corporate
profile
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.
Dear Shareholders,
Continuing on our steady path of calculated
change and refinement, SyKES made healthy
gains in 2013. The steps we took to restore
our growth engine bore fruit, with consistent
revenue acceleration throughout the year and
subsequent ongoing upward revisions of our
revenue forecast. At the same time, we made
measurable progress on key initiatives, including
platform integration, as well as capacity and
cost-structure optimization. Although much
work remains to be done, we believe the actions
we took in 2013 have positioned us favorably
to reach our much-discussed objective —mid-
single-digit revenue growth, accompanied by
strong operating leverage, for sustainable, long-
term operating margins of 8% to 10%.
In this letter, we will discuss the financial
highlights of 2013, provide an operational
update on various initiatives, assess the Alpine
Access acquisition, provide insights into the
industry, and outline our priorities for 2014.
financial performance
recap
We made healthy progress on the financial front.
Comparable organic and constant currency
revenue growth in 2013 was 5.9%*. This was a
positive swing of 12.0% when compared to a
6.1%** revenue decline on a similar basis in
2012. The gains were even more impressive by
CHArLES E. SyKES
President and Chief Executive Officer
W. MICHAEL KIPPHUT
Executive Vice President and Chief Financial Officer
negative revenue growth at the start of the year to
positive double- digit growth at the end of the year.
segment. The EMEA (Europe, Middle East and
As pleased as we were with the growth overall,
Africa) segment led the way, up sharply by
the considerable improvement in the revenue
15.3%*** on a constant currency basis. The
picture did leave a short-term mark. The level
Americas segment also performed well on a
of previously discussed organic growth, the
constant currency basis, up 4.0%****. This was
accompanying ramp costs (recruiting and training
the best pace of revenue growth for both regions
of agents and indirect support staff) and the
since 2009. At a broader level, and in terms of
significant capacity investments, coupled with
secular industry drivers, demand was equally
volatile foreign exchange rates, masked the
split between an on-going shift to outsourcing
underlying operating margin profile of the
and vendor consolidation. Further helping the
business. As we cycle through these investments
overall growth picture was a normalization of
and better control our revenue growth trajectory —
revenue attrition. As a result, we revised up-
now that we are in a better position to do so —
ward our 2013 revenue forecast meaningfully
we believe we are on a journey to restore our
throughout the year, turning single-digit
margin profile.
1
SYKES.ANNUAL REPORT.2013 Out-FrOnt FrOm At-HOmE.
more than a convenient work option for our agents, SYKES Home is a
game-changing business model that represents an unparalleled advantage
for our clients. not only can we recruit customer-service pros from literally
anywhere, we can specifically target agents who are active users and
“uber-fans” of the products or services they support. Importantly, SYKES
Home also enhances our ability to support enthusiastic but often-hindered
workers such as stay-at-home parents, retirees, veterans and military
spouses, students and the mobility-impaired.
update on operations
We had a very productive year operationally,
juggling many tasks simultaneously — and
successfully. We completed the Alpine-SyKES
platform integration in the U.S. This allowed
us to successfully port one of our marquee
clients over to Alpine’s at-home platform.
Even more critically, we leveraged this early
success story to make the winning case to
select clients in our underutilized brick and
mortar facilities to go virtual — and several did.
gross-seat additions in 2012. This was the largest
number of gross seat additions ever. But the net
seat count was up by only 2,900, helping us make
good ground in driving facility consolidation
and rationalization. Thanks to this, we facilitated
With success on the integration front, we made
the transfer of several client programs from
substantial inroads in other areas, too. We made
underutilized facilities to either a new, more-
the client-centric model fully operational, with
utilized facility or the Alpine at-home platform.
everything from alignment of key performing
And the results speak for themselves: For every
indicators (KPIs) to compensation calibration.
one client that opted to be moved to another
And we are extremely pleased with the results it
brick-and-mortar facility, five clients opted for
is already generating in terms of faster decision
the at-home platform, helping us lay the
making and greater accountability. We also added
groundwork for lower capital intensity and a
7,600 seats on a gross basis, eclipsing the 4,500
more flexible cost structure over time.
All told, we powered through 2013 with
significant operational momentum for 2014.
For every one client that opted to be moved to
another brick-and-mortar facility, five clients
opted for the at-home platform, helping us lay
the groundwork for lower capital intensity and
a more flexible cost structure over time.
2
SYKES.ANNUAL REPORT.2013 assessment of the
alpine access acquisition –
one year out
hub-and-spoke at-home agent models. For these
reasons and many others, we are pleased to
shine the spotlight on the anniversary of our
Alpine acquisition, and we look forward to
leveraging its power in the marketplace.
Our belief in the strategic value of the Alpine
Access acquisition was unwavering. One year
later, it is even stronger. Alpine’s pure-play
virtual model has resonated with clients,
particularly its flexibility, scalability and reach
when it comes to sourcing scarce skill sets. In
2013, Alpine’s revenue growth on a stand-alone
basis over the previous year was impressive —
up approximately 19.2%*****. Even with a more
than threefold increase in growth relative to our
brick-and-mortar operation, Alpine was able to
sustain healthy operating margins.
industry
view
When discussing the customer contact
management industry, we always strive to
educate our audience. In the process, we aim to
focus on the substance and hope to avoid
getting caught up in the latest hype or trend
hitting the industry. Sometimes that can be
easier said. So what are we seeing? Adoption
of live chat, omni-channel customer support,
From a marketing perspective, Alpine is viewed
up-sell cross-sell capabilities and mergers and
as a significant differentiator in the eyes of
our existing clients — a fact that has been
acquisition (M&A) activity are just some of the
trends that continue to play out in our industry.
underscored by the ratio of brick-and-mortar
In our 2012 shareholder letter, we discussed at
clients opting for Alpine’s virtual solution.
length the trend toward vendor consolidation,
Similarly, on the new-client front, we are able
which is being driven by numerous factors, among
to draw a sharp contrast between our business
them, secular shifts in our clients’ businesses
model and those of our competitors, both brick-
or upstream M&A activities among clients
and-mortar and virtual, effectively edging out
themselves. In fact, we stated how the trend
many existing and emerging challengers.
toward vendor consolidation has been afoot
In just one example, we recently won a potentially
significant piece of business within the auto-
parts retail and auto-repair service space.
The requirements around the program were
over the last few years.
Another trend that has been around for a while
but is now starting to generate more interest
is live chat support. It is a medium that can
demanding, revolving around domain expertise
address inquiries that are simple (track a lost
and specific language attributes, both of which
shipment with an e-commerce retailer) to
had to be furnished in sufficient scale. Thanks
moderately complex (trouble shooting technical
to our pure-play virtual model, we were able
computer issues) in nature because of the
to provide a highly targeted solution that
transcended the physical and operational
limitations of both brick-and-mortar and
synchronous mode of communication between
a consumer and a customer support agent. In
fact, live chat’s early adopters were e-commerce
* reported revenues in 2013 compared to 2012 increased 12.0%
** reported revenues in 2012 compared to 2011 decreased 3.6%
*** reported revenues in the EmEA region in 2013 compared to 2012 increased 17.8%
**** reported revenues in the Americas region in 2013 compared to 2012 increased 10.9%
***** Alpine Access’ reported revenues in 2013 compared to 2012 increased 38.5%, which includes
revenues ported over from SYKES’ legacy at-home agent and brick-and-mortar platforms over
to Alpine.
3
SYKES.ANNUAL REPORT.2013
BuIlDIng A PrESEnCE WOrlDWIDE.
With more than 70 call centers in 20 countries around
the world, no one is better positioned than SYKES to
answer the call. Even our network of agents and
potential recruits extends across borders, enabling
us to establish brick-and-mortar facilities and hire
locally wherever we’re needed. But our building efforts
don’t end there. In all of our locations worldwide,
we go the extra mile to make a positive difference, by
investing in the regional economy and giving back to
the communities where we live and work.
retailers in the late 1990s, many who saw it
a brick-and-mortar or a virtual model. Very few
as a proactive way to help a customer navigate
clients at present serve their end customers
a website for either informational purposes
holistically across channels due to organizational
or to expedite a purchase or reduce the rate of
and systems constraints. When that day comes,
shopping cart abandonment. Now live chat is
however, we remain well positioned with the
expanding beyond the sphere of just e-commerce
suite of delivery services and an added advantage
retailers and is increasingly being viewed by
few pure-play brick-and-mortar players can lay
clients in the communications, technology and
claim to: our pure-play best-of-breed virtual
financial services verticals as a medium that
at-home agent platform.
facilitates a high quality, high-touch and real-time
customer experience relative to email support.
This broader adoption positions us well given
our domain expertise with various types of
customer transactions and innovative workflow
designs over this medium.
Up-sell and cross-sell capabilities are becoming
more embedded in traditional customer service.
Whether purchasing a new Smartphone or
upgrading to a new Smartphone plan or activating
a new credit card or purchasing a vacation
package, our clients are looking to increase
The word “Omni-Channel Support” has gained
customer lifetime value (driving stickiness and
some currency in our industry in the last
greater wallet share) of their end customers.
couple of years. The term simply means being
As such, having subject matter expertise and
service delivery agnostic by providing
demonstrable client reference can be a significant
customers multiple touch points of seamless
differentiator. Thanks to the acquisition of ICT
and interconnected support through chat, email,
Group, which had a strong heritage in upsell
voice and social media support whether through
and cross-sell capabilities, we are able to
“Omni-Channel Support” has gained some currency in our
industry in the last couple of years. The term simply means
being service delivery agnostic by providing customers
multiple touch points of seamless and interconnected
support through chat, email, voice and social media support
whether through a brick-and-mortar or a virtual model.
4
SYKES.ANNUAL REPORT.2013 showcase the disciplines and processes in
delivering tangible results. In fact, we have a
center of excellence around this capability and
have rolled this out to other geographies.
road map for
2014
As we look to 2014, the global economic
environment appears to be healing. Because we
Turning to M&A activity, although it is nothing
have had a few false dawns, we are looking
new, it is worth commenting on from time to
ahead with guarded optimism. After all, we are
time as it can either reinforce or telegraph a
heading into midyear congressional elections,
major shift in our industry. Broadly speaking,
which could potentially extend sales cycles or
when it comes to M&A activity, there are
impact client decision making. That said, 2014
several drivers at work. In some cases, M&A is
has some beneficial tailwinds to carry us forward.
being driven by strategic imperatives on the
Once again, we are targeting growth from clients
part of certain sellers to divest non-core customer
within the communications, financial services,
care businesses. Or in the case of strategic buyers,
technology and healthcare verticals, with most
the motivation is to drive scale in a fragmented
of the growth coming from existing clients. As
industry. Or to improve their business mix,
companies continue to streamline their supply
which includes, among other things, becoming
chain through further vendor consolidation and
more global, adding new geographies and markets,
seek trusted partners who can deliver consistent
While M&A activity in our industry is a
constant, and there have not been any new
entrants in the marketplace, we believe
performance, we believe we are extremely well
positioned to win additional market share,
particularly given our at-home agent capabilities.
With the bulk of our major facility upgrades and
transfers behind us, we will be focused on
the current spate of M&A does bring greater
further integrating and optimizing our assets
operating discipline to the industry.
and our full spectrum of business processes,
augmenting client and vertical market portfolios
and adding a new suite of services. This recent
round of M&A activity confirms more than it
from client engagement to service delivery.
At the same time, we anticipate expansion into
new geographies even as we take steps to
introduce new service offerings and further
monetize our capabilities in the marketplace.
signals anything new. For the non-core sellers,
We believe that our industry and our business
it underscores the discipline required to
model are solid. As our clients’ customers
successfully manage the customer contact
continue to gravitate toward brands that they
business. Moreover, it suggests that the
perceive as being synonymous with quality and
competitive threat posed by systems integrators
value — and do so at a time when switching costs
who also offer customer contact services had
are negligible — the industry’s value proposition
been overstated. From the view of strategic
of delivering a great customer experience every
acquirers, it illuminates the health and the
time makes our responsibility to serve as
growth opportunities still present in the industry.
While M&A activity in our industry is a constant,
and there have not been any new entrants in
the marketplace, we believe the current spate
of M&A does bring greater operating discipline
to the industry. It further reinforces the impor-
tance of staying focused on our core business.
And it also underscores making the right and
on-going investments to differentiate ourselves
in the marketplace.
5
SYKES.ANNUAL REPORT.2013 exemplary brand ambassadors for our clients
have taken over the last two years, we believe
even more central. The building blocks of our
we are strengthening our ability to capitalize on
business strategy directly address this dynamic,
opportunities in the marketplace and deliver on
including a relentless focus on a superior breadth
our long-term margin potential.
and depth of service offerings, a diverse vertical
mix and comprehensive delivery capability —
all delivered with operational excellence
reinforced by our low risk profile and solid
balance sheet. We believe that the steps we have
taken to further bolster our foundation, including
the acquisition of Alpine Access, have put us on
We would like to thank you — our shareholders,
clients, employees and Board members — for
your enduring trust and support.
a reliable, long-term path toward sustainable
Charles E. Sykes
revenue growth, better margins and a significant
President and Chief Executive Officer
competitive advantage. We also believe that the
management realignment we announced shortly
after the close of the Alpine acquisition represents
a subtle but important enhancement of our
W. Michael Kipphut
operating model. In short, with the actions we
Executive Vice President and Chief Financial Officer
6
SYKES.ANNUAL REPORT.2013 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, 2013
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 28, 2013, the last business day of the Registrant’s most
recently completed second fiscal quarter, was $668,308,805.
As of February 12, 2014, there were 43,996,834 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents ..............................................................................................................
Portions of the Proxy Statement for the year 2014
Annual Meeting of Shareholders .............................................................................
Form 10-K Reference
Part III Items 10–14
TABLE OF CONTENTS
Business ……………………………………………………………………………………….
Risk Factors …………………………………………………………………………………...
Unresolved Staff Comments …………………………………………………………………..
Properties ……………………………………………………………………………………...
Legal Proceedings …………………………………………………………………………….
Mine Safety Disclosures ………………………………………………………………….......
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities …………………………………………………………….
Selected Financial Data ……………………………………………………………………….
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..
Quantitative and Qualitative Disclosures About Market Risk ………………………………..
Financial Statements and Supplementary Data ……………………………………………….
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..
Controls and Procedures ………………………………………………………………………
Other Information ……………………………………………………………………………..
Directors, Executive Officers and Corporate Governance ……………………………………
Executive Compensation ……………………………………………………………………...
Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters ………………………………………………………………………..
Certain Relationships and Related Transactions, and Director Independence ……………….
Principal Accountant Fees and Services ………………………………………………………
Page
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Exhibits and Financial Statement Schedules ………………………………………………….
48
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
2
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, social media, text messaging and chat. We also
provide various enterprise support services in the United States that include services for our clients’ internal support
operations, from technical staffing services to outsourced corporate help desk services. In Europe, we also provide
fulfillment services including multilingual sales order processing via the Internet and phone, inventory control,
product delivery and product returns handling. (See Note 27, Segments and Geographic Information, of the
accompanying “Notes to Consolidated Financial Statements” for further information on our segments.) Our
complete service offering helps our clients acquire, retain and increase the lifetime value of their customer
relationships. We have developed an extensive global reach with customer contact management centers across six
continents, including North America, South America, Europe, Asia, Australia and Africa. We deliver cost-effective
solutions that enhance the customer service experience, promote stronger brand loyalty, and bring about high levels
of performance and profitability.
SYKES was founded in 1977 in North Carolina and we moved our headquarters to Florida in 1993. In March 1996,
we changed our state of incorporation from North Carolina to Florida. Our headquarters are located at 400 North
Ashley Drive, Suite 2800, Tampa, Florida 33602, and our telephone number is (813) 274-1000.
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
The customer contact management industry is highly fragmented and significant in size. According to Ovum, an
industry research firm, the total number of individuals, or agent positions (“APs”), working in the customer contact
management industry worldwide was estimated at roughly 9.2 million in 2013. With approximately 80% of the
customer contact work done by in-house contact centers, the number of APs working for outsourcers such as
SYKES, was estimated at 1.9 million in 2013. Both the outsourced and total APs are forecasted by Ovum to grow at
compound annual growth rate of 5.2% and 3.1%, respectively, from 2013 to 2018. It is estimated that no single
outsourcer has more than five percent of the total APs worldwide. Measured in dollar terms, the size of the
outsourced portion of the customer contact management industry worldwide was estimated at $58 billion in 2012,
according to International Data Corporation (“IDC”), an industry research firm. IDC also estimates that the
outsourced portion of the customer contact industry is expected to grow to $76.8 billion by 2017, a compound
annual growth rate of 5.8% from 2012 to 2017.
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 utilizing outsourcers. In today’s marketplace,
companies require innovative customer contact management solutions that allow them to enhance the end user’s
experience with their products and services, strengthen and enhance their company brands, maximize the lifetime
value of their customers, efficiently and effectively deliver human interaction when customers value it most, and
deploy best-in-class customer management strategies, processes and technologies. However, a myriad of factors,
among them intense global competition, pricing pressures, softness in the global economy and rapid changes in
3
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.
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 in August of 2012. By working in
partnership with outsourcers, companies can ensure that the crucial task of retaining and growing their customer
base is addressed while creating operating flexibility, enabling focus on their core competencies, ensuring service
excellence and execution, achieving cost savings through a variable cost structure, leveraging scale, entering niche
markets speedily, and efficiently allocating capital within their organizations.
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 People’s 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.
Through strategic technology relationships, we are able to provide fully integrated communication services
encompassing e-mail, chat, text messaging and social media 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.
4
We are also continuing to capitalize on sophisticated technological capabilities, including our 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. (“Alpine”) 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 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 2013, our global delivery footprint spanned 20 countries. As a multi-channel provider of
phone, e-mail, social media, 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, which further augments and strengthens our existing brick-and-mortar global delivery footprint.
Additionally, with the rapid emergence of on-line communities, 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.
5
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 gaining
share from our competitors by providing consistently high-quality service as clients continue to consolidate their
vendor base. In addition, as we further leverage our 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 reportable segments — the
Americas and EMEA. The Americas region, representing 83.2% of consolidated revenues in 2013, 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 16.8% of consolidated
revenues in 2013, includes Europe, the Middle East and Africa. See Note 27, Segments and Geographic Information,
of the accompanying “Notes to Consolidated Financial Statements” for further information on our segments. The
following is a description of our customer contact management solutions:
Outsourced Customer Contact Management Services. Our outsourced customer contact management services
represented approximately 98.2% of total 2013 consolidated revenues. Each year since 2008, we have handled over
250 million customer contacts including phone, e-mail, social media, 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
• Customer acquisition — Our customer acquisition services are primarily focused on inbound up-selling of
our clients’ products and services.
6
We provide these services, primarily inbound customer calls, through our extensive global network of customer
contact management centers in many 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 72 customer contact management
centers, which breakdown as follows: 18 centers across Europe and Egypt, 22 centers in the United States, 10
centers in Canada, 4 centers in Australia and 18 centers offshore, including the People’s Republic of China, The
Philippines, Costa Rica, El Salvador, India, Mexico and Brazil. In addition to our customer contact management
centers, we employ approximately 7,500 virtual customer contact agents across 40 states in the U.S. and across eight
provinces in Canada.
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 us 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.
7
Quality Assurance
We believe that providing consistent high-quality service is critical in our clients’ decision to outsource and in
building long-term relationships with our clients. It is also our belief and commitment that quality is the
responsibility of each individual at every level of the organization. To ensure service excellence and continuity
across our organization, we have developed an integrated Quality Assurance program consisting of three major
components:
• The certification of client accounts and customer contact management centers to the SYKES Science of
Service® program;
• The application of continuous improvement through application of our Data Analytics 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 our suite of data analytics techniques that 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 experience 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 experiences, 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 2013, as a percentage of our consolidated revenues,
8
was 35% for communications, 28% for financial services, 16% for technology/consumer, 8% for transportation and
leisure, 6% for healthcare, 2% for retail and 5% for all other vertical markets, including government and utilities.
We believe our globally recognized client base presents opportunities for further cross marketing of our services.
Total revenues by segment from AT&T Corporation, a major provider of communication services for which we
provide various customer support services, were as follows (in thousands):
Amount
Americas……………
EM EA………………
$
162,888
3,513
166,401
$
2013
% of Revenues
12.9%
0.3%
13.2%
Years Ended December 31,
2012
Amount
$
$
130,072
3,018
133,090
% of Revenues
11.5%
0.3%
11.8%
Amount
$
$
129,331
3,343
132,674
2011
% of Revenues
11.1%
0.2%
11.3%
We have multiple distinct contracts with AT&T spread across multiple lines of businesses, including a master
services agreement that expires in 2017 and various statements of work, which expire at varying dates between 2014
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.
Total revenues from our next largest client, which was in the financial services vertical market, were as follows (in
thousands):
2013
Years Ended December 31,
2012
2011
Next largest client …
$
73,226
Amount
% of Revenues
5.8%
Amount
$
70,311
% of Revenues
6.2%
Amount
$
65,783
% of Revenues
5.6%
Our top ten clients accounted for approximately 45.9%, 47.8% and 45.4% of our consolidated revenues during the
years ended December 31, 2013, 2012 and 2011, respectively.
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 or potential client, our public and private
direct competition includes TeleTech, Sitel, Convergys, iQor, Concentrix, Alorica, West Corporation, Aegis Global,
Sutherland, 24/7 Customer, StarTek, Atento, Teleperformance, Transcom, Expert Global Solutions, LiveOps,
Working Solutions and Arise, as well as the customer care arm of such companies as Accenture, Xerox, Wipro,
Infosys and Mahindra Satyam, 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
9
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
The success of our business depends, in part, on our proprietary technology and intellectual property. We rely on a
combination of intellectual property laws and contractual arrangements to protect our intellectual property. We and
our subsidiaries have registered various trademarks and service marks in the U.S. and/or other countries, including
SYKES®, REAL PEOPLE. REAL SOLUTIONS®, SYKES HOME®, SYKES HOME POWERED BY ALPINE
ACCESS®, SCIENCE OF SERVICE®, ICT®, SOUND OF SERVICE®, ONEVIEW®, ALPINE ACCESS® and
ALPINE ACCESS UNIVERSITY®. The duration of trademark and service mark registrations varies from country
to country but may generally be renewed indefinitely as long as the marks are in use and their registrations are
properly maintained. Our subsidiary, Alpine, was issued U.S. Patent No. 8,565,413 in 2013 which relates to a
system and method for establishment and management of a remote agent call center. Alpine has several additional
pending U.S. patent applications.
Employees
As of January 31, 2014, we had approximately 47,900 employees worldwide, including 37,200 customer contact
agents handling technical and customer support inquiries at our centers, 7,500 at-home customer contact agents
handling technical and customer support inquiries, 3,000 in management, administration, information technology,
finance, sales and marketing roles, 100 in enterprise support services and 100 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.
Additionally, 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
51
60
52
58
50
47
55
55
51
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.
10
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 joined SYKES in August 2012 and assumed the post of Executive Vice President,
Global Delivery 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
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.
11
Item 1A. Risk Factors
Factors Influencing Future Results and Accuracy of Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements (within the meaning of the Private
Securities Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, and
projections about us, our beliefs, and assumptions made by us. In addition, we may make other written or oral
statements, which constitute forward-looking statements, from time to time. Words such as “may,” “expects,”
“projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar
expressions are intended to identify such forward-looking statements. Similarly, statements that describe our future
plans, objectives or goals also are forward-looking statements. These statements are not guarantees of future
performance and are subject to a number of risks and uncertainties, including those discussed below and elsewhere
in this Annual Report on Form 10-K. Our actual results may differ materially from what is expressed or forecasted
in such forward-looking statements, and undue reliance should not be placed on such statements. All forward-
looking statements are made as of the date hereof, and we undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-
looking statements include, but are not limited to: the marketplace’s continued receptivity to our terms and elements
of services offered under our standardized contract for future bundled service offerings; our ability to continue the
growth of our service revenues through additional customer contact management centers; our ability to further
penetrate into vertically integrated markets; our ability to expand revenues within the global markets; our ability to
continue to establish a competitive advantage through sophisticated technological capabilities, and the following risk
factors:
Risks Related to Our Business and Industry
Unfavorable general economic conditions could negatively impact our operating results and financial condition.
Unfavorable general economic conditions could negatively affect our business. While it is often difficult to predict
the impact of general economic conditions on our business, these conditions could adversely affect the demand for
some of our clients’ products and services and, in turn, could cause a decline in the demand for our services. Also,
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 unfavorable economic conditions persist or
decline, this could adversely affect our revenues, operating results and financial condition, as well as our ability to
access debt under comparable terms and conditions.
Our business is dependent on key clients, and the loss of a key client could adversely affect our business and
results of operations.
We derive a substantial portion of our revenues from a few key clients. Our top ten clients accounted for
approximately 45.9% of our consolidated revenues in 2013. 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
12
of our clients. While we take measures to protect the security of, and unauthorized access to our systems, as well as
the privacy of personal and proprietary information, it is possible that our security controls over our systems, as well
as other security practices we follow, may not prevent the improper access to or disclosure of personally identifiable
or proprietary information. Such disclosure could harm our reputation and subject us to liability under our contracts
and laws that protect personal data, resulting in increased costs or loss of revenue. Further, data privacy is subject to
frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries
in which we provide services. Our failure to adhere to or successfully implement processes in response to changing
regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace,
which could have a material adverse effect on our business, financial condition and results of operations.
Our business is subject to substantial competition.
The markets for many of our services operate on a commoditized basis and are highly competitive and subject to
rapid change. While many companies provide outsourced customer contact management services, we believe no one
company is dominant in the industry. There are numerous and varied providers of our services, including firms
specializing in call center operations, temporary staffing and personnel placement, consulting and integration firms,
and niche providers of outsourced customer contact management services, many of whom compete in only certain
markets. Our competitors include both companies who possess greater resources and name recognition than we do,
as well as small niche providers that have few assets and regionalized (local) name recognition instead of global
name recognition. In addition to our competitors, many companies who might utilize our services or the services of
one of our competitors may utilize in-house personnel to perform such services. Increased competition, our failure to
compete successfully, pricing pressures, loss of market share and loss of clients could have a material adverse effect
on our business, financial condition and results of operations.
Many of our large clients purchase outsourced customer contact management services from multiple preferred
vendors. We have experienced and continue to anticipate significant pricing pressure from these clients in order to
remain a preferred vendor. These companies also require vendors to be able to provide services in multiple
locations. Although we believe we can effectively meet our clients’ demands, there can be no assurance that we will
be able to compete effectively with other outsourced customer contact management services companies on price.
We believe that the most significant competitive factors in the sale of our core services include the standard
requirements of service quality, tailored value-added service offerings, industry experience, advanced technological
capabilities, global coverage, reliability, scalability, security, price and financial strength.
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.
13
We are subject to various uncertainties relating to future litigation.
We cannot predict whether any material suits, claims, or investigations may arise in the future. Regardless of the
outcome of any future actions, claims, or investigations, we may incur substantial defense costs and such actions
may cause a diversion of management time and attention. Also, it is possible that we may be required to pay
substantial damages or settlement costs which could have a material adverse effect on our financial condition and
results of operations.
Our industry is subject to rapid technological change which could affect our business and results of operations.
Rapid technological advances, frequent new product introductions and enhancements, and changes in client
requirements characterize the market for outsourced customer contact management services. Technological
advancements in voice recognition software, as well as self-provisioning and self-help software, along with call
avoidance technologies, have the potential to adversely impact call volume growth and, therefore, revenues. Our
future success will depend in large part on our ability to service new products, platforms and rapidly changing
technology. These factors will require us to provide adequately trained personnel to address the increasingly
sophisticated, complex and evolving needs of our clients. In addition, our ability to capitalize on our acquisitions
will depend on our ability to continually enhance software and services and adapt such software to new hardware
and operating system requirements. Any failure by us to anticipate or respond rapidly to technological advances,
new products and enhancements, or changes in client requirements could have a material adverse effect on our
business, financial condition and results of operations.
Our business relies heavily on technology and computer systems, which subjects us to various uncertainties.
We have invested significantly in sophisticated and specialized communications and computer technology and have
focused on the application of this technology to meet our clients’ needs. We anticipate that it will be necessary to
continue to invest in and develop new and enhanced technology on a timely basis to maintain our competitiveness.
Significant capital expenditures may be required to keep our technology up-to-date. There can be no assurance that
any of our information systems will be adequate to meet our future needs or that we will be able to incorporate new
technology to enhance and develop our existing services. Moreover, investments in technology, including future
investments in upgrades and enhancements to software, may not necessarily maintain our competitiveness. Our
future success will also depend in part on our ability to anticipate and develop information technology solutions that
keep pace with evolving industry standards and changing client demands.
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
14
utilization and margins. There can be no guarantee that we will be able to achieve or maintain optimal utilization of
our contact center capacity.
As part of our effort to consolidate our facilities, we may seek to sell or sublease a portion of our surplus contact
center space, if any, and recover certain costs associated with it. Failure to sell or sublease such surplus space will
negatively impact results of operations.
Increases in the cost of telephone and data services or significant interruptions in such services could adversely
affect our business.
Our business is significantly dependent on telephone and data service provided by various local and long distance
telephone companies. Accordingly, any disruption of these services could adversely affect our business. We have
taken steps to mitigate our exposure to service disruptions by investing in redundant circuits, although there is no
assurance that the redundant circuits would not also suffer disruption. Any inability to obtain telephone or data
services at favorable rates could negatively affect our business results. Where possible, we have entered into long-
term contracts with various providers to mitigate short term rate increases and fluctuations. There is no obligation,
however, for the vendors to renew their contracts with us, or to offer the same or lower rates in the future, and such
contracts are subject to termination or modification for various reasons outside of our control. A significant increase
in the cost of telephone services that is not recoverable through an increase in the price of our services could
adversely affect our business.
Our profitability may be adversely affected if we are unable to maintain and find new locations for customer
contact centers in countries with stable wage rates.
Our business is labor-intensive and therefore wages, employee benefits and employment taxes constitute the largest
component of our operating expenses. As a result, expansion of our business is dependent upon our ability to find
cost-effective locations in which to operate, both domestically and internationally. Some of our customer contact
management centers are located in countries that have experienced inflation and rising standards of living, which
requires us to increase employee wages. In addition, collective bargaining is being utilized in an increasing number
of countries in which we currently, or may in the future, desire to operate. Collective bargaining may result in
material wage and benefit increases. If wage rates and benefits increase significantly in a country where we
maintain customer contact management centers, we may not be able to pass those increased labor costs on to our
clients, requiring us to search for other cost effective delivery locations. There is no assurance that we will be able
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.
The adoption and implementation of new statutory and regulatory requirements for derivative transactions could
have an adverse impact on our ability to hedge risks associated with our business.
We enter into forward and option contracts to hedge against the effect of foreign currency exchange rate
fluctuations. The United States Congress has passed, and the President has signed into law, the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act provides for new
statutory and regulatory requirements for derivative transactions, including foreign currency and interest rate
hedging transactions. The Dodd-Frank Act requires the Commodities Futures and Trading Commission to
promulgate rules relating to the Dodd-Frank Act. Until the rules relating to the Dodd-Frank Act are established, we
cannot know how these regulations will affect us. The rules adopted by the Commodities Futures and Trading
Commission may in the future impact our flexibility to execute strategic hedges to reduce foreign exchange and
interest rate uncertainty and thus protect cash flows. In addition, the banks and other derivatives dealers who are our
contractual counterparties will be required to comply with the Dodd-Frank Act’s new requirements. It is possible
that the costs of such compliance will be passed on to customers such as us.
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, 2013,
our international operations were conducted from 33 customer contact management centers located in Sweden,
Finland, Germany, Egypt, Scotland, Ireland, Denmark, Norway, Hungary, Romania, Slovakia, The Philippines, the
People’s Republic of China, India and Australia. Revenues from these international operations for the years ended
15
December 31, 2013, 2012, and 2011, were 38.7%, 40.2%, and 42.8% 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, Colombia, Costa Rica and El Salvador which
expire at varying dates from 2014 through 2028. 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, 2013, we had cash balances of approximately $195.0 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 due to the inherent complexity of the multi-national tax
environment in which we operate.
The U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2014
Revenue Proposals” in April 2013. These proposals represent a significant shift in international tax policy, which
may materially impact U.S. taxation of international earnings. We continue to monitor these proposals and are
currently evaluating their potential impact on our financial condition, results of operations, and cash flows.
The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013, with many provisions retroactively
effective to January 1, 2012. This Act, which extended the tax provisions of the Internal Revenue Code Section
954(c)(6) through the end of 2013, permits continued tax deferral on cash movements that would otherwise be
taxable immediately in the U.S. While these cash movements are not taxable in the U.S., related foreign
withholding taxes of $3.5 million were included in the provision for income taxes in the accompanying Consolidated
Statements of Operations for the year ended December 31, 2013.
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
certain foreign currency exchange exposures. However, there can be no assurance that we can take actions to
mitigate such exposure in the future, and if taken, that such actions will be successful or that future changes in
currency exchange rates will not have a material adverse impact on our future operating results. A significant change
in the value of the U.S. Dollar against the currency of one or more countries where we operate may have a material
adverse effect on our financial condition and results of operations. Additionally, our hedging exposure to
counterparty credit risks is not secured by any collateral. Although each of the counterparty financial institutions
with which we place hedging contracts are investment grade rated by the national rating agencies as of the time of
the placement, we can provide no assurances as to the financial stability of any of our counterparties. If a
counterparty to one or more of our hedge transactions were to become insolvent, we would be an unsecured creditor
and our exposure at the time would depend on foreign exchange rate movements relative to the contracted foreign
exchange rate and whether any gains result that are not realized due to a counterparty default.
The fundamental shift in our industry toward global service delivery markets presents various risks to our
business.
Clients continue to require blended delivery models using a combination of onshore and offshore support. Our
offshore delivery locations include The Philippines, the People’s 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
16
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
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.
17
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. Also, a decrease in the price of our common
stock could hinder our growth strategy by limiting growth through acquisitions funded with SYKES’ stock.
The actual integration of the company 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 the acquired operations into our own, or to realize the full amount of
anticipated benefits of the integration of the companies.
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
incurring additional indebtedness.
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.
18
The volatility of our stock price may result in loss of investment.
The trading price of our common stock has been and may continue to be subject to wide fluctuations over short and
long periods of time. We believe that market prices of outsourced customer contact management services stocks in
general have experienced volatility, which could affect the market price of our common stock regardless of our
financial results or performance. We further believe that various factors such as general economic conditions,
changes or volatility in the financial markets, changing market conditions in the outsourced customer contact
management services industry, quarterly variations in our financial results, the announcement of acquisitions,
strategic partnerships, or new product offerings, and changes in financial estimates and recommendations by
securities analysts could cause the market price of our common stock to fluctuate substantially in the future.
Failure to adhere to laws, rules and regulations applicable to public companies operating in the U.S. may have
an adverse effect on our stock price.
Because we are a publicly traded company, we are subject to certain evolving and expensive federal, state and other
rules and regulations relating to, among other things, assessment and maintenance of internal controls and corporate
governance. Section 404 of the Sarbanes-Oxley Act of 2002, together with rules and regulations issued by the
Securities and Exchange Commission (“SEC”) require us to furnish, on an annual basis, a report by our management
(included elsewhere in this Annual Report on Form 10-K) regarding the effectiveness of our internal control over
financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal
controls over financial reporting as of the end of our fiscal year and a statement as to whether or not our internal
controls over financial reporting are effective. We must include a disclosure of any material weaknesses in our
internal control over financial reporting identified by management during the annual assessment. We have in the
past discovered, and may potentially in the future discover, areas of internal control over financial reporting which
may require improvement. If at any time we are unable to assert that our internal controls over financial reporting
are effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, our
investors could lose confidence in the accuracy and/or completeness of our financial reports, which could have an
adverse effect on our stock price.
Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act 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.
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, 2013 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, which consists of approximately 68,000 square feet of
leased office space. This facility currently serves as the headquarters for senior management and the financial,
information technology and administrative departments. In addition to our headquarters and the customer contact
management centers (“centers”) used by our Americas and EMEA segments discussed below, we also have offices
in several countries around the world which support our Americas and EMEA segments.
As of December 31, 2013, excluding centers we have exited, we operated 75 centers that are classified as follows:
• Multi-Client Centers — We own or lease space for these centers and serve multiple clients in each facility;
• Managed Centers — These facilities are owned or leased by our clients and we staff and manage these sites on
behalf of our clients in accordance with facility management contracts; and
• Fulfillment Centers — We own or lease space for these centers and serve multiple clients in each facility.
As of December 31, 2013, our centers were located in the following countries:
Multi-Client
Centers
Managed
Centers
Fulfillment
Centers
Total Number of
Centers
Americas
Australia
Brazil
Canada
Costa Rica
El Salvador
India
Mexico
People's Republic of China
The Philippines
United States of America
Total Americas centers
EMEA
Denmark
Egypt
Finland
Germany
Hungary
Netherlands
Norway
Romania
Scotland
Slovakia
Sweden
Total EMEA centers
Total centers
4
1
10
4
1
1
1
3
7
22
54
1
1
1
4
1
-
2
1
2
1
4
18
72
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
-
-
1
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
1
2
2
4
1
10
4
1
1
1
3
7
22
54
1
1
1
4
1
1
2
1
3
1
5
21
75
The leases for our centers have remaining terms ranging from one to twenty years and generally contain renewal
options. We believe our existing facilities are suitable and 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 centers are available. During 2013, our centers, taken as a whole, were utilized at average
capacities of approximately 73% and were capable of supporting a higher level of market demand.
20
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.
21
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, 2013:
Fourth Quarter ……………………………… 23.29
Third Quarter ……………………………… 18.27
Second Quarter ……………………………… 16.58
First Quarter ………………………………… 16.48
$
$
17.08
15.59
13.95
14.45
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
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 12, 2014, there were 871 holders of record of the common stock. We estimate there were
approximately 9,900 beneficial owners of our common stock.
Below is a summary of stock repurchases for the quarter ended December 31, 2013 (in thousands, except average
price per share).
Period
October 1, 2013 - October 31, 2013 …………
Total
Number of
S hares
Purchased (1)
-
November 1, 2013 - November 30, 2013 ………
December 1, 2013 - December 31, 2013 ………
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
-
-
-
-
1,629
1,629
1,629
1,629
(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 Share Repurchase Plan was 5.0 million with no expiration date. All of the shares
available under the repurchase plan publicly announced on August 5, 2002 have been repurchased.
22
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. SYKES has updated its Peer Group to
include Telepeformance, a publicly-traded France-based global customer care company, which increasingly
competes with SYKES in the marketplace. SYKES further added Teleperformance in order for investors to have a
broader set of data points from which to better gauge the Peer’s share price performance and to substitute for
publicly-traded competitors that have either gone private or have been acquired through strategic acquisitions over
the past few years. This graph assumes that $100 was invested on December 31, 2008 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 (in dollars)
New SYKES Peer Group
Convergys Corp.
StarTek, Inc.
TeleTech Holdings, Inc.
Teleperformance
Exchange & Ticker Symbol
NYSE: CVG
NYSE: SRT
Nasdaq: TTEC
NYSE Euronext: RCF
Old SYKES Peer Group
Convergys Corp.
StarTek, Inc.
TeleTech Holdings, Inc.
Exchange & Ticker Symbol
NYSE: CVG
NYSE: SRT
Nasdaq: TTEC
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.
23
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 during 2012 and Argentina in 2010. Accordingly, we have reclassified the selected
financial data for all periods presented to reflect these results as discontinued operations in accordance with
Accounting Standards Codification 205-20 “Discontinued Operations”.
The information below should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and the accompanying Consolidated Financial Statements and related notes
thereto.
(in thousands, except per share data)
Income S tatement Data: (1)
2013
2012
2011
2010
2009
Years Ended December 31,
Revenues ………………………………………………………… 1,263,460
Income from continuing operations (2,3,4,6,8,9,10,11) …………………
53,527
Income from continuing operations, net of taxes (2,3,4,6,8,9,10,11) ……
37,260
(Loss) from discontinued operations, net of taxes (5) ……..….….
-
Gain (loss) on sale of discontinued operations, net of taxes (7) ……
-
Net income (loss) …………………………………..……………
37,260
$
$
1,127,698
47,779
39,950
(820)
(10,707)
28,423
$
1,169,267
65,535
52,314
(4,532)
559
48,341
$
1,121,911
37,981
26,115
(12,893)
(23,495)
(10,273)
$
769,353
71,172
44,667
(1,456)
-
43,211
Net Income (Loss) Per Common S hare: (1)
Basic:
Continuing operations (2,3,4,6,8,9,10,11)……………………………
Discontinued operations (5,7) …………………………………
Net income (loss) per common share …………………………
$
0.87
$
-
0.87
$
0.93
$
1.15
$
0.57
$
1.10
(0.27)
0.66
$
(0.09)
1.06
$
(0.79)
(0.22)
$
(0.04)
1.06
$
Diluted:
Continuing operations (2,3,4,6,8,9,10,11)……………………………
Discontinued operations (5,7) …………………………………
Net income (loss) per common share …………………………
0.87
-
0.87
$
$
$
$
$
0.93
(0.27)
0.66
1.15
(0.09)
1.06
0.57
(0.79)
(0.22)
1.09
(0.04)
1.05
$
$
$
$
$
Weighted Average Common S hares: (1)
Basic ………………………………………………………………
Diluted ……………………………………………………………
42,877
42,925
43,105
43,148
45,506
45,607
46,030
46,133
40,707
41,026
Balance S heet Data: (1,12)
Total assets ………………………………………………………
Long-term debt ………………………………………………..
Shareholders' equity ………………………………………………
$
950,261
98,000
635,704
$
908,689
91,000
606,264
$
769,130
-
573,566
$
794,600
-
583,195
$
672,471
-
450,674
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
T he amounts for 2013 and 2012 include the Alpine acquisition completed on August 20, 2012. See Note 2, Acquisition of Alpine Access, Inc., for further
information. T he amounts for 2011 and 2010 include the ICT acquisition completed on February 2, 2010.
T he amounts for 2013 include $2.1 million in Alpine acquisition-related costs and a $0.2 million net loss on disposal of property and equipment.
T he amounts for 2012 include $4.8 million in Alpine acquisition-related costs, a $0.4 million net loss on the disposal 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 3,
Discontinued Operations, for futher information.
T he amounts for 2013, 2012, 2011 and 2010 include $0.3 million, $1.8 million, $5.3 million and $11.0 million, respectively, related to the exit plans. See
Note 4, Costs Associated with Exit or Disposal Activities, for further information.
T he amounts include the gain (loss) on sale of the operations in Spain in 2012 and Argentina in 2011 and 2010. See Note 3, Discontinued Operations, for
futher information.
T he amounts for 2011 and 2010 each include a $0.4 million recovery of 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.
(12) T he Company has not declared cash dividends per common share for any of the five years presented.
24
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, 2013 (“2013”) to the year ended December 31, 2012 (“2012”), and 2012 to
the year ended December 31, 2011 (“2011”).
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, 2013 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 98.2% of consolidated revenues in 2013,
are delivered through multiple communication channels encompassing phone, e-mail, social media, 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, Europe, Latin America, Australia, the Asia Pacific Rim and Africa.
Revenues from these services is recognized as the services are performed, which is based on either a per minute, per
hour, per call, 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 and other costs.
Depreciation, net represents depreciation on property and equipment, net of the amortization of deferred property
grants.
Amortization of intangibles represents amortization of finite-lived intangible assets.
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 impairment of long-lived assets represents the amount by which the carrying value of the asset exceeds the
estimated fair value.
25
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 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.
See “Liquidity & Capital Resources” later in this Item 7 and Note 20, Borrowings, of “Notes to Consolidated
Financial Statements” for further information.
The results of operations of Alpine have been reflected in the accompanying Consolidated Statements of Operations
since August 20, 2012.
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. This business was historically reported as part of the EMEA 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.
26
Results of Operations
The following table sets forth, for the years indicated, the amounts reflected in the accompanying Consolidated
Statements of Operations as well as the changes between the respective years:
(in thousands)
2013
2012
Years Ended December 31,
2013
$ Change
2011
2012
$ Change
Revenues ………………………………………………………… 1,263,460
$
$
1,127,698
$
135,762
$
1,169,267
$
(41,569)
Operating expenses:
Direct salaries and related costs ………………………………
General and administrative ……………………………………
Depreciation, net ………………………………………………
Amortization of intangibles ……………………………………
Net (gain) loss on disposal of property and equipment ………
Impairment of long-lived assets ………………………………
855,266
297,519
42,084
14,863
201
-
Total operating expenses …………………………………… 1,209,933
Income from continuing operations ……………………………
53,527
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 ………………
(Loss) from discontinued operations, net of taxes ………………
Gain (loss) on sale of discontinued operations, net of taxes ……
866
(2,307)
(761)
(2,202)
51,325
14,065
37,260
-
-
737,952
290,373
40,369
10,479
391
355
1,079,919
47,779
1,458
(1,547)
(2,533)
(2,622)
45,157
5,207
39,950
(820)
(10,707)
117,314
7,146
1,715
4,384
(190)
(355)
130,014
5,748
(592)
(760)
1,772
420
6,168
8,858
(2,690)
820
10,707
763,930
287,033
46,111
7,961
(3,021)
1,718
1,103,732
65,535
1,352
(1,132)
(2,099)
(1,879)
63,656
11,342
52,314
(4,532)
559
(25,978)
3,340
(5,742)
2,518
3,412
(1,363)
(23,813)
(17,756)
106
(415)
(434)
(743)
(18,499)
(6,135)
(12,364)
3,712
(11,266)
Net income ………………………………………………………
$
37,260
$
28,423
$
8,837
$
48,341
$
(19,918)
The following table sets forth, for the years indicated, the amounts presented in the accompanying Consolidated
Statements of Operations as a percentage of revenues:
Years Ended December 31,
2012
2013
2011
Percentage of Revenue:
Revenues ……………………………………………………
Direct salaries and related costs ………………………………
General and administrative ……………………………………
Depreciation, net ……………………………………………
Amortization of intangibles …………………………………
Net (gain) loss on disposal of property and equipment ……
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 ……………
Gain (loss) on sale of discontinued operations, net of taxes …
Net income (loss) ……………………………………………
100.0%
67.7
23.5
3.3
1.2
0.0
-
4.3
0.1
(0.2)
(0.1)
4.1
1.1
3.0
-
-
3.0%
100.0%
65.4
25.8
3.6
0.9
0.0
0.0
4.3
0.1
(0.1)
(0.2)
4.1
0.5
3.6
(0.1)
(0.9)
2.6%
100.0%
65.3
24.6
3.9
0.7
(0.3)
0.1
5.7
0.1
(0.1)
(0.2)
5.5
1.0
4.5
(0.3)
0.0
4.2%
27
2013 Compared to 2012
Revenues
(in thousands)
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
Years Ended December 31,
2013
2012
Amount
$
$
1,050,813
212,647
1,263,460
% of
Revenues
83.2%
16.8%
100.0%
Amount
$
947,147
180,551
1,127,698
$
% of
Revenues
84.0%
16.0%
100.0%
$ Change
$
$
103,666
32,096
135,762
Consolidated revenues increased $135.8 million, or 12.0%, in 2013 from 2012.
The increase in Americas’ revenues was primarily due to new contract sales of $80.3 million and Alpine acquisition
revenues of $68.6 million, partially offset by end-of-life client programs of $25.4 million, lower volumes from
existing contracts of $5.9 million and the negative foreign currency impact of $13.9 million. Revenues from our
offshore operations represented 43.0% of Americas’ revenues, compared to 47.1% in 2012. 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.
The increase in EMEA’s revenues was primarily due to new contract sales of $28.0 million, higher volumes from
existing contracts of $6.3 million and the positive foreign currency impact of $4.5 million, partially offset by end-of-
life client programs of $6.7 million.
On a consolidated basis, we had 42,200 brick-and-mortar seats as of December 31, 2013, an increase of 2,900 seats
from 2012. The capacity utilization rate on a combined basis was 73% compared to 75% in 2012. This decrease was
due partly to a delay in the timing of capacity rationalization, coupled with the increase in seats driven by facility
upgrades and transfers, and growth in new and existing client programs that are in the process of ramping up.
On a geographic segment basis, 36,100 seats were located in the Americas, an increase of 2,100 seats from 2012,
and 6,100 seats were located in EMEA, an increase of 800 seats from 2012. The consolidated offshore seat count as
of December 31, 2013 was 23,400, or 55%, of our total seats, an increase of 1,400 seats, or 6%, from 2012. The
capacity utilization rate for the Americas as of December 31, 2013 was 70%, compared to 74% as of December 31,
2012, down primarily due to a delay in the timing of capacity rationalization, coupled with the increase in seats as
previously mentioned. The capacity utilization rate for EMEA as of December 31, 2013 was 87%, compared to
82% as of December 31, 2012, up primarily due to an increase in demand from new and existing clients. We strive
to attain an 85% capacity utilization metric at each of our locations.
The Company plans to add approximately 1,200 seats on a gross basis in 2014. Approximately 50% of the new seat
count is expected to be added in the first half of 2014, with the remainder in the second half. Total seat count on a
net basis for the full year, however, is expected to decrease by approximately 1,200 seats as we continue to
rationalize excess capacity.
Direct Salaries and Related Costs
Years Ended December 31,
2013
2012
(in thousands)
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
Amount
$
699,797
155,469
855,266
$
% of
Revenues
66.6%
73.1%
67.7%
Amount
$
$
609,836
128,116
737,952
% of
Revenues
64.4%
71.0%
65.4%
$ Change
$
89,961
27,353
117,314
$
Change in % of
Revenues
2.2%
2.1%
2.3%
The increase of $117.3 million in direct salaries and related costs included a positive foreign currency impact of $6.4
million in the Americas and a negative foreign currency impact of $3.3 million in EMEA.
28
The increase in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to
higher compensation costs of 1.9% driven by the ramp up for new and existing client programs principally in the
communications vertical, partially offset by lower demand within the financial services and healthcare verticals
without a commensurate reduction in labor costs, higher auto tow claim costs of 0.1% due to an increase in the
average length of tows without a commensurate increase in fees at our Canadian roadside assistance operations and
higher other costs of 0.2%.
The increase in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to
higher compensation costs of 4.4% driven by the ramp up for new and existing client programs principally in the
communications vertical, partially offset by lower fulfillment materials costs of 0.7%, lower billable supply costs of
0.5%, lower severance-related costs of 0.4% due to the closure of certain sites in connection with the Fourth Quarter
2011 Exit Plan, lower recruiting costs of 0.2%, lower communications costs of 0.2%, lower travel costs of 0.2% and
lower other costs of 0.1%.
General and Administrative
Years Ended December 31,
2013
2012
(in thousands)
Americas ……………………………
EM EA ………………………………
Corporate ……………………………
Consolidated ……………………..
Amount
$
204,321
46,667
46,531
297,519
$
% of
Revenues
19.4%
21.9%
-
23.5%
Amount
$
196,080
43,004
51,289
290,373
$
% of
Revenues
20.7%
23.8%
-
25.7%
$ Change
$
8,241
3,663
(4,758)
7,146
$
Change in % of
Revenues
-1.3%
-1.9%
-
-2.2%
The increase of $7.1 million in general and administrative expenses included a positive foreign currency impact of
$1.5 million in the Americas and a negative foreign currency impact of $0.8 million in EMEA.
The decrease in Americas’ general and administrative expenses, as a percentage of revenues, was primarily
attributable to lower compensation costs of 0.6%, lower facility-related costs of 0.4% due to rationalization of
facilities, lower equipment and maintenance costs of 0.2% and lower other costs of 0.1%.
The decrease in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily
attributable to lower compensation costs of 0.9%, lower facility-related costs of 0.3%, lower communications costs
of 0.3%, lower severance-related costs of 0.2% principally all due to the closure of certain sites in connection with
the Fourth Quarter 2011 Exit Plan and lower other costs of 0.2%.
The decrease of $4.8 million in Corporate’s general and administrative expenses was primarily attributable to lower
merger and integration costs of $3.5 million, lower consulting costs of $1.7 million, lower legal and professional
fees of $1.0 million, lower travel costs of $0.3 million, lower equipment and maintenance costs of $0.3 million,
lower communications costs of $0.2 million, lower training costs of $0.2 million and lower other costs of $0.3
million, partially offset by higher compensation costs of $2.1 million and higher facility-related costs of $0.6
million.
Depreciation and Amortization
(in thousands)
Depreciation, net:
Years Ended December 31,
2013
2012
Amount
% of
Revenues
Amount
% of
Revenues
$ Change
Change in % of
Revenues
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
$
$
37,818
4,266
42,084
Amortization of intangibles:
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
$
14,863
-
$
14,863
3.6%
2.0%
3.3%
1.4%
0.0%
1.2%
$
$
36,494
3,875
40,369
$
$
10,479
-
10,479
3.9%
2.1%
3.6%
1.1%
0.0%
0.9%
29
$
$
$
$
1,324
391
1,715
4,384
-
4,384
-0.3%
-0.1%
-0.3%
0.3%
0.0%
0.3%
The increase in depreciation was primarily due to capital expenditures for new seat additions, maintenance and
systems infrastructure.
The increase in amortization was primarily due to the August 2012 Alpine acquisition.
Net (Gain) Loss on Disposal of Property and Equipment and Impairment of Long-Lived Assets
Years Ended December 31,
2013
2012
(in thousands)
Amount
Net (gain) loss on disposal of property
and equipment:
Americas ……………………………
$
8
EM EA …………………………
193
Consolidated ……………………..
$
201
Impairment of long-lived assets:
Americas ……………………………
$
-
EM EA ………………………………
Consolidated ……………………..
-
$
-
% of
Revenues
Amount
% of
Revenues
$ Change
Change in % of
Revenues
0.0%
0.1%
0.0%
0.0%
0.0%
0.0%
$
323
68
$
391
$
355
$
-
355
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
$
(315)
125
$
(190)
$
(355)
-
(355)
$
0.0%
0.1%
0.0%
0.0%
0.0%
0.0%
See Note 5, Fair Value, of the “Notes to Consolidated Financial Statements” for further information regarding the
impairment of long-lived assets.
Other Income (Expense)
(in thousands)
Interest income ………………………………………………………………..………………
Years Ended December 31,
2013
2012
$ Change
$
866
$
1,458
$
(592)
Interest (expense) ……………………………………………...……………………………
$
(2,307)
$
(1,547)
$
(760)
Other (expense):
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) ……………...……………………………………
$
$
$
(5,962)
4,216
-
985
(761)
(2,856)
(295)
(582)
1,200
(2,533)
(3,106)
4,511
582
(215)
1,772
Total other (expense) ……………………………………………………………………
$
$
$
The decrease in interest income reflects lower average invested balances of interest bearing investments in cash and
cash equivalents in 2013 compared to 2012.
The increase in interest (expense) reflects higher average outstanding borrowings primarily related to the August
2012 Alpine acquisition.
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
(in thousands)
Income from continuing operations before income taxes ……………………………………
Income taxes …………………………………………………………..………………………
Years Ended December 31,
2013
2012
$
$
51,325
14,065
$
$
45,157
5,207
$ Change
$
$
6,168
8,858
% Change
Effective tax rate …………………………………………………………..…………………
27.4%
11.5%
15.9%
The increase in the effective tax rate in 2013 compared to 2012 is primarily due to withholding taxes on offshore
cash movements, U.S. taxation of offshore gains on derivatives and foreign exchange, tax benefits recognized in
30
2012 as a result of the Alpine acquisition and the fluctuations in earnings among the various jurisdictions in which
we operate.
In 2013, we executed offshore cash movements to take advantage of The American Taxpayer Relief Act of 2012
(the “Act”) enacted on January 2, 2013, with retroactive application to January 1, 2012. This Act, which extended
the tax provisions of the Internal Revenue Code Section 954(c)(6) through the end of 2013, permits continued tax
deferral on such movements that would otherwise be taxable immediately in the U.S. While these cash movements
are not taxable in the U.S., related foreign withholding taxes of $3.5 million were included in the provision for
income taxes in the accompanying Consolidated Statement of Operations for the year ended December 31, 2013.
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 $0.6 million and $0.8 million related to this distribution are included in
the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended
December 31, 2013 and 2012, respectively.
Gain (Loss) from Discontinued Operations
Years Ended December 31,
2013
2012
(in thousands)
Amount
(Loss) from discontinued operations,
net of taxes
Americas ……………………………
$
-
EM EA …………………………
-
Consolidated ……………………..
$
-
Gain (loss) on sale of discontinued
operations, net of taxes
Americas ……………………………
$
-
EM EA …………………………
-
Consolidated ……………………..
$
-
% of
Revenues
Amount
% of
Revenues
$ Change
Change in % of
Revenues
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
$
-
(820)
$
(820)
$
(10,707)
-
$
(10,707)
0.0%
-0.5%
-0.1%
-1.1%
0.0%
-0.9%
$
-
820
$
820
$
10,707
-
$
10,707
0.0%
0.5%
0.1%
1.1%
0.0%
0.9%
In 2012, (loss) from discontinued operations and the (loss) on sale of discontinued operations related to the sale of
our operations in Spain in March 2012. There was no tax impact on either the (loss) from discontinued operations or
the (loss) on sale of discontinued operations.
2012 Compared to 2011
Revenues
Years Ended December 31,
2012
2011
(in thousands)
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
Amount
$
947,147
180,551
1,127,698
$
% of
Revenues
84.0%
16.0%
100.0%
Amount
$
963,142
206,125
1,169,267
$
% of
Revenues
82.4%
17.6%
100.0%
$ Change
$
$
(15,995)
(25,574)
(41,569)
Consolidated revenues decreased $41.6 million, or 3.6%, in 2012 from 2011.
The decrease in Americas’ revenues 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, Alpine
acquisition revenues of $40.6 million and the positive foreign currency impact of $0.5 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
31
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.
The decrease in EMEA’s revenues was primarily due to end-of-life client programs of $32.7 million, lower volumes
from existing contracts of $0.5 million and the negative foreign currency impact of $11.7 million, partially offset by
new contract sales of $19.3 million.
Direct Salaries and Related Costs
Years Ended December 31,
2012
2011
(in thousands)
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
Amount
$
609,836
128,116
737,952
$
% of
Revenues
64.4%
71.0%
65.4%
Amount
$
$
611,783
152,147
763,930
% of
Revenues
63.5%
73.8%
65.3%
$ Change
$
(1,947)
(24,031)
(25,978)
$
Change in % of
Revenues
0.9%
-2.8%
0.1%
The decrease of $26.0 million in direct salaries and related costs included a negative foreign currency impact of $1.1
million in the Americas and a positive foreign currency impact of $8.2 million in EMEA.
The increase in Americas’ direct salaries and related costs, 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%.
The decrease in EMEA’s direct salaries and related costs, 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
Years Ended December 31,
2012
2011
(in thousands)
Americas ……………………………
EM EA ………………………………
Corporate ……………………………
Consolidated ……………………..
Amount
$
196,080
43,004
51,289
290,373
$
% of
Revenues
20.7%
23.8%
-
25.7%
Amount
$
188,398
52,189
46,446
287,033
$
% of
Revenues
19.6%
25.3%
-
24.5%
$ Change
$
7,682
(9,185)
4,843
3,340
$
Change in % of
Revenues
1.1%
-1.5%
-
1.2%
The increase of $3.3 million in general and administrative expenses included a negative foreign currency impact of
$0.3 million in the Americas and a positive foreign currency impact of $2.7 million in EMEA.
The increase in Americas’ general and administrative expenses, as a percentage of revenues, was primarily
attributable to higher compensation costs of 0.4% principally 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
0.2%.
The decrease in EMEA’s general and administrative expenses, 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 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%.
The increase of $4.8 million in Corporate’s general and administrative expenses was primarily attributable to higher
merger and integration costs of $2.9 million, higher compensation costs of $1.5 million, higher legal and
32
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.
Depreciation and Amortization
(in thousands)
Depreciation, net:
Years Ended December 31,
2012
2011
Amount
% of
Revenues
Amount
% of
Revenues
$ Change
Change in % of
Revenues
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
$
$
36,494
3,875
40,369
Amortization of intangibles:
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
$
10,479
-
$
10,479
3.9%
2.1%
3.6%
1.1%
0.0%
0.9%
$
$
41,059
5,052
46,111
$
$
7,961
-
7,961
4.3%
2.5%
3.9%
0.8%
0.0%
0.7%
$
$
(4,565)
(1,177)
(5,742)
$
$
2,518
-
2,518
-0.4%
-0.4%
-0.3%
0.3%
0.0%
0.2%
The decrease in depreciation was primarily due to the continued use of fully depreciated assets and the closure of
certain sites in connection with the Fourth Quarter 2011 Exit Plan.
The increase in amortization was primarily due to the August 2012 Alpine acquisition.
Net (Gain) Loss on Disposal of Property and Equipment and Impairment of Long-Lived Assets
Years Ended December 31,
2012
2011
(in thousands)
Amount
Net (gain) loss on disposal of property
and equipment:
Americas ……………………………
$
323
EM EA …………………………
68
Consolidated ……………………..
$
391
Impairment of long-lived assets:
Americas ……………………………
$
355
EM EA ………………………………
Consolidated ……………………..
$
-
355
% of
Revenues
Amount
% of
Revenues
$ Change
Change in % of
Revenues
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
$
(3,030)
9
$
(3,021)
$
1,244
474
1,718
$
-0.3%
0.0%
-0.3%
0.1%
0.2%
0.1%
$
3,353
59
$
3,412
$
(889)
(474)
(1,363)
$
0.3%
0.0%
0.3%
-0.1%
-0.2%
-0.1%
The net (gain) on disposal of property and equipment in 2011 primarily related to the sale of land and a building
located in Minot, North Dakota.
See Note 5, Fair Value, of the “Notes to Consolidated Financial Statements” for further information regarding
impairment of long-lived assets.
Other Income (Expense)
(in thousands)
Interest income ………………………………………………………………..………………
Years Ended December 31,
2012
2011
$
1,458
$
1,352
$ Change
$
106
Interest (expense) ……………………………………………...……………………………
$
(1,547)
$
(1,132)
$
(415)
Other (expense):
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) ……………...……………………………………
$
$
$
(2,856)
(295)
(582)
1,200
(2,533)
(749)
(1,444)
-
94
(2,099)
(2,107)
1,149
(582)
1,106
(434)
Total other (expense) ……………………………………………………………………
$
$
$
Interest income remained relatively unchanged in 2012 from 2011.
33
The increase in interest (expense) reflects higher average outstanding borrowings primarily related to the August
2012 Alpine acquisition.
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
Condensed Consolidated Balance Sheets.
Income Taxes
(in thousands)
Income from continuing operations before income taxes ……………………………………
Income taxes …………………………………………………………..………………………
Years Ended December 31,
2012
2011
$
$
$
$
45,157
5,207
63,656
11,342
$ Change
$
$
(18,499)
(6,135)
% Change
Effective tax rate …………………………………………………………..…………………
11.5%
17.8%
-6.3%
The decrease in the effective tax rate 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
Years Ended December 31,
2012
2011
(in thousands)
Amount
(Loss) from discontinued operations,
net of taxes
Americas ……………………………
$
-
EM EA …………………………
(820)
Consolidated ……………………..
$
(820)
Gain (loss) on sale of discontinued
operations, net of taxes
Americas ……………………………
$
(10,707)
EM EA …………………………
-
Consolidated ……………………..
$
(10,707)
% of
Revenues
Amount
% of
Revenues
$ Change
Change in % of
Revenues
0.0%
-0.5%
-0.1%
-1.1%
0.0%
-0.9%
$
-
(4,532)
$
(4,532)
$
559
-
$
559
0.0%
-2.2%
-0.4%
0.1%
0.0%
0.0%
$
-
3,712
$
3,712
$
(11,266)
-
$
(11,266)
0.0%
1.7%
0.3%
-1.2%
0.0%
-0.9%
In 2012, the (loss) from discontinued operations and the (loss) on sale of discontinued operations related to the sale
of our operations in Spain in March 2012. In 2011, the net gain on sale of discontinued operations related to the sale
of our operations in Argentina 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 (loss) on sale of discontinued operations.
34
Quarterly Results
The following information presents our unaudited quarterly operating results from continuing operations for 2013
and 2012. 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)
12/31/2013
9/30/2013
6/30/2013
3/31/2013
12/31/2012
9/30/2012
6/30/2012
3/31/2012
Revenues (1) …………………………………………………… 335,338
Operating expenses:
$
$
322,143
$
304,735
$
301,244
$
304,272
$
280,526
$
264,802
$
278,098
Direct salaries and related costs (1,2,3) ………………………… 226,418
General and administrative (1,4,5) ……………………………… 74,612
Depreciation, net (1) …………………………………………
11,221
Amortization of intangibles (1) ………………………………
Net (gain) loss on disposal of property and equipment ……
3,692
141
Impairment of long-lived assets ………………………………
-
Total operating expenses ………………………………… 316,084
Income from continuing operations …………………………
19,254
Other income (expense):
Interest income ………………………………………………
Interest (expense) ……………………………………………
Other income (expense) ………………………………………
218
(591)
(903)
Total other income (expense) ……………………………… (1,276)
Income from continuing operations before income taxes ……..
Income taxes ……………………………………………………
17,978
6,978
Income from continuing operations, net of taxes ……………… 11,000
(Loss) from discontinued operations, net of taxes (6) ……………
(Loss) on sale of discontinued operations, net of taxes (7) ………
Net income (loss) ………………………………………………
11,000
$
-
-
215,001
210,141
203,706
201,194
73,910
10,677
3,699
77
-
303,364
18,779
216
(630)
356
(58)
18,721
4,575
14,146
-
-
75,273
10,017
3,713
(26)
-
73,724
10,169
3,759
9
-
299,118
291,367
5,617
9,877
208
(578)
(339)
(709)
4,908
(688)
5,596
-
-
224
(508)
125
(159)
9,718
3,200
6,518
-
-
72,803
10,336
3,835
308
84
288,560
15,712
443
(498)
(729)
(784)
14,928
1,638
13,290
-
-
183,628
75,548
9,583
2,774
199
122
174,630
69,708
9,816
2,009
(66)
-
178,500
72,314
10,634
1,861
(50)
149
271,854
256,097
8,672
8,705
263,408
14,690
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
(820)
(10,707)
$
14,146
$
5,596
$
6,518
$
13,290
$
8,142
$
7,748
$
(757)
Net income (loss) per common share (8) :
Basic:
Continuing operations ……………………………………
$
0.26
$
0.33
$
0.13
$
0.15
$
0.31
$
0.19
$
0.18
$
0.25
Discontinued operations …………………………………
-
-
-
-
-
-
-
(0.27)
Net income (loss) per common share ………………………
$
0.26
$
0.33
$
0.13
$
0.15
$
0.31
$
0.19
$
0.18
$
(0.02)
Diluted:
Continuing operations ……………………………………
$
0.26
$
0.33
$
0.13
$
0.15
$
0.31
$
0.19
$
0.18
$
0.25
Discontinued operations …………………………………
-
-
-
-
-
-
-
(0.27)
Net income (loss) per common share ………………………
$
0.26
$
0.33
$
0.13
$
0.15
$
0.31
$
0.19
$
0.18
$
(0.02)
Weighted average shares:
Basic ……………………………………………………… 42,759
Diluted ……………………………………………………
42,880
42,785
42,836
42,936
42,954
43,036
43,052
43,057
43,081
43,014
43,031
43,094
43,103
43,309
43,409
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Each of the quarters for 2013 and 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 quarter ended M arch 31, 2012 includes $0.7 million related to the Fourth Quarter 2011 Exit Plan.
The quarter ended June 30, 2013 includes $0.5 million, respectively, in Alpine acquisition-related costs.
The quarters ended December 31, 2013 and September 30, 2013 include $0.3 million and $(0.1) million, respectively, related to the exit plans. The quarters ended
December 31, 2012, September 30, 2012, June 30, 2012 and M arch 31, 2012 include $(0.4) million, $0.6 million, $0.7 million and $0.3 million, respectively, related to the
exit plans. See Note 4, Costs Associated with Exit or Disposal Activities, for further information.
The quarters ended September 30, 2013, June 30, 2013, M arch 31, 2013, December 31, 2012, September 30, 2012 and June 30, 2012 include $0.1 million, $0.8 million,
$0.7 million, $1.0 million, $3.7 million and $0.1 million, respectively, in Alpine acquisition-related costs.
The amount for the quarter ended M arch 31, 2012 includes the results of our operations in Spain, which was sold in M arch 2012.
The quarter ended M arch 31, 2012 includes the loss on the sale of our operations in Spain, which was sold in M arch 2012.
(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.
35
Business Outlook
For the twelve months ended December 31, 2014, we anticipate the following financial results:
• Revenues in the range of $1,315.0 million to $1,335.0 million;
• Effective tax rate of approximately 24.8%;
• Fully diluted share count of approximately 43.1 million;
• Diluted earnings per share in the range of $1.20 to $1.30; and
• Capital expenditures in the range of $45.0 million to $50.0 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, the Board authorized us to purchase up to 5.0 million shares of our outstanding common stock
(the “2011 Share Repurchase Program”). A total of 3.4 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. Our Board previously authorized us on August 5, 2002 to purchase up to 3.0 million shares of our outstanding
common stock, the last of which were repurchased during 2011.
The shares repurchased under our share repurchase programs were as follows (in thousands, except per share
amounts):
For the Years Ended
December 31, 2013 ……………………
December 31, 2012 ……………………
December 31, 2011 ……………………
Total Number
of S hares
Repurchased
341
537
3,292
Range of Prices Paid Per S hare
Low
$
$
$
15.61
13.85
12.46
High
$
$
$
16.99
15.00
18.53
Total Cost of
S hares
Repurchased
5,479
$
$
7,908
$
49,993
During 2013, cash increased $86.2 million from operating activities, $32.0 million due to proceeds from the
issuance of long-term debt, $0.4 million from the proceeds from sale of property and equipment, $0.2 million from
the proceeds from grants and $0.1 million of other. Further, we used $59.2 million for capital expenditures, $25.0
million to repay long-term debt, $5.5 million to repurchase our stock, $0.6 million for investment in restricted cash
and $0.2 million to repurchase stock for minimum tax withholding on equity awards, resulting in a $24.7 million
increase in available cash (including the unfavorable effects of foreign currency exchange rates on cash of
$3.7 million).
Net cash flows provided by operating activities for 2013 were $86.2 million, compared to $86.5 million in 2012.
The $0.3 million decrease in net cash flows from operating activities was due to a net decrease of $14.2 million in
cash flows from assets and liabilities, partially offset by an $8.8 million increase in net income and 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 $14.2 million decrease in cash flows from assets and liabilities was principally a
result of a $15.3 million increase in accounts receivable, a $9.3 million decrease in other liabilities and a $0.7
million decrease in taxes payable, partially offset by an $8.1 million decrease in other assets and a $3.0 million
increase in deferred revenue. The increase in accounts receivable is primarily due to additional billings related to
higher volumes within certain clients in 2013 over 2012. The decrease in other liabilities is primarily related to a
decrease in deposits received from clients for future services.
36
We sold our operations in Spain (the “Spanish operations”) in 2012. 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 ……………………
(4,530)
(8,887)
(4,656)
(311)
Years Ended December 31,
2012
2011
$
$
Cash (used for) operating activities of discontinued operations represents the cash used by the Spanish operations in
2012 and 2011 (none in 2013). Cash (used for) investing activities of discontinued operations for 2012 primarily
represents the cash divested upon the sale of the Spanish operations. 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. We do not expect the absence of the cash flows from our discontinued operations in Spain and
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 $59.2 million for 2013, compared to $38.6
million for 2012, an increase of $20.6 million. In 2014, we anticipate capital expenditures in the range of $45.0
million to $50.0 million, primarily for new seat additions, facility upgrades, 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, 2013, we were in compliance with all loan requirements of the
2012 Credit Agreement and had $98.0 million and $91.0 million of outstanding borrowings as of December 31,
2013 and 2012, respectively, with an average daily utilization of $102.5 million during 2013 and $96.8 million for
the outstanding period during 2012 (none in 2011). During the years ended December 31, 2013 and 2012, the
related interest expense, excluding amortization of deferred loan fees, under our credit agreements was $1.5 million
and $0.5 million, respectively, which represented weighted average interest rates of 1.5% and 1.5%, 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 the rates set forth in the Credit Agreement. 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.
We are currently under audit in several tax jurisdictions. In April 2012, we received an assessment for the Canadian
2003-2006 audit for which we filed a Notice of Objection in July 2012 and paid a mandatory security deposit.
Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S.
Internal Revenue Service for this audit cycle. In July and October 2013, we received reassessments for the 2007-
2009 audit, which resulted in additional payments. These payments bring the total amount of deposits for both audit
cycles to $17.3 million and $15.0 million as of December 31, 2013 and 2012, respectively, and are included in
“Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. In December 2013, we filed
a Notice of Objection to the 2007-2009 reassessment. Although the outcome of examinations by taxing authorities
is always uncertain, we believe we are adequately reserved for these audits and that resolution is not expected to
have a material impact on our financial condition and results of operations.
37
On August 20, 2012, we completed the acquisition of 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, 2013, we had $212.0 million in cash and cash equivalents, of which approximately 92.0% or
$195.0 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. However, from time to time, we may borrow funds under our 2012 Credit
Agreement as a result of the timing of our working capital needs, including capital expenditures. 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, 2013, 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
recorded any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under
which we have or may have unlimited liability.
38
Contractual Obligations
The following table summarizes our contractual cash obligations at December 31, 2013, and the effect these
obligations are expected to have on liquidity and cash flow in future periods (in thousands):
$
Operating leases(1) ………………………………………… 149,201
Purchase obligations(2) ……………………………………… 31,304
Accounts payable (3) ………………………………………
25,540
Accrued employee compensation and benefits (3) …………
81,047
Income taxes payable (4) ……………………………………
1,274
Other accrued expenses and current liabilities (5) …………… 30,241
Long-term debt (6) …………………………………………… 98,000
Long-term tax liabilities (7) …………………………………
7,330
Other long-term liabilities (8) ………………………………… 4,333
428,270
$
Total
Less Than
1 Year
$
Payments Due By Period
1 - 3 Years
48,060
$
7,983
-
-
-
-
-
-
1,895
57,938
$
3 - 5 Years
31,895
$
234
-
-
-
-
98,000
-
236
130,365
$
35,808
23,087
25,540
81,047
1,274
30,241
-
-
-
196,997
After 5
Years
$
33,438
-
-
-
-
-
-
-
2,202
35,640
Other
-
$
-
-
-
-
-
-
7,330
-
7,330
$
$
$
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Amounts represent the expected cash payments under our operating leases.
Amounts represent the expected cash payments under our purchase obligations, which 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, 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 primarily related to restructuring costs, legal and
professional fees, telephone charges, rent, derivative contracts and other accruals.
Amount represents total outstanding borrowings. See Note 20, Borrowings, to the accompanying Consolidated Financial Statements.
to the
Long-term tax liabilities include uncertain tax positions and related penalties and interest as discussed in Note 22, Income Taxes,
accompanying Consolidated Financial Statements. The amount in the table has been reduced by Canadian mandatory security deposits of $17.3
million, which are included in "Deferred charges and other assets" in the accompanying Consolidated Balance Sheets. We cannot make reasonably
reliable estimates of the cash settlement of $7.3 million of the long-term liabilities with the taxing authority; therefore, amounts have been excluded
from payments due by period.
Other long-term liabilities, which exclude deferred income taxes and other non-cash long-term liabilities, represent the expected cash payments due
under restructuring accruals (primarily lease obligations) and pension obligations. See Notes 4, Costs Associated with Exit or Disposal Activities,
and 25, Defined Benefit Pension Plan and Postretirement Benefits, to the accompanying Consolidated Financial Statements.
Critical Accounting 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
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.
39
Revenues from fulfillment services account for 1.3%, 1.5% and 1.4% of total consolidated revenues for the years
ended December 31, 2013, 2012 and 2011, 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, 2013, 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, 2013.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts, $5.0 million as of December 31, 2013, or 1.9% of trade account
receivables, for estimated losses arising from the inability of our customers to make required payments. Our
estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and
methodologies using the publicly available credit and capital market information, a review of the current status of
our trade accounts receivable and historical collection experience of our clients. It is reasonably possible that our
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, 2013, we determined that a total valuation allowance of $42.7 million was necessary to reduce
U.S. deferred tax assets by $3.0 million and foreign deferred tax assets by $39.7 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 $18.2 million as of December 31, 2013 is dependent upon future profitability within each
tax jurisdiction. As of December 31, 2013, 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.
40
A provision for income taxes has not been made for the undistributed earnings of foreign subsidiaries of
approximately $376.8 million as of December 31, 2013, 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 due to the inherent
complexity of the multi-national tax environment in which we operate.
The U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2014
Revenue Proposals” in April 2013. These proposals represent a significant shift in international tax policy, which
may materially impact U.S. taxation of international earnings. 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 enacted on January 2, 2013, with many provisions
retroactively effective to January 1, 2012. This Act, which extended the tax provisions of the Internal Revenue
Code Section 954(c)(6) through the end of 2013, permits continued tax deferral on such movements that would
otherwise be taxable immediately in the U.S. While these cash movements are not taxable in the U.S., related
foreign withholding taxes of $3.5 million were included in the provision for income taxes in the accompanying
Consolidated Statements of Operations for the year ended December 31, 2013.
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, 2013, we had $15.0 million of unrecognized tax benefits, a net decrease of $1.9 million from
$16.9 million as of December 31, 2012. Had we recognized these tax benefits, approximately $15.0 million and
$16.9 million and the related interest and penalties would favorably impact the effective tax rate in 2013 and 2012,
respectively. We do not anticipate that our unrecognized tax benefits will change in the next twelve months.
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 2014 through 2028. 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.
41
Impairment of Long-Lived Assets
We evaluate the carrying value of property and equipment and definite-lived intangible assets, which had a carrying
value of $193.6 million as of December 31, 2013, for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An asset is considered to be impaired when the forecasted
undiscounted cash flows of an asset group are estimated to be less than its carrying value. The amount of
impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value
estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed
discount rates. 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. See Note 5, Fair Value, of the accompanying “Notes to Consolidated Financial
Statements” for details of impairment losses related to nonrecurring fair value measurements.
Impairment of Goodwill
We evaluate goodwill, which had a carrying value of $199.8 million as of December 31, 2013, for impairment at
least annually, during the third quarter of each year, or whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. To assess the realizability of goodwill, we have 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. We
may elect to forgo this option and proceed to the annual two-step goodwill impairment test.
If we elect to perform the qualitative assessment and it indicates that a significant decline to fair value of a reporting
unit is more likely than not, or if a reporting unit’s fair value has historically been closer to its carrying value, or we
elect to forgo this qualitative assessment, we will proceed to Step 1 testing where we calculate the fair value of a
reporting unit based on discounted future probability-weighted cash flows. If Step 1 indicates that the carrying value
of a reporting unit is in excess of its fair value, we will proceed to Step 2 where the fair value of the reporting unit
will be allocated to assets and liabilities as it would in a business combination. Impairment occurs when the carrying
amount of goodwill exceeds its estimated fair value calculated in Step 2.
We estimate fair value using discounted cash flows of the reporting units. The most significant assumptions used in
these analyses are those made in estimating future cash flows. In estimating future cash flows, we use financial
assumptions in our internal forecasting model such as projected capacity utilization, projected changes in the prices
we charge for our services, projected labor costs, as well as contract negotiation status. The financial and credit
market volatility directly impacts our fair value measurement through our weighted average cost of capital that we
use to determine our discount rate. We use a discount rate we consider appropriate for the country where the
services are being provided. As of July 31, 2013, our assessment of goodwill impairment indicated that the fair
values of our reporting units were substantially in excess of their estimated carrying values, and therefore goodwill
in these reporting units was not impaired. If actual results differ substantially from the assumptions used in
performing the impairment test, the fair value of the reporting units may be significantly lower, causing the carrying
value to exceed the fair value and indicating an impairment has occurred.
Contingencies
We record a liability for pending litigation and claims where losses are both probable and reasonably estimable.
Each quarter, management reviews all litigation and claims on a case-by-case basis and assigns probability of loss
and range of loss.
Other
We have made certain other estimates that, while not involving the same degree of judgment, are important to
understanding our financial statements. These estimates are in the areas of measuring our obligations related to our
defined benefit plans and self-insurance accruals.
42
New Accounting Standards Not Yet Adopted
In March 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-05 “Foreign Currency
Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of
Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU
2013-05”). The amendments in ASU 2013-05 indicate that a cumulative translation adjustment (“CTA”) is attached
to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition
guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be
released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale
represents the substantially complete liquidation of the investment in the foreign entity, a loss of a controlling
financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or a step acquisition
for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign
entity to consolidating the foreign entity). ASU 2013-05 does not change the requirement to release a pro rata
portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign
entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years (and interim reporting periods
within those years) beginning after December 15, 2013. The amendments should be applied prospectively to
derecognition events occurring after the effective date. The adoption of ASU 2013-05 on January 1, 2014 did not
have a material impact on our financial condition, results of operations and cash flows.
In July 2013, the FASB issued ASU 2013-11 “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”
(“ASU 2013-11”). The amendments in ASU 2013-11 indicate that an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a
net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or
expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the
applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the
deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a
liability and should not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective for
fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be
applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is
permitted. The adoption of ASU 2013-11 on January 1, 2014 did not have a material impact on 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. The Internal Revenue Service recently announced that the employer mandate provisions of the
Acts will be delayed until 2015 and the promised additional guidance has yet to be issued. As a result of the delay,
the Company’s cost to provide benefits to employees in 2014 are expected to be comparable to our costs in 2013.
Once the guidance is finalized, we will evaluate the potential impact of the Acts on our financial condition, results of
operations and cash flows for 2015.
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.
43
We employ a foreign currency risk management program that periodically utilizes derivative instruments to protect
against unanticipated fluctuations in certain 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 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, 2013 with counterparties through December 2014
with notional amounts totaling $165.1 million. As of December 31, 2013, we had net total derivative liabilities
associated with these contracts with a fair value of $2.1 million, which will settle within the next 12 months. If the
USD was to weaken against the PHP and 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 $13.8 million on the underlying exposures of the
derivative instruments. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We entered into forward exchange contracts with notional amounts totaling $32.7 million to hedge net investments
in our foreign operations. The purpose of these derivative instruments is to protect against the risk that the net assets
of certain foreign subsidiaries will be adversely affected by changes in exchange rates and economic exposures
related to our foreign currency-based investments in these subsidiaries. As of December 31, 2013, the fair value of
these derivatives was a net liability of $1.7 million. The potential loss in fair value at December 31, 2013, for these
contracts resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately
$3.4 million. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We also entered into forward exchange contracts with notional amounts totaling $59.2 million 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, 2013, the fair value of these derivatives was a net
receivable of $1.0 million. The potential loss in fair value at December 31, 2013, 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, 2013, we had $98.0 million in borrowings outstanding under the revolving credit facility. Based on
our level of variable rate debt outstanding during the year ended December 31, 2013, a one-point increase in the
weighted average interest rate, which generally equals the LIBOR rate plus an applicable margin, would have had a
$1.0 million impact on our results of operations.
We have not historically used derivative instruments to manage exposure to changes in interest rates.
44
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are located beginning on page 53 and page 35
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, 2013. 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,
2013.
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, 2013. 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, 2013, our internal control over financial reporting was effective.
Attestation Report of Independent Registered Public Accounting Firm
Our independent registered public accounting firm has issued an attestation report on our internal control over
financial reporting. This report appears on page 46.
Changes to Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2013
that have materially affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
45
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, 2013, based on criteria established in Internal Control — Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2013, based on the criteria established in Internal Control — Integrated Framework (1992)
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, 2013 of the Company and our report dated February 20, 2014 expressed an unqualified opinion on
those financial statements and financial statement schedules.
Certified Public Accountants
Tampa, Florida
February 20, 2014
46
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 2014 Annual Meeting of Shareholders.
47
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 53 of this report.
Financial Statements Schedule
Schedule II — Valuation and Qualifying Accounts is set forth on page 108 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)
48
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)
49
Exhibit
Number
10.31
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
Stock Purchase Agreement between Sykes Enterprises, Incorporated (not as a Seller), ICT
Group Netherlands B.V. (as Seller), ICT Group Netherlands Holdings, B.V. (as Seller) and
Carolina Gaito, Claudio Martin, Fernando A. Berrondo, Gustavo Rosetti as Buyers, dated
December 24, 2010. (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)
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.
50
(4)
(5)
(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 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.
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.”
51
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
20th day of February 2014.
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
Title
Date
/s/ Paul L. Whiting
Paul L. Whiting
/s/ Charles E. Sykes
Charles E. Sykes
Chairman of the Board
February 20, 2014
President and Chief Executive Officer and
Director (Principal Executive Officer)
February 20, 2014
/s/ Lt. Gen. Michael P. Delong (Ret.)
Lt. Gen. Michael P. Delong (Ret.)
Director
/s/ H. Parks Helms
H. Parks Helms
/s/ Iain A. Macdonald
Iain A. Macdonald
/s/ James S. MacLeod
James S. MacLeod
Director
Director
Director
/s/ Linda F. McClintock-Greco M.D.
Linda F. McClintock-Greco M.D.
Director
/s/ William J. Meurer
William J. Meurer
/s/ James K. Murray, Jr.
James K. Murray, Jr.
/s/ W. Michael Kipphut
W. Michael Kipphut
Director
Director
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
Executive Vice President and Chief Financial Officer February 20, 2014
(Principal Financial and Accounting Officer)
52
Table of Contents
Report of Independent Registered Public Accounting Firm ........................................................................... ..
Consolidated Balance Sheets as of December 31, 2013 and 2012 ...................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011 .................
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2013, 2012 and
2011 ..................................................................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2013, 2012
and 2011 ............................................................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 ................
Notes to Consolidated Financial Statements ....................................................................................................
Page No.
54
55
56
57
58
59
61
53
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
Tampa, Florida
We have audited the accompanying consolidated balance sheets of Sykes Enterprises, Incorporated and subsidiaries
(the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations,
comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2013. 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, 2013 and 2012 and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2013, 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, 2013, based on the criteria
established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 20, 2014 expressed an unqualified
opinion on the Company's internal control over financial reporting.
Certified Public Accountants
Tampa, Florida
February 20, 2014
54
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, 2013
December 31, 2012
Assets
Current assets:
$
$
Cash and cash equivalents ………………………………………………………
Receivables, net …………………………………………………………………
Prepaid expenses …………………………………………………………………
Other current assets ………………………………………………………………
Total current assets ……………………………………………………………
Property and equipment, net ………………………………………………………
Goodwill, net ………………………………………………………………………
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 ……………………………………
Total current liabilities…………………………………………………………
Deferred grants ……………………………………………………………………
Long-term debt ……………………………………………………………………
Long-term income tax liabilities ……………………………………………………
Other long-term liabilities …………………………………………………………
Total liabilities…………………………………………………………………
Commitments and loss contingency (Note 24)
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000 shares
$
$
$
211,985
264,916
15,710
20,672
513,283
117,549
199,802
76,055
43,572
950,261
25,540
81,064
84
1,274
35,025
30,393
173,380
6,637
98,000
24,647
11,893
314,557
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
authorized; no shares issued and outstanding …………………………………
-
-
Common stock, $0.01 par value, 200,000 shares authorized;
43,997 and 43,790 shares issued, respectively ………………………………
Additional paid-in capital ………………………………………………………
Retained earnings …………………………………………………………………
Accumulated other comprehensive income ………………………………………
Treasury stock at cost: 122 shares and 108 shares, respectively ………………
Total shareholders' equity ……………………………………………………
440
279,513
349,366
7,997
(1,612)
635,704
950,261
438
277,192
315,187
14,856
(1,409)
606,264
908,689
$
$
See accompanying Notes to Consolidated Financial Statements.
55
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Years Ended December 31,
2013
2012
2011
Revenues ………………………………………………………………
$
1,263,460
$
1,127,698
$
1,169,267
Operating expenses:
Direct salaries and related costs ……………………………………
General and administrative …………………………………………
Depreciation, net ……………………………………………………
Amortization of intangibles …………………………………………
Net (gain) loss on disposal of property and equipment ……………
Impairment of long-lived assets ……………………………………
855,266
297,519
42,084
14,863
201
-
737,952
290,373
40,369
10,479
391
355
763,930
287,033
46,111
7,961
(3,021)
1,718
Total operating expenses …………………………………………
1,209,933
1,079,919
1,103,732
Income from continuing operations …………………………………
53,527
47,779
65,535
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 ………………………
(Loss) from discontinued operations, net of taxes ……………………
Gain (loss) on sale of discontinued operations, net of taxes ……………
866
(2,307)
(761)
(2,202)
51,325
14,065
37,260
-
-
1,458
(1,547)
(2,533)
(2,622)
45,157
5,207
39,950
(820)
(10,707)
1,352
(1,132)
(2,099)
(1,879)
63,656
11,342
52,314
(4,532)
559
Net income ……………………………………………………………
$
37,260
$
28,423
$
48,341
Net income (loss) per common share:
Basic:
Continuing operations …………………………………………
$
0.87
$
0.93
$
1.15
Discontinued operations ………………………………………
-
(0.27)
(0.09)
Net income (loss) per common share …………………………
$
0.87
$
0.66
$
1.06
Diluted:
Continuing operations …………………………………………
$
0.87
$
0.93
$
1.15
Discontinued operations ………………………………………
-
(0.27)
(0.09)
Net income (loss) per common share …………………………
$
0.87
$
0.66
$
1.06
Weighted average common shares outstanding:
Basic ……………………………………………………………
Diluted …………………………………………………………
42,877
42,925
43,105
43,148
45,506
45,607
See accompanying Notes to Consolidated Financial Statements.
56
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Years Ended December 31,
2012
2013
2011
Net income ……………………………………………………………………………
$
37,260
$
28,423
$
48,341
Other comprehensive income (loss), net of taxes:
Foreign currency translation gain (loss), net of taxes ……………….……………
Unrealized gain (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 ………………………………
(3,332)
(1,118)
(263)
(1,965)
(181)
(6,859)
10,088
-
428
(132)
36
10,420
(7,997)
-
(204)
(2,584)
113
(10,672)
Comprehensive income (loss) ………………………………………………...………
$
30,401
$
38,843
$
37,669
See accompanying Notes to Consolidated Financial Statements.
57
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
S hares
(in thousands)
Issued
Balance at January 1, 2011 ………… 47,066
Amount
$
471
Common S tock
Additional
Paid-in
Capital
$
302,911
Retained
Earnings
$
265,676
Accumulated
Other
Comprehensive
Income (Loss)
$
15,108
Treasury
S tock
$
(971)
Total
583,195
$
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
-
-
-
-
-
3
-
(31)
-
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
Balance at December 31, 2012 ……… 43,790
438
277,192
315,187
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 …………
Comprehensive income (loss) …………
10
-
-
538
-
(341)
-
-
-
-
5
-
(3)
-
59
4,873
(187)
(29)
-
(2,395)
-
-
-
-
-
-
(3,081)
37,260
-
-
-
-
-
10,420
14,856
-
-
-
-
-
-
(6,859)
-
-
(220)
(7,908)
10,992
-
(1,409)
-
-
-
(203)
(5,479)
5,479
-
3,467
(292)
(1,412)
(7,908)
-
38,843
606,264
59
4,873
(187)
(227)
(5,479)
-
30,401
Balance at December 31, 2013 ……… 43,997
$
440
$
279,513
$
349,366
$
7,997
$
(1,612)
$
635,704
See accompanying Notes to Consolidated Financial Statements.
58
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Years Ended December 31,
2012
2013
2011
Net income …………………………………………………………………………
Adjustments to reconcile net income to net cash provided by operating
activities:
$
37,260
Depreciation ……………………………………………………………………
Amortization of intangibles ……………………………………………………
Amortization of deferred grants ………………………………………………
Impairment losses ………………………………………………………………
Unrealized foreign currency transaction (gains) losses, net ………………
Stock-based compensation expense …………………………………………
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 ……………………………………………
(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 ………………………………………………………
Net cash provided by operating activities …………………………………
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 ……………………………………………
43,094
14,863
(1,148)
-
6,302
4,873
(362)
201
483
(15)
-
259
-
(56)
(22,062)
(3,931)
(1,177)
(2,754)
(1,282)
804
9,140
(2,025)
2,826
925
86,218
(59,193)
-
388
(562)
-
-
-
Net cash (used for) investing activities ……………………………………
(59,367)
59
$
28,423
$
48,341
41,570
10,479
(1,201)
355
2,131
3,467
(4,867)
391
1,115
(1,361)
-
368
10,707
294
(6,771)
694
1,705
(18,388)
(1,589)
1,555
4,872
11,476
(163)
1,252
47,806
7,961
(2,300)
2,561
1,216
3,582
(3,955)
(3,035)
532
4,138
(407)
585
(559)
300
8,927
(1,042)
(3,442)
1,630
(6,898)
(4,529)
2,450
(2,855)
4,243
(2,636)
86,514
102,614
(38,647)
(147,094)
240
(67)
356
(9,100)
228
(194,084)
(29,890)
-
3,973
(494)
396
-
1,654
(24,361)
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
(in thousands)
Cash flows from financing activities:
Years Ended December 31,
2012
2013
2011
Payments of long-term debt ………………………………………………………
Proceeds from issuance of long-term debt ……………………………………
Proceeds from issuance of common stock ………………………………………
Cash paid for repurchase of common stock ……………………………………
Proceeds from grants ……………………………………………………………
Shares repurchased for minimum tax withholding on equity awards …………
Cash paid for loan fees related to long-term debt ………………………………
Other ……………………………………………………………………...…………
(25,000)
32,000
59
(5,479)
201
(227)
-
-
Net cash provided by (used for) financing activities ……………………
1,554
Effects of exchange rates on cash …………………………………………………
(3,742)
Net increase (decrease) in cash and cash equivalents …………………………
Cash and cash equivalents – beginning …………………………………………
24,663
187,322
Cash and cash equivalents – ending ………………………………………………
$
211,985
Supplemental disclosures of cash flow information:
Cash paid during period for interest ……………………………………………
Cash paid during period for income taxes ………………………………………
$
$
2,149
16,889
Non-cash transactions:
Property and equipment additions in accounts payable ………………………
Unrealized gain on postretirement obligation in accumulated other
$
6,002
(22,000)
113,000
-
(7,908)
88
(1,412)
(857)
-
80,911
2,859
(23,800)
211,122
-
-
311
(49,993)
(225)
(1,190)
-
(8)
(51,105)
(5,855)
21,293
189,829
$
187,322
$
211,122
$
$
2,239
28,822
$
$
1,065
24,631
$
3,782
$
2,434
comprehensive income (loss) …………………………………………………
$
(181)
$
36
$
113
See accompanying Notes to Consolidated Financial Statements.
60
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, social media, 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, Australia and the Asia Pacific Rim, in which the client base is primarily
companies in the United States that are using the Company’s services to support their customer management needs;
and (2) EMEA, which includes Europe, the Middle East and Africa.
Acquisition — In 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.
Discontinued Operations — In March 2012, the Company sold its operations in Spain (the “Spanish operations”),
pursuant to an asset purchase agreement dated March 29, 2012 and a stock purchase agreement dated March 30,
2012. The Company reflected the operating results related to the Spanish operations as discontinued operations in
the Consolidated Statements of Operations for the years ended December 31, 2012 and 2011. Cash flows from
discontinued operations are included in the Consolidated Statements of Cash Flows for the years ended December
31, 2012 and 2011. See Note 3, Discontinued Operations, for additional information on the sale of the Spanish
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 (“generally accepted accounting principles” or “U.S. GAAP”)
requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance
of the consolidated financial statements. There were no material subsequent events that required recognition or
disclosure in the accompanying consolidated financial statements.
Recognition of Revenue — The Company recognizes revenue in accordance with Accounting Standards
Codification (“ASC”) 605 “Revenue Recognition” (“ASC 605”). The Company primarily recognizes revenues from
services as the services are performed, which is based on either a per minute, per call, per transaction or per time and
material basis, under a fully executed contractual agreement and record reductions to revenues for contractual
penalties and holdbacks for failure to meet specified minimum service levels and other performance based
contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future
61
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 1.3%, 1.5% and 1.4% of total consolidated revenues for the years
ended December 31, 2013, 2012 and 2011, 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, 2013, 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, 2013.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments.
Cash in the amount of $212.0 million and $187.3 million at December 31, 2013 and 2012, respectively, was
primarily held in interest bearing investments, which have original maturities of less than 90 days. Cash and cash
equivalents of $195.0 million and $182.9 million at December 31, 2013 and 2012, respectively, were held in
international operations and may be subject to additional taxes if repatriated to the United States (“U.S.”).
Restricted Cash — Restricted cash includes cash whereby the Company’s ability to use the funds at any time is
contractually limited or is generally designated for specific purposes arising out of certain contractual or other
obligations. Restricted cash is included in “Other current assets” and “Deferred charges and other assets” in the
accompanying Consolidated Balance Sheets.
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts on trade account
receivables for estimated losses arising from the inability of its customers to make required payments. The
Company’s estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and
methodologies using the publicly available credit and capital market information, a review of the current status of
the Company’s trade accounts receivable and historical collection experience of the Company’s clients. It is
reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change if the financial
condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments.
Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are
credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop
software upon the establishment of technological feasibility. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred.
62
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 5, Fair Value, the Company
determined that its property and equipment were not impaired as of December 31, 2013.
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.
The Company elected to forgo the option to first assess qualitative factors and completed its annual two-step
goodwill impairment test during the three months ended September 30, 2013. Under ASC 350, the carrying value of
assets is calculated at the reporting unit level. The quantitative assessment of goodwill includes comparing a
reporting unit’s calculated fair value to its carrying value. The calculation of fair value requires significant
judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth, the useful life over which cash flows will occur and determination of the Company’s
weighted average cost of capital. Changes in these estimates and assumptions could materially affect the
determination of fair value and/or conclusions on goodwill impairment for each reporting unit. If the fair value of
the reporting unit is less than its carrying value, goodwill is considered impaired and an impairment loss is recorded
to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. As of July 31,
2013, the Company concluded that the fair value of each reporting unit was substantially in excess of its carrying
value and 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
63
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 are accrued at the projected settlements for known and anticipated claims. Amounts related to these
self-insurance programs are included in “Accrued employee compensation and benefits” and “Other long-term
liabilities” in the accompanying Consolidated Balance Sheets.
Deferred Grants — Recognition of income associated with grants for land and the acquisition of property, buildings
and equipment (together, “property grants”) is deferred until after the completion and occupancy of the building and
title has passed to the Company, and the funds have been released from escrow. The deferred amounts for both land
and building are amortized and recognized as a reduction of depreciation expense over the corresponding useful
lives of the related assets. Amounts received in excess of the cost of the building are allocated to the cost of
equipment and, only after the grants are released from escrow, recognized as a reduction of depreciation expense
over the weighted average useful life of the related equipment, which approximates five years. Upon sale of the
related facilities, any deferred grant balance is recognized in full and is included in the gain on sale of property and
equipment.
The Company receives government employment grants as an incentive to create and maintain permanent
employment positions for a specified time period. The grants are repayable, under certain terms and conditions, if
the Company's relevant employment levels do not meet or exceed the employment levels set forth in the grant
agreements. Accordingly, grant monies received are deferred and amortized primarily as a reduction to “Direct
salaries and related costs” 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.
64
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 26, Stock-Based Compensation. Stock-based awards under these
plans may consist of common stock, stock options, cash-settled or stock-settled stock appreciation rights, restricted
stock and other stock-based awards. The Company issues common stock and uses treasury stock to satisfy stock
option exercises or vesting of stock awards.
In accordance with ASC 718 “Compensation — Stock Compensation” (“ASC 718”), the Company recognizes in its
accompanying Consolidated Statements of Operations the grant-date fair value of stock options and other equity-
based compensation issued to employees and directors. Compensation expense for equity-based awards is
recognized over the requisite service period, usually the vesting period, while compensation expense for liability-
based awards (those usually settled in cash rather than stock) is re-measured to fair value at each balance sheet date
until the awards are settled.
Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to estimate that value:
• Cash, Short-Term and Other Investments, Investments Held in Rabbi Trust and Accounts Payable — The
carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts
payable approximate their fair values.
• Foreign Currency Forward Contracts and Options — Foreign currency forward contracts and options,
including premiums paid on options, are recognized at fair value based on quoted market prices of
comparable instruments or, if none are available, on pricing models or formulas using current market and
model assumptions, including adjustments for credit risk.
• Long-Term Debt — The carrying value of long-term debt approximates its estimated fair value as it re-
prices at varying interest rates.
Fair Value Measurements — ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles
and expands disclosures about fair value measurements. ASC 820-10-20 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants.
ASC 825 “Financial Instruments” (“ASC 825”) permits an entity to measure certain financial assets and financial
liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected
to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are
not already recorded at fair value.
A description of the Company’s policies regarding fair value measurement is summarized below.
Fair Value Hierarchy — ASC 820-10-35 requires disclosure about how fair value is determined for assets and
liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant
levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of
observable market data when available. These two types of inputs have created the following fair value hierarchy:
• Level 1 — Quoted prices for identical instruments in active markets.
• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets.
• Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.
65
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 13, Investments Held in Rabbi Trust, and Note 26, Stock-Based
Compensation.
Guaranteed Investment Certificates — Guaranteed investment certificates, with variable interest rates linked to the
prime rate, approximate fair value due to the automatic ability to re-price with changes in the market; such items are
classified in Level 2 of the fair value hierarchy.
Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose functional
currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income
and expenses are translated at the weighted average exchange rate during the period. The net effect of translation
gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive
income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until
the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency
transactional gains and losses are included in “Other income (expense)” in the accompanying Consolidated
Statements of Operations.
Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under
ASC 815 “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.
66
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, 2013 and 2012, all hedges were determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC
815. The purpose of these derivative instruments is to reduce the effects from fluctuations caused by volatility in
currency exchange rates on the Company’s operating results and cash flows. All changes in the fair value of the
derivative instruments are included in “Other income (expense)”. See Note 12, Financial Derivatives, for further
information on financial derivative instruments.
Reclassifications — Certain balances in prior years have been reclassified to conform to current year presentation.
New Accounting Standards Not Yet Adopted
In March 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-05 “Foreign Currency
Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of
Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU
2013-05”). The amendments in ASU 2013-05 indicate that a cumulative translation adjustment (“CTA”) is attached
to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition
guidance on investments in entities. Thus, the entire amount of the CTA associated with the foreign entity would be
released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale
represents the substantially complete liquidation of the investment in the foreign entity, a loss of a controlling
financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated), or a step acquisition
for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign
entity to consolidating the foreign entity). ASU 2013-05 does not change the requirement to release a pro rata
portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign
entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years (and interim reporting periods
within those years) beginning after December 15, 2013. The amendments should be applied prospectively to
derecognition events occurring after the effective date. The adoption of ASU 2013-05 on January 1, 2014 did not
have a material impact on the financial condition, results of operations and cash flows of the Company.
67
In July 2013, the FASB issued ASU 2013-11 “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”
(“ASU 2013-11”). The amendments in ASU 2013-11 indicate that an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a
net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or
expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the
applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the
deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a
liability and should not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective for
fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be
applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is
permitted. The adoption of ASU 2013-11 on January 1, 2014 did not have a material impact on the financial
condition, results of operations and cash flows of the Company.
New Accounting Standards Recently Adopted
In December 2011, the FASB issued ASU 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting
Assets and Liabilities” (“ASU 2011-11”). The amendments in ASU 2011-11 enhanced 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 (“ASC”) 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. See Note 12, Financial
Derivatives, for further information.
In July 2012, the FASB issued ASU 2012-02 “Intangibles – Goodwill and Other (Topic 350) Testing Indefinite-
Lived Intangible Assets for Impairment” (“ASU 2012-02”). The amendments in ASU 2012-02 provide entities with
the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates
that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of
events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible
asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise,
then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative
impairment test by comparing the fair value with the carrying amount. Under the amendments in ASU 2012-02, an
entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period
and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the
qualitative assessment in any subsequent period. The amendments in ASU 2012-02 are effective for annual and
interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU
2012-02 on January 1, 2013 did not have a material impact on the financial condition, results of operations and cash
flows of the Company. See “Goodwill” in this Note 1 for further information.
In January 2013, the FASB issued ASU 2013-01 “Balance Sheet (Topic 210) Clarifying the Scope of Disclosures
about Offsetting Assets and Liabilities” (“ASU 2013-01”). The amendments in ASU 2013-01 clarify which
instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-
11. ASU 2013-01 addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11
was overly broad and imposed unintended costs that were not commensurate with estimated benefits to the financial
statement users. In choosing to narrow the scope of the offsetting disclosures, the FASB determined that it could
make them more operable and cost effective for preparers while still giving financial statement users sufficient
information to analyze the most significant presentation differences between financial statements prepared in
accordance with U.S. GAAP and those prepared under International Financial Reporting Standards (“IFRS”). The
amendments in ASU 2013-01 are effective for fiscal years beginning on or after January 1, 2013. Retrospective
application is required for any period presented that begins before the entity’s initial application of the new
requirements. The adoption of ASU 2013-01 as of January 1, 2013 did not have a material impact on the financial
condition, results of operations and cash flows of the Company. See Note 12, Financial Derivatives, for further
information.
68
In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income (Topic 220) Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-
02 do not change the current requirements for reporting net income or other comprehensive income in financial
statements. However, the amendments require an entity to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition, an entity is required to present, either on the
face of the statement where net income is presented or in the notes, significant amounts reclassified out of
accumulated other comprehensive income by the respective line items of net income but only if the amount
reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.
For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity
is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about
those amounts. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after
December 15, 2012. The adoption of ASU 2013-02 as of January 1, 2013 did not have a material impact on the
financial condition, results of operations and cash flows of the Company. See Note 21, Accumulated Other
Comprehensive Income (Loss), for further information.
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 costs to variable costs; and further enhance the growth and margin profile of
the Company to drive shareholder value. This resulted in the Company paying a substantial premium for Alpine
resulting in the recognition of goodwill.
The acquisition date fair value of the consideration transferred totaled $149.0 million, which was funded through
cash on hand of $41.0 million and borrowings of $108.0 million under the Company’s credit agreement, dated May
3, 2012. See Note 20, 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 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.
69
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):
Cash and cash equivalents ………………………………………
Receivables ………………………………………………………
Prepaid expenses …………………………………………………
Amount
$
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)
(1) Primarily includes long-term deferred tax liabilities.
$
148,953
Fair values were 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 purchased was $11.8 million, with the gross contractual amount of $11.8 million.
70
The amount of Alpine’s revenues and net loss since the August 20, 2012 acquisition date, included in the
Company’s accompanying 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 …………………………………………………………
$
1,190,150
$
1,272,890
Years Ended December 31,
2012
2011
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.
71
Merger and integration costs associated with Alpine were as follows (none in 2011) (in thousands):
Severance costs: (1)
Years Ended December 31,
2013
2012
Americas …………………………………………………
$
526
526
Severance costs: (2)
Americas …………………………………………………
Corporate ………………………………………………
Transaction and integration costs: (2)
Corporate ………………………………………………
985
159
1,144
444
444
-
$
-
591
377
968
3,793
3,793
Total merger and integration costs …………………………
$
2,114
$
4,761
(1)
(2)
Included in “Direct salaries and related costs” in the accompanying Consolidated Statements of
Operations.
Included in “General and administrative” costs in the accompanying Consolidated Statements
of Operations.
Note 3. Discontinued Operations
The results of discontinued operations, which consist of the operations in Spain and Argentina, were as follows
(none in 2013) (in thousands):
Revenues ………………………………………………………………………………
$
10,102
$
39,341
Years Ended December 31,
2012
2011
(Loss) from discontinued operations before income taxes ……………….……….
Income taxes (1) …………………………………………………………..……………
(Loss) from discontinued operations, net of taxes ……………………………………
$
(820)
$
(4,532)
-
-
$
(820)
$
(4,532)
(Loss) on sale of discontinued operations before income taxes ……………….………
Income taxes (1) …………………………………………………………..……………
(Loss) on sale of discontinued operations, net of taxes ………………………………
$
(10,707)
$
559
-
-
$
(10,707)
$
559
(1) There were no income taxes 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 (the “Board”) of the Company approved a plan
to sell its Spanish operations, which were operated through its Spanish subsidiary, Sykes Enterprises, Incorporated
S.L. ("Sykes Spain"). Sykes Spain operated customer contact management centers, with annual revenues of
approximately $39.3 million in 2011, providing contact center services through a total of three customer contact
management centers in Spain to clients in Spain. The decision to sell the Spanish operations was made in 2011 after
management completed a strategic review of the Spanish market and determined the operations were no longer
consistent with the Company's strategic direction.
On March 29, 2012, Sykes Spain entered into the asset purchase agreement, by and between Sykes Spain and
Iberphone, S.A.U., and pursuant thereto, on March 29, 2012, Sykes Spain sold the fixed assets located in
Ponferrada, Spain, which were previously written down to zero, cash of $4.1 million, and certain contracts and
licenses relating to the business of Sykes Spain, to Iberphone, S.A.U. Under the asset purchase agreement,
Ponferrada, Spain employees were transferred to Iberphone S.A.U. which assumed certain payroll liabilities in the
approximate amount of $1.7 million, and paid a nominal purchase price for the assets.
72
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.
During 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.
The Company reflected the operating results related to the Spanish operations as discontinued operations in the
accompanying Consolidated Statements of Operations for the years ended December 31, 2012 and 2011. Cash flows
from discontinued operations are included in the accompanying Consolidated Statements of Cash Flows for the
years ended December 31, 2012 and 2011. This business was historically reported by the Company as part of the
EMEA segment.
Sale of Argentine Operations in 2010
In December 2010, the Board, upon the recommendation of its Finance Committee, sold its operations in Argentina
(the “Argentine operations”). During the year 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.
Note 4. Costs Associated with Exit or Disposal Activities
Fourth Quarter 2011 Exit Plan
During 2011, the Company announced a plan to rationalize seats in certain U.S. sites and close certain locations in
EMEA (the “Fourth Quarter 2011 Exit Plan”). The details are described below, by segment.
Americas
During 2011, as part of an on-going effort to streamline excess capacity related to the integration of the ICT Group,
Inc. (“ICT”) acquisition and align it with the needs of the market, the Company announced a plan to rationalize
approximately 900 seats in the U.S., some of which were revenue generating, with plans to migrate the associated
revenues to other locations within the U.S. Approximately 300 employees were affected and the Company has
completed the actions associated with the Fourth Quarter 2011 Exit Plan in the Americas.
The major costs 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, 2013 ($1.9 million as of
December 31, 2012). 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 $0.9 million in cash through December 31, 2013 under the Fourth Quarter
2011 Exit Plan in the Americas.
73
The following tables summarize the accrued liability associated with the Americas Fourth Quarter 2011 Exit Plan’s
exit or disposal activities and related charges for the years ended December 31, 2013 and 2012 (none in 2011) (in
thousands):
Lease obligations and facility exit costs ……….
Beginning Accrual
at January 1, 2013
$
682
Charges (Reversals)
for the Year Ended
December 31, 2013
-
$
Cash Payments
Other Non-Cash
Changes
$
(170)
$
-
Ending Accrual at
December 31, 2013
$
512
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
$
(683)
$
-
Ending Accrual at
December 31, 2012
$
682
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.
(1)
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 Fourth Quarter 2011 Exit Plan in EMEA on September 30, 2012.
The major costs 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 severance-related costs estimated at $6.7 million as of December 31, 2013 ($6.7 million as of
December 31, 2012). The Company recorded $0.5 million of the costs associated with these actions as non-cash
impairment charges 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 represents 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 last of which ended in March 2013. The Company has paid $5.9 million in
cash through December 31, 2013 under the Fourth Quarter 2011 Exit Plan in EMEA.
74
The following tables summarize the accrued liability associated with EMEA’s Fourth Quarter 2011 Exit Plan’s exit
or disposal activities and related charges (in thousands):
Lease obligations and facility exit costs ……….
Severance and related costs …………….....……..
Legal-related costs …………….....……………….
Lease obligations and facility exit costs ……….
Severance and related costs …………….....…..
Legal-related costs …………….....……………….
Beginning Accrual
at January 1, 2013
-
$
187
10
197
$
Charges (Reversals)
for the Year Ended
December 31, 2013 (1)
-
$
(56)
-
(56)
$
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
$
$
Cash Payments
-
(8)
(10)
(18)
$
Other Non-Cash
Changes (2)
$
-
8
-
$
8
Ending Accrual at
December 31, 2013
-
$
131
-
131
$
Cash Payments
$
Other Non-Cash
Changes (2)
$
(6)
(5,134)
(91)
(5,231)
$
$
Ending Accrual at
December 31, 2012
-
$
187
10
197
$
(3)
(6)
(1)
(10)
Beginning Accrual
at January 1, 2011
Charges (Reversals)
for the Year Ended
December 31, 2011 (1)
Cash Payments
Other Non-Cash
Changes (2)
Ending Accrual at
December 31, 2011
Lease obligations and facility exit costs ……….
$
-
$
587
$
-
$
(10)
$
577
Severance and related costs …………….....…..
-
5,185
(653)
(62)
4,470
Legal-related costs …………….....……………….
-
$
-
$
21
5,793
$
(8)
(661)
$
-
(72)
$
13
5,060
(1)
(2)
During 2013, the Company reversed accruals related to the final settlement of severance and related costs and legal-related costs for the Netherlands site, which
reduced "General and administrative" costs in the accompanying Consolidated Statement of Operations. During 2012, the Company reversed accruals related to
the final settlement of lease obligations and facility exit costs for the Ireland site, which reduced "General and administrative" costs in the accompanying
Consolidated Statement of Operations. Additionally, during 2012, the Company recorded additional severance and related costs and legal-related costs subsequent
to the charges recorded in 2011 as part of the initiation of the Fourth Quarter 2011 Exit Plan in EM EA.
Effect of foreign currency translation.
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
$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.
Fourth Quarter 2010 Exit Plan
During 2010, in furtherance of the Company’s long-term goals to manage and optimize capacity utilization, the
Company committed to and closed a customer contact management center in the United Kingdom and a customer
contact management center in Ireland, both components of the EMEA segment (the "Fourth Quarter 2010 Exit
Plan"). These actions were substantially completed by January 31, 2011.
The major costs incurred as a result of these actions were facility-related costs (primarily consisting of those costs
associated with the real estate leases), impairments of long-lived assets (primarily leasehold improvements and
equipment) and severance-related costs totaling $2.5 million as of December 31, 2013 ($2.2 million as of December
31, 2012). The Company recorded $0.2 million of the costs associated with these actions as non-cash impairment
charges, while approximately $2.1 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 $1.7 million in cash
through December 31, 2013 under the Fourth Quarter 2010 Exit Plan.
75
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 ……….
$
539
Beginning Accrual
at January 1, 2013
Charges (Reversals)
for the Year Ended
December 31, 2013 (1)
$
318
Cash
Payments
Other Non-Cash
Changes (2)
Ending Accrual
at December
31, 2013
$
(339)
$
20
$
538
Lease obligations and facility exit costs ……….
$
835
$
-
$
(300)
Beginning Accrual
at January 1, 2012
Charges (Reversals)
for the Year Ended
December 31, 2012
Cash
Payments
Other Non-Cash
Changes (2)
$
4
Ending Accrual
at December
31, 2012
$
539
Lease obligations and facility exit costs ……….
$
1,711
Beginning Accrual
at January 1, 2011
Charges (Reversals)
for the Year Ended
December 31, 2011 (1)
$
70
Cash
Payments
$
(886)
Other Non-Cash
Changes (2)
$
(60)
Ending Accrual
at December
31, 2011
$
835
(1)
During 2013, the Company recorded additional lease obligations and facility exit costs for the Ireland site's lease restoration. During 2011, the Company
recorded additional lease obligations and facility exit costs. These costs are included in "General and administrative" costs in the accompanying
Consolidated Statements of Operations.
(2)
Effect of foreign currency translation.
Third Quarter 2010 Exit Plan
During 2010, consistent with the Company’s long-term goals to manage and optimize capacity utilization, the
Company closed or committed to close four customer contact management centers in The Philippines and
consolidated or committed to consolidate leased space in our Wilmington, Delaware and Newtown, Pennsylvania
locations (the "Third Quarter 2010 Exit Plan"). These actions were substantially completed by January 31, 2011.
The major costs incurred as a result of these actions were impairments of long-lived assets (primarily leasehold
improvements) and facility-related costs (primarily consisting of those costs associated with the real estate leases)
estimated at $10.5 million as of December 31, 2013 ($10.5 million as of December 31, 2012), all of which are in the
Americas segment. The Company recorded $3.8 million of the costs associated with these actions as non-cash
impairment charges, while approximately $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 $4.9 million in cash through December 31, 2013 under the Third Quarter 2010 Exit
Plan.
76
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 ……….
Beginning Accrual
at January 1, 2013
$
2,551
Charges (Reversals)
for the Year Ended
December 31, 2013
-
$
Cash Payments
$
(755)
Other Non-Cash
Changes (2)
$
(3)
Ending Accrual at
December 31, 2013
$
1,793
Lease obligations and facility exit costs ……….
Beginning Accrual
at January 1, 2012
$
3,427
Charges (Reversals)
for the Year Ended
December 31, 2012 (1)
$
61
Cash Payments
Other Non-Cash
Changes
$
(937)
$
-
Ending Accrual at
December 31, 2012
$
2,551
Lease obligations and facility exit costs ……….
Beginning Accrual
at January 1, 2011
$
6,141
Charges (Reversals)
for the Year Ended
December 31, 2011 (1)
$
(276)
Cash Payments
$
(2,443)
Other Non-Cash
Changes (2)
$
5
Ending Accrual at
December 31, 2011
$
3,427
(1)
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.
(2)
Effect of foreign currency translation.
ICT Restructuring Plan
As of February 2, 2010, the Company assumed the liabilities of ICT Group, Inc. (“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 table summarizes the accrued liability associated with the ICT Restructuring Plan’s exit or disposal
activities (none in 2013 and 2012) (in thousands):
Lease obligations and facility exit costs ……….
Beginning
Accrual at
January 1,
2011
$
1,462
Charges (Reversals)
for the Year Ended
December 31, 2011 (1)
$
(276)
Cash Payments
$
(1,139)
Other Non-Cash
Changes (2)
$
(47)
Ending Accrual
at December
31, 2011
$
-
(1)
(2)
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.
Effect of foreign currency translation.
77
Restructuring Liability Classification
The following table summarizes the Company’s short-term and long-term accrued liabilities associated with its exit
and disposal activities, by plan, as of December 31, 2013 and 2012 (in thousands):
Americas
Fourth
Quarter 2011
Exit Plan
EMEA
Fourth
Quarter 2011
Exit Plan
Fourth
Quarter
2010 Exit
Plan
Third
Quarter
2010 Exit
Plan
December 31, 2013
Short-term accrued restructuring liability (1) ……
Long-term accrued restructuring liability (2) ………
Ending accrual at December 31, 2013 ……………
136
376
512
$
$
$
$
131
-
131
538
-
538
440
1,353
1,793
$
$
$
$
ICT
Restructuring
Plan
$
-
-
$
-
Total
$
$
1,245
1,729
2,974
December 31, 2012
Short-term accrued restructuring liability (1) ……
Long-term accrued restructuring liability (2) ………
Ending accrual at December 31, 2012 ……………
$
138
544
682
$
$
197
$
448
$
618
$
-
$
1,401
-
197
$
91
539
$
1,933
2,551
$
-
$
-
2,568
3,969
$
(1)
(2)
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.
Note 5. Fair Value
The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC
820 consist of the following (in thousands):
Fair Value Measurements at December 31, 2013 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, 2013
Assets:
M oney market funds and open-end mutual
funds included in "Cash and cash equivalents" ……(1)
$
50,627
$
50,627
$
-
$
-
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:
Long-term debt ……………………………………… (5)
Foreign currency forward and option contracts ………(6)
11
2,240
5,251
11
-
5,251
1,170
80
59,379
$
1,170
-
57,059
$
-
2,240
-
-
$
80
2,320
$
$
98,000
5,063
103,063
$
-
-
-
$
$
$
98,000
5,063
103,063
-
-
-
-
-
$
-
$
-
-
$
-
(1)
(2)
(3)
(4)
(5)
(6)
In the accompanying Consolidated Balance Sheet.
Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.
Included in “Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13, Investments Held in Rabbi T rust.
Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheet.
T he carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. See Note 20, Borrowings.
Included in “Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.
78
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)
Foreign currency forward and option contracts ………(3)
Equity investments held in a rabbi trust
for the Deferred Compensation Plan ………………(4)
Debt investments held in a rabbi trust
for the Deferred Compensation Plan ………………(4)
Guaranteed investment certificates ……………………(5)
Liabilities:
Long-term debt ……………………………………… (6)
Foreign currency forward and option contracts ………(7)
11
1,994
14
3,212
11
-
-
3,212
2,049
80
14,958
$
2,049
-
12,870
$
-
1,994
14
-
-
$
80
2,088
$
$
91,000
974
91,974
-
$
-
-
$
$
$
91,000
974
91,974
-
-
-
-
-
-
$
-
-
$
-
$
-
(1)
(2)
(3)
(4)
(5)
(6)
(7)
In the accompanying Consolidated Balance Sheet.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.
Included in “ Deferred charges and other assets” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheet. See Note 13, Investments Held in Rabbi T rust.
Included in “ Deferred charges and other assets” in the accompanying Consolidated Balance Sheet.
T he carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. See Note 20, Borrowings.
Included in “ Other accrued expenses and current liabilities” in the accompanying Consolidated Balance Sheet. See Note 12, Financial Derivatives.
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as
described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with acquired
businesses, including goodwill, other intangible assets and other long-lived assets. For these assets, measurement at
fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be
impaired. The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities)
subject to the requirements of ASC 820 were not material at December 31, 2012 (none in 2013).
The following table summarizes the total impairment losses related to nonrecurring fair value measurements of
certain assets (no liabilities) subject to the requirements of ASC 820 (in thousands) (none in 2013):
Americas:
Total Impairment (Loss)
Years Ended December 31,
2012
2011
Property and equipment, net (1) …..………………………
$
(355)
$
(1,244)
EM EA:
Property and equipment, net (1) …..………………………
Discontinued Operations:
EM EA - Property and equipment, net (1), (2) …..…………
-
(355)
(474)
(1,718)
$
-
(355)
(843)
(2,561)
$
(1)
See Note 1, Overview and Summary of Significant Accounting Policies,
information regarding the fair value measurement as outlined in Property and Equipment.
for additional
(2) See Note 3, Discontinued Operations, for additional information regarding the impairments
related to discontinued operations.
79
During 2012, the Company determined that certain long-lived assets were no longer being used and were disposed
of resulting in an impairment charge of $0.4 million.
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 4, Costs Associated with Exit
or Disposal Activities, the Company recorded impairment charges of $1.7 million.
Note 6. Goodwill and Intangible Assets
The following table presents the Company’s purchased intangible assets as of December 31, 2013 (in thousands):
Customer relationships ……………………………
Trade name ………………………………………
Non-compete agreements …………………………
Proprietary software ………………………………
Favorable lease agreement …………………………
Gross Intangibles
$
102,774
11,600
1,220
850
449
116,893
$
Accumulated
Amortization
$
(35,873)
(2,803)
(1,009)
(847)
(306)
(40,838)
$
Weighted
Average
Amortization
Period (years)
8
8
2
2
2
8
Net Intangibles
$
66,901
8,797
211
3
143
76,055
$
The following table presents the Company’s purchased intangible assets as of December 31, 2012 (in thousands):
Customer relationships ……………………………
Trade name ………………………………………
Non-compete agreements …………………………
Proprietary software ………………………………
Favorable lease agreement …………………………
Gross Intangibles
104,483
$
11,600
1,229
850
450
118,612
$
Accumulated
Amortization
$
(23,552)
(1,451)
(681)
(810)
(81)
(26,575)
$
Weighted
Average
Amortization
Period (years)
8
8
2
2
2
8
Net Intangibles
80,931
$
10,149
548
40
369
92,037
$
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, 2013, is as follows (in thousands):
Years Ending December 31,
2014 ………………………………………………………………………………
2015 ………………………………………………………………………………
2016 ………………………………………………………………………………
2017 ………………………………………………………………………………
2018 ………………………………………………………………………………
2019 and thereafter …………………………………………………………………
Amount
$
14,495
14,138
14,138
14,138
7,640
11,506
80
Changes in goodwill for the year ended December 31, 2013 consist of the following (in thousands):
Americas ……………
EM EA ………………
January 1, 2013
204,231
$
-
204,231
$
Acquisitions
-
$
-
$
-
Impairments
-
$
-
$
-
Effect of Foreign
Currency
December 31,
2013
$
$
(4,429)
-
(4,429)
199,802
-
199,802
$
$
Changes in goodwill for the year ended December 31, 2012 consist of the following (in thousands):
Americas ……………
EM EA ………………
January 1, 2012
121,342
$
-
121,342
$
Acquisitions (1)
80,766
$
-
80,766
$
Impairments
-
$
-
$
-
(1) See Note 2, Acquisition of Alpine Access, Inc., for further information.
Note 7. Concentrations of Credit Risk
Effect of Foreign
Currency
December 31,
2012
$
$
2,123
-
2,123
204,231
-
204,231
$
$
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets
in which the Company’s services are sold. See Note 12, Financial Derivatives, for a discussion of the Company’s
credit risk relating to financial derivative instruments, and Note 27, Segments and Geographic Information, for a
discussion of the Company’s customer concentration.
Note 8. Receivables, Net
Receivables, net consist of the following (in thousands):
Trade accounts receivable ……………………………………………
Income taxes receivable ………………………………………………
Other …………………………………………………………………
Less: Allowance for doubtful accounts ………………………………
December 31,
2013
$
2012
$
266,048
1,377
2,478
269,903
4,987
264,916
248,281
2,143
2,290
252,714
5,081
247,633
$
$
Allowance for doubtful accounts as a percent of trade receivables …
1.9%
2.0%
Note 9. Prepaid Expenses
Prepaid expenses consist of the following (in thousands):
December 31,
Prepaid maintenance …………………………
Prepaid rent ……………………………………
Prepaid insurance ……………………………
Prepaid other …………………………………
2013
$
2012
$
5,852
3,009
2,631
4,218
15,710
4,625
2,306
1,402
4,037
12,370
$
$
81
Note 10. Other Current Assets
Other current assets consist of the following (in thousands):
December 31,
Deferred tax assets (Note 22)…………………
Financial derivatives (Note 12)………………
Investments held in rabbi trust (Note 13)……
Value added tax certificates (Note 11)…………
Other current assets …………………………
2013
$
2012
$
7,961
2,240
6,421
2,066
1,984
20,672
8,143
1,994
5,261
2,548
2,071
20,017
$
$
Note 11. Value Added Tax Receivables
The VAT receivables balances, and the respective locations in the accompanying Consolidated Balance Sheets, are
presented below (in thousands):
VAT included in:
December 31,
2013
2012
Other current assets (Note 10)…………………
Deferred charges and other assets (Note 15)……
$
$
2,066
5,406
7,472
2,548
7,214
9,762
$
$
During the years ended December 31, 2013, 2012 and 2011, 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,
2012
2013
2011
Write-down of value added tax receivables………
$
143
$
546
$
504
Note 12. Financial Derivatives
Cash Flow Hedges – The Company has derivative assets and liabilities relating to outstanding forward contracts and
options, designated as cash flow hedges, as defined under ASC 815 “Derivatives and Hedging” (“ASC 815”),
consisting of Philippine Peso, Costa Rican Colon, Hungarian Forint and Romanian Leu contracts. These contracts
are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be
adversely affected by changes in exchange rates.
The deferred gains (losses) and related taxes on the Company’s cash flow hedges recorded in “Accumulated other
comprehensive income (loss)” (“AOCI”) in the accompanying Consolidated Balance Sheets are as follows (in
thousands):
December 31, 2013
December 31, 2012
Deferred gains (losses) in AOCI …………………………………
Tax on deferred gains (losses) in AOCI ………………...………
Deferred gains (losses) in AOCI, net of taxes ……….…………
(2,704)
169
(2,535)
$
$
$
$
(512)
(58)
(570)
Deferred gains (losses) expected to be reclassified to
"Revenues" from AOCI during the next twelve months ………
$
(2,704)
82
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the
underlying market price of the forward contracts and options.
Net Investment Hedge – During 2013, the Company entered into foreign exchange forward contracts to hedge its
net investment in a foreign operation, as defined under ASC 815. The Company did not hedge net investments in
foreign operations during 2012 and 2011. The purpose of these derivative instruments is to protect the Company’s
interests against the risk that the net assets of certain foreign subsidiaries will be adversely affected by changes in
exchange rates and economic exposures related to the Company’s foreign currency-based investments in these
subsidiaries.
Non-Designated Hedges – The Company also periodically enters into foreign currency hedge contracts that are not
designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect the
Company’s interests against adverse foreign currency moves pertaining to intercompany receivables and payables,
and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries’ functional
currencies. These contracts generally do not exceed 180 days in duration.
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
Contract Type
Cash flow hedges: (1)
Options:
Philippine Pesos
Forwards:
Philippine Pesos
Costa Rican Colones
Hungarian Forints
Romanian Leis
Net investment hedges: (2)
Forwards:
Euros
Non-designated hedges: (3)
Forwards
As of December 31, 2013
As of December 31, 2012
Notional
Amount in
US D
S ettle Through
Date
Notional
Amount in
US D
S ettle Through
Date
$ 59,000 December 2014
$ 71,000
September 2013
July 2014
63,300
41,600 October 2014
January 2014
550
January 2014
619
5,000 August 2013
60,750 December 2013
4,744
6,895
January 2014
January 2014
32,657
S eptember 2014
-
-
59,207
June 2014
41,799
June 2013
(1)
(2)
(3)
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.
Net investment hedge as defined under ASC 815. Purpose is to protect against the risk that the net assets of certain of
our international subsidiaries will be adversely affected by changes in exchange rates and economic exposures related to our
foreign currency-based investments in these subsidiaries.
Foreign currency hedge contract not designated as a hedge as defined under ASC 815. Purpose is to reduce the effects on
the Company's operating results and cash flows from fluctuations caused by volatility in currency exchange rates,
primarily related to intercompany loan payments and cash held in non-functional currencies.
See Note 1, Overview and Summary of Significant Accounting Policies, for additional information on the
Company's purpose for entering into derivatives not designated as hedging instruments and its overall risk
management strategies.
As of December 31, 2013, the maximum amount of loss due to credit risk that the Company would incur if parties to
the financial instruments that make up the concentration failed to perform according to the terms of the contracts
was $2.2 million, based on the gross fair value of the financial instruments.
83
Master netting agreements exist with each respective counterparty used to transact foreign exchange derivatives.
These agreements allow the Company to net settle transactions of the same currency in a single transaction. In the
event of default by the Company or one of its counterparties, these agreements include a set-off clause that provides
the non-defaulting party the right to net settle all derivative transactions, regardless of the currency and settlement
date. However, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in
the accompanying Consolidated Balance Sheets. Additionally, the Company is not required to pledge nor is it
entitled to receive cash collateral related to these derivative transactions.
The following tables present the fair value of the Company’s derivative instruments included in the accompanying
Consolidated Balance Sheets (in thousands):
Derivative Assets
December 31, 2013
Fair Value
December 31, 2012
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) ……………
Derivatives not designated as hedging instruments under
AS C 815:
Foreign currency forward contracts(1) …………………………
$
862
$
1,080
-
862
1,378
14
1,094
914
Total derivative assets ………………………………………
$
2,240
$
2,008
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 designated as a net investment hedge under
AS C 815:
Derivative Liabilities
December 31, 2013
Fair Value
December 31, 2012
Fair Value
$
2,997
-
$
904
8
2,997
912
Foreign currency forward contracts (3) …………………………
$
1,720
4,717
$
-
912
Derivatives not designated as hedging instruments under
AS C 815:
Foreign currency forward contracts (3) …………………………
346
62
Total derivative liabilities …………………………………
$
5,063
$
974
(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.
84
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, 2013, 2012 and 2011 (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,
2013
2012
2011
2013
2012
2011
2013
2012
2011
Derivatives designated as cash flow hedging
instruments under AS C 815:
Foreign currency forward and option contracts ……… (2,823)
$
$
4,400
$
(1,483)
$
(666)
$
4,156
$
1,853
$
119
$
17
$
2
Derivatives designated as net investment hedging
instruments under AS C 815:
Foreign currency forward contracts
(1,720)
-
-
-
-
-
-
-
-
Foreign currency forward and option contracts ……… (4,543)
$
$
4,400
$
(1,483)
$
(666)
$
4,156
$
1,853
$
119
$
17
$
2
Gain (Loss) Recognized in "Other
income and (expense)" on Derivatives
December 31,
2012
2013
2011
Derivatives not designated as hedging
instruments under AS C 815:
Foreign currency forward contracts …………………… 4,216
$
$
(295)
$
(1,444)
Note 13. 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):
M utual funds ……………………………………………
$
4,749
Cost
Fair Value
6,421
$
Cost
$
4,812
Fair Value
5,261
$
December 31, 2013
December 31, 2012
The mutual funds held in the rabbi trust were 82% equity-based and 18% debt-based as of December 31, 2013. Net
investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2013, 2012 and 2011 consists of the following (in thousands):
2013
$
Years Ended December 31,
2012
$
2011
$
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) …………………………
160
(10)
279
568
997
163
(1)
129
312
603
201
(20)
69
(383)
(133)
$
$
$
85
Note 14. Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
Land …………...……………………………………….
Buildings and leasehold improvements …………………
Equipment, furniture and fixtures ………………………
Capitalized software development costs ………………
Transportation equipment ………………………………
Construction in progress ………………………………
Less: Accumulated depreciation …………………………
2013
$
2012
$
4,144
92,652
287,728
7,752
624
1,909
394,809
277,260
117,549
4,217
75,002
269,069
7,274
698
4,035
360,295
259,000
101,295
$
$
Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the
accompanying Consolidated Balance Sheets as of December 31, 2013 and 2012 was as follows (in thousands):
December 31,
Capitalized internally developed software costs, net ……
2013
$
2,599
2012
$
1,361
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.
Note 15. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
December 31,
Non-current deferred tax assets (Note 22)……………………
Non-current mandatory tax security deposits (Note 22)……
Non-current value added tax certificates (Note 11)……………
Deposits ……………………………………………………..
Other …………………………………………………………
2013
$
2012
$
13,048
17,317
5,406
3,169
4,632
43,572
13,923
14,989
7,214
3,408
4,250
43,784
$
$
86
Note 16. Accrued Employee Compensation and Benefits
Accrued employee compensation and benefits consist of the following (in thousands):
December 31,
Accrued compensation ………………………
Accrued vacation ……………………………
Accrued bonus and commissions ……………
Accrued employment taxes …………………
Other …………………………………………
2013
$
2012
$
32,003
17,055
14,265
12,448
5,293
81,064
25,258
14,709
16,374
10,225
6,537
73,103
$
$
Note 17. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
December 31,
2013
2012
Future service ……………………………………
Estimated potential penalties and holdbacks ……
$
$
25,102
9,923
35,025
25,074
9,209
34,283
$
$
Note 18. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consist of the following (in thousands):
December 31,
Customer deposits ………………………………………………………
Accrued restructuring (Note 4) …………………………………………
Accrued legal and professional fees ……………………………………
Accrued telephone charges ………………………………………………
Accrued roadside assistance claim costs ………………………………
Accrued rent ……………………………………………………………
Foreign currency forward and option contracts (Note 12) ……………
Other ……………………………………………………………………
2013
$
2012
$
2,418
1,245
3,220
1,475
2,341
2,057
5,063
12,574
30,393
7,350
1,401
4,231
1,943
2,288
1,367
966
11,774
31,320
$
$
87
Note 19. Deferred Grants
The components of deferred grants consist of the following (in thousands):
December 31,
2013
2012
$
Property grants ………...………………………
Employment grants ………...……………………
Total deferred grants ………………………
Less: Property grants - short-term (1) ………...…
Less: Employment grants - short-term (1) ………
Total long-term deferred grants (2) ………...
$
6,637
6,643
146
6,789
(6)
(146)
$
7,270
337
7,607
-
-
$
7,607
liabilities"
in the
Included in "Other accrued expenses and current
accompanying Consolidated Balance Sheets.
Included in "Deferred grants" in the accompanying Consolidated Balance
Sheets.
(1)
(2)
Note 20. Borrowings
On May 3, 2012, the Company entered into a $245 million revolving credit facility (the “2012 Credit Agreement”)
with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and
Administrative Agent (“KeyBank”). The 2012 Credit Agreement 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,
2013
2012
Revolving credit facility ……………………………
Less: Current portion ……………………………
Total long-term debt ………………………………
$
98,000
$
$
98,000
$
-
91,000
-
91,000
The 2012 Credit Agreement matures on May 2, 2017 and has no varying installments due.
Borrowings under the 2012 Credit Agreement will bear interest at the rates set forth in the Credit Agreement. 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.
88
In May 2012, the Company paid an underwriting fee of $0.9 million for the 2012 Credit Agreement, which is
deferred and amortized over the term of the loan. In addition, the Company pays a quarterly commitment fee on the
2012 Credit Agreement.
The 2012 Credit Agreement had an average daily utilization of $102.5 million during 2013 and $96.8 million for the
outstanding period during 2012 (none in 2011). During the years ended December 31, 2013 and 2012, the related
interest expense, excluding amortization of deferred loan fees, under our credit agreements was $1.5 million and
$0.5 million, respectively, which represented weighted average interest rates of 1.5% and 1.5%, respectively (none
in 2011).
Note 21. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Consolidated Statements of Changes in Shareholders’ Equity in accordance with
ASC 220 “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):
Balance at January 1, 2011 ………………………
Pre-tax amount ………………………………..
Tax (provision) benefit …………………………
Reclassification of (gain) loss to net income ……
Foreign currency translation ……………………
Balance at December 31, 2011 ……………………
Pre-tax amount ………………………………..
Tax (provision) benefit …………………………
Reclassification of (gain) loss to net income ……
Foreign currency translation ……………………
Balance at December 31, 2012 ……………………
Pre-tax amount ………………………………..
Tax (provision) benefit …………………………
Reclassification of (gain) loss to net income ……
Foreign currency translation ……………………
Balance at December 31, 2013……………………
Foreign
Currency
Translation
Gain (Loss)
13,992
$
(7,613)
-
(389)
5
5,995
9,516
-
570
2
16,083
(3,465)
-
-
133
12,751
Unrealized
(Loss) on Net
Investment
Hedge
Unrealized
Actuarial Gain
(Loss) Related
to Pension
Liability
$
$
Unrealized
Gain (Loss) on
Post
Retirement
Obligation
Total
$
Unrealized
Gain (Loss) on
Cash Flow
Hedging
Instruments
2,146
$
(1,482)
759
(1,855)
(6)
(438)
4,417
(306)
(4,174)
(69)
(570)
(2,704)
449
321
(31)
(2,535)
$
1,189
(184)
34
(55)
1
985
499
(90)
(48)
67
1,413
(136)
16
(41)
(102)
1,150
346
153
-
(40)
-
459
92
-
(56)
-
495
(127)
-
(54)
-
314
$
15,108
(9,126)
793
(2,339)
-
4,436
14,524
(396)
(3,708)
-
14,856
(8,152)
1,067
226
-
7,997
$
$
$
$
$
(2,565)
-
-
-
-
(2,565)
-
-
-
-
(2,565)
(1,720)
602
-
-
(3,683)
89
The following table summarizes the amounts reclassified to net income from accumulated other comprehensive
income (loss) and the associated line item in the accompanying Consolidated Statement of Operations (in
thousands):
Actuarial Gain (Loss) Related to Pension Liability: (1)
Pre-tax amount …………………………………………………………
Tax (provision) benefit …………………………………………………
Reclassification to net income …………………………………………
Gain (Loss) on Cash Flow Hedging Instruments: (2)
Pre-tax amount …………………………………………………………
Tax (provision) benefit …………………………………………………
Reclassification to net income …………………………………………
Gain (Loss) on Post Retirement Obligation: (1)
Pre-tax amount …………………………………………………………
Tax (provision) benefit …………………………………………………
Reclassification to net income …………………………………………
Year Ended
December 31, 2013
$
60
(19)
41
S tatement of Operations Location
Direct salaries and related costs
Income taxes
Revenues
Income taxes
General and administrative
Income taxes
(547)
226
(321)
54
-
54
Total reclassification of gain (loss) to net income ………………
$
(226)
(1) See Note 25, Defined Benefit Pension Plan and Postretirement Benefits, for further information.
(2) See Note 12, Financial Derivatives, for further information.
Except as discussed in Note 22, Income Taxes, earnings associated with the Company’s investments in its
subsidiaries are considered to be indefinitely invested and no provision for income taxes on those earnings or
translation adjustments have been provided.
Note 22. Income Taxes
The income from continuing operations before income taxes includes the following components (in thousands):
Domestic (U.S., state and local) ………………………………………
Foreign ………………………………………………………………
Total income from continuing operations before income taxes ……
5,544
45,781
51,325
(10,430)
55,587
45,157
(14,170)
77,826
63,656
$
$
$
2013
$
Years Ended December 31,
2012
2011
$
$
Significant components of the income tax provision are as follows (in thousands):
Current:
Years Ended December 31,
2012
2013
2011
U.S. federal ………………………………………………...……….
State and local …………………………………………...………….
Foreign ………………………………………………………………
Total current provision for income taxes …………………………
$
881
82
13,464
14,427
$
236
(61)
9,899
10,074
$
(3,446)
-
18,743
15,297
Deferred:
U.S. federal …………………...…………………………………….
State and local ……………...……………………………………….
Foreign ………………………………………………………………
Total deferred provision (benefit) for income taxes ………………
866
-
(1,228)
(362)
(2,846)
-
(2,021)
(4,867)
148
143
(4,246)
(3,955)
Total provision for income taxes …………………………………
$
14,065
$
5,207
$
11,342
90
The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as
follows (in thousands):
2013
$
Years Ended December 31,
2012
$
2011
$
Accrued expenses/liabilities …………………………………………
Net operating loss and tax credit carryforwards ……………………
Depreciation and amortization ………………………………………
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):
$
$
$
2013
$
Years Ended December 31,
2012
$
2011
$
(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
954
8,029
(5,030)
(2,425)
(1,887)
(3)
(362)
17,964
82
(4,686)
1,354
(9,319)
(4)
9,051
4,643
-
(5,020)
14,065
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.
In 2013, the Company executed offshore cash movements to take advantage of The American Taxpayer Relief Act
of 2012 (the “Act”) enacted on January 2, 2013, with retroactive application to January 1, 2012. This Act, which
extended the tax provisions of the Internal Revenue Code Section 954(c)(6) through the end of 2013, permits
continued tax deferral on such movements that would otherwise be taxable immediately in the U.S. While these
cash movements are not taxable in the U.S., related foreign withholding taxes of $3.5 million were included in the
provision for income taxes in the accompanying Consolidated Statements of Operations for the year ended
December 31, 2013.
In 2010, the Company changed its intent to distribute all of the current year and future years’ earnings of a certain
non-U.S. subsidiary to its foreign parent. Withholding taxes of $0.6 million, $0.8 million and $0.9 million are
included in the provision for income taxes in the Consolidated Statements of Operations for 2013, 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 $376.8 million at December 31, 2013, 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.
91
The Company has been granted tax holidays in The Philippines, Colombia, Costa Rica and El Salvador. The tax
holidays have various expiration dates ranging from 2014 through 2028. In some cases, the tax holidays expire
without possibility of renewal. In other cases, the Company expects to renew these tax holidays, but there are no
assurances from the respective foreign governments that they will renew them. This could potentially result in future
adverse tax consequences. The Company’s tax holidays decreased the provision for income taxes by $4.7 million
($0.11 per diluted share), $6.5 million ($0.15 per diluted share) and $7.5 million ($0.17 per diluted share) for the
years ended December 31, 2013, 2012 and 2011, 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,
2013
2012
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
$
Classified as follows:
December 31,
2013
2012
$
$
Other current assets (Note 10) ………………………………………
Deferred charges and other assets (Note 15)…………………………
Current deferred income tax liabilities ………………………………
Other long-term liabilities ………………………………………..
Net deferred tax assets …………………………………………
$
$
8,143
13,923
(92)
(4,679)
17,295
21,305
61,626
559
4,045
(42,664)
104
44,975
(79)
(26,379)
(241)
(114)
(26,813)
18,162
7,961
13,048
(84)
(2,763)
18,162
There are approximately $344.1 million of income tax loss carryforwards as of December 31, 2013, with varying
expiration dates, approximately $160.1 million relating to foreign operations, $8.9 million relating to U.S. federal
operations and $175.1 million relating to U.S. state operations. For U.S. federal purposes, $13.1 million of tax
credits are available for carryforward as of December 31, 2013, with the latest expiration date ending
December 2034. With respect to foreign operations, $135.4 million of the net operating loss carryforwards have an
indefinite expiration date and the remaining $24.7 million net operating loss carryforwards have varying expiration
dates through December 2022. Regarding the U.S. state and foreign aforementioned tax loss carryforwards, no
benefit has been recognized for $175.1 million and $146.2 million, respectively, as it is more likely than not that
these losses will expire without realization of tax benefits.
As of December 31, 2013, the Company had $15.0 million of unrecognized tax benefits, a net decrease of $1.9
million from $16.9 million as of December 31, 2012. Had the Company recognized these tax benefits,
approximately $15.0 million and $16.9 million and the related interest and penalties would favorably impact the
effective tax rate in 2013 and 2012, respectively. The Company does not anticipate that its unrecognized tax benefits
will change in the next twelve months.
92
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income
taxes. The Company had $10.5 million and $10.1 million accrued for interest and penalties as of December 31, 2013
and 2012, respectively. Of the accrued interest and penalties at December 31, 2013 and 2012, $3.8 million and $3.7
million, respectively, relate to statutory penalties. The amount of interest and penalties, net, recognized in the
accompanying Consolidated Statement of Operations for 2013 and 2012 was $(0.4) million and $(0.1) million,
respectively (none in 2011).
The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):
Years Ended December 31,
2012
2011
2013
$
$
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, ...……………
16,897
-
-
(390)
(1,516)
14,991
$
$
17,136
321
(426)
(561)
427
16,897
$
21,036
-
(3,076)
(346)
(478)
17,136
$
(1)
Includes amounts assumed upon acquisition of Alpine on August 20, 2012.
The U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2014
Revenue Proposals” in April 2013. These proposals represent a significant shift in international tax policy, which
may materially impact U.S. taxation of international earnings. The Company continues to monitor these proposals
and is currently evaluating the potential impact on its financial condition, results of operations and cash flows.
The Company is currently under audit in several tax jurisdictions. In April 2012, the Company received an
assessment for the Canadian 2003-2006 audit for which the Company filed a Notice of Objection in July 2012 and
paid a mandatory security deposit. Requests for Competent Authority Assistance were filed with both the Canadian
Revenue Agency and the U.S. Internal Revenue Service for this audit cycle. In July and October 2013, the Company
received reassessments for the 2007-2009 audit, which resulted in additional payments. These payments bring the
total amount of deposits for both audit cycles to $17.3 million and $15.0 million as of December 31, 2013 and 2012,
respectively, and are included in “Deferred charges and other assets” in the accompanying Consolidated Balance
Sheets. In December 2013, the Company filed a Notice of Objection to the 2007-2009 reassessment. Although the
outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved
for these audits and that resolution is 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
The Philippines ………………………………………………………2007, 2009 and 2010
United States …………………………………………………………2011
Tax Year Ended
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, 2013:
Tax Jurisdiction
Canada ……………………………………………………………...…
The Philippines ………………………………………………………
United States …………………………………………………………
Tax Year Ended
2003 to present
2007, 2009 to present
1997 to 1999 (1), 2002-2009 (1) and 2010 to present
(1)
These tax years are open to the extent of the net operating loss and tax credit carryforward amounts.
93
Note 23. Earnings Per Share
Basic earnings per share are based on the weighted average number of common shares outstanding during the
periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the
respective periods and the further dilutive effect, if any, from stock options, stock appreciation rights, restricted
stock, restricted stock units and shares held in a rabbi trust using the treasury stock method.
The numbers of shares used in the earnings per share computation are as follows (in thousands):
Basic:
Weighted average common shares outstanding ……………
42,877
43,105
45,506
Years Ended December 31,
2012
2011
2013
Diluted:
Dilutive effect of stock options, stock appreciation
rights, restricted stock, restricted stock units and
shares held in a rabbi trust ………………………………
Total weighted average diluted shares outstanding ……………
Anti-dilutive shares excluded from the diluted earnings per
share calculation …………………………….………………
48
42,925
43
43,148
101
45,607
42
-
1
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 3.4 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, 2013 ……………………
December 31, 2012 ……………………
December 31, 2011 ……………………
Total Number
of S hares
Repurchased
341
537
3,292
Range of Prices Paid Per S hare
Low
$
$
$
15.61
13.85
12.46
High
$
$
$
16.99
15.00
18.53
Total Cost of
S hares
Repurchased
5,479
$
$
7,908
$
49,993
Note 24. Commitments and Loss Contingency
Lease and Purchase Commitments
The Company leases certain equipment and buildings under operating leases having original terms ranging from one
to twenty years, many with options to cancel at varying points during the lease. The building leases can contain up
to three five-year renewal options. Rental expense under operating leases was as follows (in thousands):
Rental expense ……………………………………………
2013
$
47,365
Years Ended December 31,
2012
$
43,626
2011
$
43,147
94
The following is a schedule of future minimum rental payments required under operating leases that have
noncancelable lease terms as of December 31, 2013 (in thousands):
Amount
2014 ………………………………………………………
2015 ………………………………………………………
2016 ………………………………………………………
2017 ………………………………………………………
2018 ………………………………………………………
2019 and thereafter ………………………………………
Total minimum payments required ……………………
$
35,808
27,850
20,210
17,553
14,342
33,438
149,201
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, 2013
(in thousands):
Amount
$
2014 ………………………………………………………
2015 ………………………………………………………
2016 ………………………………………………………
2017 ………………………………………………………
2018 ………………………………………………………
2019 and thereafter ………………………………………
Total minimum payments required ……………………
$
23,087
5,242
2,741
226
8
-
31,304
Indemnities, Commitments and Guarantees
From time to time, during the normal course of business, the Company may make certain indemnities, commitments
and guarantees under which it may be required to make payments in relation to certain transactions. These include,
but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on
negligence or willful misconduct of the Company and (ii) indemnities involving breach of contract, the accuracy of
representations and warranties of the Company, or other liabilities assumed by the Company in certain contracts. In
addition, the Company has agreements whereby it will indemnify certain officers and directors for certain events or
occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The
indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The
maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has director and officer insurance coverage that limits its exposure
and enables it to recover a portion of any future amounts paid. The Company believes the applicable insurance
coverage is generally adequate to cover any estimated potential liability under these indemnification agreements.
The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum
potential for future payments the Company could be obligated to make. The Company has not recorded any liability
for these indemnities, commitments and guarantees in the accompanying Consolidated Balance Sheets. In addition,
the Company has some client contracts that do not contain contractual provisions for the limitation of liability, and
other client contracts that contain agreed upon exceptions to limitation of liability. The Company has not recorded
any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under which the
Company has or may have unlimited liability.
95
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 25. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The Company sponsors three 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, 2013, the Pension Plans were unfunded. The Company expects to make cash contributions to its
Pension Plans during 2014 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,
2013
$
2012
$
Beginning benefit obligation ……………………………
Service cost ………………………………………………
Interest cost ………………………………………………
Actuarial (gains) losses …………………………………
Effect of foreign currency translation ……………………
Ending benefit obligation ……………………………
1,997
392
137
136
(181)
2,481
$
$
1,860
372
120
(499)
144
1,997
Unfunded status …………………………………………
Net amount recognized ……………………………
$
(2,481)
(2,481)
(1,997)
(1,997)
$
The 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 …………………………
Years Ended December 31,
2012
2013
4.3 - 5.2%
2.0%
5.9%
2.0%
2011
6.3%
3.2%
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.
96
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,
2013
2012
2011
Service cost …………………………………………………
$
392
$
372
$
237
Interest cost …………………………………………………
Recognized actuarial (gains) ………………………………
Net periodic benefit cost ……………………………………
137
(60)
469
120
(46)
446
Unrealized net actuarial (gains), net of tax …………………
Total amount recognized in net periodic benefit cost
and other accumulated comprehensive income (loss) ……
(1,150)
(1,413)
$
(681)
$
(967)
$
(701)
102
(55)
284
(985)
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):
Years Ending December 31,
2014 …………………………………………………
2015 …………………………………………………
2016 …………………………………………………
2017 …………………………………………………
2018 …………………………………………………
2019 - 2023 …………………………………………
Amount
$
10
14
137
69
64
1,048
The Company expects to recognize less than $0.1 million of net actuarial gains as a component of net periodic
benefit cost in 2014.
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,
2013
2012
2011
401(k) plan contributions ………………………………
$
895
$
1,221
$
953
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and
Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral
interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation
included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other
comprehensive income” in the accompanying Consolidated Balance Sheets were as follows (in thousands):
December 31,
2013
2012
Postretirement benefit obligation ………………………
Unrealized gains (losses) in AOCI (1) …………………
$
81
$
72
314
495
(1)
Unrealized gains (losses) are due to changes in discount rates related to the postretirement
obligation.
97
Post-Retirement Defined Contribution Healthcare Plan
On January 1, 2005, the Company established a Post-Retirement Defined Contribution Healthcare Plan for eligible
employees meeting certain service and age requirements. The plan is fully funded by the participants and
accordingly, the Company does not recognize expense relating to the plan.
Note 26. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the 2004 Non-Employee
Director Fee Plan and the Deferred Compensation Plan. The following table summarizes the stock-based
compensation expense (primarily in the Americas), income tax benefits related to the stock-based compensation and
excess tax benefits (deficiencies) (in thousands):
Years Ended December 31,
2013
2012
2011
Stock-based compensation (expense) (1) ……………………………………
Income tax benefit (2) ………………………………………………………
Excess tax benefit (deficiency) from stock-based compensation (3) ………
$
(4,873)
$
(3,467)
$
(3,582)
1,706
(187)
1,213
(292)
1,397
(8)
(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, 2013, 2012 and 2011.
2011 Equity Incentive Plan — The Company’s Board adopted the Sykes Enterprises, Incorporated 2011 Equity
Incentive Plan (the "2011 Plan”) on March 23, 2011, as amended on May 11, 2011 to reduce the number of shares of
common stock available to 4.0 million shares. The 2011 Plan was approved by the shareholders at the May 2011
annual shareholders meeting. The 2011 Plan replaced and superseded the Company’s 2001 Equity Incentive Plan
(the “2001 Plan”), which expired on March 14, 2011. The outstanding awards granted under the 2001 Plan will
remain in effect until their exercise, expiration or termination. The 2011 Plan permits the grant of restricted stock,
stock appreciation rights, stock options and other stock-based awards to certain employees of the Company, and
certain non-employees who provide services to the Company in order to encourage them to remain in the
employment of, or to faithfully provide services to, the Company and to increase their interest in the Company’s
success.
Stock Appreciation Rights – The Board, 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.
SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest one-
third on each of the first three anniversaries of the date of grant, provided the participant is employed by the
Company on such date. The SARs have a term of 10 years from the date of grant. In the event of a change in
control, the SARs will vest on the date of the change in control, provided that the participant is employed by the
Company on the date of the change in control.
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
98
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,
2013
2012
2011
Expected volatility …………………………..……………………………
Weighted-average volatility …………………………………………….…
Expected dividend rate ……………………………………………………
Expected term (in years) ……………………………………………………
Risk-free rate ………………………………………………………………
45.2%
45.2%
0.0%
5.0
0.8%
47.1%
47.1%
0.0%
4.7
0.8%
44.3%
44.3%
0.0%
4.6
2.0%
The following table summarizes SARs activity as of December 31, 2013 and for the year then ended:
S tock Appreciation Rights
S hares (000s)
Outstanding at January 1, 2013………………………………………..……
Granted ……………………………………..………………….…………
865
318
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (000s)
Weighted
Average
Exercise Price
$
-
$
-
Exercised …………………………...………………………………………
(154)
$
-
Forfeited or expired ……………………………………………………….
(66)
$
-
Outstanding at December 31, 2013 ……………………………………
Vested or expected to vest at December 31, 2013 ………………………
Exercisable at December 31, 2013 ………………………………….……
963
963
428
$
-
$
-
$
-
7.5
7.5
6.0
$
4,408
$
4,408
$
1,109
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR
amounts):
Years Ended December 31,
2013
2012
2011
Number of SARs granted …………………………………………………
318
259
215
Weighted average grant-date fair value per SAR ……………………………
$
6.08
$
5.97
$
7.10
Intrinsic value of SARs exercised …………………………………………
$
488
$
-
$
-
Fair value of SARs vested …………………………………………………
$
1,298
$
1,388
$
1,198
The following table summarizes nonvested SARs activity as of December 31, 2013 and for the year then ended:
Nonvested S tock Appreciation Rights
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2013 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
395
318
$
6.74
$
6.08
Vested ……………………………………………………………..…………………………
(178)
$
7.28
Forfeited or expired ……………………………………………..…………………………
-
$
-
Nonvested at December 31, 2013 ………………………………………………...…………
535
$
6.17
99
As of December 31, 2013, there was $2.1 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 Board, 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, 2013 and for the year
then ended:
Nonvested Restricted S hares and RS Us
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2013 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
872
706
$
18.25
$
15.25
Vested ……………………………………………………………..…………………………
(20)
$
18.11
Forfeited or expired ……………………………………………..…………………………
(191)
$
23.55
Nonvested at December 31, 2013 ………………………………………………...…………
1,367
$
15.96
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands,
except per restricted share/RSU amounts):
Years Ended December 31,
2013
2012
2011
Number of restricted shares/RSUs granted …………………………………
706
420
339
Weighted average grant-date fair value per restricted share/RSU …………
$
15.25
$
15.21
$
18.68
Fair value of restricted shares/RSUs vested ………………………………
$
366
$
3,845
$
4,392
As of December 31, 2013, based on the probability of achieving the performance goals, there was $19.0 million of
total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted shares/RSUs
100
granted under the 2011 Plan and 2001 Plan. This cost is expected to be recognized over a weighted average period
of 1.4 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.
The following table summarizes nonvested common stock share award activity as of December 31, 2013 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, 2013 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
13
37
$
17.18
$
16.01
Vested ……………………………………………………………..…………………………
(41)
$
16.38
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2013 ………………………………………………...…………
-
9
$
-
$
16.01
101
The following table summarizes information regarding common stock share awards granted and vested (in
thousands, except per share award amounts):
Years Ended December 31,
2012
2011
2013
Number of share awards granted ……………………………………………
Weighted average grant-date fair value per share award ……………………
Fair value of share awards vested …………………………………………
37
16.01
669
$
$
42
16.15
771
$
$
21
21.83
407
$
$
As of December 31, 2013, there was $0.1 million of total unrecognized compensation costs, net of estimated
forfeitures, related to nonvested common stock share awards granted since March 2008 under the 2004 Fee Plan.
This cost is expected to be recognized over a weighted average period of 0.2 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 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 13, Investments Held in Rabbi Trust). As of December 31, 2013 and 2012,
liabilities of $6.4 million and $5.3 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 $1.6 million and $1.4 million at December 31, 2013 and 2012, respectively, is included in
“Treasury stock” in the accompanying Consolidated Balance Sheets.
The following table summarizes nonvested common stock activity as of December 31, 2013 and for the year then
ended:
Nonvested Common S tock
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2013 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
8
13
$
16.98
$
16.76
Vested ……………………………………………………………..…………………………
(15)
$
16.82
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2013 ………………………………………………...…………
-
6
$
-
$
16.89
The following table summarizes information regarding shares of common stock granted and vested (in thousands,
except per common stock amounts):
Years Ended December 31,
2012
2011
2013
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 …………………………………………
13
16.76
257
1,014
$
$
$
15
15.27
195
459
$
$
$
11
$
18.93
$
169
$
2
102
As of December 31, 2013, there was $0.1 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected
to be recognized over a weighted average period of 2.8 years.
Note 27. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment
comprised of aggregated regional operating segments, which portray similar economic characteristics. The
Company aligns its business into two segments to effectively manage the business and support the customer care
needs of every client and to respond to the demands of the Company’s global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America,
Australia and the Asia Pacific Rim, and provides outsourced customer contact management solutions (with an
emphasis on technical support and customer service) and technical staffing and (2) EMEA, which includes Europe,
the Middle East and Africa, and provides outsourced customer contact management solutions (with an emphasis on
technical support and customer service) and fulfillment services. The sites within Latin America, Australia 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.
103
Information about the Company’s reportable segments is as follows (in thousands):
Americas
EMEA
Other (1)
Consolidated
Year Ended December 31, 2013:
Revenues (2) ………………………………………………………… 1,050,813
Percentage of revenues ………………………………………………
83.2%
$
Depreciation, net (2) …………………………………………………
Amortization of intangibles (2) ………………………………………
$
$
37,818
14,863
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 …………………………………………………………
$
94,006
$
-
$
212,647
16.8%
4,266
$
$
-
$
6,052
$
-
$
(46,531)
(2,202)
(14,065)
$
1,263,460
100.0%
$
$
42,084
14,863
$
53,527
(2,202)
(14,065)
37,260
-
$
37,260
Total assets as of December 31, 2013 …………………………… 1,097,788
$
$
1,409,185
$
(1,556,712)
$
950,261
Year Ended December 31, 2012:
Revenues (2) …………………………………………………………
Percentage of revenues ………………………………………………
$
947,147
84.0%
Depreciation, net (2) …………………………………………………
Amortization of intangibles (2) ………………………………………
$
$
36,494
10,479
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 …………………………………………………………
$
93,580
$
(10,707)
$
180,551
16.0%
$
3,875
$
-
$
5,488
$
(51,289)
(2,622)
(5,207)
$
(820)
-
$
1,127,698
100.0%
$
$
40,369
10,479
$
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, net (2) …………………………………………………
Amortization of intangibles (2) ………………………………………
$
$
41,059
7,961
$
206,125
17.6%
5,052
$
$
-
$
1,169,267
100.0%
$
$
46,111
7,961
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
$
(3,746)
$
(46,446)
(1,879)
(11,342)
$
$
559
$
(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
(1)
(2)
(3)
impairment costs, other income and expense, and income taxes) are shown for purposes of
Other items (including corporate costs,
reconciling to the Company’s consolidated totals as shown in the tables above for the years ended December 31, 2013, 2012 and 2011. T he
accounting policies of the reportable segments are the same as those described in Note 1 to the accompanying Consolidated Financial
Statements. Inter-segment revenues are not material to the Americas and EMEA segment results. T he Company evaluates the performance
of its geographic segments based on revenue and income (loss) from operations, and does not include segment assets or other income and
expense items for management reporting purposes.
Revenues, 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.
104
Total 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):
Amount
Americas……………
EM EA………………
$
162,888
3,513
166,401
$
2013
% of Revenues
12.9%
0.3%
13.2%
Years Ended December 31,
2012
Amount
$
$
130,072
3,018
133,090
% of Revenues
11.5%
0.3%
11.8%
Amount
$
$
129,331
3,343
132,674
2011
% of Revenues
11.1%
0.2%
11.3%
The Company has multiple distinct contracts with AT&T spread across multiple lines of businesses, including a
master services agreement that expires in 2017 and various statements of work, which expire at varying dates
between 2014 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 the Company’s
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 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.
Total revenues from the Company’s next largest client, which was in the financial services vertical market in each of
the years, were as follows (in thousands):
2013
Years Ended December 31,
2012
2011
Next largest client …
$
73,226
Amount
% of Revenues
5.8%
Amount
$
70,311
% of Revenues
6.2%
Amount
$
65,783
% of Revenues
5.6%
The Company’s top ten clients accounted for approximately 45.9%, 47.8% and 45.4% of its consolidated revenues
during the years ended December 31, 2013, 2012 and 2011, respectively.
105
Information about the Company’s operations by geographic location is as follows (in thousands):
Years Ended December 31,
2012
2013
2011
Revenues: (1)
United States …………………………………………
The Philippines ………………………………………
Canada …………………………………………………
Costa Rica ……………………………………………
El Salvador ……………………………………………
Australia ………………………………………………
China …………………………………………………
M exico …………………………………………………
Other …………………………………………………
Total Americas ……………………………………
Germany ………………………………………………
Sweden ………………………………………………
United Kingdom ………………………………………
Romania ………………………………………………
Hungary ………………………………………………
Netherlands ……………………………………………
Other …………………………………………………
Total EM EA ………………………………………
$
388,775
213,132
210,463
101,888
46,301
36,725
25,478
23,701
4,350
1,050,813
77,950
49,953
33,750
14,856
8,525
3,073
24,540
212,647
1,263,460
302,046
225,629
198,585
100,101
46,910
24,633
21,614
23,315
4,314
947,147
73,380
22,229
35,833
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
21,688
23,133
7,425
963,142
76,362
30,072
41,476
9,038
6,695
14,268
28,214
206,125
1,169,267
$
(1)
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.
December 31,
2013
2012
Long-Lived Assets: (1)
United States …………………………………………
Canada …………………………………………………
The Philippines ………………………………………
Costa Rica ……………………………………………
Australia ………………………………………………
El Salvador ……………………………………………
M exico …………………………………………………
Other …………………………………………………
Total Americas ……………………………………
United Kingdom ………………………………………
Sweden ………………………………………………
Germany ………………………………………………
Romania ………………………………………………
Slovakia ………………………………………………
Norway ………………………………………………
Hungary ………………………………………………
Other …………………………………………………
Total EM EA ………………………………………
$
120,759
23,164
17,197
4,759
3,799
2,552
1,902
6,695
180,827
4,158
3,676
2,097
679
666
603
564
334
12,777
193,604
127,010
27,497
11,298
5,355
2,185
2,978
2,511
4,011
182,845
4,712
682
2,556
638
568
442
360
529
10,487
193,332
$
(1)
Long-lived assets include property and equipment, net, and intangibles, net.
106
Goodwill:
December 31,
2013
2012
Americas ……………………………………………
EM EA ………………………………………………
$
199,802
-
199,802
$
204,231
-
204,231
$
$
Revenues for the Company’s products and services are as follows (in thousands):
Outsourced customer contract management services … 1,240,328
Fulfillment services ……………………………………
16,953
Enterprise support services …………………………
6,179
1,263,460
$
$
2013
$
Years Ended December 31,
2012
1,104,442
16,357
6,899
1,127,698
$
$
$
2011
1,145,002
16,717
7,548
1,169,267
Note 28. Other (Expense)
Gains and losses resulting from foreign currency transactions are recorded in “Other (expense)” in the
accompanying Consolidated Statements of Operations during the period in which they occur. Other (expense)
consists of the following (in thousands):
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) ……………...……………………………………
2013
$
Years Ended December 31,
2012
$
2011
$
(5,962)
4,216
-
985
(761)
(2,856)
(295)
(582)
1,200
(2,533)
(749)
(1,444)
-
94
(2,099)
$
$
$
Note 29. Related Party Transactions
In January 2008, the Company entered into a lease for a customer contact management center located in Kingstree,
South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes, the founder,
former Chairman and Chief Executive Officer and the father of Charles Sykes, President and Chief Executive
Officer of the Company. The lease payments on the 20 year lease were negotiated at or below market rates, and the
lease is cancellable at the option of the Company. There are significant penalties for early cancellation which
decrease over time. The Company paid $0.4 million to the landlord during each of the years ended December 31,
2013, 2012 and 2011 under the terms of the lease.
107
Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2013, 2012 and 2011:
(in thousands)
Allowance for doubtful accounts:
Charged
(Credited)
to Costs
and
Expenses
Balance at
Beginning
of Period
Additions
(Deductions) (1)
Balance at
End of
Period
Year ended December 31, 2013 ……………………
Year ended December 31, 2012 ………………………
Year ended December 31, 2011 ………………………
$
5,081
4,304
3,939
483
1,115
450
$
(577)
(338)
(85)
$
4,987
5,081
4,304
Valuation allowance for net deferred tax assets:
Year ended December 31, 2013 …………………… 43,298
Year ended December 31, 2012 ……………………… 38,544
Year ended December 31, 2011 ……………………… 60,091
$
$
(634)
4,754
(17,758)
-
$
-
(3,789)
$
42,664
43,298
38,544
Reserves for value added tax receivables:
Year ended December 31, 2013 ……………………
Year ended December 31, 2012 ………………………
Year ended December 31, 2011 ………………………
$
3,076
2,355
2,338
$
143
546
504
$
(689)
175
(487)
$
2,530
3,076
2,355
(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.
108
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
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.
Dr. LINDA F. MCCLINTOCK-
GrECO
Director
President and
Chief Executive Officer
Age-Less Medicine LLC
President
Age-Less Vitamin & Nutrients
WILLIAM J. MEUrEr
Director
Private Financial Consultant
Director of Eagle Family of Funds
Director of Walter Investment
Management Corporation
Managing Partner (retired)
for Arthur Andersen’s Central
Florida Operations
JAMES (JACK) K. MUrrAy, Jr.
Director
Chairman
Murray Corporation
Chairman
Murray Advisors, Inc.
Chairman, Advisory Board
HealthEdge Investment
Fund II, L.P.
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
7
SYKES.ANNUAL REPORT.2013Corporate Headquarters 400 North Ashley Drive, Suite 2800, Tampa, FL USA 33602 // pHone: (813) 274-1000 // fax: (813) 273-0148 www.sykes.comIndependent audItors Deloitte & Touche LLP // 201 E. Kennedy Boulevard, Suite 1200 // Tampa, FL USA 33602regIstrar 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 20, 2014 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) 221-2222Investor 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 // pHone: (813) 274-1000 Sykes Enterprises, Incorporated // 400 North Ashley Drive, Suite 2800, Tampa Florida 33602-5089
USA 1(800) 867-9537 // International +1(813) 274-1000
www.sykes.com