………………………………………
1,458
Interest (expense) …………………………………………
(1,547)
Other (expense)……………………………………………
(2,533)
Income from continuing operations before income taxes …
45,157
Income taxes ………………………………………………
5,207
Income from continuing operations, net of taxes …………
39,950
(Loss) from discontinued operations, net of taxes …………
(11,527)
Net income (loss) …………………………………………
28,423
$
$
$
1,169,267
763,930
341,586
(3,021)
(481)
-
1,718
65,535
1,352
(1,132)
(2,099)
63,656
11,342
52,314
(3,973)
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)
$
$
The following table summarizes our revenues for the periods indicated, by reporting segment (in thousands):
Years Ended December 31,
2012
2011
2010
Americas ……………………………………………
$
947,147
84.0%
$
963,142
82.4%
$
934,329
EM EA ………………………………………..……
180,551
16.0%
206,125
17.6%
187,582
83.3%
16.7%
Consolidated …………………………….………
$
1,127,698
100.0%
$
1,169,267
100.0%
$
1,121,911
100.0%
31
The following table summarizes certain amounts and percentages of revenues for the periods indicated, by reporting
segment (in thousands):
Direct salaries and related costs:
Years Ended December 31,
2012
2011
2010
Americas ……………………………………………
$
609,836
64.4%
$
611,783
63.5%
$
580,741
EM EA ………………………………………..……
128,116
71.0%
152,147
73.8%
134,830
Consolidated …………………………….………
$
737,952
65.4%
$
763,930
65.3%
$
715,571
General and administrative:
Americas ……………………………………………
$
243,186
25.7%
$
237,899
24.7%
$
244,213
EM EA ………………………………………..……
Corporate ……………………………………………
46,879
51,289
26.0%
-
57,241
46,446
27.8%
-
57,714
64,638
62.2%
71.9%
63.8%
26.1%
30.8%
-
Consolidated …………………………….………
$
341,354
30.3%
$
341,586
29.2%
$
366,565
32.7%
Net (gain) loss on disposal of property and
equipment:
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
$
(3,030)
-0.3%
$
78
9
0.0%
65
$
(3,021)
-0.3%
$
143
0.0%
0.0%
0.0%
$
(481)
-
$
(481)
0.0%
0.0%
0.0%
$
(1,991)
-
$
(1,991)
-0.2%
0.0%
-0.2%
0.0%
0.0%
0.0%
$
-
-
$
-
0.0%
0.0%
0.0%
$
-
362
$
362
0.0%
0.0%
0.0%
$
1,244
474
$
1,718
0.1%
0.2%
0.1%
$
3,121
159
$
3,280
0.0%
0.2%
0.0%
0.3%
0.1%
0.3%
Americas ……………………………………………
$
323
EM EA ………………………………………..……
68
Consolidated …………………………….………
$
391
Net (gain) on insurance settlement:
Americas ……………………………………………
$
(133)
EM EA ………………………………………..……
-
Consolidated …………………………….………
$
(133)
Impairment of goodwill and intangibles:
Americas ……………………………………………
$
-
EM EA ………………………………………..……
-
Consolidated …………………………….………
$
-
Impairment of long-lived assets:
Americas ……………………………………………
$
355
EM EA ………………………………………..……
-
Consolidated …………………………….………
$
355
32
2012 Compared to 2011
Revenues
For 2012, we recognized consolidated revenues of $1,127.7 million, a decrease of $41.6 million or 3.6%, from
$1,169.3 million in 2011.
On a geographic segment basis, revenues from the Americas region, including the United States, Canada, Latin
America, Australia and the Asia Pacific Rim, represented 84.0%, or $947.1 million, for 2012 compared to 82.4%, or
$963.1 million, in 2011. Revenues from the EMEA region, including Europe, the Middle East and Africa,
represented 16.0%, or $180.6 million, for 2012 compared to 17.6%, or $206.2 million, in 2011.
Americas’ revenues decreased $16.0 million, including the positive foreign currency impact of $0.5 million, for
2012 from 2011. The remaining decrease of $16.5 million was primarily due to end-of-life client programs of $85.9
million and lower volumes from existing contracts of $35.7 million, partially offset by new contract sales of $64.5
million and Alpine acquisition revenues of $40.6 million. Revenues from our offshore operations represented 47.1%
of Americas’ revenues, compared to 47.8% in 2011. 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 continual
focus to re-price or replace certain sub-profitable target client programs.
EMEA’s revenues decreased $25.6 million, including the negative foreign currency impact of $11.7 million, for
2012 from 2011. The remaining decrease of $13.9 million was primarily due to end-of-life client programs of $32.7
million and lower volumes from existing contracts of $0.5 million, partially offset by new contract sales of $19.3
million.
On a consolidated basis, we had 39,300 brick-and-mortar seats as of December 31, 2012, a decrease of 2,000 seats
from 2011. The capacity utilization rate on a combined basis was 75% compared to 73% in 2011. This increase was
primarily due to seat rationalizations associated with the strategic actions in connection with the Fourth Quarter
2011 Exit Plan (see Note 5, Costs Associated with Exit or Disposal Activities, of “Notes to Consolidated Financial
Statements”).
On a geographic segment basis, 34,000 seats were located in the Americas, a decrease of 1,500 seats from 2011, and
5,300 seats were located in EMEA, a decrease of 500 seats from 2011. The consolidated offshore seat count as of
December 31, 2012 was 22,000, or 56%, of our total seats, a decrease of 300 seats, or 1%, from 2011. Capacity
utilization rates as of December 31, 2012 were 74% for the Americas and 82% for EMEA, compared to 74% and
71%, respectively, as of December 31, 2011, primarily due to seat rationalizations associated with the strategic
actions in connection with the Fourth Quarter 2011 Exit Plan. We achieved our 2012 gross seat addition target of
approximately 3,700 seats at the end of the third quarter of 2012.
The Company plans to add approximately 6,000 seats on a gross basis in 2013. Approximately 75% of the seat
count is expected to be added in the first half of 2013, with the remainder in the second half. Total seat count on a
net basis for the full year, however, is expected to increase by approximately 1,000 seats.
Direct Salaries and Related Costs
Direct salaries and related costs decreased $26.0 million, or 3.4%, to $737.9 million for 2012 from $763.9 million in
2011.
On a reporting segment basis, direct salaries and related costs from the Americas segment decreased $2.0 million,
including the negative foreign currency impact of $1.1 million, for 2012 from 2011. Direct salaries and related costs
from the EMEA segment decreased $24.0 million, including the positive foreign currency impact of $8.2 million,
for 2012 from 2011.
In the Americas segment, as a percentage of revenues, direct salaries and related costs increased to 64.4% for 2012
from 63.5% in 2011. This increase of 0.9%, as a percentage of revenues, was primarily attributable to higher
compensation costs of 0.8%, higher travel costs of 0.1% and higher other costs of 0.2%, partially offset by lower
communication costs of 0.2%.
33
In the EMEA segment, as a percentage of revenues, direct salaries and related costs decreased to 71.0% for 2012
from 73.8% in 2011. This decrease of 2.8%, as a percentage of revenues, was primarily attributable to lower
severance-related and compensation costs of 2.6% due to a workforce reduction in connection with the Fourth
Quarter 2011 Exit Plan, lower billable supply costs of 0.3% and lower other costs of 0.4%, partially offset by higher
fulfillment materials costs of 0.5%.
General and Administrative
General and administrative expenses decreased $0.3 million, or 0.1%, to $341.3 million for 2012 from $341.6
million in 2011.
On a reporting segment basis, general and administrative expenses from the Americas segment increased $5.2
million, including the negative foreign currency impact of $0.4 million, for 2012 from 2011. General and
administrative expenses from the EMEA segment decreased $10.3 million, including the positive foreign currency
impact of $2.9 million, for 2012 from 2011. Corporate general and administrative expenses increased $4.8 million
for 2012 from 2011. This increase of $4.8 million was primarily attributable to higher merger and acquisition costs
of $2.9 million, higher compensation costs of $1.5 million, higher legal and professional fees of $1.1 million, higher
software maintenance costs of $0.3 million and higher other costs of $0.2 million, partially offset by lower
charitable contributions of $1.2 million.
In the Americas segment, as a percentage of revenues, general and administrative expenses increased to 25.7% for
2012 from 24.7% in 2011. This increase of 1.0%, as a percentage of revenues, was primarily attributable to higher
compensation costs of 0.4% primarily related to higher wage rates, higher facility-related costs of 0.2% principally
from the expansion of U.S. facilities and lease termination costs in connection with the Fourth Quarter 2011 Exit
Plan, higher software maintenance of 0.2%, higher legal and professional fees of 0.1%, higher taxes of 0.1% and
higher other costs of 0.3%, partially offset by lower equipment and maintenance costs of 0.3%.
In the EMEA segment, as a percentage of revenues, general and administrative expenses decreased to 26.0% for
2012 from 27.8% in 2011. This decrease of 1.8%, as a percentage of revenues, was primarily attributable to lower
severance-related costs of 0.8% and lower facility-related costs of 0.5% due to the closure of certain sites in
connection with the Fourth Quarter 2011 Exit Plan, lower depreciation and amortization of 0.3%, lower equipment
and maintenance costs of 0.2%, lower legal and professional fees of 0.2% and lower other costs of 0.1%, partially
offset by higher communications costs of 0.2% and higher compensation costs of 0.1%.
Net (Gain) Loss on Disposal of Property and Equipment
Net (gain) loss on disposal of property and equipment was $0.4 million for 2012, compared to $(3.0) million in
2011. The gain in 2011 primarily related to the sale of land and a building located in Minot, North Dakota.
Net (Gain) on Insurance Settlement
Net (gain) on insurance settlement of $(0.1) million in 2012 primarily relates to funds received for damage to our
building and contents as a result of a tornado at one of our customer contact management centers located in Ponca
City, Oklahoma. Net (gain) on insurance settlement of $(0.5) million in 2011 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 either of these insurance claims.
Impairment of Long-Lived Assets
During 2012, we recorded a $0.4 million impairment of long-lived assets in the Americas segment. During 2011, we
recorded a $1.7 million impairment of long-lived assets, consisting of $1.2 million in the Americas segment and
$0.5 million in the EMEA segment. See Note 6, Fair Value, of the “Notes to Consolidated Financial Statements” for
further information.
Interest Income
Interest income remained unchanged at $1.4 million for 2012 and 2011.
34
Interest (Expense)
Interest (expense) was $(1.6) million for 2012, compared to $(1.1) million in 2011. The increase of $0.5 million
reflects interest and fees on borrowings related to the August 2012 acquisition of Alpine.
Other (Expense)
Other (expense), net, was $(2.5) million for 2012, compared to $(2.1) million in 2011. The net increase in other
(expense), net, of $0.4 million was primarily attributable to a $2.1 million increase in realized and unrealized foreign
currency transaction losses, net of gains and a $0.6 million loss on liquidation of a foreign subsidiary, partially offset
by a decrease of $1.2 million in foreign currency forward contract losses (which were not designated as hedging
instruments) and an increase of $1.1 million in other miscellaneous income, net. Other (expense), net, 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 Condensed Consolidated
Balance Sheets.
Income Taxes
The provision for income taxes of $5.2 million for 2012 was based upon pre-tax income of $45.2 million, compared
to the provision for income taxes of $11.3 million for 2011, which was based upon pre-tax income of $63.7 million.
The effective tax rate was 11.5% for 2012, compared to an effective tax rate of 17.8% for 2011.
The decrease in the effective tax rate of 6.3% resulted primarily from integration and transaction costs related to the
Alpine acquisition, which lowered income in a high tax jurisdiction.
Prior to the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, 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 $0.8 million and $0.9 million related to this distribution are included in
the provision for income taxes in the accompanying Consolidated Statement of Operations for 2012 and 2011,
respectively.
Gain (Loss) from Discontinued Operations
In 2012, the net (loss) on sale of the Spanish discontinued operations totaled $(10.7) million. The (loss) from the
Spanish discontinued operations, net of taxes, totaled $(0.8) million and $(4.6) million for 2012 and 2011,
respectively. In 2011, the net gain on sale of the Argentine discontinued operations totaled $0.5 million, which
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. There was no tax impact on either the (loss) from discontinued
operations or the gain (loss) on sale of discontinued operations.
Net Income (Loss)
As a result of the foregoing, we reported income from continuing operations for 2012 of $47.8 million, a decrease of
$17.8 million from 2011. This decrease was principally attributable to a $41.6 million decrease in revenues, a $3.4
million decrease in net gain on disposal of property and equipment and a $0.4 million decrease in net gain on
insurance settlement, partially offset by a $26.0 million decrease in direct salaries and related costs, a $0.3 million
decrease in general and administrative costs and a $1.3 million decrease in impairment of long-lived assets. In
addition to the $17.8 million decrease in income from continuing operations, we experienced an increase of $0.5
million in interest expense, a $0.4 million increase in other expense, net, and a $11.2 million increase in loss on sale
of discontinued operations, partially offset by a decrease of $3.8 million in loss from discontinued operations and a
$6.1 million decrease in the tax provision, resulting in net income of $28.4 million for 2012, a decrease of $20.0
million compared to 2011.
35
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, in 2010. Revenues from the EMEA region, including Europe, the Middle East and Africa,
represented 17.6%, or $206.2 million, for 2011 compared to 16.7%, or $187.6 million, in 2010.
Americas’ revenues increased $28.8 million, including the positive foreign currency impact of $10.8 million, for
2011 from 2010. The remaining increase of $18.0 million was primarily due to new contract sales of $65.9 million
and higher volumes from existing contracts of $8.0 million, partially offset by end-of-life client programs of $55.9
million. 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 2011
from 2010. The remaining increase of $8.7 million was primarily due to new contract sales of $15.0 million and
higher volumes from existing contracts of $22.2 million, partially offset by end-of-life client programs of $28.5
million. This $8.7 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
36
impact of $2.5 million, for 2011 from 2010. Corporate general and administrative expenses decreased $18.2 million
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.
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, 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, consisting of $3.1 million in the Americas segment and $0.2 million in the EMEA segment.
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.
37
Other (Expense)
Other (expense), net, was $(2.1) million for 2011, compared to $(5.9) million in 2010. The net decrease in other
(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 was 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 permitted 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 $0.4 million decrease in impairment
of goodwill and intangibles, 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 $3.8 million decrease in
interest expense, a $0.2 million increase in interest income, a $8.3 million decrease in loss from discontinued
operations and a $24.0 million decrease in loss on sale of discontinued operations, partially offset by a $9.1 million
increase in the tax provision, resulting in net income of $48.3 million for 2011, an increase of $58.6 million
compared to 2010.
38
Quarterly Results
The following information presents our unaudited quarterly operating results from continuing operations for 2012
and 2011. During 2012, we sold our operations in Spain. 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.
(in thousands, except per share data)
12/31/2012
9/30/2012
6/30/2012
3/31/2012
12/31/2011
9/30/2011
6/30/2011
3/31/2011
Revenues (1) …………………………………………………………… 304,272
Operating expenses:
$
Direct salaries and related costs (1,2) ………………………………… 201,194
General and administrative (1,3,4) …………………………………… 86,974
Net (gain) loss on disposal of property and equipment (5) …………
308
Net (gain) on insurance settlement …………………………………
-
Impairment of long-lived assets ……………………………………
84
$
280,526
$
264,802
$
278,098
$
276,234
$
293,310
$
300,273
$
299,450
183,628
87,905
174,630
81,533
178,500
84,942
181,978
82,086
189,082
82,553
199
-
122
(66)
-
-
(50)
(133)
149
411
-
954
(8)
(437)
38
198,779
88,370
(3,611)
-
-
194,091
88,577
187
(44)
726
Total operating expenses ………………………………………… 288,560
271,854
256,097
Income (loss) from continuing operations ………………………… 15,712
8,672
8,705
263,408
14,690
265,429
10,805
271,228
22,082
283,538
16,735
283,537
15,913
Other income (expense):
Interest income ………………………………………………………
Interest (expense) ……………………………………………………
Other income (expense) ……………………………………………
Total other income (expense) ……………………………………
443
(498)
(729)
(784)
Income (loss) from continuing operations before income taxes ……..
14,928
Income taxes …………………………………………………………… 1,638
Income (loss) from continuing operations, net of taxes ……………… 13,290
(Loss) from discontinued operations, net of taxes (6) …………………
Gain (loss) on sale of discontinued operations, net of taxes (7) ………
Net income (loss) ……………………………………………………… 13,290
$
-
-
Net income (loss) per common share (8) :
Basic:
Continuing operations ……………………………………………
$
0.31
297
(421)
(715)
(839)
7,833
(309)
8,142
-
-
354
(312)
(488)
(446)
8,259
511
7,748
-
-
364
(316)
(601)
(553)
14,137
3,367
10,770
405
(305)
173
273
11,078
5,118
5,960
357
(272)
(329)
(244)
21,838
2,969
18,869
310
(288)
(378)
(356)
16,379
2,683
13,696
(820)
(1,441)
(755)
(1,725)
(10,707)
559
-
-
280
(267)
(1,565)
(1,552)
14,361
572
13,789
(611)
-
$
8,142
$
7,748
$
(757)
$
5,078
$
18,114
$
11,971
$
13,178
$
0.19
$
0.18
$
0.25
$
0.14
$
0.42
$
0.30
$
0.29
Discontinued operations …………………………………………
-
-
-
(0.27)
(0.02)
(0.02)
(0.04)
(0.01)
Net income (loss) per common share ……………………………
$
0.31
Diluted:
Continuing operations ……………………………………………
$
0.31
$
0.19
$
0.18
$
(0.02)
$
0.12
$
0.40
$
0.26
$
0.28
$
0.19
$
0.18
$
0.25
$
0.14
$
0.42
$
0.30
$
0.29
Discontinued operations …………………………………………
-
-
-
(0.27)
(0.02)
(0.02)
(0.04)
(0.01)
Net income (loss) per common share ……………………………
$
0.31
$
0.19
$
0.18
$
(0.02)
$
0.12
$
0.40
$
0.26
$
0.28
Weighted average shares:
Basic ……………………………………………………………… 43,057
Diluted …………………………………………………………… 43,081
43,014
43,031
43,094
43,103
43,309
43,409
43,659
43,847
45,557
45,653
46,241
46,293
46,409
46,577
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The quarters ended December 31, 2012 and September 30, 2012 include the results of Alpine as a result of the acquisition completed on August 20, 2012.
The quarters ended December 31, 2012 and December 31, 2011 include $0.7 million and $3.5 million, respectively, related to the Fourth Quarter 2011 Exit Plan.
The quarters ended December 31, 2012, September 30, 2012, June 30, 2012, M arch 31, 2012 and December 31, 2011 include $(0.5) million, $0.6 million, $0.7 million, $0.3
million and $2.3 million related to the Fourth Quarter 2011 Exit Plan.
The quarters ended December 31, 2012 and September 30, 2012 include $1.0 million and $3.8 million, respectively, in Alpine 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 amounts for the quarter ended M arch 31, 2012 and each of the quarters for 2011 include the results of our operations in Spain, which was sold in M arch 2012.
The quarter ended December 31, 2011 includes a gain on the sale of our Argentine operations, which was sold in 2010.
(8) 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.
39
Business Outlook
For the twelve months ended December 31, 2013, we anticipate the following financial results:
• Revenues in the range of $1,220.0 million to $1,235.0 million;
• Effective tax rate of approximately 25%;
• Fully diluted share count of approximately 43.1 million;
• Diluted earnings per share of approximately $0.87 to $0.97; and
• Capital expenditures in the range of $55.0 million to $65.0 million
Not included in this guidance is the impact of any future acquisitions or share repurchase activities.
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 acquisitions. In future periods, we intend similar
uses of these funds.
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 2012, we repurchased 0.5 million common shares under the 2011
Share Repurchase Program at prices ranging from $13.85 to $15.00 per share for a total cost of $7.9 million. 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. As of December 31, 2012, a total of 3.0 million shares
have been repurchased under the 2011 Share Repurchase Program. 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, management discretion and general market conditions. The 2011 Share
Repurchase Program has no expiration date. We may make additional discretionary stock repurchases under this
program in 2013.
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”). 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. All available shares under the 2002 Share Repurchase Program have been repurchased.
During 2012, cash increased $86.5 million from operating activities, $113.0 million due to proceeds from the
issuance of long-term debt, $0.4 million due to a release of restricted cash, $0.2 million from the proceeds from sale
of property and equipment and $0.2 million of other. Further, we paid $147.1 million for the Alpine acquisition,
used $38.6 million for capital expenditures, used $22.0 million to repay long-term debt, divested cash of $9.1
million in conjunction with the sale of discontinued operations in Spain, used $7.9 million to repurchase our stock,
used $1.4 million to repurchase stock for minimum tax withholding on equity awards and paid $0.9 million for loan
fees, resulting in a $23.8 million decrease in available cash (including the favorable effects of foreign currency
exchange rates on cash of $2.9 million).
Net cash flows provided by operating activities for 2012 were $86.5 million, compared to $102.6 million in 2011.
The $16.1 million decrease in net cash flows from operating activities was due to a $20.0 million decrease in net
income and a net decrease of $1.2 million in cash flows from assets and liabilities, partially offset by a $5.1 million
increase in non-cash reconciling items such as depreciation and amortization, (gain) loss on the sale of discontinued
operations, net (gain) loss on disposal of property and equipment, impairment losses and unrealized foreign currency
transaction (gains) losses, net. The $1.2 million decrease in cash flows from assets and liabilities was principally a
result of a $15.7 million increase in accounts receivable (primarily related to the timing of receivables’ billings and
subsequent payments of those billings, coupled with a reduction in revenues in 2012 over 2011), a $13.1 million
increase in other assets (primarily related to the payment of a mandatory security deposit in connection with a
Canadian tax audit) and a $4.4 million decrease in deferred revenue, partially offset by a $26.0 million increase in
other liabilities (primarily related to the timing of payments and an increase in customer deposits of $6.6 million)
40
and a $6.0 million increase in taxes payable.
We sold our operations in Spain and Argentina in 2012 and 2010, respectively. Cash flows from discontinued
operations, which are included in the accompanying Consolidated Statements of Cash Flows, were as follows (in
thousands):
Cash (used for) operating activities of discontinued operations ……………………
Cash (used for) investing activities of discontinued operations ……………………
2012
$
Years Ended December 31,
2011
$
(4,656)
(311)
(4,530)
(8,887)
2010
$
(6,622)
(13,463)
Cash (used for) operating activities of discontinued operations represents the cash (used for) the Spanish and
Argentine operations in 2012, 2011 and 2010. Cash (used for) investing activities of discontinued operations for
2012 and 2010 primarily represents the cash divested upon the sale of the Spanish and Argentine operations,
respectively. Cash (used for) investing activities of discontinued operations represents capital expenditures in 2011.
The sale of the Spanish operations resulted in a loss of $10.7 million. 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 and Argentina to materially affect our future liquidity and capital
resources.
Capital expenditures, which are generally funded by cash generated from operating activities, available cash
balances and borrowings available under our credit facilities, were $38.6 million for 2012, compared to $29.9
million for 2011, an increase of $8.7 million. In 2013, we anticipate capital expenditures in the range of $55.0
million to $65.0 million, primarily for new seat additions, maintenance and systems infrastructure.
On May 3, 2012, we entered into a $245 million revolving credit facility (the “2012 Credit Agreement”) with a
group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative
Agent (“KeyBank”). The 2012 Credit Agreement replaced our previous $75 million revolving credit facility dated
February 2, 2010, as amended, which agreement was terminated simultaneous with entering into the 2012 Credit
Agreement. The 2012 Credit Agreement is subject to certain borrowing limitations and includes certain customary
financial and restrictive covenants. At December 31, 2012, we were in compliance with all loan requirements of the
2012 Credit Agreement and had $91.0 million of outstanding borrowings under this facility, with an average daily
utilization of $96.8 million for the outstanding period during 2012 (none in 2011). During 2012 and 2010, the
related interest expense, excluding amortization of deferred loan fees, under our credit agreements was $0.5 million
and $1.8 million, respectively, which represented weighted average interest rates of 1.5% and 3.9%, respectively
(none in 2011).
The 2012 Credit Agreement includes a $184 million alternate-currency sub-facility, a $10 million swingline sub-
facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including
acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. We are
not currently aware of any inability of our lenders to provide access to the full commitment of funds that exist under
the 2012 Credit Agreement, if necessary. However, there can be no assurance that such facility will be available to
us, even though it is a binding commitment of the financial institutions. The 2012 Credit Agreement will mature on
May 2, 2017.
Borrowings under the 2012 Credit Agreement will bear interest at either LIBOR or the base rate plus, in each case,
an applicable margin based on our leverage ratio. The applicable interest rate will be 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 will 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 0.175%, which is due quarterly in arrears and
calculated on the average unused amount of the 2012 Credit Agreement.
The 2012 Credit Agreement is guaranteed by all of 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.
41
In April 2012, we received an assessment for the Canadian 2003-2006 audit for which we filed a Notice of
Objection in July 2012. As required by the Notice of Objection process, we paid mandatory security deposits in the
amount of $14.5 million to the Canadian Revenue Agency and $0.4 million to the Province of Ontario. This process
will allow us to submit the case to the U.S. and Canada Competent Authority for ultimate resolution. Although the
outcome of examinations by taxing authorities is always uncertain, we believe we are adequately reserved for this
audit and that resolution is not expected to have a material impact on our financial condition and results of
operations.
On August 20, 2012, we completed the acquisition of Alpine Access, Inc. (“Alpine”), a Delaware corporation,
pursuant to the Agreement and Plan of Merger, dated July 27, 2012. The purchase price of $149.0 million was
funded through cash on hand of $41.0 million and borrowings of $108.0 million under our 2012 Credit Agreement,
dated May 3, 2012.
As of December 31, 2012, we had $187.3 million in cash and cash equivalents, of which approximately 97.6% or
$182.9 million, was held in international operations and is deemed to be indefinitely reinvested offshore. These
funds 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 do not intend nor currently foresee a need to repatriate these funds. We expect our
current domestic cash levels and cash flows from operations to be adequate to meet our domestic anticipated
working capital needs, including investment activities such as capital expenditures and debt repayment for the next
twelve months and the foreseeable future. Additionally, we expect our current foreign cash levels and cash flows
from foreign operations to be adequate to meet our foreign anticipated working capital needs, including investment
activities such as capital expenditures for the next twelve months and the foreseeable future.
If we should require more cash in the U.S. than is provided by our domestic operations for significant discretionary
unforeseen activities such as acquisitions of businesses and share repurchases, we could elect to repatriate future
foreign earnings and/or raise capital in the U.S through additional borrowings or debt/equity issuances. These
alternatives could result in higher effective tax rates, interest expense and/or dilution of earnings. We have
borrowed funds domestically and continue to have the ability to borrow additional funds domestically at reasonable
interest rates.
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, 2012, we did not have any material commercial commitments, including guarantees or standby
repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities
often referred to as structured finance or special purpose entities or variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes.
From time to time, during the normal course of business, we may make certain indemnities, commitments and
guarantees under which we may be required to make payments in relation to certain transactions. These include, but
are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence
or willful misconduct and (ii) indemnities involving breach of contract, the accuracy of representations and
warranties, or other liabilities assumed by us in certain contracts. In addition, we have agreements whereby we will
indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was,
serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences
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
42
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, 2012, and the effect these
obligations are expected to have on liquidity and cash flow in future periods (in thousands):
$
Operating leases(1) ………………………………………… 163,124
Purchase obligations(2) ……………………………………… 32,099
Accounts payable (3) ………………………………………
24,985
Accrued employee compensation and benefits (3) …………
73,087
Income taxes payable (4) ……………………………………
800
Other accrued expenses and current liabilities (5) …………… 31,320
Long-term debt (6) …………………………………………… 91,000
Long-term tax liabilities (7) …………………………………
11,173
Other long-term liabilities (8) ………………………………… 4,716
432,304
$
Total
Less Than
1 Year
$
Payments Due By Period
1 - 3 Years
$
51,393
6,336
-
-
-
-
-
-
1,761
59,490
$
3 - 5 Years
$
31,163
1,206
-
-
-
-
91,000
-
1,195
124,564
$
37,418
24,557
24,985
73,087
800
31,320
-
785
-
192,952
After 5
Years
$
43,150
-
-
-
-
-
-
-
1,760
44,910
Other
$
-
-
-
-
-
-
-
10,388
-
10,388
$
$
$
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Amounts represent the expected cash payments under our operating leases.
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 17 to the accompanying Consolidated Financial Statements), which
represent amounts due vendors and employees payable within one year.
Income taxes payable, which represents amounts due taxing authorities payable within one year.
Other accrued expenses and current liabilties, which exclude deferred grants, include amounts as disclosed in Note 19 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 debt (See Note 21 to the accompanying Consolidated Financial Statements), which represents borrowings under our revolving credit
facility.
Long-term tax liabilities include uncertain tax positions and related penalties and interest as discussed in Note 23 to the accompanying Consolidated
Financial Statements. The amount in the table has been reduced by $14.9 million of Canadian mandatory security deposits paid during 2012, which
are included in "Deferred charges and other assets" in the accompanying Consolidated Balance Sheet as of December 31, 2012. We cannot make
reasonably reliable estimates of the cash settlement of $10.4 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 5 and 26 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.
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, per transaction or per time and
material basis, under a fully executed contractual agreement and record reductions to revenues for contractual
penalties and holdbacks for failure to meet specified minimum service levels and other performance based
contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future
43
product or service or meeting other specified performance conditions. Product sales, accounted for within our
fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.
Revenues from fulfillment services account for 1.5%, 1.4% and 1.5% of total consolidated revenues for the years
ended December 31, 2012, 2011 and 2010, respectively, some of which contain multiple-deliverables. The service
offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process
management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 “Revenue
Recognition — Multiple-Element Arrangements” (“ASC 605-25”) (as amended by Accounting Standards Update
(“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of
the FASB Emerging Issues Task Force”) (“ASU 2009-13”), we determine if the services provided under these
contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a separate unit
of accounting when it has standalone value, and where return rights exist, delivery or performance of the
undelivered items is considered probable and substantially within our control. If those deliverables are determined to
be separate units of accounting, revenues from these services are recognized as the services are performed under a
fully executed contractual agreement. If those deliverables are not determined to be separate units of accounting,
revenue for the delivered services are bundled into a single unit of accounting and recognized on the proportional
performance method using the straight-line basis over the contract period, or the actual number of operational seats
used to serve the client, as appropriate.
As a result of the adoption of ASU 2009-13, the Company allocates revenue to each of the deliverables based on a
selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated
selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is
based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated
selling price is based on our best estimate of what the selling prices of deliverables would be if they were sold
regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not
limited to, pricing practices in different geographies, service offerings, and customer classifications. Once we
allocate revenue to each deliverable, we recognize revenue when all revenue recognition criteria are met. As of
December 31, 2012, our fulfillment contracts with multiple-deliverables met the separation criteria as outlined in
ASC 605-25 and the revenue was accounted for accordingly. Other than these fulfillment contracts, we have no
other contracts that contain multiple-deliverables as of December 31, 2012.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts, $5.1 million as of December 31, 2012, or 2.0% of trade account
receivables, for estimated losses arising from the inability of our customers to make required payments. Our
estimate is based on 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
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, 2012, we determined that a total valuation allowance of $43.3 million was necessary to reduce
U.S. deferred tax assets by $3.5 million and foreign deferred tax assets by $39.8 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 $17.3 million as of December 31, 2012 is dependent upon future profitability within each
tax jurisdiction. As of December 31, 2012, 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.
44
A provision for income taxes has not been made for the undistributed earnings of foreign subsidiaries of
approximately $383.8 million as of December 31, 2012, 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.
In April 2012, we received an assessment for the Canadian 2003-2006 audit for which we filed a Notice of
Objection in July 2012. As required by the Notice of Objection process, we paid mandatory security deposits in the
amount of $14.5 million to the Canadian Revenue Agency and $0.4 million to the Province of Ontario, which are
included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet as of December
31, 2012 and “Cash paid during period for income taxes” in the accompanying Consolidated Statements of Cash
Flows for the year ended December 31, 2012. This process will allow us to submit the case to the U.S. and Canada
Competent Authority for ultimate resolution. Although the outcome of examinations by taxing authorities is always
uncertain, we believe we are adequately reserved for this audit and that resolution is not expected to have a material
impact on our financial condition and results of operations.
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.
In addition, The American Taxpayer Relief Act of 2012 was passed on January 2, 2013, with many provisions
retroactively effective to January 1, 2012. We are currently evaluating the net retroactive impact of this law change
on our financial condition, results of operations and cash flows.
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, 2012, we had $16.9 million of unrecognized tax benefits, a net decrease of $0.2 million from
$17.1 million as of December 31, 2011. Had we recognized these tax benefits, approximately $16.9 million and
$17.1 million and the related interest and penalties would favorably impact the effective tax rate in 2012 and 2011,
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 $0.4 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
expiration dates ranging from 2013 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.
45
Impairment of Goodwill, Intangibles and Other Long-Lived Assets
We review long-lived assets, which had a carrying value of $397.6 million as of December 31, 2012, 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 December 2011, the FASB issued ASU 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting
Assets and Liabilities” (“ASU 2011-11”). The amendments in ASU 2011-11 will enhance disclosures by requiring
improved information about financial and derivative instruments that are either 1) offset (netting assets and
liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards
Codification or 2) subject to an enforceable master netting arrangement or similar agreement. The amendments in
ASU 2011-11 are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those
years. An entity should provide the disclosures required by those amendments retrospectively for all comparative
periods presented. The adoption of ASU 2011-11 as of January 1, 2013 did not have a material impact on our
financial condition, results of operations and cash flows.
In July 2012, the FASB issued ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) Testing Indefinite-
Lived Intangible Assets for Impairment” (“ASU 2012-02”). The amendments in ASU 2012-02 provide entities with
the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates
that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of
events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible
asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise,
then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative
impairment test by comparing the fair value with the carrying amount. Under the amendments in ASU 2012-02, an
entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period
and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the
qualitative assessment in any subsequent period. The amendments in ASU 2012-02 are effective for annual and
interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU
2012-02 on January 1, 2013 did not have a material impact on our financial condition, results of operations and cash
flows.
In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income (Topic 220) Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-
02 do not change the current requirements for reporting net income or other comprehensive income in financial
statements. However, the amendments require an entity to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition, an entity is required to present, either on the
face of the statement where net income is presented or in the notes, significant amounts reclassified out of
accumulated other comprehensive income by the respective line items of net income but only if the amount
reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.
For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity
is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about
those amounts. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after
December 15, 2012. We do not expect the adoption of ASU 2013-02 to materially 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 on our financial condition, results of
operations and cash flows.
46
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, and Costa Rican Colones (“CRC”), which represent FX exposures.
Additionally, our EMEA segment services clients in Hungary and Romania where the contracts are priced in Euros
(“EUR”), with a substantial portion of the costs incurred to render services under these contracts denominated in
Hungarian Forints (“HUF”) and Romanian Leis (“RON”).
In order to hedge a portion of our anticipated cash flow requirements denominated in PHP, CRC, HUF and RON we
had outstanding forward contracts and options as of December 31, 2012 with counterparties through January 2014
with notional amounts totaling $148.4 million. As of December 31, 2012, we had net total derivative assets
associated with these contracts with a fair value of $0.2 million, which will settle within the next 13 months. If the
USD was to weaken against the PHP, CRC and the EUR was to weaken against the HUF and RON by 10% from
current period-end levels, we would incur a loss of approximately $11.9 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, 2012, the fair value of these derivatives was a net receivable of $0.9 million. The potential loss in fair value at
December 31, 2012, for these contracts resulting from a hypothetical 10% adverse change in the foreign currency
exchange rates is approximately $5.3 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 our revolving credit facility. We pay
interest on outstanding borrowings at interest rates that fluctuate based upon changes in various base rates. As of
December 31, 2012, we had $91.0 million in borrowings outstanding under the revolving credit facility. Based on
47
our level of variable rate debt outstanding during the year ended December 31, 2012, a one-point increase in the
weighted average interest rate, which generally equals the LIBOR rate plus an applicable margin, would have had a
$0.4 million impact on our results of operations.
We have not historically used derivative instruments to manage exposure to changes in interest rates.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are located beginning on page 56 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, 2012. 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,
2012.
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
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, 2012. 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, 2012, our internal control over financial reporting was effective.
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2012
that have materially affected, or are reasonably likely to materially affect, our internal controls over financial
reporting, except for the change discussed under “Changes to Internal Control Over Financial Reporting” below.
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 49.
Changes to Internal Control Over Financial Reporting
On August 20, 2012, we acquired Alpine. We have excluded Alpine from our assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2012 as we are currently integrating policies, processes,
people, technology and operations for the combined companies. Management will continue to evaluate our internal
control over financial reporting as we execute our integration activities.
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
Tampa, Florida
We have audited the internal control over financial reporting of Sykes Enterprises, Incorporated and subsidiaries (the
"Company") as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on
Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial
reporting at Alpine Access, Incorporated, which was acquired on August 20, 2012 and whose financial statements
constituted 26% and 20% of net and total assets, respectively, 4% of revenues, and who contributed a net loss of $2.2
million to the consolidated financial statement amounts as of and for the year ended December 31, 2012. Accordingly, our
audit did not include the internal control over financial reporting at Alpine Access, Incorporated. 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, 2012, 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 schedules as of and for the year ended December 31,
2012 of the Company and our report dated March 1, 2013 expressed an unqualified opinion on those financial statements
and financial statement schedule.
Certified Public Accountants
Tampa, Florida
March 1, 2013
49
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 2013 Annual Meeting of Shareholders.
50
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
Consolidated Financial Statements
The Index to Consolidated Financial Statements is set forth on page 56 of this report.
Financial Statements Schedule
Schedule II — Valuation and Qualifying Accounts is set forth on page 115 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.
Exhibits:
Exhibit
Number
Exhibit Description
2.1
2.2
2.3
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Articles of Merger between Sykes Enterprises, Incorporated, a North Carolina Corporation,
and Sykes Enterprises, Incorporated, a Florida Corporation, dated March 1, 1996. (1)
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
(15)
Agreement and Plan of Merger, dated as of July 27, 2012, by and among Sykes Enterprises,
Incorporated, Sykes Acquisition Subsidiary II, Inc., Alpine Access, Inc., and Shareholder
Representative Services LLC. (24)
Articles of Incorporation of Sykes Enterprises, Incorporated, as amended. (2)
Articles of Amendment to Articles of Incorporation of Sykes Enterprises, Incorporated, as
amended. (3)
Bylaws of Sykes Enterprises, Incorporated, as amended. (7)
Specimen certificate for the Common Stock of Sykes Enterprises, Incorporated. (1)
2004 Non-Employee Directors’ Fee Plan. (5)*
First Amended and Restated 2004 Non-Employee Director’s Fee Plan. (12)*
Second Amended and Restated 2004 Non-Employee Director’s Fee Plan. (14)*
Third Amended and Restated 2004 Non-Employee Director’s Fee Plan. (16)*
Fourth Amended and Restated 2004 Non-Employee Director Fee Plan. (20)*
Fifth Amended and Restated 2004 Non-Employee Director Fee Plan. (26)*
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)
51
Exhibit
Number
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
Exhibit Description
2001 Equity Incentive Plan. (4)*
Deferred Compensation Plan. (7)*
First Amendment to Deferred Compensation Plan. (27)*
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of March
29, 2006. (8)*
Form of Restricted Share And Bonus Award Agreement dated as of March 29, 2006. (8)*
Form of Restricted Share Award Agreement dated as of May 24, 2006. (9)*
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of
January 2, 2007. (10)*
Form of Restricted Share Award Agreement dated as of January 2, 2007. (10)*
Form of Restricted Share and Stock Appreciation Right Award Agreement dated as of January
2, 2008. (11)*
2011 Equity Incentive Plan. (21)*
Founder’s Retirement and Consulting Agreement dated December 10, 2004 between Sykes
Enterprises, Incorporated and John H. Sykes. (6)*
Amended and Restated Employment Agreement dated as of December 30, 2008 between
Sykes Enterprises, Incorporated and Charles E. Sykes. (17)*
Amended and Restated Employment Agreement dated as of December 30, 2008 between
Sykes Enterprises, Incorporated and W. Michael Kipphut. (17)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and Jenna R. Nelson. (17)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and James T. Holder. (17)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and William N. Rocktoff. (17)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and James Hobby, Jr. (17)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and Daniel L. Hernandez. (17)*
Amended and Restated Employment Agreement dated as of December 29, 2008 between
Sykes Enterprises, Incorporated and David L. Pearson. (17)*
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. (13)
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. (18)
10.31
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
52
Exhibit
Number
10.32
10.33
10.34
10.35
10.36
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Exhibit Description
Carolina Gaito, Claudio Martin, Fernando A. Berrondo, Gustavo Rosetti as Buyers, dated
December 24, 2010. (19)
Credit Agreement, dated May 3, 2012, between Sykes Enterprises, Incorporated, the lenders
party thereto and KeyBank National Association, as Lead Arranger, Sole Book Runner and
Administrative Agent. (22)
Business Sale and Purchase Agreement, dated as of March 29, 2012, between Sykes
Enterprises, Incorporated and Iberphone, S.A.U. (23)
Stock Purchase Agreement, dated as of March 30, 2012, by and among Sykes Enterprises,
Incorporated (not as a Seller), SEI International Services S.a.r.l. (as Seller) and Eugenio Arceu
Garcia as Buyer. (23)
Employment Agreement, dated as of September 13, 2012, between Sykes Enterprises,
Incorporated and Lawrence R. Zingale. (25)*
Employment Agreement, dated as of September 13, 2012, between Sykes Enterprises,
Incorporated and Christopher Carrington. (25)*
Code of Ethics. (28)
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
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
*
(1)
(2)
(3)
(4)
(5)
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 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 10.32 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-Q filed with the Commission on August 9, 2004, and
incorporated herein by reference.
53
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
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
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
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.
Filed as an Exhibit to the Registrant’s Form 8-K filed with the Commission on May 7, 2012, and
incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Form 8-K filed with the Commission on April 4, 2012, and
incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Form 8-K filed with the Commission on July 30, 2012,
and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Form 8-K filed with the Commission on September 19,
2012, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Proxy Statement for the 2012 annual meeting of
shareholders filed with the Commission on April 14, 2012, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Proxy Statement for the 2006 annual meeting of
shareholders filed with the Commission on April 21, 2006, 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.”
54
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 1st
day of March 2013.
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
/s/ Mark C. Bozek
Mark C. Bozek
Title
Chairman of the Board
Date
March 1, 2013
President and Chief Executive Officer and
Director (Principal Executive Officer)
March 1, 2013
Director
March 1, 2013
/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
March 1, 2013
March 1, 2013
March 1, 2013
March 1, 2013
March 1, 2013
March 1, 2013
March 1, 2013
Executive Vice President and Chief Financial Officer March 1, 2013
(Principal Financial and Accounting Officer)
55
Table of Contents
Report of Independent Registered Public Accounting Firm ........................................................................... ..
Consolidated Balance Sheets as of December 31, 2012 and 2011 ...................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010 .................
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2012, 2011 and
2010 ..................................................................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2012, 2011
and 2010 ............................................................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010 ................
Notes to Consolidated Financial Statements ....................................................................................................
Page No.
57
58
59
60
61
62
64
56
Report of Independent Registered Public Accounting
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, 2012 and 2011, and the related consolidated statements of operations,
comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2012. 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, 2012 and 2011 and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of December 31, 2012, 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 March 1, 2013 expressed an unqualified opinion on the Company's
internal control over financial reporting.
Certified Public Accountants
Tampa, Florida
March 1, 2013
57
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, 2012
December 31, 2011
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 debt ……………………………………………………………………
Long-term income tax liabilities ……………………………………………………
Other long-term liabilities …………………………………………………………
Total liabilities…………………………………………………………………
Commitments and loss contingency (Note 25)
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000 shares
$
$
$
187,322
247,633
12,370
20,017
-
467,342
101,295
204,231
92,037
43,784
908,689
24,985
73,103
92
800
34,283
31,320
-
164,583
7,607
91,000
26,162
13,073
302,425
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
authorized; no shares issued and outstanding …………………………………
-
-
Common stock, $0.01 par value, 200,000 shares authorized;
43,790 and 44,306 shares issued, respectively ………………………………
Additional paid-in capital ………………………………………………………
Retained earnings …………………………………………………………………
Accumulated other comprehensive income ………………………………………
Treasury stock at cost: 108 shares and 299 shares, respectively ………………
Total shareholders' equity ……………………………………………………
438
277,192
315,187
14,856
(1,409)
606,264
908,689
443
281,157
291,803
4,436
(4,273)
573,566
769,130
$
$
See accompanying Notes to Consolidated Financial Statements.
58
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Years Ended December 31,
2012
2011
2010
Revenues ……………………………………………………………… 1,127,698
$
$
1,169,267
$
1,121,911
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 ……………………………………
737,952
341,354
391
(133)
-
355
763,930
341,586
(3,021)
(481)
-
1,718
715,571
366,565
143
(1,991)
362
3,280
Total operating expenses ………………………………………… 1,079,919
1,103,732
1,083,930
Income from continuing operations …………………………………
47,779
65,535
37,981
Other income (expense):
Interest income ………………………………………………………
Interest (expense) ……………………………………………………
Other (expense)………………………………………………………
Total other income (expense) ……………………………………
Income from continuing operations before income taxes ………………
Income taxes ……………………………………………………………
Income from continuing operations, net of taxes ………………………
1,458
(1,547)
(2,533)
(2,622)
45,157
5,207
39,950
(Loss) from discontinued operations, net of taxes ……………………
(820)
Gain (loss) on sale of discontinued operations, net of taxes …………… (10,707)
Net income (loss) ………………………………………………………
$
28,423
Net income (loss) per common share:
Basic:
Continuing operations …………………………………………
$
0.93
1,352
(1,132)
(2,099)
(1,879)
63,656
11,342
52,314
(4,532)
559
1,201
(4,963)
(5,907)
(9,669)
28,312
2,197
26,115
(12,893)
(23,495)
$
48,341
$
(10,273)
$
1.15
$
0.57
Discontinued operations ………………………………………
(0.27)
(0.09)
(0.79)
Net income (loss) per common share …………………………
$
0.66
$
1.06
$
(0.22)
Diluted:
Continuing operations …………………………………………
$
0.93
$
1.15
$
0.57
Discontinued operations ………………………………………
(0.27)
(0.09)
(0.79)
Net income (loss) per common share …………………………
$
0.66
$
1.06
$
(0.22)
Weighted average common shares:
Basic ……………………………………………………………
Diluted …………………………………………………………
43,105
43,148
45,506
45,607
46,030
46,133
See accompanying Notes to Consolidated Financial Statements.
59
Sykes Enterprises, Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Years Ended December 31,
2011
2012
2010
Net income (loss) ……………………………………………………………………………………
$
28,423
$
48,341
$
(10,273)
Other comprehensive income (loss), net of taxes:
Foreign currency translation gain (loss), net of taxes ……………….………………………………
Unrealized (loss) on net investment hedge, net of taxes ……………………………………...……
Unrealized actuarial gain (loss) related to pension liability, net of taxes …………………………
Unrealized gain (loss) on cash flow hedging instruments, net of taxes ……………………………
Unrealized gain (loss) on postretirement obligation, net of taxes …………………………………
Other comprehensive income (loss), net of taxes ………………………………………………
10,088
-
428
(132)
36
10,420
(7,997)
-
(204)
(2,584)
113
(10,672)
9,675
(2,565)
(18)
127
70
7,289
Comprehensive income (loss) ………………………………………………...………………………
$
38,843
$
37,669
$
(2,984)
See accompanying Notes to Consolidated Financial Statements.
60
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
S hares
(in thousands)
Issued
Balance at January 1, 2010 ………… 41,817
Amount
$
418
Common S tock
Additional
Paid-in
Capital
$
166,514
Retained
Earnings
$
280,399
Accumulated
Other
Comprehensive
Income (Loss)
$
7,819
Treasury
S tock
$
(4,476)
Total
450,674
$
Issuance of common stock ……………
Stock-based compensation expense …
Excess tax benefit (deficiency) from
stock-based compensation …………
Vesting of common stock and
restricted stock under equity award
plans, net of forfeitures ……………
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 benefit (deficiency) from
stock-based compensation …………
Vesting of common stock and
33
-
-
restricted stock under equity award
plans, net of forfeitures ……………
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)
-
-
-
-
-
(4,450)
-
-
-
-
-
-
136,616
-
-
(10,273)
302,911
265,676
-
7,289
15,108
-
-
-
(201)
(5,212)
8,918
-
-
37
4,935
354
(1,282)
(5,212)
-
136,673
(2,984)
(971)
583,195
311
3,582
(8)
(979)
-
(24,660)
-
-
-
-
-
-
(22,214)
48,341
-
-
-
-
-
-
(10,672)
-
-
-
(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
Stock-based compensation expense …
Excess tax benefit (deficiency) from
stock-based compensation …………
Vesting of common stock and
restricted stock under equity award
plans, net of forfeitures ……………
Repurchase of common stock …………
Retirement of treasury stock …………
Comprehensive income (loss) …………
-
-
229
-
(745)
-
-
-
3
-
(8)
-
3,467
(292)
(1,195)
-
(5,945)
-
-
-
-
-
(5,039)
28,423
-
-
-
-
-
10,420
-
-
(220)
(7,908)
10,992
-
3,467
(292)
(1,412)
(7,908)
-
38,843
Balance at December 31, 2012 ……… 43,790
$
438
$
277,192
$
315,187
$
14,856
$
(1,409)
$
606,264
See accompanying Notes to Consolidated Financial Statements.
61
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,
2011
2012
2010
$
28,423
$
48,341
$
(10,273)
Depreciation and amortization, net ……………………………………………
Impairment losses ………………………………………………………………
Unrealized foreign currency transaction (gains) losses, net ………………
Stock-based compensation expense …………………………………………
Excess tax (benefit) from stock-based compensation ………………………
Deferred income tax provision (benefit) ………………………………………
Net (gain) loss on disposal of property and equipment ……………………
Bad debt expense ………………………………………………………………
Unrealized (gains) losses on financial instruments, net ……………………
(Recovery) of regulatory penalties ……………………………………………
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 ………………………………………………………
50,848
355
2,131
3,467
-
(4,867)
391
1,115
(1,361)
-
368
(133)
10,707
427
(6,771)
694
1,705
(18,388)
(1,589)
1,555
4,872
11,476
(163)
1,252
53,467
2,561
1,216
3,582
-
(3,955)
(3,035)
532
4,138
(407)
585
(481)
(559)
781
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)
2,918
(1,991)
29,901
428
(10,716)
3,465
(4,797)
2,740
(2,174)
(6,180)
(6,601)
9,329
258
(4,527)
Net cash provided by operating activities …………………………………
86,514
102,614
45,062
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 ……………………………………………
(38,647)
(147,094)
240
(67)
356
(9,100)
228
(29,890)
-
3,973
(494)
396
-
1,654
Net cash (used for) investing activities …………………………………… (194,084)
(24,361)
(28,516)
(77,174)
49
(187)
80,000
(14,462)
1,991
(38,299)
62
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
(in thousands)
Cash flows from financing activities:
Years Ended December 31,
2011
2012
2010
Payment of long-term debt ………………………………………………………
Proceeds from issuance of long-term debt ……………………………………
Proceeds from issuance of stock …………………………………………………
Excess tax benefit from stock-based compensation ……………………………
Cash paid for repurchase of common stock ……………………………………
Proceeds from grants ……………………………………………………………
Payment of short-term debt ………………………………………………………
Shares repurchased for minimum tax withholding on equity awards …………
Cash paid for loan fees related to debt …………………………………………
Other ……………………………………………………………………...…………
Net cash provided by (used for) financing activities ……………………
Effects of exchange rates on cash …………………………………………………
Net increase (decrease) in cash and cash equivalents …………………………
Cash and cash equivalents – beginning …………………………………………
(22,000)
113,000
-
-
(7,908)
88
-
(1,412)
(857)
-
80,911
2,859
(23,800)
211,122
Cash and cash equivalents – ending ………………………………………………
$
187,322
Supplemental disclosures of cash flow information:
Cash paid during period for interest ……………………………………………
Cash paid during period for income taxes ………………………………………
$
$
2,239
28,822
Non-cash transactions:
Property and equipment additions in accounts payable ………………………
Unrealized gain on postretirement obligation in accumulated other
$
3,782
-
-
311
-
(49,993)
(225)
-
(1,190)
-
(8)
(51,105)
(5,855)
21,293
189,829
(75,000)
75,000
37
354
(5,212)
148
(85,000)
(1,282)
(3,035)
-
(93,990)
(2,797)
(90,024)
279,853
$
211,122
$
189,829
$
$
1,065
24,631
$
$
2,924
20,577
$
2,434
$
2,317
comprehensive income (loss) …………………………………………………
Issuance of common stock for business acquisition …………………………
36
$
$
-
$
113
$
-
$
$
70
136,673
See accompanying Notes to Consolidated Financial Statements.
63
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
comprehensive outsourced customer contact management solutions and services in the business process outsourcing
arena to companies, primarily within the communications, financial services, technology/consumer, transportation
and leisure, and healthcare industries. SYKES provides flexible, high-quality outsourced customer contact
management services (with an emphasis on inbound technical support and customer service), which includes
customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers.
Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple
communication channels encompassing phone, e-mail, Internet, text messaging and chat. SYKES complements its
outsourced customer contact management services with various enterprise support services in the United States that
encompass services for a company’s internal support operations, from technical staffing services to outsourced
corporate help desk services. In Europe, SYKES also provides fulfillment services including multilingual sales order
processing via the Internet and phone, payment processing, inventory control, product delivery and product returns
handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the
United States, Canada, Latin America, India and the Asia Pacific Rim, in which the client base is primarily
companies in the United States that are using the Company’s services to support their customer management needs;
and (2) EMEA, which includes Europe, the Middle East and Africa.
Acquisitions — In August 2012, the Company completed the acquisition of Alpine Access, Inc. (“Alpine”), a
Delaware corporation, pursuant to the Agreement and Plan of Merger, dated July 27, 2012. The Company has
reflected the operating results in the Consolidated Statement of Operations since August 20, 2012. See Note 2,
Acquisition of Alpine Access, Inc., for additional information on the acquisition of this business.
In February 2010, the Company completed the acquisition of ICT Group, Inc. (“ICT”), pursuant to the Agreement
and Plan of Merger, dated October 5, 2009. The Company has reflected the operating results in the Consolidated
Statements of Operations since February 2, 2010. See Note 3, Acquisition of ICT, for additional information on the
acquisition of this business.
Discontinued Operations — In March 2012, the Company sold its Spanish operations, pursuant to an asset purchase
agreement dated March 29, 2012 and a stock purchase agreement dated March 30, 2012. The Company reflected
the operating results related to the Spanish operations as discontinued operations in the Consolidated Statements of
Operations for the years ended December 31, 2012, 2011 and 2010. Cash flows from discontinued operations are
included in the Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010. See
Note 4, Discontinued Operations, for additional information on the sale of the Spanish operations.
In December 2010, the Company sold its operations in Argentina (the “Argentine operations”), pursuant to stock
purchase agreements, dated December 16, 2010 and December 29, 2010. The Company reflected the operating
results related to the Argentine operations as discontinued operations in the Consolidated Statement of Operations
for the year ended December 31, 2010. Cash flows from discontinued operations are included in the Consolidated
Statement of Cash Flows for the year ended December 31, 2010. See Note 4, Discontinued Operations, for
additional information on the sale of the Argentine operations.
Principles of Consolidation — The consolidated financial statements include the accounts of SYKES and its
wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
64
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance
of the consolidated financial statements. There were no material subsequent events that required recognition or
disclosure in the consolidated financial statements.
Recognition of Revenue — The Company recognizes revenue in accordance with Accounting Standards
Codification (“ASC”) 605 “Revenue Recognition” (“ASC 605”). The Company primarily recognizes revenues from
services as the services are performed, which is based on either a per minute, per call, per transaction or per time and
material basis, under a fully executed contractual agreement and record reductions to revenues for contractual
penalties and holdbacks for failure to meet specified minimum service levels and other performance based
contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future
product or service or meeting other specified performance conditions. Product sales, accounted for within our
fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.
Revenues from fulfillment services account for 1.5%, 1.4% and 1.5% of total consolidated revenues for the years
ended December 31, 2012, 2011 and 2010, respectively, some of which contain multiple-deliverables. The service
offerings for these fulfillment service contracts typically include pick-pack-and-ship, warehousing, process
management, finished goods assembly and pass-through costs. In accordance with ASC 605-25 “Revenue
Recognition — Multiple-Element Arrangements” (“ASC 605-25”) [as amended by Accounting Standards Update
(“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus
of the FASB Emerging Issues Task Force” (“ASU 2009-13”)], the Company determines if the services provided
under these contracts with multiple-deliverables represent separate units of accounting. A deliverable constitutes a
separate unit of accounting when it has standalone value, and where return rights exist, delivery or performance of
the undelivered items is considered probable and substantially within our control. If those deliverables are
determined to be separate units of accounting, revenues from these services are recognized as the services are
performed under a fully executed contractual agreement. If those deliverables are not determined to be separate units
of accounting, revenue for the delivered services are bundled into a single unit of accounting and recognized on the
proportional performance method using the straight-line basis over the contract period, or the actual number of
operational seats used to serve the client, as appropriate.
As a result of the adoption of ASU 2009-13, the Company allocates revenue to each of the deliverables based on a
selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated
selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is
based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated
selling price is based on the Company’s best estimate of what the selling prices of deliverables would be if they
were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors
including, but not limited to, pricing practices in different geographies, service offerings, and customer
classifications. Once the Company allocates revenue to each deliverable, the Company recognizes revenue when all
revenue recognition criteria are met. As of December 31, 2012, the Company’s fulfillment contracts with multiple-
deliverables met the separation criteria as outlined in ASC 605-25 and the revenue was accounted for accordingly.
Other than these fulfillment contracts, the Company had no other contracts that contain multiple-deliverables as of
December 31, 2012.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments.
Cash in the amount of $187.3 million and $211.1 million at December 31, 2012 and 2011, respectively, was
primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash
equivalents of $182.9 million and $163.9 million at December 31, 2012 and 2011, respectively, were held in
international operations and may be subject to additional taxes if repatriated to the United States.
Restricted Cash — Restricted cash includes cash whereby the Company’s ability to use the funds at any time is
contractually limited or is generally designated for specific purposes arising out of certain contractual or other
obligations. Restricted cash is included in “Other current assets” and “Deferred charges and other assets” in the
accompanying Consolidated Balance Sheets.
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts on trade account
receivables for estimated losses arising from the inability of its customers to make required payments. The
Company’s estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and
methodologies using the publicly available credit and capital market information, a review of the current status of
the Company’s trade accounts receivable and historical collection experience of the Company’s clients. It is
65
reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial
condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments.
Assets and Liabilities Held for Sale — The Company classifies its assets and related liabilities as held for sale when
management commits to a plan to sell the assets, the assets are ready for immediate sale in their present condition,
an active program to locate buyers and other actions required to complete the plan to sell the assets has been
initiated, the sale of the assets is probable and expected to be completed within one year, the assets are marketed at
reasonable prices in relation to their fair value and it is unlikely that significant changes will be made to the plan to
sell the assets.
The Company measures the value of assets held for sale at the lower of the carrying amount or fair value, less costs
to sell. Assets and the related liabilities held for sale in the accompanying Consolidated Balance Sheet as of
December 31, 2011 pertain to the applicable assets and liabilities of the Company’s Spanish operations. See Note 4,
Discontinued Operations, for additional information.
Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are
credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop
software upon the establishment of technological feasibility. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred.
The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360
“Property, Plant and Equipment.” For purposes of recognition and measurement of an impairment loss, assets are
grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered
to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is
measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally
determined based on appraisals or sales prices of comparable assets or independent third party offers. Occasionally,
the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity
utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not
be sufficient to recover the carrying amount of these assets. Except as discussed in Note 6, Fair Value, the Company
determined that its property and equipment were not impaired as of December 31, 2012.
Rent Expense — The Company has entered into operating lease agreements, some of which contain provisions for
future rent increases, rent free periods, or periods in which rent payments are reduced. The total amount of the rental
payments due over the lease term is being charged to rent expense on the straight-line method over the term of the
lease in accordance with ASC 840 “Leases.”
Goodwill — The Company accounts for goodwill and other intangible assets under ASC 350 “Intangibles —
Goodwill and Other” (“ASC 350”). The Company expects to receive future benefits from previously acquired
goodwill over an indefinite period of time. For goodwill and other intangible assets with indefinite lives not subject
to amortization, the Company reviews goodwill and intangible assets for impairment at least annually in the third
quarter, and more frequently in the presence of certain circumstances. The Company has the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the
totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
However, if the Company concludes otherwise, then it is required to perform the first step of the two-step
impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying
amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the Company is
required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if
any. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values, as
appropriate, and an analysis of our market capitalization. Under ASC 350, the carrying value of assets is calculated
at the reporting unit. If the fair value of the reporting unit is less than its carrying value, goodwill is considered
impaired and an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit
is less than its carrying value.
66
The Company bypassed the option to first assess qualitative factors and completed its annual two-step goodwill
impairment test during the three months ended September 30, 2012, which included the consideration of certain
economic factors, and determined that the carrying amount of goodwill was not impaired.
Intangible Assets — Intangible assets, primarily customer relationships and trade names, are amortized using the
straight-line method over their estimated useful lives which approximate the pattern in which the economic benefits
of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes
into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that
impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or
appraised values, as appropriate.
Value Added Tax Receivables — The Philippine operations are subject to value added tax (“VAT”) which is usually
applied to all goods and services purchased throughout The Philippines. Upon validation and certification of the
VAT receivables by the Philippine government, the resulting value added tax certificates (“certificates”) can be
either used to offset current tax obligations or offered for sale to the Philippine government. The Philippine
government previously allowed companies to sell the certificates to third parties, but this option was eliminated
during the three months ended September 30, 2011. The VAT receivables balance is recorded at its net realizable
value.
Income Taxes — The Company accounts for income taxes under ASC 740 “Income Taxes” (“ASC 740”) which
requires recognition of deferred tax assets and liabilities to reflect tax consequences of differences between the tax
bases of assets and liabilities and their reported amounts in the accompanying consolidated financial statements.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive
and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be
realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets
due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax
jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of
ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties
regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those
jurisdictions.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records
a liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to
recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available
evidence indicates that it is more likely than not that the position will be sustained upon examination, including
resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest
amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company
recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the
accompanying consolidated financial statements.
Self-Insurance Programs — The Company self-insures for certain levels of workers' compensation and, as of
January 1, 2011, began self-funding the medical, prescription drug and dental benefit plans in the United States.
Estimated costs of this self-insurance program are accrued at the projected settlements for known and anticipated
claims. Amounts related to this self-insurance program are included in “Accrued employee compensation and
benefits” and “Other long-term liabilities” in the accompanying Consolidated Balance Sheets.
Deferred Grants — Recognition of income associated with grants for land and the acquisition of property, buildings
and equipment (together, “property grants”) is deferred until after the completion and occupancy of the building and
title has passed to the Company, and the funds have been released from escrow. The deferred amounts for both land
and building are amortized and recognized as a reduction of depreciation expense included within general and
administrative costs over the corresponding useful lives of the related assets. Amounts received in excess of the cost
of the building are allocated to the cost of equipment and, only after the grants are released from escrow, recognized
as a reduction of depreciation expense over the weighted average useful life of the related equipment, which
approximates five years. Upon sale of the related facilities, any deferred grant balance is recognized in full and is
included in the gain on sale of property and equipment.
The Company receives government employment grants as an incentive to create and maintain permanent
employment positions for a specified time period. The grants are repayable, under certain terms and conditions, if
the Company's relevant employment levels do not meet or exceed the employment levels set forth in the grant
67
agreements. Accordingly, grant monies received are deferred and amortized using the proportionate performance
model over the required employment period.
Deferred Revenue — The Company receives up-front fees in connection with certain contracts. The deferred
revenue is earned over the service periods of the respective contracts, which range from 30 days to seven years.
Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets includes the up-
front fees associated with services to be provided over the next ensuing twelve month period and the up-front fees
associated with services to be provided over multiple years in connection with contracts that contain cancellation
and refund provisions, whereby the manufacturers or customers can terminate the contracts and demand pro-rata
refunds of the up-front fees with short notice. Deferred revenue included in current liabilities in the accompanying
Consolidated Balance Sheets also includes estimated penalties and holdbacks for failure to meet specified minimum
service levels in certain contracts and other performance based contingencies.
Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive
Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee
directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees).
All of these plans are discussed more fully in Note 27, Stock-Based Compensation. Stock-based awards under these
plans may consist of common stock, stock options, cash-settled or stock-settled stock appreciation rights, restricted
stock and other stock-based awards. The Company issues common stock and uses treasury stock to satisfy stock
option exercises or vesting of stock awards.
In accordance with ASC 718 “Compensation — Stock Compensation” (“ASC 718”), the Company recognizes in its
accompanying Consolidated Statements of Operations the grant-date fair value of stock options and other equity-
based compensation issued to employees and directors. Compensation expense for equity-based awards is
recognized over the requisite service period, usually the vesting period, while compensation expense for liability-
based awards (those usually settled in cash rather than stock) is re-measured to fair value at each balance sheet date
until the awards are settled.
Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to estimate that value:
• Cash, Short-Term and Other Investments, Investments Held in Rabbi Trust and Accounts Payable — The
carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts
payable approximate their fair values.
• Foreign Currency Forward Contracts and Options — Foreign currency forward contracts and options,
including premiums paid on options, are recognized at fair value based on quoted market prices of
comparable instruments or, if none are available, on pricing models or formulas using current market and
model assumptions, including adjustments for credit risk.
Fair Value Measurements — ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles
and expands disclosures about fair value measurements. ASC 820-10-20 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants.
ASC 825 “Financial Instruments” (“ASC 825”) permits an entity to measure certain financial assets and financial
liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected
to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are
not already recorded at fair value.
A description of the Company’s policies regarding fair value measurement is summarized below.
68
Fair Value Hierarchy — ASC 820-10-35 requires disclosure about how fair value is determined for assets and
liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant
levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of
observable market data when available. These two types of inputs have created the following fair value hierarchy:
• Level 1 — Quoted prices for identical instruments in active markets.
• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets.
• Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.
Determination of Fair Value — The Company generally uses quoted market prices (unadjusted) in active markets
for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies
such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include
quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices
that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and
include situations where there is little, if any, market activity for the asset or liability.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use,
where possible, current market-based or independently sourced market parameters, such as interest rates, currency
rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to
the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3
even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure assets and liabilities
at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset
or liability is generally classified.
Money Market and Open-End Mutual Funds — The Company uses quoted market prices in active markets to
determine the fair value of money market and open-end mutual funds, which are classified in Level 1 of the fair
value hierarchy.
Foreign Currency Forward Contracts and Options — The Company enters into foreign currency forward contracts
and options over the counter and values such contracts using quoted market prices of comparable instruments or, if
none are available, on pricing models or formulas using current market and model assumptions, including
adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest
rates. These items are classified in Level 2 of the fair value hierarchy.
Investments Held in Rabbi Trust — The investment assets of the rabbi trust are valued using quoted market prices in
active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the
deferred compensation plan, refer to Note 14, Investments Held in Rabbi Trust, and Note 27, Stock-Based
Compensation.
Guaranteed Investment Certificates — Guaranteed investment certificates, with variable interest rates linked to the
prime rate, approximate fair value due to the automatic ability to re-price with changes in the market; such items are
classified in Level 2 of the fair value hierarchy.
Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose functional
currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income
and expenses are translated at the weighted average exchange rate during the period. The net effect of translation
gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive
income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until
the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency
transactional gains and losses are included in “Other income (expense)” in the accompanying Consolidated
Statements of Operations.
69
Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under
ASC 815 “Derivatives and Hedging” (“ASC 815”). The Company generally utilizes non-deliverable forward
contracts and options expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate
fluctuations on forecasted cash flows denominated in non-functional foreign currencies and net investments in
foreign operations. In using derivative financial instruments to hedge exposures to changes in exchange rates, the
Company exposes itself to counterparty credit risk.
The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net
investment in a foreign operation; or (3) a derivative that does not qualify for hedge accounting. To qualify for
hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged
item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship.
Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the
hedge.
Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in
AOCI, until the forecasted underlying transactions occur. Any realized gains or losses resulting from the cash flow
hedges are recognized together with the hedged transaction within “Revenues”. Changes in the fair value of
derivatives that are highly effective and designated as a net investment hedge are recorded in cumulative translation
adjustment in AOCI, offsetting the change in cumulative translation adjustment attributable to the hedged portion of
the Company’s net investment in the foreign operation. Any realized gains and losses from settlements of the net
investment hedge remain in AOCI until partial or complete liquidation of the net investment. Ineffectiveness is
measured based on the change in fair value of the forward contracts and options and the fair value of the
hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is
recognized within “Revenues” for cash flow hedges and within “Other income (expense)” for net investment
hedges. Cash flows from the derivative contracts are classified within the operating section in the accompanying
Consolidated Statements of Cash Flows.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk management objective and strategy for undertaking various hedging activities. This process includes linking all
derivatives that are designated as cash flow hedges to forecasted transactions. Hedges of a net investment in a
foreign operation are linked to the specific foreign operation. The Company also formally assesses, both at the
hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring,
or if the Company de-designates a derivative as a hedge, the Company discontinues hedge accounting prospectively.
At December 31, 2012 and 2011, all hedges were determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC
815. The purpose of these derivative instruments is to reduce the effects from fluctuations caused by volatility in
currency exchange rates on the Company’s operating results and cash flows. All changes in the fair value of the
derivative instruments are included in “Other income (expense)”. See Note 13, Financial Derivatives, for further
information on financial derivative instruments.
New Accounting Standards Not Yet Adopted
In December 2011, the FASB issued ASU 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting
Assets and Liabilities” (“ASU 2011-11”). The amendments in ASU 2011-11 will enhance disclosures by requiring
improved information about financial and derivative instruments that are either 1) offset (netting assets and
liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards
Codification or 2) subject to an enforceable master netting arrangement or similar agreement. The amendments in
ASU 2011-11 are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those
years. An entity should provide the disclosures required by those amendments retrospectively for all comparative
periods presented. The adoption of ASU 2011-11 as of January 1, 2013 did not have a material impact on the
financial condition, results of operations and cash flows of the Company.
In July 2012, the FASB issued ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) Testing Indefinite-
Lived Intangible Assets for Impairment” (“ASU 2012-02”). The amendments in ASU 2012-02 provide entities with
the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates
70
that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of
events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible
asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise,
then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative
impairment test by comparing the fair value with the carrying amount. Under the amendments in ASU 2012-02, an
entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period
and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the
qualitative assessment in any subsequent period. The amendments in ASU 2012-02 are effective for annual and
interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU
2012-02 on January 1, 2013 did not have a material impact on the financial condition, results of operations and cash
flows of the Company.
In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income (Topic 220) Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-
02 do not change the current requirements for reporting net income or other comprehensive income in financial
statements. However, the amendments require an entity to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition, an entity is required to present, either on the
face of the statement where net income is presented or in the notes, significant amounts reclassified out of
accumulated other comprehensive income by the respective line items of net income but only if the amount
reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.
For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity
is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about
those amounts. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after
December 15, 2012. The Company does not expect the adoption of ASU 2013-02 to materially impact its financial
condition, results of operations and cash flows.
New Accounting Standards Recently Adopted
In May 2011, the Financial Accounting Standards Board (the “FASB”) issued ASU 2011-04 “Fair Value
Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The amendments in ASU 2011-04 result in common
fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards
(“IFRS”). Consequently, the amendments change the wording used to describe many of the requirements in U.S.
GAAP for measuring fair value and for disclosing information about fair value measurements. Some of the
amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Other
amendments change a particular principle or requirement for measuring fair value or for disclosing information
about fair value measurements. The amendments in ASU 2011-04 are to be applied prospectively and are effective
during interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 as of January
1, 2012 did not have a material impact on the financial condition, results of operations and cash flows of the
Company.
In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220) – Presentation of
Comprehensive Income” (“ASU 2011-05”). The amendments in ASU 2011-05 require that all nonowner changes in
stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. In the two-statement approach, the first statement should present total net
income and its components followed consecutively by a second statement that should present total other
comprehensive income, the components of other comprehensive income, and the total of comprehensive income.
The amendments in ASU 2011-05 are to be applied retrospectively and are effective during interim and annual
periods beginning after December 15, 2011. As this standard impacts presentation only, the adoption of ASU 2011-
05 as of January 1, 2012 did not impact the financial condition, results of operations and cash flows of the Company.
In September 2011, the FASB issued ASU 2011-08 “Intangibles – Goodwill and Other (Topic 350) Testing
Goodwill for Impairment” (“ASU 2011-08”). The amendments in ASU 2011-08 provide entities with the option to
first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing
the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment
test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the
71
reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform
the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the
amendments in ASU 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in
any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may
resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2011-08 are
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15,
2011. The adoption of ASU 2011-08 as of January 1, 2012 did not have a material impact on the financial
condition, results of operations and cash flows of the Company.
In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220) – Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive
Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). The amendments in ASU 2011-12 defer
the requirement to present reclassification adjustments for each component of accumulated other comprehensive
income in both net income and other comprehensive income on the face of the financial statements. The
amendments in ASU 2011-12 are effective at the same time as ASU 2011-05 so that entities will not be required to
comply with the presentation requirements in ASU 2011-05 that ASU 2011-05 is deferring. The amendments in
ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15,
2011. As ASU 2011-12 impacts presentation only, the adoption of ASU 2011-12 as of January 1, 2012 did not
impact the financial condition, results of operations and cash flows of the Company.
Note 2. Acquisition of Alpine Access, Inc.
On August 20, 2012, the Company acquired 100% of the outstanding common shares and voting interest of Alpine,
pursuant to the terms of the merger agreement. Alpine, an industry leader in the at-home agent space, provides
award-winning customer contact management services through a secured and proprietary virtual call center
environment with its operations located in the United States and Canada. The results of Alpine’s operations have
been included in the Company’s consolidated financial statements since its acquisition on August 20, 2012. The
Company acquired Alpine to: create significant competitive differentiation for quality, speed to market, scalability
and flexibility driven by proprietary, internally-developed software, systems, processes and other intellectual
property which uniquely overcome the challenges of the at-home delivery model; strengthen the Company’s current
service portfolio and go-to-market offering while expanding the breadth of clients with minimal client overlap;
broaden the addressable market opportunity within existing and new verticals as well as clients; expand the
addressable pool of skilled labor; leverage operational best practices across the Company’s global platform, with the
potential to convert more of its fixed cost to variable cost; and to further enhance the growth and margin profile of
the Company to drive shareholder value. This resulted in the Company paying a substantial premium for Alpine
resulting in the recognition of goodwill.
The acquisition date fair value of the consideration transferred totaled $149.0 million, which was funded through
cash on hand of $41.0 million and borrowings of $108.0 million under the Company’s credit agreement, dated May
3, 2012. See Note 21, Borrowings, for further information.
The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations” (“ASC 805”),
whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed from Alpine based on their estimated fair values as of the closing date. During the three months
ended December 31, 2012, the final working capital adjustment was approved by the authorized representative of
Alpine’s shareholders. The Company finalized its purchase price allocation during the three months ended
December 31, 2012, resulting in no changes from the estimated acquisition date fair values previously reported.
72
The following table summarizes the final purchase price allocation of the fair values of the assets acquired and
liabilities assumed, all included in the Americas segment (in thousands):
Amount
Cash and cash equivalents ………………………………………
Receivables ………………………………………………………
Prepaid expenses …………………………………………………
$
1,859
11,831
617
Total current assets ……………………………………………
Property and equipment …………………………………………
Goodwill …………………………………………………………
Intangibles …………………………………………………………
Deferred charges and other assets …………………………………
Accounts payable …………………………………………………
Accrued employee compensation and benefits ……………………
Income taxes payable ……………………………………………
Deferred revenue …………………………………………………
Other accrued expenses and current liabilities ……………………
Total current liabilities…………………………………………
Other long-term liabilities (1) ………………………………………
14,307
11,326
80,766
57,720
916
(880)
(3,774)
(141)
(94)
(601)
(5,490)
(10,592)
$
148,953
(1) Primarily includes long-term deferred tax liabilities.
Fair values are based on management’s estimates and assumptions including variations of the income approach, the
cost approach and the market approach.
The following table presents the Company’s purchased intangibles assets as of August 20, 2012, the acquisition date
(in thousands):
Customer relationships ……………………………………………
Trade names ………………………………………………………
Non-compete agreements …………………………………………
Favorable lease agreement …………………………………………
Amount
Assigned
$
46,000
10,600
670
450
57,720
$
Weighted
Average
Amortization
Period (years)
8
8
2
2
8
The $80.8 million of goodwill was assigned to the Company’s Americas operating segment. Pursuant to Federal
income tax regulations, no amount of intangibles or goodwill from this acquisition will be deductible for tax
purposes.
The fair value of receivables acquired is $11.8 million, with the gross contractual amount of $11.8 million.
73
The amount of Alpine’s revenues and net loss since the August 20, 2012 acquisition date, included in the
Company’s Consolidated Statement of Operations for the year ended December 31, 2012 were as follows (in
thousands):
Revenues …………………………………………………………
From August 20,
2012 Through
December 31,
2012
$
40,635
(Loss) from continuing operations before income taxes …………
$
(3,201)
(Loss) from continuing operations, net of taxes …………………
$
(2,166)
The loss from continuing operations before income taxes of $3.2 million includes $3.6 million in severance costs,
depreciation resulting from the adjustment to fair value of the acquired property and equipment and amortization of
the fair values of the acquired intangibles.
The following table presents the unaudited pro forma combined revenues and net earnings as if Alpine had been
included in the consolidated results of the Company for the entire year for the years ended December 31, 2012 and
2011. The pro forma financial information is not indicative of the results of operations that would have been
achieved if the acquisition and related borrowings had taken place on January 1, 2012 and 2011 (in thousands):
Revenues …………………………………………………………
Years Ended December 31,
2012
1,190,150
$
2011
1,272,890
$
Income from continuing operations, net of taxes …………………
$
37,352
Income from continuing operations per common share:
Basic ……………………………………………………………
$
0.87
Diluted …………………………………………………………
$
0.87
$
46,324
$
1.06
$
1.06
These amounts have been calculated to reflect the additional depreciation, amortization and interest expense that
would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2012 and
January 1, 2011, together with the consequential tax effects. In addition, these amounts exclude costs incurred which
are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies’
operating results. Included in these costs are severance, advisory and legal costs, net of the tax effects.
Acquisition-related costs associated with Alpine, comprised of severance costs and transaction and integration costs,
and included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of
Operations for the year ended December 31, 2012 were as follows (none in 2011 and 2010) (in thousands):
Severance costs:
Year Ended
December 31, 2012
Americas …………………………………………………
Corporate ………………………………………………
$
591
377
968
Transaction and integration costs:
Corporate ………………………………………………
3,793
3,793
Total acquisition-related costs ……………………………
$
4,761
74
Note 3. Acquisition of ICT
On February 2, 2010, the Company acquired 100% of the outstanding common shares and voting interest of ICT
through a merger of ICT with and into a subsidiary of the Company. ICT provided outsourced customer
management and business process outsourcing solutions with its operations located in the United States, Canada,
Europe, Latin America, India, Australia and The Philippines. The results of ICT’s operations have been included in
the Company’s Consolidated Financial Statements since its acquisition on February 2, 2010. The Company
acquired ICT to expand and complement its global footprint, provide entry into additional vertical markets, and
increase revenues to enhance its ability to leverage the Company’s infrastructure to produce improved sustainable
operating margins. This resulted in the Company paying a substantial premium for ICT resulting in recognition of
goodwill.
The acquisition date fair value of the consideration transferred totaled $277.8 million, which consisted of the
following (in thousands):
Total
Cash ………………………………………………………
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
21, Borrowings, for further information.
The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations”, whereby the
purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed
from ICT based on their estimated fair values as of the closing date. The Company finalized its purchase price
allocation during the three months ended December 31, 2010.
75
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)
$
63,987
75,890
2,844
4,846
4,950
Measurement
Period
Adjustments
-
$
-
(1,941)
-
149
February 2, 2010
(As adjusted)
$
63,987
75,890
903
4,846
5,099
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)
(1,792)
-
7,647
-
(3,965)
-
(168)
(1,309)
2,013
(464)
72
-
(19,924)
150,725
57,910
97,770
60,310
4,013
(10,000)
(12,580)
(25,182)
(438)
(11,415)
(59,615)
(706)
(25,497)
(25,038)
277,834
17,962
$
-
(7,076)
277,834
$
$
(1) Includes primarily long-term deferred tax liabilities.
The above fair values of assets acquired and liabilities assumed were based on the information that was available as
of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The measurement period
adjustments relate primarily to unrecognized tax benefits and related offsets, tax liabilities relating to the
determination as of the date of the ICT acquisition that the Company intended to distribute a majority of the
accumulated and undistributed earnings of the ICT Philippine subsidiary and its direct parent, ICT Group
Netherlands B.V. to SYKES, its ultimate U.S. parent, and certain accrual adjustments related to labor and benefit
costs in Argentina. The measurement period adjustments were completed as of December 31, 2010.
The $97.8 million of goodwill was assigned to the Company’s Americas and EMEA operating segments in the
amount of $97.7 million and $0.1 million, respectively. The goodwill recognized is attributable primarily to
synergies the Company expects to achieve as the acquisition increases the opportunity for sustained long-term
operating margin expansion by leveraging general and administrative expenses over a larger revenue base. Pursuant
to federal income tax regulations, the ICT acquisition was considered to be a non-taxable transaction; therefore, no
amount of intangibles or goodwill from this acquisition will be deductible for tax purposes. The fair value of
receivables acquired was $75.9 million, with the gross contractual amount being $76.4 million, of which $0.5
million was not expected to be collected.
Total net assets acquired (liabilities assumed) by operating segment as of February 2, 2010, the acquisition date,
were as follows (in thousands):
Net assets (liabilities) ………………………………………
$
278,703
Americas
EMEA
$
(869)
Other
$
-
Consolidated
277,834
$
76
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 names ………………………………………………
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 amount of ICT’s revenues and net loss since the February 2, 2010 acquisition date, included in the Company’s
Consolidated Statement of Operations for the year ended December 31, 2010 were as follows (in thousands):
Revenues ……………………………………………………
From February 2,
2010 Through
December 31,
2010
$
362,573
(Loss) from continuing operations, net of taxes ……………
$
(26,919)
The following table presents the unaudited pro forma combined revenues and net earnings as if ICT had been
included in the consolidated results of the Company for the entire year ended December 31, 2010. The pro forma
financial information is not indicative of the results of operations that would have been achieved if the acquisition
and related borrowings had taken place on January 1, 2010 (in thousands):
Year Ended
December 31,
2010
Revenues ……………………………………………………
$
1,162,040
Income from continuing operations, net of taxes …………
$
48,504
Income from continuing operations per common share:
Basic ……………………………………………………
$
1.04
Diluted …………………………………………………
$
1.04
These amounts have been calculated to reflect the additional depreciation, amortization, and interest expense that
would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2010,
together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly
attributable to the acquisition, and which do not have a continuing impact on the combined companies operating
results. Included in these costs are severance, advisory and legal costs, net of the consequential tax effects.
77
The following table presents acquisition-related costs included in “General and administrative” costs in the
accompanying Consolidated Statements of Operations (none in 2012) (in thousands):
Years Ended December 31,
2011
2010
Severance costs:
Americas …………………………………………………
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 ………………………………………………
(277)
(206)
(483)
13
13
7,220
1,654
8,874
9,302
9,302
Total acquisition-related costs ……………………………
$
(344)
$
34,523
(1)
Amounts related to the Third Quarter 2010 Exit Plan and the Fourth Quarter 2010 Exit Plan.
See Note 5.
Note 4. Discontinued Operations
The results of discontinued operations, which consist of the Spanish and Argentine operations, were as follows (in
thousands):
Revenues:
2012
Years Ended December 31,
2011
2010
Spain …………………………………………………………………………………
Argentina ……………………………………………………………………………
$
10,102
$
39,341
-
-
$
36,806
40,676
(Loss) from discontinued operations, net of taxes: (1)
$
10,102
$
39,341
$
77,482
Spain …………………………………………………………………………………
$
(820)
$
(4,532)
$
(6,417)
Argentina ……………………………………………………………………………
-
-
(6,476)
$
(820)
$
(4,532)
$
(12,893)
(1)
There were no income taxes on the (loss) from discontinued operations as any tax benefit from the losses would be offset by a valuation
allowance.
Sale of Spanish Operations in 2012
In November 2011, the Finance Committee of the Board of Directors of the Company approved a plan to sell its
Spanish operations, which were operated through its Spanish subsidiary, Sykes Enterprises, Incorporated S.L.
("Sykes Spain"). Sykes Spain operated customer contact management centers, with annual revenues of
approximately $39.3 million in 2011, providing contact center services through a total of three customer contact
management centers in Spain to clients in Spain. The decision to sell the Spanish operations was made in 2011 after
management completed a strategic review of the Spanish market and determined the operations were no longer
consistent with the Company's strategic direction.
On March 29, 2012, Sykes Spain entered into the asset purchase agreement, by and between Sykes Spain and
Iberphone, S.A.U., and pursuant thereto, on March 29, 2012, Sykes Spain sold the fixed assets located in
Ponferrada, Spain, which were previously written down to zero, cash of $4.1 million, and certain contracts and
licenses relating to the business of Sykes Spain, to Iberphone, S.A.U. Under the asset purchase agreement,
Ponferrada, Spain employees were transferred to Iberphone S.A.U. which assumed certain payroll liabilities in the
78
approximate amount of $1.7 million, and paid a nominal purchase price for the assets.
On March 30, 2012, the Company entered into a stock purchase agreement with a former member of Sykes Spain’s
management, and pursuant thereto, on March 30, 2012, the Company sold all of the shares of capital stock of Sykes
Spain to the purchaser for a nominal price. Pursuant to the stock purchase agreement, immediately prior to closing,
the Company made a cash capital contribution of $8.6 million to Sykes Spain to cover a portion of Sykes Spain's
liabilities and to fund the $4.1 million of cash transferred and sold pursuant to the asset purchase agreement with
Iberphone, S.A.U. discussed above. As this was a stock transaction, the Company anticipates no future obligation
with regard to Sykes Spain and there are no material post closing obligations.
The loss on the sale of the Spanish operations amounted to $10.7 million for the year ended December 31, 2012.
There were no income taxes on the sale of the Spanish operations as any tax benefit from the loss would be offset by
a valuation allowance.
The Spanish operations met the held for sale criteria as of December 31, 2011; therefore, the Company reflected the
assets and related liabilities of the Spanish operations as “Assets held for sale, discontinued operations” and
“Liabilities held for sale, discontinued operations” in the accompanying Condensed Consolidated Balance Sheet as
of December 31, 2011. The Company reflected the operating results related to the Spanish operations as
discontinued operations in the accompanying Condensed Consolidated Statements of Operations for all periods
presented. Cash flows from discontinued operations are included in the accompanying Condensed Consolidated
Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010. This business was historically
reported by the Company as part of the EMEA segment.
The assets and liabilities of the Spanish operations in the accompanying Consolidated Balance Sheet were as follows
(in thousands):
Assets
Current assets:
December 31, 2011
Receivables, net ……………………………………………………………
Prepaid expenses …………………………………………………………
Total current assets ……………………………………………………
Deferred charges and other assets ……………………………………………
Total assets (1) …………………………………………………………
$
Liabilities
Current liabilities:
Accounts payable …………………………………………………………
Accrued employee compensation and benefits ……………………………
Deferred revenue …………………………………………………………
Other accrued expenses and current liabilities ……………………………
Total current liabilities (2) ………………………………………………
Total net assets………………………………………………………
$
8,970
23
8,993
597
9,590
1,191
4,592
335
1,010
7,128
2,462
(1)
(2)
Classified as current and included in "Assets held for sale, discontinued operations" in the
accompanying Consolidated Balance Sheet as of December 31, 2011.
Classified as current and included in "Liabilities held for sale, discontinued operations" in
the accompanying Consolidated Balance Sheet as of December 31, 2011.
During the three months ended December 31, 2011, the Company recorded an impairment of $0.8 million related to
the write-down of property and equipment, primarily leasehold improvements and software, in conjunction with the
classification of the Spanish operations as held for sale. The impairment charges represented the amount by which
the carrying value exceeded the fair value of these assets, as defined in ASC 820, and are included in discontinued
operations in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011.
79
Sale of Argentine Operations in 2010
On December 16, 2010, the Board of Directors (the “Board”) of SYKES, upon the recommendation of its Finance
Committee, sold its Argentina operations, which were operated through two Argentine subsidiaries: Centro
Interaccion Multimedia S.A. (“CIMSA”) and ICT Services of Argentina, S.A. (“ICT Argentina”), together the
“Argentine operations.” CIMSA and ICT Argentina were offshore contact centers providing contact center services
through a total of three centers in Argentina to clients in the United States and in the Republic of Argentina. The
decision to exit Argentina was made due to surging costs, primarily chronic wage increases, which dramatically
reduced the appeal of the Argentina footprint among the Company’s existing and new global clients and thus the
overall future profitability of the Argentine operations.
On December 13, 2010, the Company entered a stock purchase agreement, and pursuant thereto, the Company sold
all of the shares of capital stock of CIMSA to individual purchasers for a nominal price. Pursuant to the CIMSA
stock purchase agreement, immediately prior to closing, the Company made a capital contribution of $9.5 million to
CIMSA to cover a portion of CIMSA’s liabilities. Immediately after closing, the purchasers made a capital
contribution to CIMSA of $1.0 million, and CIMSA repaid a loan of $1.0 million to one of the Company’s
subsidiaries. As this was a stock transaction, the Company has no future obligation with regard to CIMSA and there
are no material post closing obligations.
Additionally, on December 22, 2010, the Company entered into a letter of intent (the “ICT Letter of Intent”) to sell
all of the shares of capital stock of ICT Argentina to a group of individual purchasers for a nominal purchase price.
Pursuant to the ICT Letter of Intent, immediately prior to closing, the Company funded ICT Argentina with a capital
contribution of $3.5 million to cover a portion of ICT Argentina’s liabilities. Also on December 24, 2010, the
Company entered into the stock purchase agreement, and pursuant thereto, completed the sale transaction. As this
was a stock transaction, the Company has no future obligation with regard to ICT Argentina and there are no
material post closing obligations.
The loss on the sale of the Argentine operations amounted to $29.9 million pre-tax and $23.5 million after tax for
the year ended December 31, 2010. The sale of Argentine operations was a taxable transaction that resulted in a $6.4
million tax benefit. The effective tax rate on the loss on the sale of Argentina of 21.4% differs from the expected
35.0% statutory rate due to a valuation allowance established on the foreign deferred tax asset recognized as a result
of the sale, partially offset by a reduction in U.S. taxes related to foreign earnings distributions and the write off of
intercompany receivables resulting in tax benefits of $2.9 million and $3.5 million, respectively. During the three
months ended December 31, 2011, the Company reversed the accrued liability related to the expiration of the
indemnification to the purchaser for the possible loss of a specific client business, which reduced the net loss on sale
of the Argentine operations by $0.6 million. There was no related income tax effect.
As a result of the sale of the Argentine operations, the operating results related to the Argentine operations have
been reflected as discontinued operations in the accompanying Consolidated Statement of Operations for the year
ended December 31, 2010. This business was historically reported by the Company as part of the Americas segment.
During 2010, the Company recorded an impairment of $0.7 million related to the write-down of long-lived assets in
Argentina, primarily leasehold improvements and software, which were no longer recoverable. The impairment
charge represented the amount by which the carrying value exceeded the fair value of these assets which cannot be
redeployed to other locations and are included in discontinued operations in the accompanying Consolidated
Statement of Operations for the year ended December 31, 2010.
Note 5. Costs Associated with Exit or Disposal Activities
Fourth Quarter 2011 Exit Plan
During 2011, the Company announced a plan to rationalize seats in certain U.S. sites and close certain locations in
EMEA (the “Fourth Quarter 2011 Exit Plan”). The details are described below, by segment.
Americas
During 2011, as part of an on-going effort to streamline excess capacity related to the integration of the ICT
acquisition and align it with the needs of the market, the Company announced a plan to rationalize approximately
900 seats in the U.S., some of which were revenue generating, with plans to migrate the associated revenues to other
80
locations within the U.S. Approximately 300 employees were affected and the Company has completed the actions
associated with the Americas plan.
The major costs estimated to be incurred as a result of these actions are program transfer costs, facility-related costs
(primarily consisting of those costs associated with the real estate leases), and impairments of long-lived assets
(primarily leasehold improvements and equipment) estimated at $1.9 million as of December 31, 2012 ($1.0 million
as of December 31, 2011). This increase of $0.9 million included in “General and administrative” costs included in
the accompanying Consolidated Statement of Operations during the year ended December 31, 2012 is primarily due
to a change in estimate in lease obligations and additional lease obligation costs. The Company recorded $0.5
million of the costs associated with these actions as non-cash impairment charges included in “Impairment of long-
lived assets” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011,
while approximately $1.4 million represents cash expenditures for program transfer and facility-related costs,
including obligations under the leases, the last of which ends in February 2017. The Company has paid $0.7 million
in cash through December 31, 2012 under the Fourth Quarter 2011 Exit Plan in the Americas.
The following table summarizes the accrued liability associated with the Americas Fourth Quarter 2011 Exit Plan’s
exit or disposal activities and related charges for the year ended December 31, 2012 (none in 2011 or 2010) (in
thousands):
Lease obligations and facility exit costs ……
$
-
Beginning
Accrual at
January 1,
2012
Charges
(Reversals) for
the Year Ended
December 31,
2012 (1)
$
1,365
Cash
Payments
Other Non-
Cash Changes
(2)
$
(683)
$
-
Ending Accrual
at December
31, 2012
$
682
S hort-term (3)
$
138
Long-term (4)
$
544
(1)
(2)
(3)
(4)
During 2012, the Company recorded lease obligations and facility exit costs, which are included in "General and administrative" costs in the accompanying Consolidated
Statement of Operations.
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.
EMEA
During 2011, to improve the Company’s overall profitability in the EMEA region, the Company committed to close
a customer contact management center in South Africa and a customer contact management center in Ireland, as
well as some capacity rationalization in the Netherlands, all components of the EMEA segment. Through these
actions, the Company expects to improve its cost structure in the EMEA region by optimizing its capacity
utilization. While the Company migrated approximately $3.2 million of annualized call volumes of the Ireland
facility to other facilities within EMEA, the Company did not migrate the remaining call volume in Ireland or any of
the annualized revenue from the Netherlands or South Africa facilities, which was $18.8 million for 2011, to other
facilities within the region. The number of seats rationalized across the EMEA region approximated 900 with
approximately 500 employees affected by the actions. The Company closed these facilities and substantially
completed the actions associated with the EMEA plan on September 30, 2012.
The major costs estimated to be incurred as a result of these actions are facility-related costs (primarily consisting of
those costs associated with the real estate leases), impairments of long-lived assets (primarily leasehold
improvements and equipment) and anticipated severance-related costs estimated at $6.7 million as of December 31,
2012 ($7.6 million as of December 31, 2011). This decrease of $0.9 million included in “General and
administrative” costs included in the accompanying Consolidated Statement of Operations during the year ended
December 31, 2012 is due to the change in estimated lease termination costs and lower estimated severance and
related costs. The Company recorded $0.5 million of the costs associated with these actions as non-cash impairment
charges included in “Impairment of long-lived assets” in the accompanying Consolidated Statement of Operations
for the year ended December 31, 2011, while approximately $6.2 million will be cash expenditures for severance
and related costs and facility-related costs, primarily rent obligations paid through the remainder of the
noncancelable term of the leases. The Company has paid $5.9 million in cash through December 31, 2012 under the
Fourth Quarter 2011 Exit Plan in EMEA.
The Company charged $0.7 million to "Direct salaries and related costs" for severance and related costs and $(0.3)
million to "General and administrative" costs for lease obligations and facility exit costs, severance and related costs
and legal-related costs in the accompanying Consolidated Statement of Operations for the year ended December 31,
2012. The Company charged $3.5 million to "Direct salaries and related costs" for severance and related costs and
81
(3)
(6)
(1)
(10)
(10)
(62)
(0)
(72)
$2.3 million to "General and administrative" costs for lease obligations and facility exit costs, severance and related
costs and legal-related costs in the accompanying Consolidated Statement of Operations for the year ended
December 31, 2011.
The following tables summarize the accrued liability associated with EMEA’s Fourth Quarter 2011 Exit Plan’s exit
or disposal activities and related charges (none in 2010) (in thousands):
Lease obligations and facility exit costs ……….
Severance and related costs …………….....……..
Legal-related costs …………….....……………….
Beginning
Accrual at
January 1, 2012
577
$
4,470
13
5,060
$
Charges (Reversals)
for the Year Ended
December 31, 2012 (1)
(568)
$
857
89
378
$
Other Non-
Cash Changes
(2)
Cash Payments
$
$
(6)
(5,134)
(91)
(5,231)
$
$
Ending Accrual at
December 31,
2012
-
$
187
10
197
$
S hort-term (3)
-
$
187
10
197
$
Long-term (4)
-
$
-
-
$
-
Lease obligations and facility exit costs ……….
Severance and related costs …………….....……..
Legal-related costs …………….....……………….
Beginning
Accrual at
January 1, 2011
-
$
-
-
$
-
Charges (Reversals)
for the Year Ended
December 31, 2011 (1)
587
$
5,185
21
5,793
$
Cash Payments
-
$
(653)
(8)
(661)
$
Other Non-
Cash Changes
(2)
Ending Accrual at
December 31,
2011
$
$
S hort-term (3)
$
Long-term (4)
-
$
-
-
$
-
577
4,470
13
5,060
577
4,470
13
5,060
$
$
$
(1)
(2)
(3)
(4)
During 2012, the Company recorded additional severance and related costs and legal-related costs and reversed accruals related to the final settlement of termination costs at one of the sites. During 2011,
the Company recorded charges related to the initiation of the Fourth Quarter 2011 Exit Plan.
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.
Fourth Quarter 2010 Exit Plan
During 2010, in furtherance of the Company’s long-term goals to manage and optimize capacity utilization, the
Company committed to and closed a customer contact management center in the United Kingdom and a customer
contact management center in Ireland, both components of the EMEA segment (the "Fourth Quarter 2010 Exit
Plan"). These actions further enabled the Company to reduce operating costs by eliminating additional redundant
space and to optimize capacity utilization rates where overlap existed. These actions were substantially completed
by January 31, 2011. None of the revenues from the United Kingdom or Ireland facilities, which were
approximately $1.3 million on an annualized basis, were captured and migrated to other facilities within the region.
Loss from operations of the United Kingdom and Ireland were not material to the consolidated income (loss) from
continuing operations; therefore, their results of operations have not been presented as discontinued operations in the
accompanying Consolidated Statements of Operations.
The major costs incurred as a result of these actions were facility-related costs (primarily consisting of those costs
associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and
equipment) and severance-related costs totaling $2.2 million as of December 31, 2012 ($2.2 million as of December
31, 2011). The Company recorded $0.2 million of the costs associated with the Fourth Quarter 2010 Exit Plan as
non-cash impairment charges. Approximately $1.8 million represents cash expenditures for facility-related costs,
primarily rent obligations to be paid through the remainder of the lease terms, the last of which ends in March 2014,
and $0.2 million represents cash expenditures for severance-related costs. The Company has paid $1.4 million in
cash through December 31, 2012 under the Fourth Quarter 2010 Exit Plan.
82
The following tables summarize the accrued liability associated with the Fourth Quarter 2010 Exit Plan’s exit or
disposal activities and related charges (in thousands):
Lease obligations and facility exit costs …….…
Severance and related costs …………….....…....
Lease obligations and facility exit costs ………
Severance and related costs …………….....…....
Charges (Reversals)
for the Year Ended
December 31, 2012
(1)
-
$
-
$
-
Charges (Reversals)
for the Year Ended
December 31, 2011
(1)
Beginning
Accrual at
January 1,
2012
$
$
835
-
835
Beginning
Accrual at
January 1,
2011
$
1,711
-
1,711
Cash Payments
$
Other Non-
Cash Changes
(2)
4
$
-
$
4
Ending Accrual
at December
31, 2012
$
539
-
539
(300)
-
(300)
S hort-term (3)
$
Long-term (4)
$
$
$
$
$
Other Non-
Cash Changes
(2)
Cash Payments
Ending Accrual
at December
31, 2011
$
835
-
835
(60)
-
(60)
$
$
$
70
-
70
(886)
-
(886)
S hort-term (3)
$
Long-term (4)
$
$
$
$
$
$
$
$
448
-
448
398
-
398
91
-
91
437
-
437
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)
-
$
-
$
-
Ending Accrual
at December
31, 2010
$
1,711
-
1,711
S hort-term
$
Long-term
$
941
-
941
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 4, Discontinued Operations, for impairment charges recorded in 2010 related to the Company’s Argentine
operations, which were sold in December 2010.
Third Quarter 2010 Exit Plan
During 2010, consistent with the Company’s long-term goals to manage and optimize capacity utilization, the
Company closed or committed to close four customer contact management centers in The Philippines and
consolidated or committed to consolidate leased space in our Wilmington, Delaware and Newtown, Pennsylvania
locations (the "Third Quarter 2010 Exit Plan"). These actions were in response to the facilities consolidation and
capacity rationalization related to the ICT acquisition, enabling the Company to reduce operating costs by
eliminating redundant space and to optimize capacity utilization rates where overlap existed. There were no
employees affected by the Third Quarter 2010 Exit Plan. These actions were substantially completed by January 31,
2011.
The major costs incurred as a result of these actions were impairments of long-lived assets (primarily leasehold
improvements) and facility-related costs (primarily consisting of those costs associated with the real estate leases)
estimated at $10.5 million as of December 31, 2012 ($10.5 million as of December 31, 2011), all of which are in the
Americas segment. The Company recorded $3.8 million of the costs associated with the Third Quarter 2010 Exit
Plan as non-cash impairment charges, of which $0.7 million and $3.1 million are included in “Impairment of long-
lived assets” in the accompanying Consolidated Statement of Operations for the years ended December 31, 2011 and
2010, respectively (see Note 6, Fair Value, for further information). The remaining $6.7 million represents cash
expenditures for facility-related costs, primarily rent obligations to be paid through the remainder of the lease terms,
the last of which ends in February 2017. The Company has paid $4.2 million in cash through December 31, 2012
under the Third Quarter 2010 Exit Plan.
83
The following tables summarize the accrued liability associated with the Third Quarter 2010 Exit Plan’s exit or
disposal activities and related charges (in thousands):
Lease obligations and facility exit costs ……….
Lease obligations and facility exit costs ……….
Beginning
Accrual at
January 1,
2012
$
3,427
Beginning
Accrual at
January 1,
2011
$
6,141
Charges (Reversals)
for the Year Ended
December 31, 2012
(1)
Cash Payments
$
61
$
(937)
Other Non-Cash
Changes (2)
$
-
Ending Accrual
at December
31, 2012
$
2,551
S hort-term (3)
$
618
Long-term (4)
$
1,933
Charges (Reversals)
for the Year Ended
December 31, 2011
(1)
Cash Payments
$
(276)
$
(2,443)
Other Non-Cash
Changes (2)
$
5
Ending Accrual
at December
30, 2011
$
3,427
S hort-term (3)
$
843
Long-term (4)
$
2,584
Lease obligations and facility exit costs ……….
$
-
$
6,944
$
(803)
Beginning
Accrual at
January 1,
2010
Charges (Reversals)
for the Year Ended
December 31, 2010
(1)
Cash Payments
Other Non-Cash
Changes (2)
$
-
Ending Accrual
at December
31, 2010
S hort-term
Long-term
$
6,141
$
2,199
$
3,942
(1)
(2)
(3)
(4)
During 2012, the Company recorded additional lease obligations due to an unanticipated lease termination penalty, which are included in "General and administrative" costs in the accompanying
Consolidated Statement of Operations. During 2011, the Company reversed accruals related to lease termination costs due to an unanticipated sublease at one of the sites, which reduced "General and
administrative" costs in the accompanying Consolidated Statement of Operations. This amount was partially offset by additional lease termination costs for one of the sites. During 2010, the
Company recorded charges related to the initiation of the Third Quarter 2010 Exit Plan.
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, the date at which the ICT Restructuring Plan concluded.
The following tables summarize the accrued liability associated with the ICT Restructuring Plan’s exit or disposal
activities (none in 2012) (in thousands):
Lease obligations and facility exit costs ……….
Beginning
Accrual at
January 1,
2011
$
1,462
Beginning
Accrual at
January 1,
2010
Lease obligations and facility exit costs ……….
$
-
Charges (Reversals)
for the Year Ended
December 31, 2011
(1)
Cash Payments
$
(276)
$
(1,139)
Other Non-Cash
Changes (2)
$
(47)
Ending Accrual
at December
31, 2011
$
-
S hort-term (3)
$
-
Long-term (4)
$
-
Accrual Assumed
Upon Acquisition of
ICT on February 2,
2010 (1)
$
2,197
Cash Payments
$
(735)
Other Non-Cash
Changes (2)
$
-
Ending Accrual
at December
31, 2010
S hort-term
$
1,462
$
1,462
Long-term
$
-
(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.
84
Note 6. Fair Value
The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC
820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2012 Using:
Quoted Prices
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, 2012
Assets:
M oney market funds and open-end mutual
funds included in "Cash and cash equivalents" ……(1)
$
7,598
$
7,598
$
-
$
-
M oney market funds and open-end mutual
funds in "Deferred charges and other assets" ………(1)
Foreign currency forward and 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)
Guaranteed investment certificates ……………………(4)
Liabilities:
Foreign currency forward and option contracts ………(5)
11
2,008
3,212
11
-
3,212
-
2,008
-
-
-
-
2,049
80
14,958
$
2,049
-
12,870
$
-
80
2,088
$
-
-
$
-
$
$
974
974
$
-
$
-
$
$
974
974
$
-
$
-
(1)
(2)
(3)
(4)
(5)
In the accompanying Consolidated Balance Sheet.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 14.
Included in “ Deferred charges and other assets” in the accompanying Consolidated Balance Sheet.
Included in “ Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 13.
The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC
820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2011 Using:
Quoted Prices
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 and 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)
Guaranteed investment certificates ……………………(4)
Liabilities:
Foreign currency forward and option contracts ………(5)
12
710
2,817
12
-
2,817
-
710
-
-
-
-
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 “ Ot her current assets” in the accompanying Consolidated Balance Sheet . See Not e 13.
Included in “ Ot her current assets” in the accompanying Consolidated Balance Sheet . See Note 14.
Included in “ Deferred charges and ot her assets” in the accompanying Consolidated Balance Sheet.
Included in “ Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 13.
85
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as
described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with acquired
businesses, including goodwill, other intangible assets and other long-lived assets. For these assets, measurement at
fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be
impaired. The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities)
subject to the requirements of ASC 820 were not material at December 31, 2012 and 2011.
The following table summarizes the total impairment losses related to nonrecurring fair value measurements of
certain assets (no liabilities) subject to the requirements of ASC 820 (in thousands):
Americas:
Total Impairment (Loss)
Years Ended December 31,
2011
2010
2012
Property and equipment, net (1) …..………………………
$
(355)
$
(1,244)
$
(3,121)
EM EA:
Goodwill (1) ………………..…......................................
Intangibles, net (1)…………………………...……………
Property and equipment, net (1) …..………………………
Discontinued Operations:
Americas - Property and equipment, net (1), (2) …..………
EM EA - Property and equipment, net (1), (2) …..…………
-
-
-
-
-
-
-
(474)
(84)
(278)
(362)
(159)
(355)
(1,718)
(3,642)
-
-
(682)
$
-
(355)
(843)
(2,561)
$
-
(4,324)
$
(1)
See Note 1 for additional information regarding the fair value measurement.
(2) See Note 4 for additional information regarding the impairments related to discontinued operations.
Impairment of Long-Lived Assets
During 2012, the Company determined that the carrying value of certain long-lived assets, primarily software
licenses, were no longer being used and were disposed of resulting in an impairment charge of $0.3 million in the
U.S. and Canada (a component of the Americas segment). Also, during 2012 in on-going effort to streamline excess
capacity related to the integration of the ICT acquisition and align it with the needs of the market, the Company
closed one of its customer contact management centers in Costa Rica (a component of the Americas segment), and
recorded an impairment charge of $0.1 million for the carrying value of the long-lived assets that could not be
redeployed to other locations.
During 2011, in connection with the closure of certain customer contact management centers under the Third
Quarter 2010 and the Fourth Quarter 2010 Exit Plans as discussed more fully in Note 5, Costs Associated with Exit
or Disposal Activities, the Company recorded impairment charges of $1.2 million in the U.S. and The Philippines
(within the Americas segment) and $0.5 million in South Africa, Ireland and Amsterdam (within the EMEA
segment), relating to leasehold improvements which were not recoverable and equipment that could not be
redeployed to other locations.
During 2010, in connection with the closure of certain customer contact management centers under the Third
Quarter 2010 and the Fourth Quarter 2010 Exit Plans as discussed more fully in Note 5, Costs Associated with Exit
or Disposal Activities, the Company recorded impairment charges of $3.1 million (within the Americas segment)
and $0.5 million (within the EMEA segment). The Americas $3.1 million impairment charge is comprised primarily
of leasehold improvements in The Philippines which were not recoverable. The EMEA $0.5 million impairment
charge is comprised of $0.1 million relating to leasehold improvements and equipment in the United Kingdom and
Ireland which were not recoverable and $0.4 million relating to impairment of goodwill and intangibles in the
United Kingdom based on its actual and forecasted results and deterioration of the related customer base.
86
Note 7. Goodwill and Intangible Assets
The following table presents the Company’s purchased intangible assets as of December 31, 2012 (in thousands):
Customer relationships ……………………………
Trade names ………………………………………
Non-compete agreements …………………………
Proprietary software ………………………………
Favorable lease agreement …………………………
Gross Intangibles
104,483
$
11,600
1,229
850
450
118,612
$
Accumulated
Amortization
$
$
Net Intangibles
80,931
10,149
548
40
369
92,037
$
Weighted Average
Amortization
Period (years)
8
8
2
2
2
8
(23,552)
(1,451)
(681)
(810)
(81)
(26,575)
$
The following table presents the Company’s purchased intangible assets as of December 31, 2011 (in thousands):
Customer relationships ……………………………
Trade names ………………………………………
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 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 ………………………
10,479
$
7,961
$
7,879
Years Ended December 31,
2011
2010
2012
$
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible
assets resulting from acquisitions completed prior to December 31, 2012, is as follows (in thousands):
Years Ending December 31,
2013…………………………………………………………………………………
2014 …………………………………………………………………………………
2015 …………………………………………………………………………………
2016 …………………………………………………………………………………
2017 …………………………………………………………………………………
2018 and thereafter …………………………………………………………………
Amount
14,977
14,713
14,353
14,353
14,353
19,288
87
Changes in goodwill for the year ended December 31, 2012 consist of the following (in thousands):
Americas:
Gross Amount
Accumulated
Impairment
Losses
Net Amount
Balance at January 1, 2012 …………………………………
Acquisition of Alpine (1) ……………………………………
Foreign currency translation ………………………………
Balance at December 31, 2012 …………………………
$
121,971
EMEA:
Balance at January 1, 2012 …………………………………
Foreign currency translation ………………………………
Balance at December 31, 2012 …………………………
80,766
2,123
204,860
84
-
84
204,944
$
(629)
$
121,342
-
-
(629)
80,766
2,123
204,231
(84)
-
(84)
(713)
$
-
-
-
204,231
$
$
(1) See Note 2, Acquisition of Alpine Access, Inc., for further information.
Changes in goodwill for the year ended December 31, 2011 consist of the following (in thousands):
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
$
Note 8. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets
in which the Company’s services are sold. See Note 13, Financial Derivatives, for a discussion of the Company’s
credit risk relating to financial derivative instruments, and Note 28, Segments and Geographic Information, for a
discussion of the Company’s customer concentration.
Note 9. Receivables, Net
Receivables, net consist of the following (in thousands):
Trade accounts receivable ……………………………………………
Income taxes receivable ………………………………………………
Other …………………………………………………………………
Less: Allowance for doubtful accounts ………………………………
December 31,
2012
$
2011
$
248,281
2,143
2,290
252,714
5,081
247,633
227,512
3,853
2,641
234,006
4,304
229,702
$
$
Allowance for doubtful accounts as a percent of trade receivables …
2.0%
1.9%
88
Note 10. Prepaid Expenses
Prepaid expenses consist of the following (in thousands):
December 31,
Prepaid maintenance …………………………
Prepaid rent ……………………………………
Prepaid insurance ……………………………
Prepaid other …………………………………
2012
$
2011
$
$
$
Note 11. Other Current Assets
Other current assets consist of the following (in thousands):
December 31,
Deferred tax assets (Note 23)…………………
Financial derivatives (Note 13)………………
Investments held in rabbi trust (Note 14)……
Value added tax certificates (Note 12)…………
Other current assets …………………………
2012
$
2011
$
$
$
4,625
2,306
1,402
4,037
12,370
8,143
1,994
5,261
2,548
2,071
20,017
4,191
2,850
1,564
2,935
11,540
8,044
710
4,182
2,386
4,798
20,120
Note 12. Value Added Tax Receivables
The VAT receivables balances, and the respective locations in the accompanying Consolidated Balance Sheets, are
presented below (in thousands):
VAT included in:
December 31,
2012
2011
Other current assets (Note 11)…………………
Deferred charges and other assets (Note 16)……
$
$
2,548
7,214
9,762
2,386
5,191
7,577
$
$
During the years ended December 31, 2012, 2011 and 2010, the Company wrote down the VAT receivables
balances by the following amounts, which are reflected in the accompanying Consolidated Statements of Operations
(in thousands):
Years Ended December 31,
2011
2012
2010
Write-down of value added tax receivables………
$
546
$
504
$
551
Note 13. Financial Derivatives
Cash Flow Hedges – The Company had derivative assets and liabilities relating to outstanding forward contracts
and options, designated as cash flow hedges, as defined under ASC 815, consisting of Philippine Peso, Costa Rican
Colon, Hungarian Forint and Romanian Leu contracts. These contracts are entered into to protect against the risk
that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange
rates.
89
The deferred gains (losses) and related taxes on the Company’s derivative instruments recorded in “Accumulated
other comprehensive income (loss)” in the accompanying Consolidated Balance Sheets are as follows (in
thousands):
December 31, 2012
December 31, 2011
Deferred gains (losses) in AOCI …………………………………
Tax on deferred gains (losses) in AOCI ………………...………
Deferred gains (losses) in AOCI, net of taxes ……….…………
(512)
(58)
(570)
$
$
$
$
(670)
232
(438)
Deferred gains (losses) expected to be reclassified to
"Revenues" from AOCI during the next twelve months ………
$
(517)
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the
underlying market price of the forward contracts and options.
Net Investment Hedge – During 2010, the Company entered into foreign exchange forward contracts to hedge its
net investment in a foreign operation, as defined under ASC 815, with an aggregate notional value of $26.1 million.
These hedges settled in 2010 and the Company recorded deferred (losses) of $(2.6) million, net of taxes, for 2010 as
a currency translation adjustment, a component of AOCI, offsetting foreign exchange currency fluctuations
attributable to the translation of the net investment. The Company did not hedge net investments in foreign
operations during 2012 and 2011.
Other Hedges – The Company also periodically enters into foreign currency hedge contracts that are not designated
as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect our interests against
adverse foreign currency moves pertaining to intercompany receivables and payables, and other assets and liabilities
that are denominated in currencies other than the Company’s subsidiaries functional currencies. These contracts
generally do not exceed 90 days in duration.
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
Contract Type
Cash flow hedges: (1)
Options:
Philippine Pesos
Forwards:
Philippine Pesos
Costa Rican Colones
Hungarian Forints
Romanian Leis
Non-designated hedges: (2)
Forwards
As of December 31, 2012
As of December 31, 2011
Notional
Amount in
US D
S ettle Through
Date
Notional
Amount in
US D
S ettle Through
Date
$ 71,000
S eptember 2013
$ 85,500
September 2012
5,000
60,750
4,744
6,895
August 2013
December 2013
January 2014
January 2014
12,000
30,000
-
-
M arch 2012
September 2012
-
-
41,799
June 2013
27,192
M arch 2012
(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.
90
As of December 31, 2012, the maximum amount of loss due to credit risk that, based on the gross fair value of the
financial instruments, the Company would incur if parties to the financial instruments that make up the
concentration failed to perform according to the terms of the contracts was $2.0 million.
The following tables present the fair value of the Company’s derivative instruments included in the accompanying
Consolidated Balance Sheets (in thousands):
Derivative Assets
December 31, 2012
Fair Value
December 31, 2011
Fair Value
Derivatives designated as cash flow hedging instruments
under AS C 815:
Foreign currency forward and option contracts (1) ……………
Foreign currency forward and option contracts (2) ……………
$
1,080
14
1,094
Derivatives not designated as hedging instruments under
AS C 815:
Foreign currency forward contracts(1) …………………………
914
$
704
-
704
6
Total derivative assets ……………………………………
$
2,008
$
710
Derivatives designated as cash flow hedging instruments
under AS C 815:
Foreign currency forward and option contracts (3) ……………
Foreign currency forward and option contracts (4) ……………
Derivatives not designated as hedging instruments under
AS C 815:
Foreign currency forward contracts (3) …………………………
Derivative Liabilities
December 31, 2012
Fair Value
December 31, 2011
Fair Value
$
904
$
485
8
912
62
-
485
267
Total derivative liabilities …………………………………
$
974
$
752
(1)
(2)
(3)
(4)
Included in "Other current assets" in the accompanying Consolidated Balance Sheets.
Included in "Deferred charges and other assets" in the accompanying Consolidated Balance Sheets.
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.
91
The following tables present the effect of the Company’s derivative instruments included in the accompanying
Consolidated Financial Statements for the years ended December 31, 2012, 2011 and 2010 (in thousands):
Gain (Loss) Recognized in AOCI
on Derivatives (Effective Portion)
Gain (Loss) Reclassified From
Accumulated AOCI Into
"Revenues" (Effective Portion)
Gain (Loss) Recognized in
"Revenues" on Derivatives
(Ineffective Portion)
December 31,
December 31,
December 31,
2012
2011
2010
2012
2011
2010
2012
2011
2010
Derivatives designated as cash flow hedging
instruments under AS C 815:
Foreign currency forward and option contracts …………… 4,400
$
$
(1,483)
$
4,936
$
4,156
$
1,853
$
5,173
$
17
$
2
$
-
Derivatives designated as a net investment hedge
under AS C 815:
Foreign currency forward contracts
-
-
(3,955)
-
-
-
-
-
-
Foreign currency forward and option contracts …………… 4,400
$
$
(1,483)
$
981
$
4,156
$
1,853
$
5,173
$
17
$
2
$
-
Gain (Loss) Recognized in "Other
income and (expense)" on Derivatives
2012
December 31,
2011
2010
Derivatives not designated as hedging
instruments under AS C 815:
Foreign currency forward contracts ……………………
$
(295)
$
(1,444)
$
(4,717)
Note 14. Investments Held in Rabbi Trust
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets”
in the accompanying Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
December 31, 2012
December 31, 2011
M utual funds ……………………………………………
$
4,812
Cost
Fair Value
5,261
$
Cost
$
3,938
Fair Value
4,182
$
The mutual funds held in the rabbi trust were 61% equity-based and 39% debt-based as of December 31, 2012. Net
investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2012, 2011 and 2010 consists of the following (in thousands):
2012
$
Years Ended December 31,
2011
$
2010
$
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) …………………………
163
(1)
129
312
603
201
(20)
69
(383)
(133)
$
$
$
54
(5)
37
313
399
92
Note 15. 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 …………………………
2012
$
2011
$
4,217
75,002
269,069
7,274
698
4,035
360,295
259,000
101,295
4,191
74,221
231,789
2,903
716
1,479
315,299
224,219
91,080
$
$
Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the
accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 was as follows (in thousands):
December 31,
Capitalized internally developed software costs, net ……
2012
$
1,361
2011
$
-
Depreciation expense included in “General and administrative” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2012, 2011 and 2010 was as follows (in thousands):
Depreciation expense ……………………………………
2012
$
41,571
Years Ended December 31,
2011
$
47,139
2010
$
47,902
Sale of Land and Building Located in Minot, North Dakota
In June 2011, the Company sold the land and building located in Minot, North Dakota, which were held for sale, for
cash of $3.9 million (net of selling costs of $0.2 million) resulting in a net gain on sale of $3.7 million. The carrying
value of these assets of $0.8 million was offset by the related deferred grants of $0.6 million. The net gain on the
sale of $3.7 million is included in “Net gain on disposal of property and equipment” in the accompanying
Consolidated Statement of Operations for 2011.
Tornado Damage to the Ponca City, Oklahoma Customer Contact Management Center
In April 2011, the customer contact management center (the “facility”) located in Ponca City, Oklahoma
experienced significant damage to its building and contents as a result of a tornado. The Company filed an
insurance claim with its property insurance company to recover losses of $1.4 million. During 2011, the insurance
company paid $1.2 million to the Company for costs to clean up and repair the facility of $0.9 million and for
reimbursement of a portion of the Company’s out-of-pocket costs of $0.3 million. The Company completed the
repairs to the facility during 2011 and collected the remaining $0.2 million in February 2012. No additional funds
are expected.
Typhoon Damage to the Marikina City, The Philippines Customer Contact Management Center
In September 2009, the building and contents of one of the Company's customer contact management centers
located in Marikina City, The Philippines (acquired as part of the ICT acquisition) was severely damaged by
flooding from Typhoon Ondoy. Upon settlement with the insurer in November 2010, the Company recognized a net
gain of $2.0 million. The damaged property and equipment had been written down by ICT prior to the ICT
acquisition in February 2010. In August 2011, the Company received an additional $0.4 million from the insurer for
rent payments made during the claim period. This net gain on insurance settlement is included in “General and
93
administrative” expenses in the accompanying Consolidated Statement of Operations in 2011. No additional funds
are expected.
Note 16. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
December 31,
Non-current deferred tax assets (Note 23)……………………
Non-current mandatory tax security deposits (Note 23)……
Non-current value added tax certificates (Note 12)……………
Deposits ……………………………………………………..
Other …………………………………………………………
2012
$
2011
$
13,923
14,989
7,214
3,408
4,250
43,784
20,389
-
5,191
2,278
2,304
30,162
$
$
Note 17. 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 …………………………………………
2012
$
2011
$
25,258
14,709
16,374
10,225
6,537
73,103
20,892
13,965
12,566
9,757
5,272
62,452
$
$
Note 18. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
December 31,
2012
2011
Future service ……………………………………
Estimated potential penalties and holdbacks ……
$
$
25,074
9,209
34,283
25,809
8,510
34,319
$
$
Note 19. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consist of the following (in thousands):
Customer deposits ………………………………………………
Accrued restructuring (Note 5) …………………………………
Accrued legal and professional fees ……………………………
Accrued telephone charges ………………………………………
Accrued roadside assistance claim costs …………………………
Accrued rent ……………………………………………………
Foreign currency forward and option contracts (Note 13) ………
Other ……………………………………………………………
2012
$
December 31,
2011
$
7,350
1,401
4,231
1,943
2,288
1,367
966
11,774
31,320
796
6,301
2,623
518
1,691
1,297
752
7,213
21,191
$
$
94
Note 20. Deferred Grants
The components of deferred grants consist of the following (in thousands):
December 31,
2012
2011
Property grants ………...………………………
Employment grants ………...……………………
Total deferred grants ………………………
Less: Employment grants - short-term (1) ………
Total long-term deferred grants (2) ………...
$
7,270
337
7,607
$
8,210
1,123
9,333
-
(770)
$
7,607
$
8,563
(1)
(2)
Included in "Other accrued expenses and current
accompanying Consolidated Balance Sheets.
Included in "Deferred grants" in the accompanying Consolidated Balance
Sheets.
liabilities"
in the
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 ……...……
Note 21. Borrowings
2012
$
2011
$
2010
$
$
$
$
956
1,344
2,300
1,047
58
1,105
940
261
1,201
On May 3, 2012, the Company entered into a $245 million revolving credit facility (the “2012 Credit Agreement”)
with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and
Administrative Agent (“KeyBank”). The 2012 Credit Agreement replaced the Company’s previous $75 million
revolving credit facility (the “2010 Credit Agreement”) dated February 2, 2010, as amended, which agreement was
terminated simultaneous with entering into the 2012 Credit Agreement. The 2012 Credit Agreement is subject to
certain borrowing limitations and includes certain customary financial and restrictive covenants. The Company
borrowed $108.0 million under the 2012 Credit Agreement’s revolving credit facility on August 20, 2012 in
connection with the acquisition of Alpine on such date. See Note 2, Acquisition of Alpine Access, Inc., for further
information.
The 2012 Credit Agreement includes a $184 million alternate-currency sub-facility, a $10 million swingline sub-
facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including
acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The
Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that
exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be
available to the Company, even though it is a binding commitment of the financial institutions.
Borrowings consist of the following (in thousands):
December 31,
Revolving credit facility ……………………………………………………
Less: Current portion ……………………………………………………
Total long-term debt ………………………………………………………
2012
$
91,000
-
$
91,000
2011
-
$
-
$
-
The 2012 Credit Agreement matures on May 2, 2017 and has no varying installments due.
95
Borrowings under the 2012 Credit Agreement will bear interest at either LIBOR or the base rate plus, in each case,
an applicable margin based on the Company’s leverage ratio. The applicable interest rate will be determined
quarterly based on the Company’s leverage ratio at such time. The base rate is a rate per annum equal to the greatest
of (i) the rate of interest established by KeyBank, from time to time, as its “prime rate”; (ii) the Federal Funds
effective rate in effect from time to time, plus 1/2 of 1% per annum; and (iii) the then-applicable LIBOR rate for one
month interest periods, plus 1.00%. Swingline loans will bear interest only at the base rate plus the base rate margin.
In addition, the Company is required to pay certain customary fees, including a commitment fee of 0.175%, which is
due quarterly in arrears and calculated on the average unused amount of the 2012 Credit Agreement.
The 2012 Credit Agreement is guaranteed by all of the Company’s existing and future direct and indirect material
U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the
direct foreign subsidiaries of the Company and those of the guarantors.
In May 2012, the Company paid an underwriting fee of $0.9 million for the 2012 Credit Agreement, which is
deferred and amortized over the term of the loan. In addition, the Company pays a quarterly commitment fee on the
2012 Credit Agreement.
The Company drew down the full $75 million term loan under the 2010 Credit Agreement in connection with the
acquisition of ICT on February 2, 2010. See Note 3, Acquisition of ICT, for further information. The Company paid
off the balance in 2010, earlier than the scheduled maturity, plus accrued interest. The 2010 Credit Agreement is no
longer available for borrowings.
In 2010, the Company paid an underwriting fee of $3.0 million for the 2010 Credit Agreement, which was deferred
and amortized over the term of the loan. In addition, the Company paid a quarterly commitment fee on the 2010
Credit Agreement.
In 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 (the “Bermuda Credit
Agreement”) with KeyBank. Sykes Bermuda drew down the full $75 million under the Bermuda Credit Agreement
on December 11, 2009. 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 2012 Credit Agreement had $91.0 million of outstanding borrowings as of December 31, 2012, with an average
daily utilization of $96.8 million for the outstanding period during 2012 (none in 2011). During the years ended
December 31, 2012 and 2010, the related interest expense, excluding amortization of deferred loan fees, under our
credit agreements was $0.5 million and $1.8 million, respectively, which represented weighted average interest rates
of 1.5% and 3.9%, respectively (none in 2011).
96
Note 22. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Consolidated Statements of Changes in Shareholders’ Equity in accordance with
ASC 220 “Comprehensive Income” (“ASC 220”). ASC 220 establishes rules for the reporting of comprehensive
income (loss) and its components. The components of accumulated other comprehensive income (loss) consist of
the following (in thousands):
Foreign
Currency
Translation
Gain (Loss)
4,317
$
9,790
-
(7)
(108)
13,992
(7,613)
-
(389)
5
5,995
9,516
-
570
2
16,083
$
Balance at January 1, 2010………
Pre-tax amount …………………
Tax (provision) benefit …………
Reclassification to net loss ………
Foreign currency translation ……
Balance at December 31, 2010……
Pre-tax amount …………………
Tax (provision) benefit …………
Reclassification to net income …
Foreign currency translation ……
Balance at December 31, 2011……
Pre-tax amount …………………
Tax (provision) benefit …………
Reclassification to net income …
Foreign currency translation ……
Balance at December 31, 2012……
Unrealized
(Loss) on Net
Investment
Hedge
-
$
(3,955)
1,390
-
-
(2,565)
-
-
-
-
(2,565)
-
-
-
-
(2,565)
$
Unrealized
Actuarial Gain
(Loss) Related
to Pension
Liability
$
Unrealized
Gain (Loss) on
Cash Flow
Hedging
Instruments
2,019
$
4,936
321
(5,173)
43
2,146
(1,482)
759
(1,855)
(6)
(438)
4,417
(306)
(4,174)
(69)
(570)
$
1,207
(31)
-
(52)
65
1,189
(184)
34
(55)
1
985
499
(90)
(48)
67
1,413
Unrealized
Gain (Loss) on
Post
Retirement
Obligation
$
Total
$
7,819
10,844
1,711
(5,266)
-
15,108
(9,126)
793
(2,339)
-
4,436
14,524
(396)
(3,708)
-
$
14,856
276
104
-
(34)
-
346
153
-
(40)
-
459
92
-
(56)
-
495
$
$
Except as discussed in Note 23, 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 23. Income Taxes
The income from continuing operations before income taxes includes the following components (in thousands):
Years Ended December 31,
2011
2012
2010
Domestic (U.S., state and local) ………………………………………
Foreign ………………………………………………………………
Total income from continuing operations before income taxes ……
(10,430)
55,587
45,157
(14,170)
77,826
63,656
(24,662)
52,974
28,312
$
$
$
$
$
$
97
Significant components of the income tax provision are as follows (in thousands):
Years Ended December 31,
2011
2012
2010
Current:
U.S. federal ………………………………………………...……….
State and local …………………………………………...………….
Foreign ………………………………………………………………
Total current provision for income taxes …………………………
$
236
(61)
9,899
10,074
$
(3,446)
-
18,743
15,297
$
4,836
(24)
14,527
19,339
Deferred:
U.S. federal …………………...…………………………………….
State and local ……………...……………………………………….
Foreign ………………………………………………………………
Total deferred provision (benefit) for income taxes ………………
(2,846)
-
(2,021)
(4,867)
148
143
(4,246)
(3,955)
(15,160)
(314)
(1,668)
(17,142)
Total provision for income taxes …………………………………
$
5,207
$
11,342
$
2,197
The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as
follows (in thousands):
2012
$
Years Ended December 31,
2011
2010
$
$
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 ………………
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):
$
$
$
2012
$
Years Ended December 31,
2011
$
2010
$
(1,274)
(4,113)
(5,684)
-
2,084
4,120
-
(4,867)
15,805
(61)
(6,450)
(538)
(7,078)
(613)
3,531
1,263
47
(699)
5,207
(31,111)
47,849
(2,083)
-
(839)
(17,779)
8
(3,955)
22,280
143
(7,532)
610
(5,765)
(2,748)
915
4,546
(255)
(852)
11,342
(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
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 …………………………………
$
$
$
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
In 2010, 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 $0.8 million and $0.9 million are included in the provision for
income taxes in the Consolidated Statement of Operations for 2012 and 2011, respectively.
Except as previously mentioned, a provision for income taxes has not been made for the undistributed earnings of
foreign subsidiaries of approximately $383.8 million at December 31, 2012, 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 and El Salvador. The tax holidays have
various expiration dates ranging from 2013 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 $6.5 million ($0.15 per diluted share), $7.5
million ($0.17 per diluted share) and $6.8 million ($0.15 per diluted share) for the years ended December 31, 2012,
2011 and 2010, 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,
2012
2011
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 …………………………………………..
$
22,773
68,586
735
2,809
(43,298)
5
51,610
(164)
(31,815)
(2,219)
(117)
(34,315)
17,295
$
21,313
50,525
2,111
5,017
(38,544)
6
40,428
(643)
(14,983)
(1,984)
(25)
(17,635)
22,793
$
Classified as follows:
December 31,
2012
2011
Other current assets (Note 11) ………………………………………
Deferred charges and other assets (Note 16)…………………………
Current deferred income tax liabilities ………………………………
Other long-term liabilities ………………………………………..
$
$
8,143
13,923
(92)
(4,679)
17,295
8,044
20,389
(663)
(4,977)
22,793
Net deferred tax assets …………………………………………
$
$
In 2012, the Company’s valuation allowance increased by $4.8 million, primarily related to the loss recognized on
the sale of the Spanish operations in the year ended December 31, 2012.
There are approximately $410.0 million of income tax loss carryforwards as of December 31, 2012 with varying
expiration dates, approximately $169.1 million relating to foreign operations, $23.0 million relating to U.S. federal
operations and $217.9 million relating to U.S. state operations. For U.S. federal purposes, $14.8 million of tax
99
credits are available for carryforward as of December 31, 2012, with the latest expiration date ending
December 2033. Regarding the U.S. state operations, no benefit has been recognized for the $217.9 million as it is
more likely than not that these losses will expire without realization of tax benefits. With respect to foreign
operations, $136.7 million of the net operating loss carryforwards have an indefinite expiration date and the
remaining $32.4 million net operating loss carryforwards have varying expiration dates through December 2021.
As of December 31, 2012, the Company had $16.9 million of unrecognized tax benefits, a net decrease of $0.2
million from $17.1 million as of December 31, 2011. Had the Company recognized these tax benefits,
approximately $16.9 million and $17.1 million and the related interest and penalties would favorably impact the
effective tax rate in 2012 and 2011, 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 $0.4 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 $10.1 million and $10.2 million accrued for interest and penalties as of December 31, 2012
and 2011, respectively. Of the accrued interest and penalties at December 31, 2012 and 2011, $3.7 million and $3.8
million, respectively, relate to statutory penalties. The amount of interest and penalties, net, recognized in the
accompanying Consolidated Statement of Operations for 2012 and 2010 was $(0.1) million and $(0.4) million,
respectively (none in 2011).
The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):
2012
$
Years Ended December 31,
2011
$
2010
$
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, ...……………
17,136
321
(426)
(561)
427
16,897
21,036
-
(3,076)
(346)
(478)
17,136
3,810
19,287
(1,283)
(2,104)
1,326
21,036
$
$
$
(1) Includes amounts assumed upon acquisition of Alpine on August 20, 2012 and ICT on February 2, 2010.
The Company is currently under audit in several tax jurisdictions. In April 2012, the Company received an
assessment for the Canadian 2003-2006 audit for which the Company filed a Notice of Objection in July 2012. As
required by the Notice of Objection process, the Company paid a mandatory security deposit in the amount of $14.5
million to the Canadian Revenue Agency and an additional deposit to the Province of Ontario in the amount of $0.4
million, both of which are included in “Deferred charges and other assets” in the accompanying Consolidated
Balance Sheet as of December 31, 2012 and “Cash paid during period for income taxes” in the accompanying
Consolidated Statement of Cash Flows for the year ended December 31, 2012. This process will allow the
Company to submit the case to the U.S. and Canada Competent Authority for ultimate resolution. Although the
outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved
for these audits and that resolutions of them are not expected to have a material impact on its financial condition and
results of operations.
The significant tax jurisdictions currently under audit are as follows:
Tax Jurisdiction
Canada ……………………………………………………………...…2003 to 2009
Philippines ……………………………………………………………2007 to 2010
United States …………………………………………………………2010
Tax Year Ended
100
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, 2012:
Tax Jurisdiction
Canada ……………………………………………………………...…
Philippines ……………………………………………………………
United States …………………………………………………………
Tax Year Ended
2003 to present
2007 to present
1997 to 1999 (1), 2002-2007 (1) and 2009 to present
(1)
These tax years are open to the extent of the net operating loss carryforward amount.
Note 24. 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 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,
2011
2010
2012
Basic:
Weighted average common shares outstanding …………… 43,105
45,506
46,030
Diluted:
Dilutive effect of stock options, stock appreciation
rights, restricted stock, restricted stock units, shares
held in a rabbi trust ………………………………………
43
Total weighted average diluted shares outstanding …………… 43,148
101
45,607
103
46,133
Anti-dilutive shares excluded from the diluted earnings per
share calculation ……………..………………………………
-
1
3
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 3.0 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, management discretion 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, the last of which were repurchased
during 2011.
The shares repurchased under the Company’s share repurchase programs were as follows (in thousands, except per
share amounts):
For the Years Ended
December 31, 2012 ………
December 31, 2011 ………
December 31, 2010 ………
Total Number
of S hares
Repurchased
537
3,292
300
Range of Prices Paid Per S hare
Low
$
$
$
13.85
12.46
16.92
High
$
$
$
15.00
18.53
17.60
Total Cost of
S hares
Repurchased
$
7,908
$
49,993
$
5,212
101
Note 25. 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 years, some with options to cancel at varying points during the lease. The building leases contain up to
three five-year renewal options. Rental expense under operating leases was as follows (in thousands):
Rental expense ……………………………………………
2012
$
43,626
Years Ended December 31,
2011
$
43,147
2010
$
50,846
The following is a schedule of future minimum rental payments required under operating leases that have
noncancelable lease terms as of December 31, 2012, including the impact of the leases assumed in connection with
the Alpine acquisition (in thousands):
Amount
2013 ………………………………………………………
2014 ………………………………………………………
2015 ………………………………………………………
2016 ………………………………………………………
2017 ………………………………………………………
2018 and thereafter ………………………………………
Total minimum payments required ……………………
$
37,418
29,004
22,389
16,558
14,605
43,150
163,124
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, 2012,
including the impact of the agreements assumed in connection with the Alpine acquisition (in thousands):
Amount
$
2013 ………………………………………………………
2014 ………………………………………………………
2015 ………………………………………………………
2016 ………………………………………………………
2017 ………………………………………………………
2018 and thereafter ………………………………………
Total minimum payments required ……………………
$
24,557
4,610
1,726
1,147
59
-
32,099
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
102
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 from time to time is involved in 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 26. 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, 2012, the Pension Plans were unfunded. The Company expects to make cash contributions to its
Pension Plans during 2013 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):
December 31,
2012
$
2011
$
Beginning benefit obligation ……………………………
Service cost ………………………………………………
Interest cost ………………………………………………
Actuarial (gains) losses …………………………………
Effect of foreign currency translation ……………………
Ending benefit obligation ……………………………
1,860
372
120
(499)
144
1,997
$
$
1,345
237
102
184
(8)
1,860
Unfunded status …………………………………………
Net amount recognized ……………………………
$
(1,997)
(1,997)
(1,860)
(1,860)
$
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 …………………………
5.9%
2.0%
6.3%
3.2%
8.3%
3.2%
Years Ended December 31,
2011
2012
2010
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.
103
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,
2012
2011
2010
Service cost …………………………………………………
$
372
$
237
$
272
Interest cost …………………………………………………
Recognized actuarial (gains) ………………………………
Net periodic benefit cost ……………………………………
120
(46)
446
Unrealized net actuarial (gains), net of tax …………………
(1,413)
102
(55)
284
(985)
90
(51)
311
(1,189)
Total amount recognized in net periodic benefit cost
and other accumulated comprehensive income (loss) ……
$
(967)
$
(701)
$
(878)
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):
Years Ending December 31,
2013 …………………………………………………
2014 …………………………………………………
2015 …………………………………………………
2016 …………………………………………………
2017 …………………………………………………
2018 - 2022 …………………………………………
Amount
$
10
4
20
139
80
1,031
The Company expects to recognize less than $0.1 million of net actuarial gains as a component of net periodic
benefit cost in 2013.
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
Statements of Operations were as follows (in thousands):
Years Ended December 31,
2012
2011
2010
401(k) plan contributions ………………………………
$
1,221
$
953
$
757
In connection with the acquisition of Alpine in August 2012, the Company assumed Alpine’s employee benefit plan
(Section 401(k)). Under this employee benefit plan, the Company makes a matching contribution on an annual basis
in the amount of 100% of the employee contribution for the first 3% of included compensation plus 50% of the
employee contribution for the next 2% of included compensation. Employees are 100% vested in contributions,
earnings and matching funds at all times. No contributions were made during the years ended December 31, 2012,
2011 and 2010.
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 and 2010. 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. These employees have been covered under the Company’s 401(k) plan since January 1, 2012.
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):
December 31,
2012
2011
Postretirement benefit obligation ………………………
Unrealized gains in AOCI (1) …………………………
(1)
$
72
$
114
495
459
Unrealized gains are due to changes in discount rates related to the postretirement obligation.
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 27. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the 2004 Non-Employee
Director Fee Plan and the Deferred Compensation Plan. The following table summarizes the stock-based
compensation expense (primarily in the Americas), income tax benefits related to the stock-based compensation and
excess tax benefits (deficiencies) (in thousands):
Years Ended December 31,
2012
2011
2010
Stock-based compensation (expense) (1) ……………………………………
Income tax benefit (2) ………………………………………………………
Excess tax benefit (deficiency) from stock-based compensation (3) ………
$
(3,467)
$
(3,582)
$
(4,935)
1,213
(292)
1,397
(8)
1,925
354
(1)
Included in "General and administrative" costs in the accompanying Consolidated Statements of Operations.
(2)
Included in "Income taxes" in the accompanying Consolidated Statements of Operations.
(3)
Included in "Additional paid-in capital" in the accompanying Consolidated Statements of Changes in Shareholders' Equity.
There were no capitalized stock-based compensation costs at December 31, 2012, 2011 and 2010.
2011 Equity Incentive Plan — The Board adopted the Sykes Enterprises, Incorporated 2011 Equity Incentive Plan
(the "2011 Plan”) on March 23, 2011, as amended on May 11, 2011 to reduce the number of shares of common
stock available to 4.0 million shares. The 2011 Plan was approved by the shareholders at the May 2011 annual
shareholder meeting. The 2011 Plan replaced and superseded the Company’s 2001 Equity Incentive Plan (the “2001
Plan”), which expired on March 14, 2011. The outstanding awards granted under the 2001 Plan will remain in
effect until their exercise, expiration or termination. The 2011 Plan permits the grant of restricted stock, stock
appreciation rights, stock options and other stock-based awards to certain employees of the Company, and certain
non-employees who provide services to the Company in order to encourage them to remain in the employment of, or
to faithfully provide services to, the Company and to increase their interest in the Company’s success.
Stock Appreciation Rights – The Company’s Board of Directors, at the recommendation of the Compensation and
Human Resource Development Committee (the “Committee”), has approved in the past, and may approve in the
future, 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.
105
Any SARs issued are granted at the fair market value of the Company’s common stock on the date of the grant. All
SARs currently outstanding vest one-third on each of the first three anniversaries of the date of grant, provided the
participant is employed by the Company on such date. The 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.
All currently outstanding 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
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,
2012
2011
2010
Expected volatility …………………………………………………………
Weighted average volatility ……………………………..………………..
Expected dividend rate ……………………………………………………
Expected term (in years) ……………..……………………………………
Risk-free rate ……………..………..……………………………………..
47.1%
47.1%
0.0%
4.7
0.8%
44.3%
44.3%
0.0%
4.6
2.0%
45.2%
45.2%
0.0%
4.4
2.4%
The following table summarizes SARs activity as of December 31, 2012 and for the year then ended:
S tock Appreciation Rights
S hares (000s)
Outstanding at January 1, 2012………………………………………..……
Granted ……………………………………..………………….…………
Exercised …………………………...………………………………………
657
259
-
Weighted
Average
Exercise Price
$
-
$
-
$
-
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (000s)
Forfeited or expired ……………………………………………………….
(51)
$
-
Outstanding at December 31, 2012 ……………………………………
Vested or expected to vest at December 31, 2012 ………………………
Exercisable at December 31, 2012 ………………………………….……
865
865
470
$
-
$
-
$
-
7.2
7.2
6.0
$
20
$
20
$
18
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR
amounts):
Years Ended December 31,
2012
2011
2010
Number of SARs granted …………………………………………………
259
215
130
Weighted average grant-date fair value per SAR ……………………………
$
5.97
$
7.10
$
10.21
Intrinsic value of SARs exercised …………………………………………
$
-
$
-
$
591
Fair value of SARs vested …………………………………………………
$
1,388
$
1,198
$
615
106
The following table summarizes nonvested SARs activity as of December 31, 2012 and for the year then ended:
Nonvested S tock Appreciation Rights
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2012 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
362
259
$
7.90
$
5.97
Vested ……………………………………………………………..…………………………
(175)
$
7.98
Forfeited or expired ……………………………………………..…………………………
(51)
$
6.76
Nonvested at December 31, 2012 ………………………………………………...…………
395
$
6.74
As of December 31, 2012, there was $1.6 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested SARs granted under the 2011 Plan and 2001 Plan. This cost is expected to be
recognized over a weighted average period of 1.4 years.
Restricted Shares – The Company’s Board of Directors, at the recommendation of the Committee, has approved in
the past, and may approve in the future, awards of performance and employment-based restricted shares (“restricted
shares”) for eligible participants. In some instances, where the issuance of restricted shares has adverse tax
consequences to the recipient, the Board may instead issue restricted stock units (“RSUs”). The restricted shares are
shares of the Company’s common stock (or in the case of RSUs, represent an equivalent number of shares of the
Company’s common stock) which are issued to the participant subject to (a) restrictions on transfer for a period of
time and (b) forfeiture under certain conditions. The performance goals, including revenue growth and income from
operations targets, provide a range of vesting possibilities from 0% to 100% and will be measured at the end of the
performance period. If the performance conditions are met for the performance period, the shares will vest and all
restrictions on the transfer of the restricted shares will lapse (or in the case of RSUs, an equivalent number of shares
of the Company’s common stock will be issued to the recipient). The Company recognizes compensation cost, net of
estimated forfeitures, based on the fair value (which approximates the current market price) of the restricted shares
(and RSUs) on the date of grant ratably over the requisite service period based on the probability of achieving the
performance goals.
Changes in the probability of achieving the performance goals from period to period will result in corresponding
changes in compensation expense. The employment-based restricted shares currently outstanding vest one-third on
each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on
such date. In the event of a change in control (as defined in the 2011 Plan and 2001 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 nonvested restricted shares/RSUs activity as of December 31, 2012 and for the year
then ended:
Nonvested Restricted S hares / RS Us
S hares (000s)
Nonvested at January 1, 2012 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
Vested ……………………………………………………………..…………………………
Forfeited or expired ……………………………………………..…………………………
793
420
(195)
(146)
Weighted
Average Grant-
Date Fair
Value
$
20.39
$
15.21
$
19.74
$
19.03
Nonvested at December 31, 2012 ………………………………………………...…………
872
$
18.25
107
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands,
except per restricted share/RSU amounts):
Years Ended December 31,
2012
2011
2010
Number of restricted shares/RSUs granted …………………………………
420
339
206
Weighted average grant-date fair value per restricted share/RSU …………
$
15.21
$
18.68
$
23.88
Fair value of restricted shares/RSUs vested ………………………………
$
3,845
$
4,392
$
4,765
As of December 31, 2012, based on the probability of achieving the performance goals, there was $15.3 million of
total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted shares/RSUs
granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period
of 1.3 years.
2004 Non-Employee Director Fee Plan — The Company’s 2004 Non-Employee Director Fee Plan (the “2004 Fee
Plan”), as last amended on May 17, 2012, provides that all new non-employee directors joining the Board will
receive an initial grant of shares of common stock on the date the new director is elected or appointed, the number of
which will be determined by dividing $60,000 by the closing price of the Company’s common stock on the trading
day immediately preceding the date a new director is elected or appointed, rounded to the nearest whole number of
shares. The initial grant of shares vests in twelve equal quarterly installments, one-twelfth on the date of grant and
an additional one-twelfth on each successive third monthly anniversary of the date of grant. The award lapses with
respect to all unvested shares in the event the non-employee director ceases to be a director of the Company, and any
unvested shares are forfeited.
The 2004 Fee Plan also provides that each non-employee director will receive, on the day after the annual
shareholders meeting, an annual retainer for service as a non-employee director (the “Annual Retainer”). Prior to
May 17, 2012, the Annual Retainer was $95,000, of which $50,000 was payable in cash, and the remainder was paid
in stock. The annual grant of cash vests in four equal quarterly installments, one-fourth on the day following the
annual meeting of shareholders, and an additional one-fourth on each successive third monthly anniversary of the
date of grant. The annual grant of shares paid to non-employee directors prior to May 17, 2012 vests in eight equal
quarterly installments, one-eighth on the day following the annual meeting of shareholders, and an additional one-
eighth on each successive third monthly anniversary of the date of grant. On May 17, 2012, upon the
recommendation of the Compensation and Human Resource Development Committee, the Board adopted the Fifth
Amended and Restated Non-Employee Director Fee Plan (the “Amendment”), which increased the common stock
component of the Annual Retainer by $30,000, resulting in a total Annual Retainer of $125,000, of which $50,000 is
payable in cash and the remainder paid in stock. In addition, the Amendment also changed the vesting period for the
annual equity award, from a two-year vesting period, to a one-year vesting period (consisting of four equal quarterly
installments, one-fourth on the date of grant and an additional one-fourth on each successive third monthly
anniversary of the date of grant). The award lapses with respect to all unpaid cash and unvested shares in the event
the non-employee director ceases to be a director of the company, and any unvested shares and unpaid cash are
forfeited.
In addition to the Annual Retainer award, the 2004 Fee Plan also provides for any non-employee Chairman of the
Board to receive an additional annual cash award of $100,000, and each non-employee director serving on a
committee of the Board to receive an additional annual cash award. The additional annual cash award for the
Chairperson of the Audit Committee is $20,000 and Audit Committee members’ are entitled to an annual cash
award of $10,000. Prior to May 20, 2011, the annual cash awards for the Chairpersons of the Compensation and
Human Resource Development Committee, Finance Committee and Nominating and Corporate Governance
Committee were $12,500 and the members of such committees were entitled to an annual cash award of $7,500. On
May 20, 2011, the Board increased the additional annual cash award to the Chairperson of the Compensation and
Human Resource Development Committee to $15,000. All other additional cash awards remained unchanged.
The Board may pay additional cash compensation to any non-employee director for services on behalf of the Board
over and above those typically expected of directors, including but not limited to service on a special committee of
the Board.
108
The following table summarizes common stock share award activity as of December 31, 2012 and for the year then
ended:
Nonvested Common S tock S hare Awards
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2012 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
16
42
$
21.08
$
16.15
Vested ……………………………………………………………..…………………………
(44)
$
17.58
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2012 ………………………………………………...…………
(1)
13
$
21.83
$
17.18
The following table summarizes information regarding common stock share awards granted and vested (in
thousands, except per share award amounts):
Years Ended December 31,
2011
2010
2012
Number of common stock share awards granted …………………………
Weighted average grant-date fair value per common stock share award ……
Fair value of common stock share awards vested …………………………
42
16.15
771
$
$
21
21.83
407
$
$
24
19.11
458
$
$
As of December 31, 2012, there was $0.1 million of total unrecognized compensation costs, net of estimated
forfeitures, related to nonvested shares granted since March 2008 under the 2004 Fee Plan. This cost is expected to
be recognized over a weighted average period of 0.1 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, executive vice presidents and senior vice presidents and $7,500 per year for vice presidents
(participants below the level of vice president are not eligible to receive matching contributions from the Company).
Matching contributions and the associated earnings vest over a seven year service period. Deferred compensation
amounts used to pay benefits, which are held in a rabbi trust, include investments in various mutual funds and shares
of the Company’s common stock (See Note 14, Investments Held in Rabbi Trusts). As of December 31, 2012 and
2011, liabilities of $5.3 million and $4.2 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 $1.4 million and $1.2 million at December 31, 2012 and 2011, respectively, is included in
“Treasury stock” in the accompanying Consolidated Balance Sheets.
The following table summarizes nonvested common stock activity as of December 31, 2012 and for the year then
ended:
Nonvested Common S tock
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2012 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
8
15
$
18.30
$
15.27
Vested ……………………………………………………………..…………………………
(14)
$
15.59
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2012 ………………………………………………...…………
(1)
8
$
18.22
$
16.98
109
The following table summarizes information regarding shares of common stock granted and vested (in thousands,
except per common stock amounts):
Years Ended December 31,
2011
2010
2012
Number of shares of common stock granted ………………………………
Weighted average grant-date fair value per common stock …………………
Fair value of common stock vested …………………………………………
Cash used to settle the obligation …………………………………………
15
15.27
195
459
$
$
$
11
18.93
$
$
169
$
2
11
18.91
185
32
$
$
$
As of December 31, 2012, there was $0.1 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected
to be recognized over a weighted average period of 2.3 years.
Note 28. 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.
110
Information about the Company’s reportable segments is as follows (in thousands):
Americas
EMEA
Other (1)
Consolidated
Year Ended December 31, 2012:
Revenues (2) …………………………………………………………
Percentage of revenues ………………………………………………
$
947,147
84.0%
Depreciation and amortization (2) ……………………………………
$
46,973
Income (loss) from continuing operations …………………………
Other (expense), net …………………………………………………
Income taxes …………………………………………………………
Income from continuing operations, net of taxes ……………………
(Loss) from discontinued operations, net of taxes (3) ………………
Net income …………………………………………………………
$
93,580
$
(10,707)
$
180,551
16.0%
$
3,875
$
5,488
$
(820)
$
(51,289)
(2,622)
(5,207)
$
1,127,698
100.0%
$
50,848
$
47,779
(2,622)
(5,207)
39,950
(11,527)
28,423
$
Total assets as of December 31, 2012 ………………………….
$
1,265,119
$
1,100,938
$
(1,457,368)
$
908,689
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 taxes …………………
Net (loss) ……………………………………………………………
$
108,167
$
(5,548)
$
(64,638)
(9,669)
(2,197)
$
$
(6,476)
$
(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
(1)
(2)
(3)
Other items (including corporate costs,
impairment costs, other income and expense, and income taxes) are shown for purposes of
reconciling to the Company’s consolidated totals as shown in the tables above for the years ended December 31, 2012, 2011 and 2010. 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.
Revenues and depreciation and amortization include results from continuing operations only.
Includes the (loss) from discontinued operations, net of taxes, as well as the gain (loss) on sale of discontinued operations, net of taxes, if
any.
111
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):
2012
Years Ended December 31,
2011
2010
Amount
Percentage
Amount
Percentage
Amount
Percentage
Americas………………
EM EA………………
$
130,072
3,018
133,090
$
11.5%
0.3%
11.8%
$
$
129,331
3,343
132,674
11.1%
0.2%
11.3%
$
$
147,673
6,457
154,130
13.2%
0.5%
13.7%
The Company has multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire
between 2013 and 2015. The Company has historically renewed most of these contracts. However, there is no
assurance that these contracts will be renewed, or if renewed, will be on terms as favorable as the existing contracts.
Each line of business is governed by separate business terms, conditions and metrics. Each line of business also has
a separate decision maker such that a loss of one line of business would not necessarily impact our relationship with
the client and decision makers on other lines of business.
The Company’s next largest clients in each of the years, which are in the financial services vertical market,
accounted for 6.2%, 5.6% and 4.5% of consolidated revenues for the years ended December 31, 2012, 2011 and
2010, respectively. The Company’s top ten clients accounted for 48% of its consolidated revenues in 2012, an
increase from 45% in 2011 and 42% in 2010. The loss of (or the failure to retain a significant amount of business
with) any of the Company’s key clients, including AT&T, 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):
Years Ended December 31,
2011
2012
2010
Revenues: (1)
United States …………………………………………
The Philippines ………………………………………
Canada …………………………………………………
Costa Rica ……………………………………………
El Salvador ……………………………………………
Australia ………………………………………………
M exico …………………………………………………
Argentina (2) ……………………………………………
Other …………………………………………………
Total Americas ……………………………………
Germany ………………………………………………
United Kingdom ………………………………………
Sweden ………………………………………………
Romania ………………………………………………
Hungary ………………………………………………
Netherlands ……………………………………………
Other …………………………………………………
Total EM EA ………………………………………
302,046
225,629
198,585
100,101
46,910
24,633
23,315
-
25,928
947,147
73,380
35,833
22,229
10,773
7,619
6,511
24,206
180,551
1,127,698
299,606
244,936
203,313
94,133
43,016
25,892
23,133
-
29,113
963,142
76,362
41,476
30,072
9,038
6,695
14,268
28,214
206,125
1,169,267
$
293,179
249,010
195,301
89,830
35,366
18,639
20,514
7,670
24,820
934,329
65,145
46,847
27,311
3,743
8,186
14,026
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, The
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.
112
December 31,
2012
2011
Long-Lived Assets: (1)
United States …………………………………………
Canada …………………………………………………
The Philippines ………………………………………
Costa Rica ……………………………………………
El Salvador ……………………………………………
M exico …………………………………………………
Australia ………………………………………………
Other …………………………………………………
Total Americas ……………………………………
United Kingdom ………………………………………
Germany ………………………………………………
Sweden ………………………………………………
Romania ………………………………………………
Hungary ………………………………………………
Netherlands ……………………………………………
Other …………………………………………………
Total EM EA ………………………………………
$
127,010
27,497
11,298
5,355
2,978
2,511
2,185
4,011
182,845
4,712
2,556
682
638
360
23
1,516
10,487
193,332
70,768
22,943
12,348
6,664
3,416
2,317
2,378
3,512
124,346
4,969
2,362
810
1,056
214
95
1,700
11,206
135,552
$
(1)
Long-lived assets include property and equipment, net, and intangibles, net.
Goodwill:
December 31,
2012
2011
Americas ……………………………………………
EM EA ………………………………………………
$
204,231
-
204,231
$
121,342
-
121,342
$
$
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,
2011
1,145,002
16,717
7,548
1,169,267
$
2012
1,104,442
16,357
6,899
1,127,698
$
$
2010
1,096,869
16,934
8,108
1,121,911
$
Note 29. 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):
Foreign currency transaction gains (losses) ……………………………………………………
Gains (losses) on foreign currency derivative instruments not designated as hedges …………
Gains (losses) on liquidation of foreign subsidiaries ……………………………………………
Other miscellaneous income (expense) ……………...…………………………………………
2012
$
Years Ended December 31,
2011
$
2010
$
(2,856)
(295)
(582)
1,200
(2,533)
(749)
(1,444)
-
94
(2,099)
(2,108)
(4,532)
-
733
(5,907)
$
$
$
113
Note 30. 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 for the use of his private jet during the year ended December 31, 2010, (none in 2012 and
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 to the landlord during each of the years ended December 31, 2012, 2011 and 2010 under the terms of
the lease.
114
Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2012, 2011 and 2010:
(in thousands)
Allowance for doubtful accounts:
Charged
(Credited)
to Costs
and
Expenses
Balance at
Beginning
of Period
Additions
(Deductions) (1)
Beginning
Balance of
Acquired
Company
Balance at
End of
Period
Year ended December 31, 2012 ……………………
Year ended December 31, 2011 ………………………
Year ended December 31, 2010 ………………………
$
4,304
3,939
3,530
1,115
450
170
$
(338)
(85)
239
-
$
-
-
$
5,081
4,304
3,939
Valuation allowance for net deferred tax assets:
Year ended December 31, 2012 …………………… 38,544
Year ended December 31, 2011 ……………………… 60,091
Year ended December 31, 2010 ……………………… 32,126
$
$
4,754
(17,758)
12,256
$
-
(3,789)
-
-
$
-
15,709
$
43,298
38,544
60,091
Reserves for value added tax receivables:
Year ended December 31, 2012 ……………………
Year ended December 31, 2011 ………………………
Year ended December 31, 2010 ………………………
$
2,355
2,338
1,881
$
546
504
551
$
175
(487)
(94)
$
-
-
-
$
3,076
2,355
2,338
(1) Net write-offs and recoveries, including the effect of foreign currency translation. 2011 includes the impact of the reclassification of the
Company's Spanish operations to assets held for sale.
115
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
lt. gen. michael P. delong
(retired)
Director
president and Ceo
Gulf to Gulf Consultants
International llC
Consultant
the Boeing Company
for the Middle east and Africa
h. PaRkS helmS, eSq.
Director
president and Manager
Helms, Henderson & Associates, p.A.
iain a. macdonald
Director
Chairman and Director
Yakara plc
JameS S. macleod
Director
Chairman and Ceo
CoastalSouth Bancshares, Inc.
coRPoRate headquaRteRS
400 north Ashley Drive
Suite 2800
tampa, Fl uSA 33602
(813) 274-1000
Fax (813) 273-0148
www.sykes.com
dR. linda f. mcclintock-gReco
Director
president and Chief executive officer
Age-less Medicine llC
president
Age-less Vitamin & nutrients
indePendent auditoRS
Deloitte & touche llp
201 e. Kennedy Boulevard
Suite 1200
tampa, Fl uSA 33602
william J. meuReR
Director
private Financial Consultant
Director
eagle Family of Funds
Director
Walter Investment Management
Corporation
Managing partner (retired)
Arthur Andersen’s Central
Florida operations
JameS (Jack) k. muRRaY, JR.
Director
Chairman
Murray Corporation
Chairman
Murray Advisors, Inc.
Chairman, Advisory Board
Healthedge Investment Fund II, l.p.
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:
8:00 a.m. (eSt)
tuesday, May 21, 2013
the meeting will be held at:
Florida Museum of photographic Arts
the Cube at Rivergate plaza
400 n. Ashley Drive, Cube 200
tampa, Florida 33602
phone: (813) 221-2222
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
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
lawRence (lance) R. zingale
executive Vice president,
Global Sales and Client Management
chRiStoPheR m. caRRington
executive Vice president,
Global Delivery
JameS t. holdeR
executive Vice president,
General Counsel and
Corporate Secretary
daniel l. heRnandez
executive Vice president,
Global Strategy
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