@
Sykes Enterprises, Incorporated
400 North Ashley Drive, Suite 2800
Tampa, FL 33602, USA
www.sykes.com
Annual Report 2016
SYKES is a global business process outsourcing (BPO) leader in providing comprehensive inbound
customer engagement services to Global 2000 companies, primarily in the communications,
financial services, healthcare, technology, transportation and retail industries. SYKES’ differentiated
end-to-end service platform effectively engages consumers at every touch point in their customer
lifecycle, starting from digital marketing and acquisition to customer support, technical support,
up-sell/cross-sell and retention. Headquartered in Tampa, Florida, with customer contact engagement
centers throughout the world, SYKES provides its services through multiple communication
channels encompassing phone, email, web, chat, social media and digital self-service. Utilizing its
integrated onshore/offshore and virtual at-home agent delivery models, 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
order processing, inventory control, product delivery and product returns handling. For additional
information please visit www.sykes.com.
BOARD OF DIRECTORS
JAMES S. MACLEOD
Chairman of the Board
Chairman and CEO
CoastalSouth Bancshares, Inc.
CARLOS E. EVANS
Director
Board Affiliations:
Goldman Sachs Middle Market BDC
VANESSA C.L. CHANG
Director
Director, EL & EL Investments
Director, Edison International
Director, Transocean Ltd.
Director, American Funds Family and
other funds advised by Capital Group
PAUL L. WHITING
Director
President
Seabreeze Holdings, Inc.
Chief Executive Officer (retired)
Spalding & Evenflo Companies, Inc.
LORRAINE LEIGH LUTTON
Director
Chief Executive Officer
Roper St. Francis Healthcare
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
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
WILLIAM D. MUIR, JR.
Director
Chief Operating Officer
Jabil Circuit, Inc.
CHARLES E. SYKES
Director
(Principal Executive Officer)
President and Chief Executive Officer
Sykes Enterprises, Incorporated
PRINCIPAL OFFICERS
CHARLES E. SYKES
President and Chief Executive Officer
ANDREW J. BLANCHARD
Executive Vice President
and General Manager
JOHN CHAPMAN
Executive Vice President and
Chief Financial Officer
JAMES D. FARNSWORTH
Executive Vice President
and General Manager
JAMES T. HOLDER
Executive Vice President,
General Counsel and Corporate Secretary
JENNA R. NELSON
Executive Vice President,
Human Resources
DAVID L. PEARSON
Executive Vice President
and Chief Information Officer
LAWRENCE R. ZINGALE
Executive Vice President
and General Manager
CORPORATE HEADQUARTERS
400 North Ashley Drive, Suite 2800, Tampa, FL USA 33602 • phone: (813) 274-1000 • fax: (813) 273-0148 • www.sykes.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP • 201 N. Franklin St., Suite 3600, Tampa, FL USA 33602
REGISTRAR AND TRANSFER AGENT
Computershare • P.O. Box 43078, Providence, RI 02940-3078 • (800) 962-4284
SYKES’ shares trade on The NasdaqGS Stock Market under the symbol “SYKE”
ANNUAL MEETING
SYKES’ annual meeting of shareholders will be held at 8:00 a.m. (EDT) • Wednesday, May 24, 2017
The meeting will be held at: Rivergate Tower, 400 N. Ashley Drive, Suite 320, 3rd Floor, Conference Room A, Tampa, FL 33602
INVESTOR INFORMATION
Quarterly Reports on Form 10-Q and the Form 10-K Annual Report filed with the Securities and Exchange Commission
are available on the Company’s website at: http://investor.sykes.com or upon written request to SYKES’ Investor Relations
department in Tampa, Florida, or by contacting:
Subhaash Kumar • Global Vice President, Finance and Investor Relations • phone: (813) 274-1000
Dear Shareholders,
While the topics of artificial intelligence and chatbots – which we’ll discuss in greater
detail later in this letter – generated a lot of curiosity in the customer engagement
industry in 2016, we remained focused on executing our business strategy and
delivering proven solutions to the market. The results:
• We altered the demand trajectory of our business in 2016, with growth outpacing
2015 levels by a wide margin.
• We acquired Clearlink, which delivered solid revenue growth and operating
margin performance right out of the gate.
• We built upon the success of our at-home agent platform in North America to
extend this dynamic solution to Europe, the Middle East and Africa (EMEA). We are
pleased to note that this important rollout went according to plan and is already
bearing fruit.
• We hired new operational leadership to further position us for sustained growth
and margin expansion.
CHARLES E. SYKES
President and CEO
Striking a balance between revenue growth and operating margin expansion is
an art that we have operationalized into science. However, that balance became
skewed significantly in 2016, temporarily blunting our margin performance. Why?
Because the success we enjoyed on many fronts also created some short-term
hurdles in 2016. The combination of heavy seat capacity investments and expansion, aggressive ramp
schedules, longer speed to agent proficiency and higher than anticipated demand weighed on our
operating margins.
JOHN CHAPMAN
Executive VP and CFO
Fortunately, the challenges we faced were isolated to one geographical area, and we’re confident
we have a credible plan for course correction. Also, as we move into 2017, we are well positioned
to capitalize on the strong sales execution of 2016, thanks in part to Clearlink. In short, we believe
we have accurately calibrated our actions and expectations going into 2017. In this letter, we will
provide an overview of our 2016 operating results. We will also discuss trends in the industry and our
positioning relative to those trends. Finally, we will highlight our agenda for 2017.
2016 in Review
A BANNER YEAR FOR BUSINESS DEVELOPMENT
From a business development perspective, 2016 was a banner year. Thanks to our operational
performance, industry reputation and competitive differentiation, we won numerous substantial
opportunities across our vertical markets, including communications, financial services, technology,
healthcare, travel and retail. The most significant wins were in the communications and financial
services verticals.
EVOLVING OPPORTUNITIES IN COMMUNICATIONS
Within communications, there was a nice pick-up in growth, despite market indicators to the contrary. It
is true that global smartphone shipments have slowed sharply, down from 47% growth in 2012 to 1% in
2016, according to a recent estimate by research firm IDC. It is also true that smartphone penetration
SYKES ANNUAL REPORT 2016 | 1
rates are starting to top out. In the U.S., for instance,
smartphone penetration rates are approaching 80% –
up from 45% in early 2012, according to comScore. And
smartphone product cycles are seeing little incremental
innovation. So what’s driving our growth? We are still
seeing opportunities in the wireless space, driven, in
part, by resets in pricing plans and bundles. And wireless is just one part of
the growth equation; there are opportunities within broadband as well. What’s
more, there are other macro growth levers within the communications vertical
¬ in particular, the horizontal and vertical merger and acquisition activity where
there is consolidation among broadband and wireless providers entering
into the media/broadband space and vice versa. This reordering of the industry landscape is creating
opportunities as change leads to a need for customer acquisition, service and retention.
In addition, continued vendor consolidation and increased outsourcing are adding more fuel to
growth within the communications vertical. And with the coming launch of 5G next-generation mobile
networks in the 2017-2018 time frame, we could see an additional catalyst emerging.
EXPANDING OUR ROLE WITH FINANCIAL SERVICES CLIENTS
The financial services vertical saw a major upswing relative to 2015. Growth was robust and was partly
a result of new client wins, particularly with regional banks, thanks to our domain expertise. We also
saw significant growth with existing clients as well as share gains through vendor consolidation, both
in areas of credit cards (bolstered by growth in cash-back reward
cards among players in the credit card industry) and retail banking
(segments such as deposits, online banking, fraud protection, etc.).
Somewhat similar dynamics are also at play in the financial services
vertical as with the communications vertical, as non-bank small
business lenders and new finance technology companies such as SoFi
compete with both traditional banks and credit card providers. The
financial services vertical could see even greater commercial opportunity over the coming years as
interest rates begin their ascent.
Growth was robust
and was partly a result
of new client wins,
particularly with
regional banks, thanks
to our domain expertise.
SEIZING DEMAND IN TECH, TRAVEL AND RETAIL
Within the technology vertical, demand drivers included the continued adoption of Internet of
Things devices, gaming and advanced networking support. Within our travel business, demand was
heightened by the growing popularity of the online travel agency, which is capitalizing on consumer
trends toward spending on experiences, rather than possessions. And finally, our retail vertical
benefited from channel shifts from brick-and-mortar to online as we leveraged our at-home agent
platform to maximum effect.
PUTTING OUR OPERATING MARGINS INTO PERSPECTIVE
As our performance in 2016 illustrates, we again capitalized on the demand backdrop by navigating
the shifts within our key verticals. So why didn’t that growth translate into anticipated operating
margin performance? The reasons are clear. Even though we grew in the aggregate within our 4% to
6% targeted growth range, the pathway to our actual growth was very lopsided and came with some
unanticipated twists.
2 | SYKES ANNUAL REPORT 2016
First, we added significant seat capacity to accommodate that growth. To put it into perspective,
excluding Clearlink, we added approximately 5,300 seats – roughly a 13% increase – the most we
have added in close to a decade. Second, and more noteworthy, close to a third of the net seat count
was focused in several states where we had to ramp up the equivalent of almost four new brick-and-
mortar sites spread across different locations with new management at each site. And finally, despite
our aggressive strategy to fill those seats, actual demand came in much stronger than our clients’
forecasts, which impacted our operational readiness. The convergence of higher than projected
demand amid a steep onboarding curve spread across
various sites and states in the U.S. drove agent attrition and
absenteeism levels. This not only moderated the revenue
growth rate because of higher overall attrition from the
production floor and lower billable utilization of those agents
due to higher absenteeism, but the revenue impact also
weighed on operating margins due to fixed costs of brick-
and-mortar facilities (including rent, depreciation, utilities,
Close to a third of the net seat count
was focused in several states
where we had to ramp up
the equivalent of almost four new
brick-and-mortar sites
spread across different locations
with new management at each site.
etc.) and the additional cost of back-filling seats lost to attrition and absenteeism. Furthermore, in cases
where we were able to accommodate higher than projected demand, we were not able to completely
monetize the demand surge as these accounts were initially priced on an hourly basis. Consequently,
this rise in demand didn’t translate into what could have been even higher revenue growth and strong
operating margins. Instead, our actual 2016 revenues, though strong, were still off by roughly $14
million relative to what we planned, which resulted in an operating margin of 6.3%* (or 7.9% on a non-
GAAP basis; see section titled “Non-GAAP Financial Measures” for an explanation and see Exhibit 1 for
reconciliation) vs. 7.3%** (or 8.5% on a non-GAAP basis) for 2015.
Industry Trends
CUTTING THROUGH THE NOISE
In virtually every shareholder letter, we provide our candid insights regarding trends and attitudes that
are shaping the customer engagement industry in some way. From headline-grabbing technology
solutions to subtle shifts in client strategies, we aim to equip our shareholders
with valuable market intelligence to distinguish fleeting buzzwords from
business-driven advancements. We also intend to show how SYKES is
positioned to capitalize on the trends that matter most.
The discussion around trends has been wide ranging, encompassing offshoring,
vendor consolidation, the at-home agent model and automation to digital
channels (such as email, chat and social media support), omni-channel support,
effortless customer experience and demand generation. Some trends have
gained traction more than others.
OFFSHORING AND EMAIL SUPPORT
Offshoring, which gained momentum in the early 2000s and rode a
strong wave for a decade, has been transformative to the industry.
Email support also captured a lot of mindshare and industry buzz, but
otherwise was slow to gain traction and has had a more muted impact.
We believe what drives the adoption of some trends versus others is
SYKES ANNUAL REPORT 2016 | 3
whether the benefits can be readily quantified from a return on investment (ROI) perspective when
weighed against customer satisfaction (CSAT), effortless customer experience and the embedded
trade-off among all three. Offshoring, as an example, had a demonstrable ROI in terms of tangible cost
savings of around 30% to 50% to our clients against a modest decline in CSAT initially, and, as such,
was adopted rapidly by the industry. On the other hand, the adoption of email as a form of customer
support, which was viewed as a killer app against voice calls, has had a negligible impact on the
industry more than a decade since its introduction. Although email support can be very cost-effective,
and it certainly does augment the channels of digital customer support, it didn’t raise CSAT because it
didn’t necessarily resolve queries faster or reduce the customer effort.
VENDOR CONSOLIDATION
One trend we have talked about numerous times – and it is a
powerful one – is that of vendor consolidation. Increasingly,
clients are streamlining their vendor portfolios to simplify
their supply chain and reduce cost, while driving consistency
in operational performance and net promoter scores. It is
a notable trend that is having a significant impact on the
competitive landscape by shrinking the footprint of relevant
competitors in the industry. In fact, we saw evidence of it in our growth drivers in 2016, across the
telecom, technology and financial services verticals, underscoring that we are a net beneficiary of this
trend.
Increasingly, clients are
streamlining their vendor portfolios
to simplify their supply chain
and reduce cost,
while driving consistency
in operational performance
and net promoter scores.
Even as clients are looking to streamline the number of suppliers, the upshot for our company is that
they are looking for vendors with a deeper set of capabilities. Helping clients monetize their customer
base, for instance, is key. In one example, clients are looking at vendors that have a strong skill set
in cross-selling – such as in billing calls for telecom providers where additional services such as
broadband, more data and home entertainment services are cross-sold. Other compelling channels for
customer acquisition and monetization for our clients involve digital marketing and demand generation
development. Here, our clients are looking to vendors with a suite of capabilities that can support their
end customers through the full lifecycle. We have pushed deeper into this area with the acquisition
of Clearlink, which precisely addresses this need and strengthens our positioning in terms of both
strategic differentiation and market alignment.
OMNI-CHANNEL SUPPORT
One trend that has also generated considerable buzz, and which we have
discussed in detail in the past, is omni-channel support. To put it succinctly,
it hasn’t gained as much traction thus far in the industry itself as it has in
industry publications. Barriers to widespread adoption include the technology
requirements around greater data integration among disparate systems, siloed
organization structures, and the operational challenge of training agents to
interact with customers on multiple channels. According to industry analyst
Forrester Research, only 3% of companies can seamlessly traverse customer
interactions from one channel to another, underscoring our previously stated
view that omni-channel is a long way away from being a major force in the
industry.
4 | SYKES ANNUAL REPORT 2016
CHATBOTS
Finally, a topic that is getting a lot of attention is the
personalization of self-service through chatbots. Some
clients are using self-service chatbots to deal with basic
requests through autoresponders on their websites.
According to Ubisend’s “2016 Mobile Messaging
Report,” chatbots help companies address the needs of the 64%
of consumers who believe a business should be available and
contactable via messaging applications. These requests run the
gamut, such as: What time do you open? Are pets allowed in your
hotel? What is your refund policy? In other words, the chatbots are
a play on convenience and efficiency, akin to a more user-friendly
version of the frequently asked questions on a website.
Given that the use of chatbots is in its infancy and the lay of the land in terms of chatbot solution
providers is extremely fragmented, it is tough to gauge the impact on customer engagement
transactions in the industry – and ultimately, the success of this tool. It is our view that chatbots will
have a place, just as interactive voice response (IVR) systems or websites do, in answering basic
questions. And we are evaluating through partnerships how best to embed chatbots as part of our
offering and go-to-market strategy.
While simple transactions have already been and will continue to be automated – either through the
web when someone uses a search engine, social media, an app or through IVR – we are dealing with
transaction types that are complex in nature, such as billing plans, fraud protection, banking, sales and
service, etc. These are support transactions that will be high
touch in nature for the foreseeable future. Moreover, even as
simple processes have been automated, thus reducing the
number of transactions, the number of minutes per customer
interaction continues to increase along with transaction
complexity. This high-touch service is, ultimately, what drives
growth in our revenue.
Even as simple processes
have been automated, thus reducing
the number of transactions,
the number of minutes per customer
interaction continues to increase
along with transaction complexity.
In the event of a seismic shift in the industry where more complex support transactions become
automated, our investment in Clearlink would serve as a nice counterbalance by helping clients with
revenue generation. In addition, we have made a foray into self-service through the acquisition of Qelp,
and we are already building on that platform by leveraging other aspects of artificial intelligence.
Focus for 2017
RISING TO THE CHALLENGE
When we outlined our focus for 2016 in our previous Annual Report, we talked about significant program
ramps over a very narrow timetable – and we maintained that we were in a state of readiness to handle
the work load. As our results have shown, 2016 did test our operational readiness. Substantially higher
than forecasted demand from both new and existing clients, coupled with a change in the timing and
the nature of programs, led to some workforce challenges – in particular, higher agent attrition and
absenteeism. Even though it tempered our operational momentum, it didn’t dent our conviction in what
we believe is a sustainable level of operating margin performance of 8% to 10%. We believe the factors
SYKES ANNUAL REPORT 2016 | 5
that weighed on our results were discrete in nature and were more a function of timing. Underlying
demand fundamentals remain healthy, and our client relationships are strong. We have made some
changes to our operations, including bringing on new management talent, altering agent support ratios
and instituting performance-based wage adjustments where practical. Ultimately, it is our belief that our
short-term challenges will be resolved, and we will continue to forge ahead.
Since we have a suite of offerings and capabilities that can be leveraged across our verticals, clients,
markets and geographies, we are in a position to sustain our competitive advantage and capitalize
on growth opportunities. We are levered to the growth in the digital economy, thanks to our demand
generation and self-service offerings – which can help our clients both acquire customers through
new channels and help end-customers resolve their issues in a channel of their choice. We have
launched initiatives around data analytics, and we are evaluating artificial intelligence, especially
chatbots, that can help our clients deliver better outcomes for their customers. In addition, we are using
components of our at-home agent infrastructure in unique ways to drive process improvement – which
can accelerate an agent’s speed to proficiency, thus materially enhancing agent productivity and the
efficiency of our model.
In closing, we have the right momentum and understand what actions need to be taken in 2017 to
drive results. But as realists, it doesn’t mean we can discount the power of the unexpected. The macro-
backdrop can get volatile at times. Not to mention, we are seeing pockets of labor market tightness and
some wage pressures that could have an impact on our business. We will continue to manage factors
within our control and mitigate the impact of those beyond our control, which means working with our
clients as partners. We believe we have a value proposition that resonates strongly in the industry. It is
a platform that can capture opportunities and sustain our long-term growth momentum, while unlocking
value for investors.
As always, we would like to thank you – our shareholders, clients, employees and board members. Your
enduring trust and support makes it possible for SYKES to help people, one caring interaction at a time.
CHARLES E. SYKES
President and Chief Executive Officer
JOHN CHAPMAN
Executive Vice President and Chief Financial Officer
*2016 GAAP operating margin was 6.3% compared to a non-GAAP operating margin of 7.9%, which includes 1.5% in adjustments
associated with the add-back of acquisition-related depreciation & amortization of property & equipment and intangible write-ups,
0.3% add-back related to merger and integration costs, both of which were partially offset by a reversal of a gain on contingent
consideration of 0.2%.
**2015 GAAP operating margin was 7.3% compared to a non-GAAP operating margin of 8.5%, which includes 1.2% in adjustments
associated with the add-back of acquisition-related depreciation & amortization of property & equipment and intangible write-ups.
6 | SYKES ANNUAL REPORT 2016
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, 2016
Or
[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For The Transition Period From To
Commission File Number 0-28274
Sykes Enterprises, Incorporated
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
400 N. Ashley Drive, Suite 2800, Tampa, Florida
(Address of principal executive offices)
56-1383460
(IRS Employer
Identification No.)
33602
(Zip Code)
(813) 274-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock $.01 Par Value
Name of each exchange on which registered
NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act (Check one):
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the shares of voting common stock held by non-affiliates of the Registrant computed by reference to the
closing sales price of such shares on the NASDAQ Global Select Market on June 30, 2016, the last business day of the Registrant’s most
recently completed second fiscal quarter, was $1,200,267,356.
As of February 9, 2017, there were 42,894,518 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents ..............................................................................................................
Portions of the Proxy Statement for the year 2017
Annual Meeting of Shareholders .............................................................................
Form 10-K Reference
Part III Items 10–14
TABLE OF CONTENTS
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
Item 16
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 ………………………………………………………
Exhibits and Financial Statement Schedules ………………………………………………….
Form 10-K Summary……………………… ………………………………………………….
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Item 1. Business
General
PART I
Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES,” “our,” “us” or “we”) is a global business
process outsourcing (“BPO”) leader in providing comprehensive inbound customer engagement solutions and
services to Global 2000 companies primarily in the communications, financial services, healthcare, technology,
transportation, retail and other industries. Our differentiated end-to-end solutions and service platform effectively
engages consumers at every touch point in their customer lifecycle, starting from digital marketing and acquisition
to customer support, technical support, up-sell/cross-sell and retention. 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 regions primarily provide customer
engagement services (with an emphasis on inbound technical support, digital marketing and demand generation, and
customer service), which includes customer assistance, healthcare and roadside assistance, technical support, and
product and service sales to our clients’ customers. These services are delivered through multiple communication
channels including phone, e-mail, social media, text messaging, chat and digital self-service. 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, which includes order processing, payment processing, inventory control, product delivery and
product returns handling. (See Note 25, 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 engagement centers across six continents, including North America, South
America, Europe, Asia, Australia and Africa. We deliver cost-effective solutions that enhance the customer service
experience, promote stronger brand loyalty, and bring about high levels of performance and profitability.
SYKES was founded in 1977 in North Carolina and we moved our headquarters to Florida in 1993. In March 1996,
we changed our state of incorporation from North Carolina to Florida. Our headquarters are located at 400 North
Ashley Drive, Suite 2800, Tampa, Florida 33602, and our telephone number is (813) 274-1000.
In April 2016, we completed the acquisition of Clear Link Holdings, LLC (“Clearlink”), pursuant to a definitive
Agreement and Plan of Merger, dated March 6, 2016. We have reflected Clearlink’s operating results in the
accompanying Consolidated Statement of Operations for the period from April 1, 2016 to December 31, 2016.
In July 2015, we completed the acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”), pursuant to
definitive Share Sale and Purchase Agreement, dated July 2, 2015. We have reflected Qelp’s operating results in the
accompanying Consolidated Statements of Operations for the period from July 2, 2015 to December 31, 2015 and
the year ended December 31, 2016.
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 “Company” then “Investor Relations” and then “SEC Filings”) as soon as
reasonably practicable after they are filed with, or furnished to, the SEC.
Industry Overview
The customer engagement solutions and services industry – which includes services such as digital marketing and
demand generation, customer acquisition, customer support and customer retention – is highly fragmented and
significant in size. According to Ovum, an industry research firm, the total number of individuals, or agent positions,
working in the customer engagement services industry worldwide was estimated at roughly 10.2 million in 2016.
With approximately 78% of the customer engagement work done by in-house engagement centers, the number of
agent positions working for outsourcers, such as SYKES, was estimated at 2.2 million in 2016. The outsourced and
total agent positions are forecasted by Ovum to grow at compound annual growth rate of 4.9% and 2.8%,
respectively, from 2016 to 2018. It is estimated that no single outsourcer has more than five percent of the total
agent positions worldwide. Measured in dollar terms, the size of the outsourced portion of the customer engagement
solutions and services industry worldwide was estimated at approximately $72 billion in 2016, according to
3
International Data Corporation (“IDC”), an industry research firm. IDC also estimates that the outsourced portion of
the customer engagement solutions and services industry is expected to grow to approximately $81 billion by 2018,
a compound annual growth rate of 6.1% from 2016 to 2018.
We believe that growth for broader outsourced customer engagement solutions and services will be fueled by the
trend of Global 2000 companies and medium-sized businesses utilizing outsourcers. In today’s marketplace,
companies increasingly are seeking a comprehensive suite of innovative full lifecycle customer engagement
management solutions and services that allow them to acquire customers, enhance the end user’s experience with
their products and services, strengthen and enhance their company brands, maximize the lifetime value of their
customers through retention and up-sell and cross-sell, efficiently and effectively deliver human interactions when
and where 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 technology, continue to make it difficult for companies to cost-effectively
maintain the in-house personnel necessary to handle all of their customer engagement needs.
To address these needs, we offer comprehensive global customer engagement solutions and services that leverage
brick-and-mortar and at-home agent delivery infrastructure as well as digital self-service capabilities. 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 geographies where
companies have access to high-quality customer engagement 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 at-home agent delivery model. In addition, we provide digital self-service customer support that
differentiates our go-to-market strategy as it expands options for companies to best service their customers in their
channel of choice to deliver an “effortless customer experience.” By working in partnership with outsourcers,
companies can ensure that the crucial task of acquiring, growing and retaining 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
Broadly speaking, our value proposition to our clients is that of a trusted partner, which provides a comprehensive
suite of full lifecycle customer engagement solutions and services to Global 2000 companies that drive customer
acquisition, differentiation, brand loyalty and increased lifetime value of end customer relationships. By outsourcing
their customer acquisition and service solutions to us, clients are able to achieve designs of exceptional customer
experience and drive tangible business impact with greater operational flexibility, enhanced revenues, lower
operating costs and faster speed to market, all of which are at the center of our value proposition. At a tactical level,
we deliver on this value proposition through consistent delivery of operational and client excellence. Our business
strategy is to leverage this value proposition in order to capitalize on and increase our share of the large and
underpenetrated addressable market opportunity for customer engagement solutions and services worldwide. We
believe through successful execution of our business strategy, we could generate a healthy level of revenue growth
and drive targeted long-term operating margins. To deliver on our long-term growth potential and operating margin
objectives, we need to manage the key levers of our business strategy, the principles of which 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 engagement 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.
Increasing Share of Seats Within Existing Clients and Winning New Clients. We provide customer engagement
solutions and services to Global 2000 companies. With this large target market, 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 integrate the recently-acquired digital marketing, demand generation and
customer acquisition or sales conversion capabilities of Clearlink and leverage it across our brick-and-mortar and at-
4
home agent delivery platforms both domestically and internationally within our vertical markets mix, 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 retail. These verticals cover various
business lines, including wireless services, broadband, retail banking, credit card/consumer fraud protection, content
moderation, telemedicine and soft and hard goods retailers.
Maximizing Capacity Utilization Rates and Strategically Adding Seat Capacity. Revenues and profitability growth
are 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 our
at-home agent delivery model, we can rationalize underutilized capacity more efficiently and drive capacity
utilization rates.
Broadening At-Home Agent and Brick-and-Mortar 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 both the seat capacity and the at-home agent delivery platform geographically is also important. By
broadening and continuously strengthening our brick-and-mortar global delivery footprint and our at-home agent
delivery platform, we are able to meet both our existing and new clients’ customer engagement needs globally as
they enter new markets. At the end of 2016, our global delivery brick-and-mortar footprint spanned 20 countries
while our at-home agent delivery platform was recently launched in EMEA, building on our existing presence in 40
states and nine provinces within the U.S. and Canada, respectively.
Creating Value-Added Service Enhancements. To improve both revenue and margin expansion, we will continue
to introduce new service offerings and add-on enhancements. Digital marketing and demand generation,
multilingual customer support, digital self-service support and back office services are examples of horizontal
service offerings, while data analytics and process improvement products are examples of add-on enhancements.
Additionally, with the rapid emergence of on-line communities, such as 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.
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 engagement services. We currently
operate in 14 markets.
Continue to Grow Our Business Organically and through Acquisitions. We have grown our customer engagement
solutions and services utilizing a strategy of both internal organic growth and external acquisitions. Our organic
growth and acquisition 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 The Philippines, El
Salvador, Romania and Colombia 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. While the
Alpine Access, Inc. (“Alpine”), Qelp and Clearlink acquisitions are examples of how we used acquisitions to
augment our service offerings and differentiate our delivery model, the ICT Group, Inc. (“ICT”) acquisition is an
example of how we used an acquisition to gain overall size and critical mass in key verticals, clients and
geographies.
Strategic Rationale for the Clearlink Acquisition
We completed the acquisition of Clearlink in April 2016. Clearlink is one of the leading inbound demand generation
and sales conversion platforms serving numerous business-to-consumer and business-to-business clients across
various industries and subsectors, including telecommunications, satellite television, home security and insurance.
Consumers are rapidly adopting and increasing their utilization of digital channels as a preferred method to engage
with brands, whether that engagement is before, during, or after purchase. The acquisition of Clearlink positions us
to capitalize on the trends around the digital customer experience lifecycle, in particular the convergence of
5
customer care and customer acquisition. Combining Clearlink’s digital marketing, demand generation, and sales
conversion model with our post-sales customer care and support capabilities allows us to provide the market with a
unique and differentiated global customer interaction management platform that more effectively engages digital
consumers at every touch point in the customer lifecycle.
Through the acquisition of Clearlink, we further:
•
•
•
•
extended our competitive advantage, thus enabling us to further capitalize on the trend toward vendor
consolidation;
expanded our suite of service offerings that can scale across the global markets, verticals and client
portfolios;
broadened the addressable market opportunity as it enables a greater share of the customer engagement
value chain; and
created more entry points to capture new clients while extending our executive level reach within existing
clients’ organizations.
Services
We specialize in providing comprehensive inbound outsourced customer engagement solutions and services in the
BPO arena on a global basis. These services include digital marketing, demand generation, customer acquisition,
customer support, technical support, up-sell/cross-sell and retention. Our comprehensive customer engagement
solutions and services are provided through two reportable segments — the Americas and EMEA. The Americas
region, representing 83.6% of consolidated revenues in 2016, 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 engagement solutions and services in these locations to support their customer care needs. In addition,
the Americas region also includes revenues from our at-home agent delivery solution, which serves markets in both
the U.S. and Canada. The EMEA region, representing 16.4% of consolidated revenues in 2016, includes Europe, the
Middle East and Africa. See Note 25, 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 engagement solutions and services:
Outsourced Customer Engagement Solutions and Services. Our outsourced customer engagement solutions and
services represented approximately 99.2% of total 2016 consolidated revenues. Each year, we handle over 250
million customer engagements including phone, e-mail, social media, text messaging, chat and digital self-service
support 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 focused around digital marketing, demand
generation, and in-bound sales conversion, as well as inbound and some outbound up-selling of our clients’
products and services.
We provide these services, primarily inbound customer calls, in many languages through our extensive global
network of customer engagement centers. In addition, we augment those in-bound calls with the option of digital
self-service customer support. 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.
6
Fulfillment Services. In Europe, we offer fulfillment services that are integrated with our customer care and
technical support services. Our fulfillment solutions include order processing via the Internet and phone, 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 Engagement Centers. We operate across 20 countries in 74 customer engagement centers, which
breakdown as follows: 20 centers across Europe and Egypt, 26 centers in the United States, four centers in Canada,
three centers in Australia and 21 centers offshore, including the People’s Republic of China, The Philippines, Costa
Rica, El Salvador, India, Mexico, Brazil and Colombia. In addition to our customer engagement centers, we employ
approximately 5,200 at-home customer engagement agents across 40 states in the U.S. and across nine 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 engagement 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 engagement 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 engagement 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 one fulfillment center 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 engagement services.
Enterprise Support Services Office. Our enterprise support services office, located in a metropolitan area in the
United States, provides recruitment services for high-end knowledge workers, a local presence to service major
accounts, and outsourced corporate help desk solutions.
Sales and Marketing
Our sales and marketing objective is to leverage our vertical expertise, global presence, and end-to-end lifecycle of
service offerings to develop long-term relationships with existing and future clients. Our customer engagement
solutions have been developed to help our clients market, acquire, retain and increase the lifetime value of their
customer relationships. Our plans for increasing our visibility and impacting the market include the launch of new
service offerings in digital support and digital marketing, participation in market-specific industry associations, trade
shows and seminars, digital and content marketing to industry leading corporations, and consultative personal visits
and solution designs. We research and publish thought provoking perspectives on key industry issues, and use
forums, speaking engagements, articles and white papers, as well as our website and broad global digital and social
media presence to establish our leadership position in the market.
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
7
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 pre-sales relationship
development for the business development managers. Utilizing best practices from our recent Clearlink acquisition,
we are employing modern methods of search and digital marketing to cultivate interest in our brand and services.
We use a methodical approach to collecting client feedback through quarterly business reviews, annual strategic
reviews, and through our bi-annual Voice of the Client program, which enables us to react to early warning signs,
and quickly identify and remedy challenges. It also is used to highlight our most loyal clients, who we then work
with to provide references, testimonials and joint speaking engagements at industry conferences.
As part of our marketing efforts, we invite existing and potential clients to experience our customer engagement
centers and at-home agent delivery operations, where we can demonstrate the expertise of our skilled staff in
partnering to deliver new ways of growing clients’ revenues, customer satisfaction and retention rates, and thus
profit, through timely, insightful and proven solutions. This forum allows us to demonstrate our capabilities to
design, launch and scale programs. It also allows us to illustrate our best innovations in talent management,
analytics, and digital channels, and how they can be best integrated into a program’s design.
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 Global 2000 corporations, medium-sized businesses and public
institutions, which span the communications, financial services, technology/consumer, transportation and leisure,
healthcare and other industries. Revenue by industry vertical for 2016, as a percentage of our consolidated revenues,
was 37% for communications, 24% for financial services, 18% for technology/consumer, 7% for transportation and
leisure, 5% for healthcare, 3% for retail and 6% for all other verticals, 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):
2016
Amount
$
$
239,033
-
239,033
Years Ended December 31,
2015
Amount
$
$
217,449
3,003
220,452
% of
Revenues
20.8%
1.2%
17.1%
% of
Revenues
19.6%
0.0%
16.4%
2014
Amount
$
$
212,607
3,519
216,126
% of
Revenues
19.9%
1.4%
16.3%
Americas………………
EM EA…………………
We have multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire at varying
dates between 2017 and 2018. 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.
8
Total revenues by segment from our next largest client, which was in the financial services vertical in each of the
years, were as follows (in thousands):
Americas………………
EM EA…………………
2016
Amount
$
$
90,508
-
90,508
% of
Revenues
7.4%
0.0%
6.2%
Years Ended December 31,
2015
Amount
$
62,980
-
62,980
$
% of
Revenues
6.0%
0.0%
4.9%
2014
Amount
$
$
70,255
-
70,255
% of
Revenues
6.6%
0.0%
5.3%
Other than AT&T, total revenues by segment of our clients that each individually represent 10% or greater of that
segment’s revenues in each of the years were as follows (in thousands):
2016
Years Ended December 31,
2015
2014
Amount
$
-
96,115
96,115
$
% of
Revenues
0.0%
40.2%
6.6%
Amount
$
-
68,720
68,720
$
% of
Revenues
0.0%
28.5%
5.3%
Amount
$
-
79,811
79,811
$
% of
Revenues
0.0%
31.1%
6.0%
Americas………………
EM EA…………………
Our top ten clients accounted for approximately 49.2%, 48.5% and 46.8% of our consolidated revenues during the
years ended December 31, 2016, 2015 and 2014, respectively.
Competition
The industry in which we operate is global and, therefore, highly fragmented and extremely competitive. While
many companies provide customer engagement 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
engagement operations. When it is not the in-house operations of a client or potential client, our public and private
direct competition includes 24/7 Customer, Alorica, Arise, Atento, Concentrix, Convergys, Groupe Acticall/Sitel,
iQor, LiveOps, StarTek, Sutherland, Teleperformance, TeleTech, Transcom and Working Solutions, as well as the
customer care arm of such companies as Accenture, Conduent, Infosys, Tech Mahindra and Wipro, among others.
There are other numerous and varied providers of such services, including firms specializing in various CRM
consulting, other customer engagement 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 engagement 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 engagement solutions and services frequently are subject to pricing pressure.
Clients also require outsourcers to be able to provide services in multiple locations. Competition for contracts for
many of our services takes the form of competitive bidding in response to requests for proposal.
Intellectual Property
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®, ALPINE ACCESS®, ALPINE ACCESS UNIVERSITY®,
TALENTSPROUT®, SECURE TALK®, CLEARLINK®, BUYCALLS®, A SECURE LIFE®, and LEADAMP®.
The duration of trademark and service mark registrations varies from country to country but may generally be
9
renewed indefinitely as long as the marks are in use and their registrations are properly maintained. We have a
pending U.S. patent application which relates to a system and method of analysis and recommendation for
distributed employee management and digital collaboration. 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
engagement center. Alpine was also issued U.S. Patent No. 9,100,484 in 2015 which relates to a secure call
environment. Clearlink’s subsidiary, LeadAmp, has a pending U.S. patent application which relates to lead
management software.
Employees
As of January 31, 2017, we had approximately 55,525 employees worldwide, including 44,200 customer
engagement agents handling technical and customer support inquiries at our centers, 5,200 at-home customer
engagement agents handling technical and customer support inquiries, 6,000 in management, administration,
information technology, finance, sales and marketing roles, 25 in enterprise support services and 100 in fulfillment
services. Our employees, with the exception of approximately 500 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 to 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
John Chapman
Lawrence R. Zingale
Andrew J. Blanchard
James D. Farnsworth
Jenna R. Nelson
David L. Pearson
James T. Holder
William N. Rocktoff
Age
54
50
60
59
51
53
58
58
54
Principal Position
President and Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
Executive Vice President and General Manager
Executive Vice President and General Manager
Executive Vice President and General Manager
Executive Vice President, Human Resources
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.
John Chapman, F.C.C.A, joined SYKES in September 2002 as Vice President, Finance, managing the EMEA
finance function and was named Senior Vice President, EMEA Global Region in January 2012, adding operational
responsibility. In April 2014, he was named Executive Vice President and Chief Financial Officer. Prior to joining
SYKES, Mr. Chapman served as financial controller for seven years for Raytheon UK.
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. 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
10
Community Marketing. From February 1980 until May 1997, Mr. Zingale held various senior level positions at
AT&T.
Andrew J. Blanchard joined SYKES in November 2014 as Executive Vice President and General Manager. From
2013 until his joining SYKES, Mr. Blanchard served as Managing Partner at Avasant, a globally ranked third-party
advisory and consulting firm. Prior to 2013, Mr. Blanchard had a 30-year career at Accenture, formerly Andersen
Consulting, working across the organization in various leadership roles; subsequently being named Managing
Director of a new division, which focused on the global customer contact management industry.
James D. Farnsworth joined SYKES in November 2016 as Executive Vice President and General Manager. From
2015 until his joining SYKES, Mr. Farnsworth was President and Chief Executive Officer of Conduit Global, a
business process outsourcing company. From 2014 to 2015, Mr. Farnsworth was Executive Vice President and
General Manager of consulting and professional services. From 2009 to 2014, Mr. Farnsworth was Co-Founder and
Chief Executive Officer of virtualwirks, a professional services firm focused on virtualization of people,
performance and business practices. From 2006 to 2009 and from 1998 to 2003, Mr. Farnsworth was at Teletech
Holdings, a business process outsourcing firm, where he was Senior Vice President and General Manager of Global
Delivery and he was in Operations. From 2004 to 2005, Mr. Farnsworth was at Startek, a business process
outsourcing firm, where he was Senior Vice President of Operations and Client Services. And from 2004 to 2005,
Mr. Farnsworth was Chief Operating Officer of Alpine Access, an at-home agent business process outsourcer.
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, 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.
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 engagement 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
increase, 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 49.2% of our consolidated revenues in 2016. 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 engagement centers and impede our
ability to provide critical services to our clients, thereby subjecting us to liability under our contracts. Additionally,
our business involves the use, storage and transmission of information about our employees, our clients and
customers of our clients. While we take measures to protect the security of, and unauthorized access to, our systems,
12
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 engagement services, we believe no one
company is dominant in the industry. There are numerous and varied providers of our services, including firms
specializing in engagement center operations, temporary staffing and personnel placement, consulting and
integration firms, and niche providers of outsourced customer engagement services, many of whom compete in only
certain markets. Our competitors include both companies that 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 engagement 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 engagement 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 engagement centers in certain geographies poses risks to our operations which
could adversely affect our financial condition.
Although we have engagement 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 engagement
services. Outsourcing means that an entity contracts with a third party, such as us, to provide customer engagement
services rather than perform such services in-house. There can be no assurance that this trend will continue, as
organizations may elect to perform such services themselves. A significant change in this trend could have a
material adverse effect on our business, financial condition and results of operations. Additionally, there can be no
assurance that our cross-selling efforts will cause clients to purchase additional services from us or adopt a single-
source outsourcing approach.
We are subject to various uncertainties relating to future litigation.
We cannot predict whether any material suits, claims, or investigations may arise in the future. Regardless of the
outcome of any future actions, claims, or investigations, we may incur substantial defense costs and such actions
13
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 engagement 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 engagement center operations could affect our business and results of
operations.
Our operations are dependent upon our ability to protect our customer engagement 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 engagement centers fully, or primarily, dedicated to a single
client, instead of spreading the work among existing facilities with idle capacity, negatively affects capacity
utilization. We periodically assess the expected long-term capacity utilization of our contact centers. As a result, we
may, if deemed necessary, consolidate, close or partially close under-performing contact centers to maintain or
improve targeted utilization and margins. There can be no guarantee that we will be able to achieve or maintain
optimal utilization of our contact center capacity.
14
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 financial results.
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 financial results.
Our profitability may be adversely affected if we are unable to maintain and find new locations for customer
engagement 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
engagement 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 engagement 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. Additionally, some of our customer engagement
centers are located in jurisdictions subject to minimum wage regulations, which may result in increased wages in the
future. 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 engagement 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 Dodd-Frank Wall Street Reform and Consumer Protection 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, 2016,
our international operations were conducted from 34 customer engagement centers located in Sweden, Finland,
Germany, Egypt, Scotland, Denmark, Norway, Hungary, Romania, The Philippines, the People’s Republic of China,
India and Australia. Revenues from these international operations for the years ended December 31, 2016, 2015, and
2014, were 36.8%, 40.5%, and 39.9% of consolidated revenues, respectively. We also conduct business from 14
customer engagement centers located in Canada, Colombia, Costa Rica, El Salvador, Mexico and Brazil.
International operations are subject to certain risks common to international activities, such as changes in foreign
15
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 2019 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, the impact
of which is not practicable to estimate due to the inherent complexity of estimating critical variables such as long-
term future profitability, tax regulations and rates in the multi-national tax environment in which we operate. 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. The tax holidays decreased the provision for income taxes by
$3.3 million, $4.0 million and $2.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016, we had cash balances of approximately $243.8 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 related to investments in foreign subsidiaries is not practicable due to the inherent
complexity of the multi-national tax environment in which we operate.
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, Brazil and Colombia, and while we have operated in global delivery markets since 1996, there can be no
assurance that we will be able to successfully conduct and expand such operations, and a failure to do so could have
a material adverse effect on our business, financial condition, and results of operations. The success of our offshore
operations will be subject to numerous factors, some of which are beyond our control, including general and
regional economic conditions, prices for our services, competition, changes in regulation and other risks. In addition,
as with all of our operations outside of the United States, we are subject to various additional political, economic and
market uncertainties (see “Our international operations and expansion involve various risks”). Additionally, a
change in the political environment in the United States or the adoption and enforcement of legislation and
regulations curbing the use of offshore customer engagement 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
16
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 engagement centers typically seat hundreds of employees in one location. Accordingly, an outbreak
of a contagious infection in one or more of the markets in which we do business may result in significant worker
absenteeism, lower asset utilization rates, voluntary or mandatory closure of our offices and delivery centers, travel
restrictions on our employees, and other disruptions to our business. Any prolonged or widespread health epidemic
could severely disrupt our business operations and have a material adverse effect on our business, financial
condition and results of operations.
Risks Related to Our Business 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.
17
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;
incurring additional indebtedness; and
in the case of foreign acquisitions, the need to integrate operations across different cultures and languages
and to address the particular economic, currency, political, and regulatory risks associated with specific
countries.
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.
If our goodwill or amortizable intangible assets become impaired, we could be required to record a significant
charge to earnings.
We recorded substantial goodwill and amortizable intangible assets as a result of the ICT, Alpine, Qelp and
Clearlink acquisitions. We review our goodwill and amortizable intangible assets for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable. We assess whether there has been an
impairment in the value of goodwill at least annually. Factors that may be considered a change in circumstances
indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include
declines in stock price, market capitalization or cash flows and slower growth rates in our industry. We could be
required to record a significant charge to earnings in our financial statements during the period in which any
impairment of our goodwill or amortizable intangible assets were determined, negatively impacting our results of
operations.
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 engagement 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 engagement 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 extensive 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, 2016 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 consist 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
engagement 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, 2016, excluding centers we have exited, we operated one fulfillment location and 74 multi-
client centers. Our multi-client centers were located in the following countries:
Americas
Australia …………………………
Brazil ………………………………
Canada ……………………………
Colombia …………………………
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 …………………………
Norway ……………………………
Romania …………………………
Scotland …………………………
Sweden ……………………………
Total EMEA centers ……………
Total centers …………………
Multi-Client
Centers
3
2
4
1
5
1
2
1
3
6
26
54
1
1
1
5
1
1
3
2
5
20
74
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. At December 31, 2016, our centers, taken as a whole, were utilized at average capacities
of approximately 75% and were capable of supporting a higher level of market demand.
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.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity 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 intraday sale prices per share of our
common stock as quoted on the NASDAQ Global Select Market.
High
Low
Year Ended December 31, 2016:
Fourth Quarter ……………………………… 30.00
Third Quarter ……………………………… 31.37
Second Quarter ……………………………… 30.82
First Quarter ………………………………… 30.76
$
Year Ended December 31, 2015:
Fourth Quarter ……………………………… 33.00
Third Quarter ……………………………… 26.00
Second Quarter ……………………………… 26.04
First Quarter ………………………………… 24.91
$
$
25.77
26.00
27.22
27.36
$
24.91
22.48
23.59
22.02
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 1, 2017, there were approximately 840 holders of record of our common stock and we estimate there
were approximately 9,600 beneficial owners.
Below is a summary of stock repurchases for the quarter ended December 31, 2016 (in thousands, except average
price per share).
Period
Total
Number of
S hares
Purchased (1)
October 1, 2016 - October 31, 2016 …………
November 1, 2016 - November 30, 2016 ………
December 1, 2016 - December 31, 2016 ………
Total …………………………………………
-
-
250
250
Average
Price
Paid Per
S hare
$
-
$
-
$
28.08
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
-
-
250
250
4,998
4,998
4,748
4,748
(1)
All shares purchased as part of the repurchase plan publicly announced on August 18, 2011, as amended on March 16,
2016, which allows for a total repurchase of 10.0 million shares. T he 2011 Share Repurchase Plan has no expiration date.
21
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 engagement centers, customer care businesses, have similar business models to SYKES, and are
those most commonly compared to SYKES by industry analysts following SYKES. This graph assumes that $100
was invested on December 31, 2011 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)
SYKES
NASDAQ Computer and
Data Processing Index
$350
$300
$250
NASDAQ
Telecommunications Stocks
$200
Russell 2000 Index
S&P Smallcap 600 Index
SYKES Peer Group
$150
$100
$50
$0
SYKES
NASDAQ Computer and Data Processing
Index
NASDAQ Telecommunications Stocks
Russell 2000 Index
S&P Smallcap 600 Index
SYKES Peer Group
2011
100.00
2012
97.19
2013
139.27
2014
149.87
2015
196.55
2016
184.29
100.00
113.93
164.04
175.40
229.99
250.05
100.00
100.00
100.00
100.00
105.48
116.35
116.33
136.62
134.26
161.52
164.38
201.66
149.72
169.42
173.84
213.50
141.79
161.95
170.41
260.37
166.73
196.45
215.67
297.80
SYKES Peer Group
Convergys Corp.
StarTek, Inc.
TeleTech Holdings, Inc.
Teleperformance
Exchange & Ticker Symbol
NYSE: CVG
NYSE: SRT
NASDAQ: TTEC
NYSE Euronext: RCF
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.
22
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. 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)
2016
2015
2014
2013
2012
Years Ended December 31,
Revenues ………………………………………………………… 1,460,037
Income from continuing operations (2,3,4,5,6,7,8) ……………………
92,248
Income from continuing operations, net of taxes (2,3,4,5,6,7,8) ………
62,390
(Loss) from discontinued operations, net of taxes (8) ……..….….
(Loss) on sale of discontinued operations, net of taxes (9) …….…
Net income …………………………………..……………………
-
62,390
$
-
$
1,286,340
$
1,327,523
$
1,263,460
$
1,127,698
94,264
68,597
-
-
68,597
79,555
57,791
-
-
57,791
53,527
37,260
-
-
37,260
47,779
39,950
(820)
(10,707)
28,423
Net Income (Loss) Per Common S hare: (1)
Basic:
Continuing operations (2,3,4,5,6,7)………………………………
Discontinued operations (8,9) …………………………………
Net income (loss) per common share …………………………
1.49
-
1.49
$
$
$
$
$
1.64
-
1.64
1.36
-
1.36
0.87
-
0.87
0.93
(0.27)
0.66
$
$
$
$
$
Diluted:
Continuing operations (2,3,4,5,6,7)………………………………
Discontinued operations (8,9) …………………………………
Net income (loss) per common share …………………………
$
1.48
-
1.48
$
$
1.62
$
1.35
$
0.87
$
0.93
-
1.62
$
-
1.35
$
-
0.87
$
(0.27)
0.66
$
Weighted Average Common S hares: (1)
Basic ………………………………………………………………
Diluted ……………………………………………………………
41,847
42,239
41,899
42,447
42,609
42,814
42,877
42,925
43,105
43,148
Balance S heet Data: (1,10)
Total assets ……………………………………………………… 1,236,403
Long-term debt ………………………………………………..
267,000
$
Shareholders' equity ………………………………………………
724,522
$
947,772
$
944,500
$
950,261
$
908,689
70,000
678,680
75,000
658,218
98,000
635,704
91,000
606,264
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
T he amounts for 2016 include the Clearlink acquisition completed on April 1, 2016. T he amounts for 2016 and 2015 include the Qelp acquisition
completed on July 2, 2015. See Note 2, Acquisitions, for further information. T he amounts for 2016, 2015, 2014, 2013 and 2012 include the Alpine
acquisition completed on August 20, 2012.
T he amounts for 2016 include $4.6 million in Clearlink acquisition-related costs, a $2.3 million net gain on contingent consideration, $0.8 million in
interest accretion on contingent consideration and a $0.3 million net loss on disposal of property and equipment.
T he amounts for 2015 include a $0.9 million net gain on insurance settlement, $0.6 million loss on liquidation of a foreign subsidiary, $0.5 million in Qelp
acquisition-related costs, $0.4 million in interest accretion on contingent consideration and a $0.4 million net loss on disposal of property and equipment.
T he amounts for 2014 include a $2.0 million net gain on disposal of property and equipment primarily due to the sale of the land and building in Bismarck,
North Dakota and a $0.1 million impairment of long-lived assets.
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 net gain on insurance settlement and a $0.4 million impairment of long-lived assets.
T he amounts for 2014, 2013 and 2012 include $(0.3) million, $0.3 million and $1.8 million, respectively, related to the Exit Plans. See Note 3, Costs
Associated with Exit or Disposal Activities, for further information.
T he amount includes the operations in Spain which were sold in 2012.
T he amount includes the gain (loss) on sale of the operations in Spain in 2012.
(10) T he Company has not declared cash dividends per common share for any of the five years presented.
23
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, 2016 (“2016”) to the year ended December 31, 2015 (“2015”), and 2015 to
the year ended December 31, 2014 (“2014”).
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, 2016 in Item 1.A., “Risk Factors.”
Executive Summary
We provide comprehensive inbound customer engagement solutions and services to Global 2000 companies
primarily in the communications, financial services, technology/consumer, transportation and leisure, healthcare,
retail and other industries. We serve our clients through two geographic operating regions: the Americas (United
States, Canada, Latin America, Australia and the Asia Pacific Rim) and EMEA (Europe, the Middle East and
Africa). Our Americas and EMEA groups primarily provide customer engagement services (with an emphasis on
inbound technical support, digital marketing and demand generation, and customer service), which include customer
assistance, healthcare and roadside assistance, technical support, and product and service sales to our clients’
customers. These services, which represented 99.2% of consolidated revenues in 2016, are delivered through
multiple communication channels encompassing phone, e-mail, social media, text messaging, chat and digital self-
service. 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, which includes order processing, 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 engagement 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.
Interest income primarily relates to interest earned on cash and cash equivalents.
Interest (expense) includes interest on outstanding borrowings, commitment fees charged on the unused portion of
our revolving credit facility and contingent consideration, as more fully described in this Item 7, under “Liquidity
and Capital Resources.”
24
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 Clearlink
In April 2016, we completed the acquisition of Clear Link Holdings, LLC (“Clearlink”), to expand our suite of
service offerings while creating differentiation in the marketplace, broadening our addressable market opportunity
and extending executive level reach within our existing clients’ organization. We refer to such acquisition herein as
the “Clearlink acquisition.”
The total purchase price of $207.9 million was funded by borrowings under our existing credit facility.
The results of operations of Clearlink have been reflected in the accompanying Consolidated Statement of
Operations since April 1, 2016.
Acquisition of Qelp
In July 2015, we completed the acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”), to further
broaden and strengthen our service portfolio around digital self-service customer support and extend our reach into
adjacent, but complementary, markets. We refer to such acquisition herein as the “Qelp acquisition.”
The total purchase price of $15.8 million was funded by $9.8 million in cash on hand and contingent consideration
with a fair value of $6.0 million as of July 2, 2015.
The results of operations of Qelp have been reflected in the accompanying Consolidated Statements of Operations
since July 2, 2015.
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)
2016
2015
Years Ended December 31,
2016
$ Change
2014
2015
$ Change
Revenues ……………………………………………………… 1,460,037
$
$
1,286,340
$
173,697
$
1,327,523
$
(41,183)
Operating expenses:
Direct salaries and related costs ……………………………
General and administrative …………………………………
Depreciation, net ……………………………………………
Amortization of intangibles …………………………………
Net (gain) loss on disposal of property and equipment ……
947,677
351,408
49,013
19,377
314
Total operating expenses ………………………………… 1,367,789
Income from operations ……………………………………
92,248
Other income (expense):
Interest income ……………………………………………
Interest (expense) …………………………………………
Other (expense) ……………………………………………
Total other income (expense) ……………………………
Income before income taxes ……………………………………
Income taxes …………………………………………………
607
(5,570)
1,599
(3,364)
88,884
26,494
836,516
297,257
43,752
14,170
381
1,192,076
94,264
668
(2,465)
(2,484)
(4,281)
89,983
21,386
111,161
54,151
5,261
5,207
(67)
175,713
(2,016)
(61)
(3,105)
4,083
917
(1,099)
5,108
892,110
298,129
45,363
14,396
(2,030)
1,247,968
79,555
958
(2,011)
(1,343)
(2,396)
77,159
19,368
(55,594)
(872)
(1,611)
(226)
2,411
(55,892)
14,709
(290)
(454)
(1,141)
(1,885)
12,824
2,018
Net income ……………………………………………………
$
62,390
$
68,597
$
(6,207)
$
57,791
$
10,806
25
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,
2015
2016
2014
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 ……
Income from operations ………………………………………
Interest income ………………………………………………
Interest (expense) ……………………………………………
Other income (expense) ………………………………………
Income before income taxes ………………………….……
Income taxes …………………………………………………
Net income ……………………………………………………
100.0%
64.9
24.1
3.4
1.3
0.0
6.3
0.0
(0.4)
0.2
6.1
1.8
4.3%
2016 Compared to 2015
Revenues
Years Ended December 31,
2016
2015
(in thousands)
Americas …………………………… 1,220,818
EM EA ………………………………
239,089
Other …………………………………
130
Consolidated ……………………..
1,460,037
Amount
$
$
% of
Revenues
83.6%
16.4%
0.0%
100.0%
$
Amount
1,045,415
240,826
99
1,286,340
$
100.0%
65.0
23.1
3.4
1.1
0.0
7.4
0.0
(0.2)
(0.2)
7.0
1.7
5.3%
% of
Revenues
81.3%
18.7%
0.0%
100.0%
100.0%
67.2
22.5
3.4
1.1
(0.2)
6.0
0.1
(0.2)
(0.1)
5.8
1.5
4.3%
$ Change
$
$
175,403
(1,737)
31
173,697
Consolidated revenues increased $173.7 million, or 13.5%, in 2016 from 2015.
The increase in Americas’ revenues was primarily due to Clearlink acquisition revenues of $123.3 million, higher
volumes from existing clients of $92.9 million and new client sales of $8.5 million, partially offset by end-of-life
client programs of $36.6 million and the negative foreign currency impact of $12.7 million. Revenues from our
offshore operations represented 41.2% of Americas’ revenues, compared to 44.5% in 2015.
The decrease in EMEA’s revenues was primarily due to end-of-life client programs of $8.2 million and the negative
foreign currency impact of $8.1 million, partially offset by higher volumes from existing clients of $11.0 million and
new client sales of $3.6 million.
On a consolidated basis, we had 47,700 brick-and-mortar seats as of December 31, 2016, an increase of 6,600 seats
from 2015. Included in this seat count are 1,300 seats associated with Clearlink. This increase in seats, net of
Clearlink additions, was primarily due to seat additions to support higher projected demand. The capacity utilization
rate on a combined basis was 75% in 2016, compared to 79% in 2015. This decrease was due to a significant
increase in the seat count related to projected client demand.
On a geographic segment basis, 41,200 seats were located in the Americas, an increase of 6,100 seats from 2015,
and 6,500 seats were located in EMEA, an increase of 500 seats from 2015. The capacity utilization rate for the
Americas in 2016 was 74%, compared to 79% in 2015, down primarily due to seat additions for higher projected
demand. The capacity utilization rate for EMEA in 2016 was 80%, compared to 85% in 2015, down primarily due
to lower demand in certain existing clients, certain end-of-life client programs and the rationalization of seats in a
highly utilized center due to a planned program expiration. We strive to attain a capacity utilization of 85% at each
of our locations.
26
Excluding Clearlink, we added 7,000 seats on a gross basis in 2016, with total seat count on a net basis for the full
year increasing by 5,300 in 2016 versus 2015.
Direct Salaries and Related Costs
Years Ended December 31,
2016
2015
(in thousands)
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
Amount
$
$
779,183
168,494
947,677
% of
Revenues
63.8%
70.5%
64.9%
Amount
$
$
664,976
171,540
836,516
% of
Revenues
63.6%
71.2%
65.0%
$ Change
$
$
114,207
(3,046)
111,161
Change in % of
Revenues
0.2%
-0.7%
-0.1%
The increase of $111.2 million in direct salaries and related costs included a positive foreign currency impact of
$13.2 million in the Americas and a positive foreign currency impact of $5.2 million in EMEA.
The increase in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to
higher customer-acquisition advertising costs of 2.3% in connection with Clearlink’s operations and higher
recruiting costs of 0.2%, partially offset by lower compensation costs of 1.3% driven by Clearlink’s operations
which has lower direct labor costs relative to our mix of business in the prior period, lower communication costs of
0.4%, lower auto tow claim costs of 0.3% and lower other costs of 0.3%.
The decrease in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to
lower fulfillment materials costs of 2.2% driven by lower demand in an existing client program and lower postage
costs of 0.6%, partially offset by higher compensation costs of 2.0% driven by a decrease in agent productivity
principally within the technology vertical in the current period and higher other costs of 0.1%.
General and Administrative
Years Ended December 31,
2016
2015
(in thousands)
Americas ……………………………
EM EA ………………………………
Other …………………………………
Consolidated ……………………..
Amount
$
240,517
46,639
64,252
351,408
$
% of
Revenues
19.7%
19.5%
-
24.1%
Amount
$
192,933
49,025
55,299
297,257
$
% of
Revenues
18.5%
20.4%
-
23.1%
$ Change
$
47,584
(2,386)
8,953
54,151
$
Change in % of
Revenues
1.2%
-0.9%
-
1.0%
The increase of $54.2 million in general and administrative expenses included a positive foreign currency impact of
$3.7 million in the Americas and a positive foreign currency impact of $2.0 million in EMEA.
The increase in Americas’ general and administrative expenses, as a percentage of revenues, was primarily
attributable to higher compensation costs of 0.9% and higher other costs of 0.5%, partially offset by a reduction in
technology costs of 0.2% allocated from corporate.
The decrease in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily
attributable to a gain on settlement of Qelp’s contingent consideration of 1.1%, lower facility-related costs of 0.6%
and lower other costs of 0.2%, partially offset by higher compensation costs of 0.6%, higher consulting costs of
0.2% and higher recruiting costs of 0.2%.
The increase of $9.0 million in Other general and administrative expenses, which includes corporate and other costs,
was primarily attributable to higher merger and integration costs of $4.0 million, higher compensation costs of $2.6
million, a reduction in technology costs of $1.9 million allocated to the Americas, higher software maintenance costs
of $0.5 million and higher consulting costs of $0.3 million, partially offset by lower other costs of $0.3 million.
27
Depreciation, Amortization and Net (Gain) Loss on Disposal of Property and Equipment
(in thousands)
Depreciation, net:
Years Ended December 31,
2016
2015
Amount
% of
Revenues
Amount
% of
Revenues
$ Change
Change in % of
Revenues
Americas ……………………………
EM EA ………………………………
Other …………………………………
Consolidated ……………………..
Amortization of intangibles:
Americas ……………………………
EM EA ………………………………
Other …………………………………
Consolidated ……………………..
$
$
$
$
42,436
4,532
2,045
49,013
18,329
1,048
-
19,377
Net (gain) loss on disposal of property
and equipment:
Americas ……………………………
EM EA ………………………………
Other …………………………………
Consolidated ……………………..
222
(4)
96
314
3.5%
1.9%
-
3.4%
1.5%
0.4%
-
1.3%
0.0%
0.0%
-
0.0%
$
$
37,842
4,559
1,351
43,752
$
13,648
522
-
$
14,170
573
(156)
(36)
381
3.6%
1.9%
-
3.4%
1.3%
0.2%
-
1.1%
0.1%
-0.1%
-
0.0%
$
$
$
$
4,594
(27)
694
5,261
4,681
526
-
5,207
(351)
152
132
(67)
$
$
$
$
$
$
-0.1%
0.0%
-
0.0%
0.2%
0.2%
-
0.2%
-0.1%
0.1%
-
0.0%
The increase in depreciation was primarily due to new depreciable fixed assets placed into service supporting site
expansions as well as the addition of depreciable fixed assets acquired in conjunction with the April 2016 Clearlink
acquisition, partially offset by certain fully depreciated fixed assets.
The increase in amortization was primarily due to the addition of intangible assets acquired in conjunction with the
April 2016 Clearlink acquisition and the July 2015 Qelp acquisition, partially offset by certain fully amortized
intangible assets.
Other Income (Expense)
(in thousands)
Interest income ………………………………………………………………..………………
Years Ended December 31,
2016
2015
$
607
$
668
$ Change
$
(61)
Interest (expense) ……………………………………………...……………………………
$
(5,570)
$
(2,465)
$
(3,105)
Other income (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) ……………...……………………………………
$
$
$
3,348
(2,270)
-
521
1,599
(2,924)
1,374
(647)
(287)
(2,484)
6,272
(3,644)
647
808
4,083
Total other income (expense) ……………………………………………………………
$
$
$
Interest income remained consistent with the prior year.
The increase in interest (expense) was primarily due to $216.0 million in borrowings used to acquire Clearlink in
April 2016.
The (loss) on liquidation of foreign subsidiaries in 2015 was due to the substantial liquidation of operations in a
foreign entity. The increase in other miscellaneous income (expense) was primarily due to the net investment
income (losses) related to the investments held in rabbi trust. See Note 11, Investments Held in Rabbi Trust, of
“Notes to Consolidated Financial Statements” for further information.
28
Income Taxes
(in thousands)
Income before income taxes …………………………………………………………………
Income taxes …………………………………………………………..………………………
Years Ended December 31,
2016
2015
$
$
$
$
88,884
26,494
89,983
21,386
$ Change
$
$
(1,099)
5,108
% Change
Effective tax rate …………………………………………………………..…………………
29.8%
23.8%
6.0%
The increase in the effective tax rate in 2016 compared to 2015 is primarily due to the recognition in the prior period
of a $2.2 million previously unrecognized tax benefit, inclusive of penalties and interest, arising from statute of
limitations expirations and a $1.3 million reversal of a valuation allowance on deferred tax assets where it is more
likely than not the assets will be realized due to the current financial position and results of operations for the current
and preceding years. The increase in the effective tax rate was also affected by several additional factors, including
increases in state taxation along with shifts in earnings among the various jurisdictions in which we operate, none of
which are individually material.
2015 Compared to 2014
Revenues
Years Ended December 31,
2015
2014
(in thousands)
Americas …………………………… 1,045,415
EM EA ………………………………
240,826
Other …………………………………
99
Consolidated ……………………..
1,286,340
Amount
$
$
% of
Revenues
81.3%
18.7%
0.0%
100.0%
$
Amount
1,070,824
256,699
-
$
1,327,523
% of
Revenues
80.7%
19.3%
0.0%
100.0%
$ Change
$
(25,409)
(15,873)
99
(41,183)
$
Consolidated revenues decreased $41.2 million, or 3.1%, in 2015 from 2014.
The decrease in Americas’ revenues was primarily due to end-of-life client programs of $82.1 million and the
negative foreign currency impact of $23.6 million, partially offset by higher volumes from existing clients of $67.3
million and new client sales of $13.0 million. Revenues from our offshore operations represented 44.5% of
Americas’ revenues, compared to 38.9% in 2014.
The decrease in EMEA’s revenues was primarily due to the negative foreign currency impact of $43.4 million and
end-of-life client programs of $4.5 million, partially offset by higher volumes from existing clients of $26.6 million
and new client sales of $5.4 million.
On a consolidated basis, we had 41,100 brick-and-mortar seats as of December 31, 2015, an increase of 100 seats
from 2014. The capacity utilization rate on a combined basis remained unchanged at 79% in 2015 and 2014.
On a geographic segment basis, 35,100 seats were located in the Americas, an increase of 600 seats from 2014, and
6,000 seats were located in EMEA, a decrease of 500 seats from 2014. The capacity utilization rate for the Americas
as of December 31, 2015 was 79%, compared to 77% as of December 31, 2014, up primarily due to growth within
new and existing clients. The capacity utilization rate for EMEA as of December 31, 2015 was 85%, compared to
90% as of December 31, 2014, down primarily due to lower demand in certain existing clients and the
rationalization of seats in a highly utilized center due to a planned program expiration. We strive to attain a capacity
utilization of 85% at each of our locations.
29
Direct Salaries and Related Costs
Years Ended December 31,
2015
2014
(in thousands)
Americas ……………………………
EM EA ………………………………
Consolidated ……………………..
Amount
$
$
664,976
171,540
836,516
% of
Revenues
63.6%
71.2%
65.0%
Amount
$
$
707,181
184,929
892,110
% of
Revenues
66.0%
72.0%
67.2%
$ Change
$
$
(42,205)
(13,389)
(55,594)
Change in % of
Revenues
-2.4%
-0.8%
-2.2%
The decrease of $55.6 million in direct salaries and related costs included a positive foreign currency impact of
$25.8 million in the Americas and a positive foreign currency impact of $31.0 million in EMEA.
The decrease in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to
lower compensation costs of 2.2% driven by increased agent productivity within the communications, financial
services and technology verticals in the current period, and 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 compensation costs of 1.7% driven by increased agent productivity in the current period combined with the
ramp up in the prior period for new and existing client programs principally in the communications vertical, lower
billable supply costs of 0.4%, lower postage costs of 0.3% and lower other costs of 0.2%, partially offset by higher
fulfillment materials costs of 1.8% driven by higher demand in a new client program.
General and Administrative
Years Ended December 31,
2015
2014
(in thousands)
Americas ……………………………
EM EA ………………………………
Other …………………………………
Consolidated ……………………..
Amount
$
192,933
49,025
55,299
297,257
$
% of
Revenues
18.5%
20.4%
-
23.1%
Amount
$
197,167
50,760
50,202
298,129
$
% of
Revenues
18.4%
19.8%
-
22.5%
$ Change
$
(4,234)
(1,735)
5,097
(872)
$
Change in % of
Revenues
0.1%
0.6%
-
0.6%
The decrease of $0.9 million in general and administrative expenses included a positive foreign currency impact of
$6.0 million in the Americas and a positive foreign currency impact of $8.7 million in EMEA.
The increase in Americas’ general and administrative expenses, as a percentage of revenues, was primarily
attributable to higher compensation costs of 0.2% and higher other costs of 0.3%, partially offset by lower legal and
professional fees of 0.3% and lower communication costs of 0.1%.
The increase in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily
attributable to higher facility-related costs of 0.2%, higher severance costs of 0.2% and higher consulting costs of
0.2%.
The increase of $5.1 million in Other general and administrative expenses, which includes corporate and other costs,
was primarily attributable to higher compensation costs of $4.3 million, higher consulting costs of $1.2 million,
higher software maintenance costs of $1.0 million, higher travel costs of $0.7 million and higher merger and
integration costs of $0.5 million, partially offset by lower charitable contributions costs of $1.4 million and lower
other costs of $1.2 million.
30
Depreciation, Amortization and Net (Gain) Loss on Disposal of Property and Equipment
Years Ended December 31,
2015
2014
(in thousands)
Depreciation, net:
Amount
% of
Revenues
Americas ……………………………
EM EA ………………………………
Other …………………………………
Consolidated ……………………..
Amortization of intangibles:
Americas ……………………………
EM EA ………………………………
Other …………………………………
Consolidated ……………………..
$
$
$
$
37,842
4,559
1,351
43,752
13,648
522
-
14,170
Net (gain) loss on disposal of property
and equipment:
Americas ……………………………
$
573
EM EA ………………………………
Other …………………………………
(156)
(36)
Consolidated ……………………..
$
381
3.6%
1.9%
-
3.4%
1.3%
0.2%
-
1.1%
0.1%
-0.1%
-
0.0%
Amount
$
40,557
4,806
-
$
45,363
$
14,396
-
-
$
14,396
$
(2,026)
(4)
-
$
(2,030)
% of
Revenues
$ Change
Change in % of
Revenues
3.8%
1.9%
-
3.4%
1.3%
0.0%
-
1.1%
-0.2%
0.0%
-
-0.2%
$
$
(2,715)
(247)
1,351
(1,611)
$
$
(748)
522
-
(226)
$
2,599
(152)
(36)
$
2,411
-0.2%
0.0%
-
0.0%
0.0%
0.2%
-
0.0%
0.3%
-0.1%
-
0.2%
The decrease in depreciation was primarily due to certain fully depreciated net fixed assets.
The decrease in amortization was primarily due to certain fully amortized intangible assets.
The net (gain) on disposal of property and equipment in 2014 primarily related to the sale of land, a building and
fixed assets located in Bismarck, North Dakota. See Note 12, Property and Equipment, of “Notes to Consolidated
Financial Statements” for further information.
Other Income (Expense)
(in thousands)
Interest income ………………………………………………………………..………………
Years Ended December 31,
2015
2014
$ Change
$
668
$
958
$
(290)
Interest (expense) ……………………………………………...……………………………
$
(2,465)
$
(2,011)
$
(454)
Other income (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) ……………...……………………………………
$
$
$
(2,924)
1,374
(647)
(287)
(2,484)
(1,740)
(44)
-
441
(1,343)
(1,184)
1,418
(647)
(728)
(1,141)
Total other income (expense) ……………………………………………………………
$
$
$
The decrease in interest income reflects lower average interest rates on invested balances of interest-bearing
investments in cash and cash equivalents in 2015 compared to 2014.
The increase in interest (expense) was primarily due to interest accretion on the contingent consideration related to
the July 2015 Qelp acquisition.
The (loss) on liquidation of foreign subsidiaries in 2015 was due to the substantial liquidation of operations in a
foreign entity. The decrease in other miscellaneous income (expense) was primarily due to the net investment
income (losses) related to the investments held in rabbi trust. See Note 11, Investments Held in Rabbi Trust, of
“Notes to Consolidated Financial Statements” for further information.
31
Income Taxes
(in thousands)
Income before income taxes …………………………………………………………………
Income taxes …………………………………………………………..………………………
Years Ended December 31,
2015
2014
$
$
$
$
89,983
21,386
77,159
19,368
$ Change
$
$
12,824
2,018
% Change
Effective tax rate …………………………………………………………..…………………
23.8%
25.1%
-1.3%
The decrease in the effective tax rate in 2015 compared to 2014 is primarily due to the recognition of a $2.2 million
previously unrecognized tax benefit and a $1.3 million reversal of a valuation allowance on deferred tax assets
where it is more likely than not the assets will be realized. This decrease was partially offset by a $3.0 million
increase in tax provision due to a $12.6 million income increase in a high tax rate jurisdiction. The change in the
effective tax rate was also affected by several other factors, including fluctuations in earnings among the various
jurisdictions in which we operate, none of which are individually material.
32
Quarterly Results
The following information presents our unaudited quarterly operating results for 2016 and 2015. 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)
12/31/2016
9/30/2016
6/30/2016
3/31/2016
12/31/2015
9/30/2015
6/30/2015
3/31/2015
Revenues ………………………………………………………… 389,146
$
$
385,743
$
364,402
$
320,746
$
337,278
$
317,924
$
307,453
$
323,685
Operating expenses:
Direct salaries and related costs ……………………………… 252,821
General and administrative (1,2,3) ……………………………… 88,770
Depreciation, net ……………………………………………
13,265
Amortization of intangibles …………………………………
Net (gain) loss on disposal of property and equipment (4) …
5,233
152
Total operating expenses ………………………………… 360,241
Income from operations ……………………………………… 28,905
Other income (expense):
Interest income ………………………………………………
Interest (expense) (5) …………………………………………
(1,603)
Other income (expense) (6) …………………………………… (1,002)
Total other income (expense) ……………………………… (2,427)
178
Income before income taxes …………………………….…….
Income taxes ……………………………………………………
26,478
8,450
249,859
239,442
205,555
214,307
206,139
202,143
213,927
87,863
13,004
5,254
92
356,072
29,671
135
(1,578)
981
(462)
29,209
7,939
94,285
11,960
5,263
50
351,000
13,402
141
(1,581)
1,067
(373)
13,029
3,891
80,490
10,784
3,627
20
300,476
20,270
79,337
10,748
3,666
221
308,279
28,999
72,647
10,938
3,638
55
293,417
24,507
72,566
11,007
3,435
85
289,236
18,217
153
(808)
553
(102)
189
(938)
(617)
162
(478)
(871)
(1,366)
(1,187)
151
(610)
(167)
(626)
20,168
6,214
27,633
7,597
23,320
3,310
17,591
4,679
72,707
11,059
3,431
20
301,144
22,541
166
(439)
(829)
(1,102)
21,439
5,800
Net income ……………………………………………………… 18,028
$
$
21,270
$
9,138
$
13,954
$
20,036
$
20,010
$
12,912
$
15,639
Net income per common share (7) :
Basic …………………………………………………………
$
0.43
$
0.51
$
0.22
$
0.33
$
0.48
$
0.48
$
0.31
$
0.37
Diluted ………………………………………………………
$
0.43
$
0.50
$
0.22
$
0.33
$
0.48
$
0.48
$
0.31
$
0.37
Weighted average shares:
Basic ………………………………………………………… 41,768
Diluted ………………………………………………………
42,114
41,938
42,224
41,970
42,101
41,704
42,023
41,630
42,117
41,783
42,084
42,008
42,216
42,181
42,440
(1)
(2)
(3)
(4)
(5)
(6)
The quarters ended December 31, 2016, September 30, 2016, June 30, 2016 and M arch 31, 2016 include less than $0.1 million, $0.2 million, $3.0 million and $1.4 million
in Clearlink acquisition-related costs, respectively. The quarter ended September 30, 2015 includes $0.5 million in Qelp acquisition-related costs. See Note 2,
Acquisitions, for further information.
The quarter ended December 31, 2016 includes a $0.5 million loss on contingent consideration. The quarter ended September 30, 2016 includes a $2.8 million (gain) on
contingent consideration. See Note 4, Fair Value, for further information.
The quarter ended September 30, 2015 includes a $0.9 million net (gain) on insurance settlement. See Note 12, Property and Equipment, for further information.
The quarter ended December 31, 2016 includes a $0.2 million (gain) on the sale of fixed assets, land and building located in M organfield, Kentucky. See Note 12,
Property and Equipment, for further information.
The quarters ended December 31, 2016, September 30, 2016, June 30, 2016, M arch 31, 2016 and December 31, 2015 include less than $(0.1) million, $(0.2) million,
$(0.3) million, $(0.2) million and $(0.4) million of interest accretion on contingent consideration, respectively. See Note 4, Fair Value, for further information.
The quarter ended December 31, 2015 includes a $(0.6) million loss on liquidation of a foreign subsidiary. See Note 26, Other Income (Expense), for further information.
(7) Net income 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.
33
Business Outlook
For the three months ended March 31, 2017, we anticipate the following financial results:
•
Revenues in the range of $380.0 million to $385.0 million;
•
Effective tax rate of approximately 31%;
•
Fully diluted share count of approximately 42.0 million;
• Diluted earnings per share in the range of $0.28 to $0.32; and
•
Capital expenditures in the range of $13.0 million to $18.0 million
For the twelve months ended December 31, 2017, we anticipate the following financial results:
•
Revenues in the range of $1,580.0 million to $1,600.0 million;
•
Effective tax rate of approximately 30%;
•
Fully diluted share count of approximately 42.3 million;
• Diluted earnings per share in the range of $1.59 to $1.71; and
•
Capital expenditures in the range of $55.0 million to $65.0 million
In 2017, we expect a continuation of the favorable underlying demand trends experienced in 2016. This underlying
demand is being driven by growth with both existing and new clients across the Americas and EMEA. Specifically,
the main drivers of growth remain the financial services, communications and technology verticals. Revenues in
2017 reflect an unfavorable impact of approximately $25 million from foreign exchange rates relative to 2016.
Given the broader macro-economic environment and the sustained demand growth, we have seen some imbalances
in labor and wage dynamics, which we should be able to either mitigate or completely offset through a combination
of actions, including some wage increases offset by lower attrition, wage pass-throughs, shifts in delivery strategies
and productivity. As a result, our implicit operating margin and explicit diluted earnings per share assumptions
reflect manageable macro-economic backdrop and operational progress related to staffing inefficiencies from
significant capacity additions and sizeable program ramps in 2016.
Our revenues and earnings per share assumptions for the first quarter and full-year 2017 are based on foreign
exchange rates as of February 2017. Therefore, the continued volatility in foreign exchange rates between the U.S.
Dollar and the functional currencies of the markets we serve could have a further impact, positive or negative, on
revenues and earnings per share relative to the business outlook for the first quarter and full-year, as discussed
above.
We anticipate total other interest income (expense), net of approximately $(1.5) million for the first quarter and
$(6.0) million for the full year 2017. These amounts include the interest accretion on the contingent consideration,
which is expected to be less than $(0.1) million in the first quarter of 2017 and approximately $(0.1) million for the
year. The amounts, however, exclude the potential impact of any future foreign exchange gains or losses in other
income (expense).
Not included in this guidance is the impact of any future acquisitions, share repurchase activities or a potential sale
of previously exited customer engagement centers.
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 engagement 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”). On March 16, 2016, the Board authorized an increase of 5.0 million shares
to the 2011 Share Repurchase Program, for a total of 10.0 million. A total of 5.3 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,
34
including but not limited to, the stock price, management discretion and general market conditions. The 2011 Share
Repurchase Program has no expiration date.
During 2016, cash increased $130.7 million from operating activities, $216.0 from proceeds from the issuance of
long-term debt, $10.3 million from the settlement of the net investment hedge, $2.1 million from excess tax benefits
from stock-based compensation, $0.6 million from proceeds from the sale of property and equipment, $0.3 million
release of restricted cash and $0.2 million from proceeds from grants. The increase in cash was offset by $205.3
million paid for the Clearlink acquisition (net of cash acquired), $78.3 million used for capital expenditures, $19.0
million to repay long-term debt, $11.1 million to repurchase common stock, $4.9 million to repurchase common
stock for minimum tax withholding on equity awards, $1.4 million payment of contingent consideration related to
acquisitions and a $0.5 million investment in restricted cash, resulting in a $31.3 million increase in available cash
(including the unfavorable effects of foreign currency exchange rates on cash and cash equivalents of $8.4 million).
Net cash flows provided by operating activities for 2016 were $130.7 million, compared to $120.5 million in 2015.
The $10.2 million increase in net cash flows from operating activities was due to a net increase of $10.2 million in
cash flows from assets and liabilities and a $6.2 million increase in non-cash reconciling items such as depreciation
and amortization, net (gain) loss on disposal of property and equipment, impairment losses and unrealized foreign
currency transaction (gains) losses, net, partially offset by a $6.2 million decrease in net income. The $10.2 million
increase in cash flows from assets and liabilities was principally a result of a $26.3 million increase in other
liabilities, a $10.7 million increase in taxes payable and a $8.9 million increase in deferred revenue, partially offset
by a $35.4 million increase in accounts receivable and a $0.3 million increase in other assets. The $26.3 million
increase in the change in other liabilities is primarily due to $17.2 million related to the timing of accrued employee
compensation and benefits, and $6.7 million related to other accrued expenses and current liabilities principally due
to an increase of $4.5 million related to site expansions in 2016 over 2015. The $35.4 million increase in the change
in accounts receivable is primarily due to the timing of billings and collections in 2016 over 2015.
Capital expenditures, which are generally funded by cash generated from operating activities, available cash
balances and borrowings available under our credit facilities, were $78.3 million for 2016, compared to $49.7
million for 2015, an increase of $28.6 million. In 2017, we anticipate capital expenditures in the range of $55.0
million to $65.0 million, primarily for new seat additions, Enterprise Resource Planning upgrades, facility upgrades,
maintenance and systems infrastructure.
On May 12, 2015, we entered into a $440 million revolving credit facility (the “2015 Credit Agreement”) with a
group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative
Agent, Swing Line Lender and Issuing Lender (“KeyBank”). The 2015 Credit Agreement is subject to certain
borrowing limitations and includes certain customary financial and restrictive covenants. At December 31, 2016,
we were in compliance with all loan requirements of the 2015 Credit Agreement and had $267.0 million of
outstanding borrowings under this facility. On April 1, 2016, we borrowed $216.0 million under our 2015 Credit
Agreement in connection with the acquisition of Clearlink. See Note 2, Acquisitions, of “Notes to Consolidated
Financial Statements” for further information.
Our credit agreements had an average daily utilization of $222.6 million, $70.0 million and $85.9 million during the
years ended December 31, 2016, 2015 and 2014, respectively. During the years ended December 31, 2016, 2015,
and 2014, the related interest expense, including the commitment fee and excluding the amortization of deferred
loan fees, was $4.0 million, $1.3 million and $1.4 million, respectively, which represented weighted average interest
rates of 1.8%, 1.9% and 1.7%, respectively.
The 2015 Credit Agreement includes a $200 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 2015 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 2015 Credit Agreement will mature on
May 12, 2020.
Borrowings under the 2015 Credit Agreement bear interest at the rates set forth in the 2015 Credit Agreement. In
addition, we are required to pay certain customary fees, including a commitment fee determined quarterly based on
our leverage ratio and due quarterly in arrears and calculated on the average unused amount of the 2015 Credit
Agreement.
35
The 2015 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. We received assessments for the Canadian 2003-2009
audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the
U.S. Internal Revenue Service and we paid mandatory security deposits to Canada as part of this process. The total
amount of deposits, net of the effects of foreign exchange rate adjustments, were $13.8 million and $13.4 million as
of December 31, 2016 and 2015, respectively, and are included in “Deferred charges and other assets” in the
accompanying Consolidated Balance Sheets. 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.
As part of the April 2016 Clearlink acquisition, we assumed contingent consideration liabilities related to four
separate acquisitions made by Clearlink in 2015 and 2016, prior to the Clearlink acquisition. The fair value of the
contingent consideration related to these previous acquisitions was $2.8 million as of April 1, 2016 and was based
on achieving targets primarily tied to revenues for varying periods of time during 2016 and 2017. As of December
31, 2016, the fair value of the contingent consideration was $1.9 million. The estimated future value of the
contingent consideration is $2.0 million and is expected to be paid on varying dates through July 2017.
In July 2015, we completed the acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”) pursuant to
the definitive Share Sale and Purchase Agreement, dated July 2, 2015. The purchase price of $15.8 million was
funded through cash on hand of $9.8 million and contingent consideration of $6.0 million. On September 26, 2016,
we entered into an addendum to the Qelp Purchase Agreement with the Sellers to settle the outstanding contingent
consideration for EUR 4.0 million ($4.2 million as of December 31, 2016) to be paid on June 30, 2017.
As of December 31, 2016, we had $266.7 million in cash and cash equivalents, of which approximately 91.4%, or
$243.8 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 2015 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.
36
Off-Balance Sheet Arrangements and Other
At December 31, 2016, 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.
37
Contractual Obligations
The following table summarizes our contractual cash obligations at December 31, 2016, and the effect these
obligations are expected to have on liquidity and cash flow in future periods (in thousands):
$
Operating leases (1) ………………………………………… 218,652
Purchase obligations (2) ……………………………………… 53,773
Accounts payable (3) ………………………………………
29,163
Accrued employee compensation and benefits (3) …………
92,541
Income taxes payable (4) ……………………………………
4,487
Other accrued expenses and current liabilities (5) …………… 37,758
Long-term debt (6) …………………………………………… 267,000
Long-term tax liabilities (7) …………………………………
5,516
Other long-term liabilities (8) ………………………………… 4,598
713,488
$
Total
Less Than
1 Year
$
Payments Due By Period
1 - 3 Years
73,440
$
11,450
-
-
-
-
-
-
1,327
86,217
$
3 - 5 Years
49,692
$
1,322
-
-
-
-
267,000
-
278
318,292
$
46,712
40,667
29,163
92,541
4,487
37,758
-
-
101
251,429
After 5
Years
$
48,808
334
-
-
-
-
-
-
2,892
52,034
Other
-
$
-
-
-
-
-
-
5,516
-
5,516
$
$
$
(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 to 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 18, Borrowings, to the accompanying Consolidated Financial Statements.
Long-term tax liabilities include uncertain tax positions and related penalties and interest as discussed in Note 20, Income Taxes,
to the
accompanying Consolidated Financial Statements, included in "Long-term income tax liabilities" in the accompanying Consolidated Balance Sheet.
The amount in the table has been reduced by Canadian mandatory security deposits of $13.8 million, which are included in "Deferred charges and
other assets" in the accompanying Consolidated Balance Sheet. We cannot make reasonably reliable estimates of the cash settlement of $5.5 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 rent, deferred income taxes and other non-cash long-term liabilities, represent the expected cash
payments for contingent consideration related to the Clearlink and Qelp acquisitions, cash payments due under restructuring accruals for lease
obligations and pension obligations. See Note 2, Acquisitions, Note 3, Costs Associated with Exit or Disposal Activities, and Note 23, 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.
38
Revenues from fulfillment services account for 0.7%, 1.6% and 1.4% of total consolidated revenues for the years
ended December 31, 2016, 2015 and 2014, 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.
We allocate 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, 2016, 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, 2016.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts, $2.9 million as of December 31, 2016, or 0.9% 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. 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, 2016, we determined that a total valuation allowance of $30.2 million was necessary to reduce
U.S. deferred tax assets by $0.6 million and foreign deferred tax assets by $29.6 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 $8.9 million as of December 31, 2016 is dependent upon future profitability within each tax
jurisdiction. As of December 31, 2016, based on our estimates of future taxable income and any applicable tax-
planning strategies within various tax jurisdictions, we believe that it is more likely than not that the remaining net
deferred tax assets will be realized.
A provision for income taxes has not been made for the undistributed earnings of foreign subsidiaries of
approximately $418.6 million as of December 31, 2016, 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
39
withholding tax expense. Determination of any unrecognized deferred tax liability related to investments in foreign
subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which we
operate.
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, 2016, we had $8.5 million of unrecognized tax benefits, a net increase of $0.4 million from $8.1
million as of December 31, 2015. Had we recognized these tax benefits, approximately $8.5 million and $8.1
million and the related interest and penalties would favorably impact the effective tax rate in 2016 and 2015,
respectively. We anticipate that approximately $0.5 million of the unrecognized tax benefits will be recognized in
the next twelve months due to a lapse in the applicable statute of limitations.
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 2019 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. The tax holidays decreased the provision for income
taxes by $3.3 million, $4.0 million and $2.7 million for the years ended December 31, 2016, 2015 and 2014,
respectively. Our effective tax rate could also be affected by several additional factors, including changes in the
valuation of our deferred tax assets or liabilities, changing legislation, regulations, and court interpretations that
impact tax law in multiple tax jurisdictions in which we operate, as well as new requirements, pronouncements and
rulings of certain tax, regulatory and accounting organizations.
Impairment of Long-Lived Assets
We evaluate the carrying value of property and equipment and definite-lived intangible assets, which had a carrying
value of $309.3 million as of December 31, 2016, 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.
Impairment of Goodwill
We evaluate goodwill, which had a carrying value of $265.4 million as of December 31, 2016, 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
40
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. 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.
New Accounting Standards Not Yet Adopted
See Note 1, Overview and Summary of Significant Accounting Policies, of the accompanying “Notes to
Consolidated Financial Statements” for information related to recent accounting pronouncements.
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 USD are included in “Accumulated other comprehensive
income (loss)” in shareholders’ equity. Movements in non-USD currency exchange rates may negatively or
positively affect our competitive position, as exchange rate changes may affect business practices and/or pricing
strategies of non-U.S. based competitors.
We employ a foreign currency risk management program that periodically utilizes derivative instruments to protect
against unanticipated fluctuations in certain earnings and cash flows caused by volatility in foreign currency
exchange (“FX”) rates. We also utilize derivative contracts to hedge intercompany receivables and payables that are
denominated in a foreign currency and to hedge net investments in foreign operations.
We serve a number of U.S.-based clients using customer engagement center capacity in The Philippines 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”) 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”).
41
In order to hedge a portion of our anticipated cash flow requirements denominated in PHP and CRC, we had
outstanding forward contracts and options as of December 31, 2016 with counterparties through December 2017
with notional amounts totaling $96.5 million. As of December 31, 2016, we had net total derivative liabilities
associated with these contracts with a fair value of $1.8 million, which will settle within the next 12 months. If the
USD was to weaken against the PHP and CRC by 10% from current period-end levels, we would incur a loss of
approximately $8.2 million on the underlying exposures of the derivative instruments. However, this loss would be
mitigated by corresponding gains on the underlying exposures.
We had forward exchange contracts with notional amounts totaling $76.9 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, 2016, the fair value of these
derivatives was a net asset of $3.2 million. The potential loss in fair value at December 31, 2016, for these contracts
resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately $7.3
million. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We had forward exchange contracts with notional amounts totaling $55.6 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, 2016, the fair value of these derivatives was a net asset of $0.6 million.
The potential loss in fair value at December 31, 2016, for these contracts resulting from a hypothetical 10% adverse
change in the foreign currency exchange rates is approximately $1.9 million. However, this loss would be mitigated
by corresponding gains on the underlying exposures.
We had embedded derivative contracts with notional amounts totaling $13.2 million that are not designated as
hedges. As of December 31, 2016, the fair value of these derivatives was a net liability of $0.6 million. The
potential loss in fair value at December 31, 2016, for these contracts resulting from a hypothetical 10% adverse
change in the foreign currency exchange rates is approximately $2.1 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, 2016, we had $267.0 million in borrowings outstanding under the revolving credit facility. Based on
our level of variable rate debt outstanding during the year ended December 31, 2016, a one-point increase in the
weighted average interest rate, which generally equals the LIBOR rate plus an applicable margin, would have had a
$2.2 million impact on our results of operations.
We have not historically used derivative instruments to manage exposure to changes in interest rates.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are located beginning on page 52 and page 33
of this report, respectively.
42
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, 2016. 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,
2016.
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, 2016. In making
this assessment, we used the criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management
believes that, as of December 31, 2016, our internal control over financial reporting was effective.
On April 1, 2016, we acquired 100% of the outstanding membership units of Clear Link Holdings, LLC
(“Clearlink”). See Note 2, Acquisitions, of “Notes to Consolidated Financial Statements” for additional
information. As permitted by the Securities and Exchange Commission, companies are allowed to exclude
acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition
and management elected to exclude Clearlink from its assessment of internal controls over financial reporting as of
December 31, 2016. The Clearlink financial statements constitute 18.9% of total assets and 8.4% of revenues of the
consolidated financial statement amounts as of and for the year ended December 31, 2016.
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2016
that have materially affected, or are reasonably likely to materially affect, our internal controls over financial
reporting, except for the change discussed under “Changes to Internal Control Over Financial Reporting” below.
Attestation Report of Independent Registered Public Accounting Firm
Our independent registered public accounting firm has issued an attestation report on our internal control over
financial reporting. This report appears on page 44.
Changes to Internal Control Over Financial Reporting
On April 1, 2016, we acquired Clearlink. We have excluded Clearlink from our assessment of the effectiveness of
our internal control over financial reporting as of December 31, 2016. We have completed certain integration
activities and Clearlink has designed internal controls over financial reporting. Management will continue to assess
the control environment.
43
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, 2016, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As
described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Clear Link Holdings, LLC (“Clearlink”), which was
acquired on April 1, 2016 and whose financial statements constitute 18.9% of total assets and 8.4% of revenues of
the consolidated financial statement amounts as of and for the year ended December 31, 2016. Accordingly, our
audit did not include the internal control over financial reporting at Clearlink. 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, 2016, based on the criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended
December 31, 2016 of the Company and our report dated March 1, 2017 expressed an unqualified opinion on those
financial statements and financial statement schedule.
Certified Public Accountants
Tampa, Florida
March 1, 2017
44
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 2017 Annual Meeting of Shareholders.
45
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 52 of this report.
Financial Statements Schedule
Schedule II — Valuation and Qualifying Accounts is set forth on page 109 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
2.4
3.1
3.2
3.3
3.4
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
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. (20)
Agreement and Plan of Merger, dated as of March 6, 2016, by and among Sykes Enterprises,
Incorporated, Sykes Acquisition Corporation II, Inc., Clear Link Holdings, LLC, and Pamlico
Capital Management, L.P. (28)
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)
Amendment to Bylaws of Sykes Enterprises, Incorporated. (22)
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. (18)*
Fifth Amended and Restated 2004 Non-Employee Director Fee Plan. (24)*
Form of Split Dollar Plan Documents. (1)*
46
Exhibit
Number
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
Exhibit Description
Form of Split Dollar Agreement. (1)*
Form of Indemnity Agreement between Sykes Enterprises, Incorporated and directors &
executive officers. (1)
2001 Equity Incentive Plan. (4)*
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. (27)*
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)
Credit Agreement, dated May 12, 2015, between Sykes Enterprises, Incorporated, the lenders
party thereto and KeyBank National Association, as Lead Arranger, Sole Book Runner and
Administrative Agent. (19)
47
Exhibit
Number
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Exhibit Description
Business Sale and Purchase Agreement, dated as of March 29, 2012, between Sykes
Enterprises, Incorporated and Iberphone, S.A.U. (20)
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. (20)
Employment Agreement, dated as of September 13, 2012, between Sykes Enterprises,
Incorporated and Lawrence R. Zingale. (21)*
Employment Agreement, dated as of September 13, 2012, between Sykes Enterprises,
Incorporated and Christopher Carrington. (21)*
Sykes Enterprises, Incorporated Deferred Compensation Plan Amended and Restated as of
January 1, 2014.(26)*
Employment Agreement, dated as of April 15, 2014, between Sykes Enterprises, Incorporated
and John Chapman. (23)*
Employment Agreement, dated as of October 29, 2014, between Sykes Enterprises,
Incorporated and Andrew Blanchard.(26)*
Employment Agreement, dated as of October 29, 2016, between Sykes Enterprises,
Incorporated and James D. Farnsworth.*
Amended and Restated Sykes Enterprises, Incorporated Deferred Compensation Plan,
effective as of January 1, 2016.*
First Amendment to the Amended and Restated Sykes Enterprises, Incorporated Deferred
Compensation Plan, effective as of June 30, 2016.*
Second Amendment to the Amended and Restated Sykes Enterprises, Incorporated Deferred
Compensation Plan, effective as of January 1, 2017.*
Code of Ethics. (25)
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
48
Exhibit
Number
101.DEF
Exhibit Description
XBRL Taxonomy Extension Definition Linkbase Document
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
Indicates management contract or compensatory plan or arrangement.
Filed as an Exhibit to the Registrant’s Registration Statement on Form S-1 (Registration
No. 333-2324) and incorporated herein by reference.
Filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-3 filed with the
Commission on October 23, 1997, and incorporated herein by reference.
Filed as Exhibit 3.2 to the Registrant’s Form 10-K filed with the Commission on March 29,
1999, and incorporated herein by reference.
Filed as Exhibit 10.32 to Registrant’s Form 10-Q filed with the Commission on May 7, 2001, and
incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-Q filed with the Commission on August 9, 2004, and
incorporated herein by reference.
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 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 Form 8-K filed with the Commission on May 13, 2015,
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 Form 8-K filed with the Commission on March 24, 2014,
and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Form 8-K filed with the Commission on April 15, 2014,
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.
Available on the Registrant’s website at www.sykes.com, by clicking on “Company,” then
“Investor Relations” and then “Documents and Charters” under the heading “Corporate
Governance.”
Filed as an Exhibit to Registrant’s Form 10-K filed with the Commission on February 19, 2015,
and incorporated herein by reference.
49
Exhibit
Number
(27)
(28)
Exhibit Description
Filed as an Exhibit to Registrant’s Form 10-K filed with the Commission on February 29, 2016,
and incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 8-K filed with the Commission on March 8, 2016, and
incorporated herein by reference.
Item 16. Form 10-K Summary
Not Applicable.
50
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, and State of Florida, on this 1st
day of March 2017.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
By:
/s/ John Chapman
John Chapman
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 John Chapman 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/ James S. MacLeod
James S. MacLeod
/s/ Charles E. Sykes
Charles E. Sykes
/s/ Vanessa C.L. Chang
Vanessa C.L. Chang
Chairman of the Board
March 1, 2017
President and Chief Executive Officer and
Director (Principal Executive Officer)
March 1, 2017
Director
March 1, 2017
/s/ Lt. Gen. Michael P. Delong (Ret.)
Lt. Gen. Michael P. Delong (Ret.)
Director
/s/ Carlos E. Evans
Carlos E. Evans
/s/ Lorraine L. Lutton
Lorraine L. Lutton
/s/ William J. Meurer
William J. Meurer
/s/ William D. Muir, Jr.
William D. Muir, Jr.
/s/ Paul L. Whiting
Paul L. Whiting
/s/ John Chapman
John Chapman
Director
Director
Director
Director
Director
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
Executive Vice President and Chief Financial Officer March 1, 2017
(Principal Financial and Accounting Officer)
51
Table of Contents
Report of Independent Registered Public Accounting Firm ........................................................................... ..
Consolidated Balance Sheets as of December 31, 2016 and 2015 ...................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014 .................
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and
2014 ..................................................................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2016, 2015
and 2014 ............................................................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 ................
Notes to Consolidated Financial Statements ....................................................................................................
Page No.
53
54
55
56
57
58
60
52
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, 2016 and 2015, 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, 2016. 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, 2016 and 2015 and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016, 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, 2016, based on the criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 1, 2017 expressed an unqualified opinion
on the Company's internal control over financial reporting.
Certified Public Accountants
Tampa, Florida
March 1, 2017
53
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, 2016
December 31, 2015
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 22)
Shareholders' equity:
Preferred stock, $0.01 par value per share, 10,000 shares
$
$
$
266,675
318,558
21,973
16,030
623,236
156,214
265,404
153,055
38,494
1,236,403
29,163
92,552
-
4,487
38,736
37,919
202,857
3,761
267,000
19,326
18,937
511,881
235,358
277,096
17,321
33,262
563,037
111,962
195,733
50,896
26,144
947,772
$
23,255
77,246
1,120
1,959
28,119
21,476
153,175
4,810
70,000
18,512
22,595
269,092
authorized; no shares issued and outstanding …………………………………
-
-
Common stock, $0.01 par value per share, 200,000 shares authorized;
42,895 and 42,785 shares issued, respectively ………………………………
Additional paid-in capital ………………………………………………………
Retained earnings …………………………………………………………………
Accumulated other comprehensive income (loss) ………………………………
Treasury stock at cost: 362 and 113 shares, respectively ………………………
Total shareholders' equity ……………………………………………………
429
281,357
518,611
(67,027)
(8,848)
724,522
1,236,403
428
275,380
458,325
(53,662)
(1,791)
678,680
947,772
$
$
See accompanying Notes to Consolidated Financial Statements.
54
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Years Ended December 31,
2016
2015
2014
Revenues ………………………………………………………………
$
1,460,037
$
1,286,340
$
1,327,523
Operating expenses:
Direct salaries and related costs ……………………………………
General and administrative …………………………………………
Depreciation, net ……………………………………………………
Amortization of intangibles …………………………………………
Net (gain) loss on disposal of property and equipment ……………
947,677
351,408
49,013
19,377
314
836,516
297,257
43,752
14,170
381
892,110
298,129
45,363
14,396
(2,030)
Total operating expenses …………………………………………
1,367,789
1,192,076
1,247,968
Income from operations ………………………………………………
92,248
94,264
79,555
Other income (expense):
Interest income ………………………………………………………
Interest (expense) ……………………………………………………
Other income (expense) ……………………………………………
Total other income (expense) ……………………………………
Income before income taxes ……………………………………………
Income taxes ……………………………………………………………
607
(5,570)
1,599
(3,364)
88,884
26,494
668
(2,465)
(2,484)
(4,281)
89,983
21,386
958
(2,011)
(1,343)
(2,396)
77,159
19,368
Net income ……………………………………………………………
$
62,390
$
68,597
$
57,791
Net income per common share:
Basic …………………………………………………………………
Diluted ………………………………………………………………
$
$
1.49
1.48
$
$
1.64
1.62
$
$
1.36
1.35
Weighted average common shares outstanding:
Basic …………………………………………………………………
Diluted ………………………………………………………………
41,847
42,239
41,899
42,447
42,609
42,814
See accompanying Notes to Consolidated Financial Statements.
55
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Years Ended December 31,
2015
2016
2014
Net income ……………………………………………………………………………
$
62,390
$
68,597
$
57,791
Other comprehensive income (loss), net of taxes:
Foreign currency translation gain (loss), net of taxes ……………….……………
Unrealized gain (loss) on net investment hedges, 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 ………………………………
(13,792)
2,096
96
(1,698)
(67)
(13,365)
(36,525)
3,894
21
(416)
(75)
(33,101)
(34,827)
3,959
(142)
2,424
28
(28,558)
Comprehensive income (loss) ………………………………………………...………
$
49,025
$
35,496
$
29,233
See accompanying Notes to Consolidated Financial Statements.
56
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
S hares
(in thousands)
Issued
Balance at January 1, 2014 ………… 43,997
Amount
$
440
Common S tock
Additional
Paid-in
Capital
$
279,513
Retained
Earnings
$
349,366
Accumulated
Other
Comprehensive
Income (Loss)
$
7,997
Treasury
S tock
$
(1,612)
Total
635,704
$
Stock-based compensation expense …
Excess tax benefit (deficiency) from
stock-based compensation …………
Issuance of common stock under
equity award plans, net of shares
withheld for employee taxes ………
Repurchase of common stock …………
Retirement of treasury stock …………
Comprehensive income (loss) …………
-
-
(76)
-
(630)
-
-
-
(1)
-
(6)
-
6,381
(82)
(592)
-
(5,932)
-
-
-
-
-
(6,643)
57,791
Balance at December 31, 2014 ……… 43,291
433
279,288
400,514
Stock-based compensation expense …
Excess tax benefit (deficiency) from
stock-based compensation …………
Issuance of common stock under
equity award plans, net of shares
withheld for employee taxes ………
Repurchase of common stock …………
Retirement of treasury stock …………
Comprehensive income (loss) …………
-
-
348
-
(854)
-
-
-
4
-
(9)
-
8,749
422
(3,159)
-
(9,920)
-
-
-
-
-
(10,786)
68,597
Balance at December 31, 2015 ……… 42,785
428
275,380
458,325
Stock-based compensation expense …
Excess tax benefit (deficiency) from
stock-based compensation …………
Issuance of common stock under
equity award plans, net of shares
withheld for employee taxes ………
Repurchase of common stock …………
Retirement of treasury stock …………
Comprehensive income (loss) …………
-
-
256
-
(146)
-
-
-
2
-
(1)
-
10,779
2,098
(4,724)
-
(2,176)
-
-
-
-
-
(2,104)
62,390
-
-
-
-
-
(28,558)
(20,561)
-
-
-
-
-
(33,101)
(53,662)
-
-
-
-
-
(13,365)
-
-
156
(12,581)
12,581
-
6,381
(82)
(437)
(12,581)
-
29,233
(1,456)
658,218
-
-
(171)
(20,879)
20,715
-
8,749
422
(3,326)
(20,879)
-
35,496
(1,791)
678,680
-
-
(194)
(11,144)
4,281
-
10,779
2,098
(4,916)
(11,144)
-
49,025
Balance at December 31, 2016 ……… 42,895
$
429
$
281,357
$
518,611
$
(67,027)
$
(8,848)
$
724,522
See accompanying Notes to Consolidated Financial Statements.
57
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Years Ended December 31,
2015
2016
2014
Net income ……………………………………………………………………………………..
Adjustments to reconcile net income to net cash provided by operating activities:
$
62,390
$
68,597
$
57,791
Depreciation ……………………………………………………………………………………
Amortization of intangibles …………………………………………………………………
Amortization of deferred grants ……………………………………………………………
Unrealized foreign currency transaction (gains) losses, net ………………………………
Stock-based compensation expense …………………………………………………………
Excess tax (benefit) from stock-based compensation ……………………………………
Deferred income tax provision (benefit) ……………………………………………………
Net (gain) loss on disposal of property and equipment ……………………………………
Bad debt expense (reversals) …………………………………………………………………
Write-downs (recoveries) of value added tax receivables ………………………………
Unrealized (gains) losses on financial instruments, net …………………………………
Foreign exchange (gain) loss on liquidation of foreign entities …………………………
Amortization of deferred loan fees ……………………………………………………………
Net (gain) on insurance settlement …………………………………………………………
Proceeds from business interruption insurance settlement ………………………………
Imputed interest expense and fair value adjustments to contingent consideration ……
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 ……………………………………………………………………
49,600
19,377
(845)
(1,104)
10,779
(2,098)
2,339
314
89
(148)
521
(25)
269
-
-
(1,496)
(101)
(32,905)
(3,587)
(3,398)
(1,286)
(2,938)
4,999
15,699
5,090
6,343
2,850
44,515
14,170
(973)
318
8,749
(422)
2,515
381
278
-
1,028
720
403
(919)
156
408
(106)
2,499
(3,040)
(6,972)
1,951
(124)
(5,666)
(1,481)
(1,564)
(2,559)
(2,398)
46,255
14,396
(1,348)
119
6,381
-
4,865
(2,030)
(181)
(638)
2,352
113
259
-
-
-
(10)
(40,276)
336
(6,673)
3,545
2,029
2,609
5,179
(5,026)
2,147
2,070
Net cash provided by operating activities ………………………………………………
130,728
120,464
94,264
Cash flows from investing activities:
Capital expenditures ……………………………………………………………………………
(78,342)
Cash paid for business acquisition, net of cash acquired …………………………………… (205,324)
Proceeds from sale of property and equipment ………………………………………………
582
Investment in restricted cash ……………………………………………………………………
(466)
Release of restricted cash ………………………………………………………………………
372
Proceeds from property and equipment insurance settlement ………………………………
-
Net investment hedge settlement ………………………………………………………………
10,339
Purchase of intangible assets ……………………………………………………………………
(10)
Net cash (used for) investing activities …………………………………………………
(272,849)
(49,662)
(9,370)
616
(45)
13
1,490
-
-
(56,958)
(44,683)
-
3,639
(7)
160
-
-
-
(40,891)
58
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
(in thousands)
Cash flows from financing activities:
Years Ended December 31,
2015
2016
2014
Payments of long-term debt ……………………………………………………………………
Proceeds from issuance of long-term debt ……………………………………………………
Excess tax benefit from stock-based compensation …………………………………………
Cash paid for repurchase of common stock …………………………………………………
Proceeds from grants ……………………………………………………………………...……
Payments on short-term debt ……………………………………………………………………
Shares repurchased for minimum tax withholding on equity awards ………………………
Cash paid for loan fees related to long-term debt ……………………………………………
Payments of contingent consideration related to acquisitions ………………………………
(19,000)
216,000
2,098
(11,144)
202
-
(4,916)
-
(1,396)
Net cash provided by (used for) financing activities ……………………………………
181,844
Effects of exchange rates on cash and cash equivalents ………………………………………
(8,406)
Net increase (decrease) in cash and cash equivalents …………………………………………
Cash and cash equivalents – beginning …………………………………………………………
31,317
235,358
(10,000)
5,000
422
(20,879)
670
(323)
(3,326)
(962)
-
(29,398)
(13,887)
20,221
215,137
(23,000)
-
-
(12,581)
256
-
(437)
-
-
(35,762)
(14,459)
3,152
211,985
Cash and cash equivalents – ending ……………………………………………………………
$
266,675
$
235,358
$
215,137
Supplemental disclosures of cash flow information:
Cash paid during period for interest ……………………………………………………………
Cash paid during period for income taxes ………………………………………………………
$
$
4,003
18,764
1,476
30,467
$
1,716
16,560
$
Non-cash transactions:
Property and equipment additions in accounts payable ……………………………………
Unrealized gain (loss) on postretirement obligation in accumulated other
$
10,692
4,941
5,512
comprehensive income (loss) ………………………………………………………………
$
(67)
$
(75)
$
28
See accompanying Notes to Consolidated Financial Statements.
59
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 engagement solutions and services in the business process outsourcing arena to
companies, primarily within the communications, financial services, technology/consumer, transportation and
leisure, healthcare and retail industries. SYKES provides flexible, high-quality outsourced customer engagement
services (with an emphasis on inbound technical support, digital support and demand generation, and customer
service), which includes customer assistance, healthcare and roadside assistance, technical support and product and
service 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, chat and digital self-service. SYKES complements its outsourced customer engagement 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, which includes order processing, 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.
Acquisitions
On April 1, 2016, the Company completed the acquisition of Clear Link Holdings, LLC (“Clearlink”), pursuant to a
definitive Agreement and Plan of Merger (the “Merger Agreement”), dated March 6, 2016. The Company has
reflected the operating results in the Consolidated Statements of Operations since April 1, 2016. See Note 2,
Acquisitions, for additional information on the acquisition.
In July 2015, the Company completed the acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”),
pursuant to definitive Share Sale and Purchase Agreement, dated July 2, 2015. The Company has reflected the
operating results in the Consolidated Statements of Operations since July 2, 2015. See Note 2, Acquisitions, for
additional information on the acquisition.
Principles of Consolidation — The consolidated financial statements include the accounts of SYKES and its
wholly-owned subsidiaries and controlled majority-owned subsidiaries. All 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
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.
60
Revenues from fulfillment services account for 0.7%, 1.6% and 1.4% of total consolidated revenues for the years
ended December 31, 2016, 2015 and 2014, 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.
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,
2016, 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, 2016.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term investments.
Cash in the amount of $266.7 million and $235.4 million at December 31, 2016 and 2015, respectively, was
primarily held in non-interest bearing investments, which have original maturities of less than 90 days. Cash and
cash equivalents of $243.8 million and $221.7 million at December 31, 2016 and 2015, 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.
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 “asset group”). An asset is considered to
61
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. The Company determined that its property and
equipment were not impaired as of December 31, 2016 and 2015.
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.
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.
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 self-funds
the medical, prescription drug and dental benefit plans in the United States. Estimated costs are accrued at the
62
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. These 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.
The Company receives government lease grants as an incentive for leasing space at specific locations or locating
engagement centers in a government’s jurisdiction. These grants are repayable, under certain terms and conditions,
as set forth in the grant agreements. Accordingly, grant monies received are deferred and amortized primarily as a
reduction to rent expense included in “General and administrative” over the required lease 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 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 from estimated penalties and holdbacks results from
the failure to meet specified minimum service levels in certain contracts and other performance based contingencies.
Deferred revenue from estimated chargebacks reflects the right of certain of the Company’s clients to chargeback
accounts that do not meet certain requirements for specified periods after a sale has occurred.
Customer-Acquisition Advertising Costs — The Company utilizes direct-response advertising the primary purpose
of which is to elicit purchases from its clients’ customers. These costs are capitalized when they are expected to
result in probable future benefits and are amortized over the period during which future benefits are expected to be
received, which is generally less than one month. All other advertising costs are expensed as incurred. As of
December 31, 2016, the Company had less than $0.1 million of capitalized direct-response advertising costs
included in “Prepaid expenses” in the accompanying Consolidated Balance Sheet (none in 2015 or 2014). Total
advertising costs included in “Direct salaries and related costs” in the accompanying Consolidated Income
Statement for the year ended December 31, 2016 was $28.1 million (none in 2015 or 2014).
Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive
Plan (for employees and certain non-employees), the 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 24, 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.
63
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.
Embedded derivatives — Embedded derivatives within certain hybrid lease agreements are bifurcated from
the host contract and recognized at fair value based on pricing models or formulas using significant
unobservable inputs, 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.
Contingent consideration — Contingent consideration is recognized at fair value based on the discounted
cash flow method.
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.
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.
64
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. These items 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.
Embedded Derivatives — The Company uses significant unobservable inputs to determine the fair value of
embedded derivatives, which are classified in Level 3 of the fair value hierarchy. These unobservable inputs include
expected cash flows associated with the lease, currency exchange rates on the day of commencement, as well as
forward currency exchange rates; results of which are adjusted for credit risk. These items are classified in Level 3
of the fair value hierarchy. See Note 10, Financial Derivatives, for further information.
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 11, Investments Held in Rabbi Trust, and Note 24, Stock-Based
Compensation.
Contingent consideration — The Company uses significant unobservable inputs to determine the fair value of
contingent consideration, which is classified in Level 3 of the fair value hierarchy. The contingent consideration
recorded related to the Qelp acquisition and liabilities assumed as part of the Clearlink acquisition was recognized at
fair value using a discounted cash flow methodology and a discount rate of approximately 14.0% and 10.0%,
respectively. The discount rates vary dependent on the specific risks of each acquisition including the country of
operation, the nature of services and complexity of the acquired business, and other similar factors, all of which are
significant inputs not observable in the market. Significant increases or decreases in any of the inputs in isolation
would result in a significantly higher or lower fair value measurement.
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.
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
65
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, 2016 and 2015, 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. Changes in the fair value of the
derivative instruments are included in “Revenues” or “Other income (expense)”, depending on the underlying risk
exposure. See Note 10, 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The amendments in ASU
2014-09 outline a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and indicate that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. To achieve this, an entity should identify the contract(s) with a customer,
identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to
the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance
obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606)
Deferral of the Effective Date” (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of
ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods within that
reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15,
2016, including interim reporting periods within that period. An entity should apply the amendments using either the
full retrospective approach or retrospectively with a cumulative effect of initially applying the amendments
recognized at the date of initial application. In 2016, the FASB issued additional ASUs that are part of the overall
new revenue guidance including: ASU 2016-08, “Revenue from Contracts with Customers (Topic 606) – Principal
versus Agent Considerations (Reporting Revenue Gross versus Net)”, ASU 2016-10, “Revenue from Contracts with
Customers (Topic 606) – Identifying Performance Obligations and Licensing”, ASU 2016-11, “Revenue
Recognition and Derivatives and Hedging: Rescission of SEC Guidance Because of Accounting Standards Updates
2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 Emerging Issues Task Force Meeting
(“EITF”)” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements
and Practical Expedients”.
The Company is evaluating the impact of ASU 2014-09 and the related ASUs. Based on the preliminary results of
its evaluation, the Company does not expect the adoption of these ASUs on January 1, 2018 to have a material
impact on the recognition of revenue. The Company expects to complete its assessment by the end of the third
quarter of 2017, including selecting a transition method.
66
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10) Recognition
and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). These amendments modify how
entities measure equity investments and present changes in the fair value of financial liabilities. Under the new
guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted
for under the equity method at fair value and recognize any changes in fair value in net income unless the
investments qualify for the new practicality exception. A practicality exception will apply to those equity
investments that do not have a readily determinable fair value and do not qualify for the practical expedient to
estimate fair value under Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements”, and as
such, these investments may be measured at cost. These amendments are effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption
of ASU 2016-01 to materially impact its financial condition, results of operations and cash flows.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). These amendments
require the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently
classified as operating leases under ASC 840, “Leases”. These amendments also require qualitative disclosures
along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Entities are
required to apply the amendments at the beginning of the earliest period presented using a modified retrospective
approach. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its
financial condition, results of operations and cash flows.
In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815) – Effect of Derivative
Contract Novations on Existing Hedge Accounting Relationships” (“ASU 2016-05”). These amendments clarify that
a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under
Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge
accounting criteria continue to be met. These amendments are effective for fiscal years beginning after December
15, 2016, including interim periods within those fiscal years. The Company does not expect the prospective
adoption of ASU 2016-05 to have a material impact on its financial condition, results of operations and cash flows.
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements
to Employee Share-Based Payment Accounting” (“ASU 2016-09”). These amendments are intended to simplify
several aspects of the accounting for share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. These
amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those
annual periods. The Company is currently evaluating the impact the guidance will have on its financial condition,
results of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement
of Credit Losses on Financial Instruments” (“ASU 2016-13”). These amendments require measurement and
recognition of expected versus incurred credit losses for financial assets held. These amendments are effective for
fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is
permitted. The Company is currently evaluating the impact the guidance will have on its financial condition, results
of operations and cash flows.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain
Cash Receipts and Cash Payments” (“ASU 2016-15”). These amendments clarify the presentation of cash receipts
and payments in eight specific situations. These amendments are effective for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. These amendments will be applied using a retrospective
transition method to each period presented. Early adoption is permitted, including adoption in an interim period.
The Company does not expect the adoption of ASU 2016-15 to materially impact its financial condition, results of
operations and cash flows.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740) – Intra-Entity Transfers of Assets
Other than Inventory” (“ASU 2016-16”). These amendments require recognition of the income tax consequences of
an intra-entity transfer of an asset other than inventory when the transfer occurs. These amendments are effective
for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those
annual reporting periods. These amendments will be applied using a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early
adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or
67
annual) have not been issued. The Company does not expect the adoption of ASU 2016-16 to materially impact its
financial condition, results of operations and cash flows.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) – Restricted Cash (A
Consensus of the FASB Emerging Issues Task Force” (“ASU 2016-18”). These amendments clarify how entities
should present restricted cash and restricted cash equivalents in the statement of cash flows, requiring entities to
show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. These
amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. These amendments will be applied using a retrospective transition method to each period presented. Early
adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU
2016-18 to materially impact its financial condition, results of operations and cash flows.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) – Clarifying the Definition of
a Business” (“ASU 2017-01”). These amendments clarify the definition of a business to help companies evaluate
whether transactions should be accounted for as acquisitions or disposals of assets or businesses. These amendments
are effective for annual periods beginning after December 15, 2017, including interim periods within those
periods. These amendments will be applied prospectively. Early adoption is permitted in certain circumstances. The
Company does not expect the adoption of ASU 2017-01 to materially impact its financial condition, results of
operations and cash flows.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the
Test for Goodwill Impairment” (“ASU 2017-04”). These amendments simplify the test for goodwill impairment by
eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair
value at the impairment testing date of its assets and liabilities following the procedure that would be required in
determining fair value of assets acquired and liabilities assumed in a business combination. A goodwill impairment
will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying
amount of goodwill. These amendments are effective for annual or any interim goodwill impairment tests in fiscal
years beginning after December 15, 2019. These amendments will be applied on a prospective basis, with early
adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The Company does not expect the adoption of ASU 2017-04 to materially impact its financial condition, results of
operations and cash flows.
New Accounting Standards Recently Adopted
In June 2014, the FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718) Accounting for
Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after
the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance
target that affects vesting and that could be achieved after the requisite service period be treated as a performance
condition. A reporting entity should apply existing guidance in ASC 718, “Compensation — Stock Compensation”
(“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards.
These amendments, adopted prospectively, were effective for annual periods and interim periods within those
annual periods beginning after December 15, 2015. The adoption of ASU 2014-12 on January 1, 2016 did not have a
material impact on the financial condition, results of operations and cash flows of the Company.
In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic
225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU
2015-01”). The amendments eliminate from U.S. GAAP the concept of extraordinary items as part of the FASB’s
initiative to reduce complexity in accounting standards. These amendments, adopted prospectively, were effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of
ASU 2015-01 on January 1, 2016 did not have a material impact on the financial condition, results of operations and
cash flows of the Company.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810) Amendments to the Consolidation
Analysis)” (“ASU 2015-02”). The amendments are intended to improve targeted areas of the consolidation
guidance for legal entities such as limited partnerships, limited liability corporations and securitization structures.
These amendments affect the consolidation evaluation for reporting organizations. In addition, the amendments
simplify and improve current U.S. GAAP by reducing the number of consolidation models. These amendments,
adopted retrospectively, were effective for fiscal years, and for interim periods within those fiscal years, beginning
68
after December 15, 2015. The adoption of ASU 2015-02 on January 1, 2016 did not have a material impact on the
financial condition, results of operations and cash flows of the Company.
In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) Simplifying the
Presentation of Debt Issuance Costs” (“ASU 2015-03”). These amendments require that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that
debt liability, consistent with debt discounts. These amendments were effective for fiscal years beginning after
December 15, 2015, and interim periods within those fiscal years. The adoption of ASU 2015-03 on January 1, 2016
did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software
(Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-
05”). These amendments provide guidance to customers about whether a cloud computing arrangement includes a
software license. If a cloud computing arrangement includes a software license, the customer should account for the
software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud
computing arrangement does not include a software license, the customer should account for the arrangement as a
service contract. The new guidance does not change the accounting for a customer’s accounting for service
contracts. These amendments, adopted prospectively, were effective for annual periods, including interim periods
within those annual periods, beginning after December 15, 2015. The adoption of ASU 2015-05 on January 1, 2016
did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) Simplifying the
Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). These amendments eliminate the requirement
for an acquirer to retrospectively adjust provisional amounts recorded in a business combination to reflect new
information about the facts and circumstances that existed as of the acquisition date and that, if known, would have
affected measurement or recognition of amounts initially recognized. As an alternative, the amendment requires that
an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the
reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record,
in the financial statements of the period in which adjustments to provisional amounts are determined, the effect on
earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the
provisional amounts, calculated as if the accounting had been completed at the acquisition date. These amendments,
adopted prospectively, were effective for fiscal years beginning after December 15, 2015, including interim periods
within those fiscal years. The adoption of ASU 2015-16 on January 1, 2016 did not have a material impact on the
financial condition, results of operations and cash flows of the Company.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) Balance Sheet Classification of
Deferred Taxes” (“ASU 2015-17”). These amendments require that deferred tax liabilities and assets be classified as
noncurrent in a classified statement of financial position. The existing requirement that deferred tax liabilities and
assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by these
amendments. These amendments, adopted prospectively, were effective for annual periods beginning after
December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The adoption
of ASU 2015-17 on January 1, 2016 resulted in the reclassification of $12.0 million of current deferred tax assets
included in “Other current assets” and $1.1 million of current deferred tax liabilities included in “Current deferred
income tax liabilities” to noncurrent deferred income tax assets and liabilities. All future deferred tax assets and
liabilities will be classified as noncurrent. No prior periods were adjusted.
69
Note 2. Acquisitions
Clearlink
On April 1, 2016, the Company acquired 100% of the outstanding membership units of Clearlink through a merger
of Clearlink with and into a subsidiary of the Company (the “Merger”). Clearlink, with its operations located in the
United States, is an inbound demand generation and sales conversion platform serving numerous Fortune 500
business-to-consumer and business-to-business clients across various industries and subsectors, including
telecommunications, satellite television, home security and insurance. The results of Clearlink’s operations have
been included in the Company’s consolidated financial statements since April 1, 2016 (the “Clearlink acquisition
date”). The strategic acquisition of Clearlink expands the Company’s suite of service offerings while creating
differentiation in the marketplace, broadening its addressable market opportunity and extending executive level
reach within the Company’s existing clients’ organizations. This resulted in the Company paying a substantial
premium for Clearlink resulting in the recognition of goodwill. Pursuant to Federal income tax laws, intangible
assets and goodwill from the Clearlink acquisition are deductible over a 15-year amortization period.
The Clearlink purchase price totaled $207.9 million, consisting of the following:
Cash (1) ……………………………………………………………
Working capital adjustment ………………………………………
Total
$
$
209,186
(1,278)
207,908
(1) Funded through borrowings under the Company's credit agreement. See Note 18,
Borrowings, for more information.
Approximately $2.6 million of the purchase price was placed in an escrow account as security for the
indemnification obligations of Clearlink’s members under the merger agreement.
The following table summarizes the estimated Clearlink acquisition date fair values of the assets acquired and
liabilities assumed (all included in the Americas segment), the measurement period adjustments and the final
purchase price allocation (in thousands):
Cash and cash equivalents ………………………………………
Receivables (1) ……………………………………………………
Prepaid expenses …………………………………………………
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 …………………………………………
Initial
Purchase Price
Allocation
$
Measurement
Period
Adjustments
-
$
-
-
-
-
340
-
-
-
-
(340)
-
-
(340)
-
$
-
$
$
Final
Purchase Price
Allocation
2,584
16,801
1,553
20,938
12,869
70,563
121,400
229
(3,564)
(1,610)
(340)
(4,620)
(6,324)
(16,458)
(1,633)
207,908
2,584
16,801
1,553
20,938
12,869
70,223
121,400
229
(3,564)
(1,610)
-
(4,620)
(6,324)
(16,118)
(1,633)
207,908
$
(1) The fair value equals the gross contractual value of the receivables.
The Company accounted for the Clearlink acquisition in accordance with ASC 805, “Business Combinations”
(“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangibles acquired
and liabilities assumed from Clearlink based on their estimated fair values as of the closing date. The Company
completed its analysis of the purchase price allocation during the fourth quarter of 2016 and the resulting
70
adjustments of $0.3 million to income taxes payable and goodwill were recorded in accordance with ASU 2015-16,
“Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period Adjustments.”
Fair values are based on management’s estimates and assumptions including variations of the income approach, the
cost approach and the market approach.
The following table presents the Company’s purchased intangibles assets as of April 1, 2016, the Clearlink
acquisition date (in thousands):
Customer relationships ……………………………………………
Trade name ………………………………………………………
Non-compete agreements …………………………………………
Proprietary software ………………………………………………
Indefinite-lived domain names ……………………………………
$
Amount Assigned
63,800
2,400
1,800
700
52,700
121,400
$
Weighted Average
Amortization Period
(years)
13
7
3
5
N/A
7
The amount of Clearlink’s revenues and net income since the April 1, 2016 acquisition date, included in the
Company’s Consolidated Statements of Operations for the period indicated below, was as follows (in thousands):
Revenues …………………………………………………………
From April 1, 2016
Through
December 31, 2016
$
123,289
Net income ………………………………………………………
$
1,563
The following table presents the unaudited pro forma combined revenues and net earnings as if Clearlink had been
included in the consolidated results of the Company for the entire years ended December 31, 2016 and 2015. 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, 2016 and 2015 (in thousands):
Revenues …………………………………………………………
$
1,493,866
$
1,407,850
Net income ………………………………………………………
$
65,662
$
69,801
Net income per common share:
Years Ended December 31,
2016
2015
Basic ……………………………………………………………
$
1.57
Diluted …………………………………………………………
$
1.55
$
1.67
$
1.64
These amounts have been calculated to reflect the additional depreciation, amortization, interest expense and rent
expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1,
2016 and January 1, 2015, 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 advisory and legal costs, net of the tax effects.
71
Merger and integration costs associated with Clearlink included in “General and administrative” costs in the
accompanying Consolidated Statement of Operations for the year ended December 31, 2016 were as follows (none
in 2015 or 2014) (in thousands):
Severance costs:
Americas …………………………………………
$
135
Year Ended
December 31, 2016
Transaction and integration costs:
Americas …………………………………………
Other ……………………………………………
29
4,470
4,499
Total merger and integration costs …………………
$
4,634
Qelp
On July 2, 2015, the Company’s wholly-owned subsidiaries, Sykes Enterprises Incorporated B.V. and Sykes
Enterprises Incorporated Holdings B.V., both Netherlands companies, entered into a definitive Share Sale and
Purchase Agreement (the “Purchase Agreement”) with MobileTimes B.V., Yarra B.V., From The Mountain
Consultancy B.V. and Sticting Administratiekantoor Qelp (the “Sellers”), all of which are Netherlands companies,
to acquire all of the outstanding shares of Qelp B.V. and its wholly owned subsidiary (together, known as “Qelp”.)
The strategic acquisition of Qelp (the “Qelp acquisition”) was to further broaden and strengthen the Company’s
service portfolio around digital self-service customer support and extend its reach into adjacent, but complementary,
markets. Pursuant to Federal income tax regulations, no amount of intangibles or goodwill from this acquisition will
be deductible for tax purposes. The results of Qelp’s operations have been included in the Company’s consolidated
financial statements since its acquisition on July 2, 2015 (the “acquisition date”).
As of the acquisition date, the total consideration paid or to be paid by the Company for the Qelp acquisition is
summarized below (in thousands):
Total
Cash ………………………………………………………………
Contingent consideration …………………………………………
Working capital adjustment ………………………………………
$
9,885
6,000
(65)
15,820
$
The consideration consists of an initial purchase price and a contingent purchase price. The initial purchase price of
$9.8 million, including certain post-closing adjustments relating to Qelp’s working capital, was funded through cash
on hand upon the closing of the transaction on July 2, 2015. The contingent purchase price to be paid over a three-
year period is based on achieving targets tied to revenues and earnings before interest, income taxes, depreciation
and amortization (“EBITDA”) for the years ended December 31, 2016, 2017 and 2018, not to exceed EUR 10.0
million.
The fair value of the contingent consideration was estimated using the discounted cash flow method, and was
included in “Other long-term liabilities” in the accompanying Consolidated Balance Sheet (see Note 4, Fair Value,
for further information). As part of the discounted cash flow method, the Company calculated an adjusted weighted
average cost of capital (“WACC”) specifically attributable to the future payments of the contingent consideration.
Based on the forecasted revenue and profitability scenarios and their respective probabilities of occurrence, the
Company estimated the present value of the probability-adjusted future payments utilizing an adjusted WACC for
the potential future payments. The Company believes that its estimates and assumptions are reasonable, but there is
significant judgment involved. Changes in the fair value of the contingent consideration liabilities subsequent to the
acquisition were recorded in the Company’s Consolidated Statements of Operations.
On September 26, 2016, the Company entered into an addendum to the Qelp Purchase Agreement with the Sellers to
settle the outstanding contingent consideration for EUR 4.0 million ($4.2 million as of December 31, 2016) to be
paid on June 30, 2017.
72
The Company accounted for the Qelp acquisition in accordance with ASC 805 (“ASC 805”) “Business
Combinations,” whereby the fair value of the purchase price was allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed from Qelp based on their estimated fair values as of the closing date. The
Company completed its analysis of the purchase price allocation during the fourth quarter of 2015.
The following table summarizes the estimated acquisition date fair values of the assets acquired and liabilities
assumed, all included in the EMEA segment (in thousands):
Cash and cash equivalents ………………………………………
Receivables (1) ……………………………………………………
Prepaid expenses …………………………………………………
Total current assets ……………………………………………
Property and equipment …………………………………………
Goodwill …………………………………………………………
Intangibles …………………………………………………………
Deferred charges and other assets …………………………………
Short-term debt ……………………………………………………
Accrued employee compensation and benefits ……………………
Income taxes payable ……………………………………………
Deferred revenue …………………………………………………
Other accrued expenses and current liabilities ……………………
Total current liabilities…………………………………………
Other long-term liabilities (2) ………………………………………
July 2, 2015
(As Initially
Reported)
$
Measurement
Period
Adjustments
$
-
(70)
-
(70)
-
480
-
-
July 2, 2015
(As Adjusted)
$
450
1,471
24
1,945
2,168
10,054
6,000
55
-
-
(32)
-
-
(32)
(378)
$
-
(323)
(207)
(94)
(967)
(1,030)
(2,621)
(1,781)
15,820
$
450
1,541
24
2,015
2,168
9,574
6,000
55
(323)
(207)
(62)
(967)
(1,030)
(2,589)
(1,403)
15,820
$
(1) The fair value equals the gross contractual value of the receivables.
(2) Primarily includes long-term deferred tax liabilities.
Fair values are based on management’s estimates and assumptions including variations of the income approach, the
cost approach and the market approach.
The following table presents the Company’s purchased intangibles assets as of July 2, 2015, the acquisition date (in
thousands):
Customer relationships ……………………………………………
Trade name and trademarks ………………………………………
Content library ……………………….……………………………
$
Amount Assigned
5,400
100
500
6,000
$
Weighted Average
Amortization Period
(years)
7
3
2
7
The amount of Qelp’s revenues and net (loss) since the July 2, 2015 acquisition date, included in the Company’s
Consolidated Statement of Operations for the year ended December 31, 2015 were as follows (in thousands):
Revenues …………………………………………………………
From July 2, 2015
Through
December 31, 2015
2,661
$
Net (loss) …………………………………………………………
$
(162)
73
Merger and integration costs associated with Qelp included in “General and administrative” costs in the
accompanying Consolidated Statement of Operations in the Other segment for the year ended December 31, 2015
were as follows (none in 2016 and 2014) (in thousands):
Transaction costs ……………………………………
Year Ended
December 31, 2015
$
455
Note 3. Costs Associated with Exit or Disposal Activities
During 2011 and 2010, the Company announced several initiatives to streamline excess capacity through targeted
seat reductions (the “Exit Plans”) in an on-going effort to manage and optimize capacity utilization. These Exit
Plans included, but were not limited to, closing customer engagement centers in The Philippines, the United
Kingdom, Ireland and South Africa and consolidating leased space in various locations in the U.S. and the
Netherlands. These Exit Plans impacted approximately 800 employees. The Company has paid $16.2 million in
cash through December 31, 2016 under these Exit Plans.
The cumulative costs expected and incurred as a result of the Exit Plans were as follows as of December 31, 2016
(in thousands):
Americas
Fourth
Quarter 2011
Exit Plan
$
EMEA
Fourth
Quarter 2011
Exit Plan
$
EMEA
Fourth
Quarter 2010
Exit Plan
Americas
Third
Quarter 2010
Exit Plan
Total
$
$
$
Lease obligations and facility exit costs ……………
Severance and related costs ………………………
Legal-related costs …………………………………
Non-cash impairment charges ……………………
Total ……………………………………………
1,365
-
-
480
1,845
19
5,857
110
474
6,460
1,914
185
-
159
2,258
6,729
-
-
3,847
10,576
10,027
6,042
110
4,960
21,139
$
$
$
$
$
The following table summarizes the accrued liability associated with the Exit Plans’ exit or disposal activities and
related charges (reversals) for the years ended December 31, 2016, 2015 and 2014 (in thousands):
Balance at January 1, 2014
Lease Obligation
and Facility Exit
Costs
$
2,843
Severance and
Related Costs
Total
$
131
$
2,974
Charges (reversals) (1) ……………...……
Cash payments …………...………………
Other non-cash changes (2) ………………
Balance at December 31, 2014
Charges (reversals) ……………...………
Cash payments …………...………………
Other non-cash changes (2) ………………
Balance at December 31, 2015
(185)
(1,095)
(5)
1,558
-
(825)
-
733
Charges (reversals) ……………...………
Cash payments …………...………………
Other non-cash changes (2) ………………
Balance at December 31, 2016
-
(733)
-
$
-
(129)
-
(2)
-
-
-
-
-
(314)
(1,095)
(7)
1,558
-
(825)
-
733
-
-
-
$
-
-
(733)
-
$
-
(1) During 2014, the Company reversed accruals related to the final settlement of lease obligations and
facility exit costs as well as severance and related costs in EMEA for the Ireland sites, which reduced
“General and administrative” costs in the accompanying Consolidated Statement of Operations.
(2) Effect of foreign currency translation.
74
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, 2016 and 2015 (in thousands):
Americas
Fourth
Quarter 2011
Exit Plan
Americas
Third
Quarter 2010
Exit Plan
Total
December 31, 2016
Short-term accrued restructuring liability (1) ……
Long-term accrued restructuring liability (2) ………
Ending accrual at December 31, 2016 ……………
$
-
-
$
-
$
-
$
-
-
$
-
-
$
-
December 31, 2015
Short-term accrued restructuring liability (1) ……
Long-term accrued restructuring liability (2) ………
Ending accrual at December 31, 2015 ……………
144
22
166
$
$
$
$
$
$
487
80
567
631
102
733
(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.
As of December 31, 2016, there is no future restructuring liability outstanding for the remainder of the lease terms,
the last of which ends in February 2017, for the Americas Fourth Quarter 2011 and Americas Third Quarter 2010
Exit Plans. The EMEA Fourth Quarter 2011 and EMEA Fourth Quarter 2010 Exit Plans were settled during 2014.
75
Note 4. 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):
Assets:
Foreign currency forward and option contracts ……………………(1)
Embedded derivatives ………………………………………………(1)
Equity investments held in rabbi trust
Fair Value Measurements at December 31, 2016 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, 2016
$
3,921
12
$
-
-
$
3,921
-
$
-
12
for the Deferred Compensation Plan ……………………………(2)
7,470
7,470
-
-
Debt investments held in rabbi trust
for the Deferred Compensation Plan ……………………………(2)
Liabilities:
Long-term debt …………………………………………………… (3)
Foreign currency forward and option contracts ……………………(1)
Embedded derivatives ………………………………………………(1)
Contingent consideration
included in "Other accrued expenses and current liabilities" ……(4)
$
1,944
13,347
$
1,944
9,414
$
-
3,921
-
$
12
$
267,000
1,912
567
-
$
-
-
$
267,000
1,912
-
-
$
-
567
$
6,100
275,579
$
-
-
-
268,912
$
$
6,100
6,667
Fair Value Measurements at December 31, 2015 Using:
S ignificant
Other
Observable
Inputs
Level (2)
Quoted Prices
in Active
Markets For
Identical Assets
Level (1)
S ignificant
Unobservable
Inputs
Level (3)
Balance at
December 31, 2015
Assets:
Foreign currency forward and option contracts ……………………(1)
Equity investments held in rabbi trust
$
10,962
$
-
$
10,962
$
-
for the Deferred Compensation Plan ……………………………(2)
6,229
6,229
Debt investments held in rabbi trust
for the Deferred Compensation Plan ……………………………(2)
Guaranteed investment certificates …………………………………(5)
1,622
86
18,899
$
1,622
-
7,851
$
-
-
86
11,048
$
-
-
-
$
-
Liabilities:
Long-term debt …………………………………………………… (3)
Foreign currency forward and option contracts ……………………(1)
Contingent consideration
included in "Other long-term liabilities" …………………………(4)
$
70,000
835
-
$
-
$
70,000
835
-
$
-
$
6,280
77,115
$
-
-
-
70,835
$
$
6,280
6,280
(1)
(2)
(3)
(4)
(5)
See Note 10, Financial Derivatives, for the classification in the accompanying Consolidated Balance Sheets.
Included in “ Other current assets” in the accompanying Consolidated Balance Sheets. See Note 11, Investments Held in Rabbi T rust.
T he carrying value of long-term debt approximates its estimated fair value as it re-prices at varying interest rates. See Note 18, Borrowings.
In the accompanying Consolidated Balance Sheets.
Included in “ Deferred charges and other assets” in the accompanying Consolidated Balance Sheets.
76
Reconciliations of Fair Value Measurements Categorized within Level 3 of the Fair Value Hierarchy
Embedded Derivatives in Lease Agreements
A rollforward of the net asset (liability) activity in the Company’s fair value of the embedded derivatives is as
follows (in thousands) (none in 2015 or 2014):
Fair Value
Balance at January 1, 2016 ……………………………………………
Gain (loss) recognized in "Other income (expense)" (1) ……………………
Effect of foreign currency …………………………….…………….……
Balance at December 31, 2016 ………………………………..…………
$
$
-
(714)
159
(555)
Unrealized gain (loss) for the year ended December 31, 2016 …………
$
(721)
(1) Includes realized and unrealized gain (loss).
Contingent Consideration
A rollforward of the activity in the Company’s fair value of the contingent consideration is as follows (in thousands)
(none in 2014):
Fair Value
$
Balance at January 1, 2015 ………………………..…………………
Acquisition (1) ………………………………………………….………
Payments ……………………………………………………………..
Imputed interest ……………………………………….……………..
Fair value adjustments ……………………………………….…………
Effect of foreign currency …………………………….…………….…
Balance at December 31, 2015 ………………………………………
Acquisition (2) ………………………………………………….………
Payments …………………………………………………………...…
Imputed interest ……………………………………….……………..
Fair value adjustments ……………………………………….…………
Effect of foreign currency …………………………….…………….…
Balance at December 31, 2016 ………………………………..……
-
6,000
-
408
-
(128)
6,280
2,779
(1,396)
754
(2,250)
(67)
6,100
$
(1) Related to the Qelp acquisition on July 2, 2015. See Note 2, Acquisitions.
(2) Liability acquired as part of the Clearlink acquisition on April 1, 2016. See Note 2,
Acquisitions.
The Company recorded a fair value adjustment of $2.6 million to the Qelp contingent consideration in “General and
administrative” in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016
due to the execution of an addendum to the Qelp Purchase Agreement with the Sellers dated September 26, 2016,
subject to which the Company will pay the Sellers EUR 4.0 million on June 30, 2017 ($4.2 million as of December
31, 2016).
The Company recorded a fair value adjustment of $(0.3) million to the Clearlink contingent consideration in
“General and administrative” in the accompanying Consolidated Statements of Operations in the year ended
December 31, 2016 due to changes in the probability of achievement of certain revenue targets.
The Company accretes interest expense each period using the effective interest method until the contingent
consideration reaches its estimated future value. Interest expense related to the contingent consideration is included
in “Interest (expense)” in the accompanying Consolidated Statements of Operations.
77
Non-Recurring Fair Value
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, 2016 and 2015.
Note 5. Goodwill and Intangible Assets
Intangible Assets
The following table presents the Company’s purchased intangible assets as of December 31, 2016 (in thousands):
Intangible assets subject to amortization:
Gross Intangibles
Accumulated
Amortization
Net Intangibles
Weighted Average
Amortization
Period (years)
$
Customer relationships …………………………
Trade names and trademarks ……………………
Non-compete agreements …………………………
Content library ……………………………………
Proprietary software ……………………………
Favorable lease agreement ………………………
Intangible assets not subject to amortization:
Domain names ……………………………………
$
166,634
14,095
2,993
475
1,550
449
52,710
238,906
$
(75,364)
(7,083)
(1,643)
(357)
(955)
(449)
$
91,270
7,012
1,350
118
595
-
$
-
(85,851)
$
52,710
153,055
10
7
2
2
3
2
N/A
6
The following table presents the Company’s purchased intangible assets as of December 31, 2015 (in thousands):
Intangible assets subject to amortization:
Gross Intangibles
Accumulated
Amortization
Net Intangibles
Weighted Average
Amortization
Period (years)
$
$
$
Customer relationships …………………………
Trade names and trademarks ……………………
Content library ……………………………………
Non-compete agreements …………………………
Proprietary software ……………………………
Favorable lease agreement ………………………
102,594
11,698
491
1,190
850
449
117,272
(58,294)
(5,470)
(123)
(1,190)
(850)
(449)
(66,376)
44,300
6,228
368
-
-
-
50,896
$
$
$
8
8
2
2
2
2
8
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, 2016, is as follows (in thousands):
Years Ending December 31,
2017 ……………………………………………………………………………………
2018 ……………………………………………………………………………………
2019 ……………………………………………………………………………………
2020 ……………………………………………………………………………………
2021 ……………………………………………………………………………………
2022 and thereafter ………………………………………………………………………
Amount
$
20,759
14,571
13,526
10,871
6,396
34,222
78
Goodwill
Changes in goodwill for the year ended December 31, 2016 consist of the following (in thousands):
January 1, 2016
Acquisition (1)
$
$
Americas ……………
EM EA ………………
186,049
9,684
195,733
Effect of Foreign
Currency
$
(770)
(122)
(892)
70,563
-
70,563
December 31, 2016
$
255,842
9,562
265,404
$
$
$
$
(1) See Note 2, Acquisitions, for further information.
Changes in goodwill for the year ended December 31, 2015 consist of the following (in thousands):
Americas ……………
EM EA ………………
January 1, 2015
$
193,831
-
193,831
$
Acquisition (1)
-
$
10,054
10,054
$
Effect of Foreign
Currency
December 31, 2015
$
$
(7,782)
(370)
(8,152)
186,049
9,684
195,733
$
$
(1) See Note 2, Acquisitions, for further information.
The Company performs its annual goodwill impairment test during the third quarter, or more frequently, if
indicators of impairment exist.
For the annual goodwill impairment test, the Company elected to forgo the option to first assess qualitative factors
and performed its annual two-step goodwill impairment test as of July 31, 2016. 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.
The process of evaluating the fair value of the reporting units is highly subjective and requires significant judgment
and estimates as the reporting units operate in a number of markets and geographical regions. The Company used an
average of the income and market approaches to determine its best estimates of fair value which incorporated the
following significant assumptions:
Revenue projections, including revenue growth during the forecast periods;
EBITDA margin projections over the forecast periods;
Estimated income tax rates;
Estimated capital expenditures; and
•
•
•
•
• Discount rates based on various inputs, including the risks associated with the specific reporting units as
well as their revenue growth and EBITDA margin assumptions.
As of July 31, 2016, the Company concluded that goodwill was not impaired for all six of its reporting units with
goodwill, based on generally accepted valuation techniques and the significant assumptions outlined above. While
the fair values of four of the six reporting units were substantially in excess of their carrying value, the Qelp
reporting unit’s fair value exceeded its carrying value (although not substantially) and the newly acquired Clearlink
reporting unit’s fair value approximated its carrying value due to the proximity to the acquisition date of April 1,
2016. The Clearlink reporting unit’s fair value of $207.9 million includes $70.6 million of goodwill.
79
The Qelp and Clearlink reporting units are at risk of future impairment if projected operating results are not met or
other inputs into the fair value measurement change. However, as of December 31, 2016, there were no indicators
of impairment for either reporting unit.
Note 6. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets
in which the Company’s services are sold. See Note 10, Financial Derivatives, for a discussion of the Company’s
credit risk relating to financial derivative instruments, and Note 25, Segments and Geographic Information, for a
discussion of the Company’s customer concentration.
Note 7. Receivables, Net
Receivables, net consist of the following (in thousands):
Trade accounts receivable ……………………………………………
Income taxes receivable ………………………………………………
Other …………………………………………………………………
Less: Allowance for doubtful accounts ………………………………
December 31,
2016
$
2015
$
316,311
1,309
3,863
321,483
2,925
318,558
271,729
4,976
3,965
280,670
3,574
277,096
$
$
Allowance for doubtful accounts as a percent of trade receivables …
0.9%
1.3%
Note 8. Prepaid Expenses
Prepaid expenses consist of the following (in thousands):
December 31,
Prepaid maintenance …………………………
Prepaid insurance ……………………………
Prepaid rent ……………………………………
Prepaid other …………………………………
2016
$
2015
$
8,279
4,161
2,920
6,613
21,973
7,509
4,207
1,919
3,686
17,321
$
$
Note 9. Other Current Assets
Other current assets consist of the following (in thousands):
December 31,
2015
$
$
12,009
7,851
10,962
2,440
33,262
Deferred tax assets (Note 20) …………………
Investments held in rabbi trust (Note 11) ……
Financial derivatives (Note 10) ………………
Other current assets …………………………
2016
-
$
9,414
3,929
2,687
16,030
$
80
Note 10. 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 and Costa Rican Colon 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,
2016
2015
Deferred gains (losses) in AOCI …………………………………
Tax on deferred gains (losses) in AOCI ………………...………
Deferred gains (losses) in AOCI, net of taxes ……….…………
(2,295)
69
(2,226)
$
$
$
$
(558)
31
(527)
Deferred gains (losses) expected to be reclassified to
"Revenues" from AOCI during the next twelve months ………
$
(2,295)
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 – The Company enters into foreign exchange forward contracts to hedge its net investment
in certain foreign operations, as defined under ASC 815. 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
Foreign Currency Forward Contracts – 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 relating primarily 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. 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.
Embedded Derivatives – The Company enters into certain lease agreements which require payments not
denominated in the functional currency of any substantial party to the agreements. The foreign currency component
of these contracts meets the criteria under ASC 815 as embedded derivatives. The Company has determined that the
embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host
contracts (lease agreements), and separate, stand-alone instruments with the same terms as the embedded derivative
instruments would otherwise qualify as derivative instruments, thereby requiring separation from the lease
agreements and recognition at fair value. Such instruments do not qualify for hedge accounting under ASC 815.
81
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
As of December 31, 2016
As of December 31, 2015
Notional
Amount in
US D
S ettle Through
Date
Notional
Amount in
US D
S ettle Through
Date
Contract Type
Cash flow hedges:
Options:
Philippine Pesos ……………… $ 51,000 December 2017
$ 71,750 December 2016
Forwards:
Costa Rican Colones ………… 45,500 December 2017
34,500 November 2016
Net investment hedges:
Forwards:
Euros ………………………… 76,933
S eptember 2017
63,470 M arch 2016
Non-designated hedges:
Forwards ………………………… 55,614 March 2017
Embedded derivatives …………… 13,234 April 2030
50,603 M arch 2016
-
-
Master netting agreements exist with each respective counterparty to reduce credit risk by permitting net settlement
of derivative positions. 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. The maximum amount of loss due to credit risk that, based on gross fair value, the
Company would incur if parties to the derivative transactions that make up the concentration failed to perform
according to the terms of the contracts was $3.9 million and $11.0 million as of December 31, 2016 and 2015,
respectively. After consideration of these netting arrangements and offsetting positions by counterparty, the total net
settlement amount as it relates to these positions are asset positions of $3.6 million and $10.2 million, and liability
positions of $1.6 million and $0.1 million as of December 31, 2016 and 2015, respectively.
Although legally enforceable master netting arrangements exist between the Company and each counterparty, 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.
82
The following tables present the fair value of the Company’s derivative instruments included in the accompanying
Consolidated Balance Sheets (in thousands):
Derivatives designated as cash flow hedging instruments
under AS C 815:
Foreign currency forward and option contracts (1) ……………
$
-
$
544
Derivative Assets
December 31, 2016
Fair Value
December 31, 2015
Fair Value
Derivatives designated as net investment hedging
instruments under AS C 815:
Foreign currency forward contracts (1) …………………………
Derivatives not designated as hedging instruments under
AS C 815:
Foreign currency forward contracts (1) …………………………
Embedded derivatives (1) ………………………………………
Embedded derivatives (2) ………………………………………
3,230
3,230
691
8
4
10,161
10,705
257
-
-
Total derivative assets ……………………………………
$
3,933
$
10,962
Derivative Liabilities
December 31, 2016
Fair Value
December 31, 2015
Fair Value
Derivatives designated as cash flow hedging instruments
under AS C 815:
Foreign currency forward and option contracts (3) ……………
$
1,806
$
396
Derivatives not designated as hedging instruments under
AS C 815:
Foreign currency forward contracts (3) …………………………
Embedded derivatives (3) ………………………………………
Embedded derivatives (4) ………………………………………
106
174
393
439
-
-
Total derivative liabilities …………………………………
$
2,479
$
835
(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.
83
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, 2016, 2015 and 2014 (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 and Amount
Excluded from Effectiveness
Testing)
December 31,
December 31,
December 31,
2016
2015
2014
2016
2015
2014
2016
2015
2014
Derivatives designated as cash flow hedging
instruments under AS C 815:
Foreign currency forward and option contracts …… (2,308)
$
$
1,696
$
(2,787)
$
(553)
$
2,138
$
(5,339)
$
(5)
$
12
$
(3)
Derivatives designated as net investment
hedging instruments under AS C 815:
Foreign currency forward contracts ……………
3,409
6,101
6,344
-
-
-
-
-
-
$
1,101
$
7,797
$
3,557
$
(553)
$
2,138
$
(5,339)
$
(5)
$
12
$
(3)
Gain (Loss) Recognized in "Other
income (expense)" on Derivatives
December 31,
2016
2015
2014
Derivatives not designated as hedging
instruments under AS C 815:
Foreign currency forward contracts ………………… (1,556)
Embedded derivatives ………………………………
(714)
(2,270)
$
$
$
1,374
$
(44)
-
1,374
$
-
$
(44)
Note 11. Investments Held in Rabbi Trust
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets”
in the accompanying Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
December 31, 2016
December 31, 2015
M utual funds ……………………………………………
Cost
$
7,257
Fair Value
9,414
$
Cost
$
6,217
Fair Value
7,851
$
The mutual funds held in the rabbi trust were 79% equity-based and 21% debt-based as of December 31, 2016. Net
investment income (losses), included in “Other income (expense)” in the accompanying Consolidated Statements of
Operations consists of the following (in thousands):
2016
$
Years Ended December 31,
2015
$
2014
$
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) …………………………
245
(4)
92
249
582
356
(1)
79
(597)
(163)
586
-
58
(276)
368
$
$
$
84
Note 12. Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
Land …………...……………………………………….
Buildings and leasehold improvements …………………
Equipment, furniture and fixtures ………………………
Capitalized internally developed software costs ………
Transportation equipment ………………………………
Construction in progress ………………………………
Less: Accumulated depreciation …………………………
2016
$
2015
$
3,360
126,323
306,443
29,176
531
10,693
476,526
320,312
156,214
3,447
96,926
291,993
17,299
546
8,703
418,914
306,952
111,962
$
$
Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the
accompanying Consolidated Balance Sheets was as follows (in thousands):
December 31,
Capitalized internally developed software costs, net ……
2016
$
15,156
2015
$
8,135
Sale of Fixed Assets, Land and Building Located in Morganfield, Kentucky
In December 2016, the Company sold the fixed assets, land and building located in Morganfield, Kentucky, with a
net carrying value of $0.3 million, for cash of $0.5 million (net of selling costs of less than $0.1 million). This
resulted in a net gain on disposal of property and equipment of $0.2 million, which is included in “Net gain (loss) on
disposal of property and equipment” in the accompanying Consolidated Statement of Operations for the year ended
December 31, 2016.
Winter Storm Damage
In February 2015, customer engagement centers (the “facilities”) located in Perry County, Kentucky, Buchanan
County, Virginia, and Wise, Virginia experienced damage to the buildings and contents as a result of winter storms.
The Company filed an insurance claim with its property insurance company to recover losses of $1.6 million. The
Company received $0.5 million and $1.1 million in April 2015 and July 2015, respectively, for costs to clean up and
repair the facilities and business interruption. The Company completed the necessary clean up and repairs. The
claim was finalized during the third quarter of 2015, resulting in a $0.9 million net gain on insurance settlement
included in “General and administrative” in the accompanying Consolidated Statement of Operations for the year
ended December 31, 2015.
Sale of Fixed Assets, Land and Building Located in Bismarck, North Dakota
In November 2014, the Company sold the fixed assets, land and building located in Bismarck, North Dakota, with a
net carrying value of $0.5 million, for cash of $3.1 million (net of selling costs of $0.2 million). This resulted in a
net gain on disposal of property and equipment of $2.6 million, which is included in “Net gain (loss) on disposal of
property and equipment” in the accompanying Consolidated Statement of Operations for the year ended December
31, 2014.
85
Note 13. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
December 31,
Non-current mandatory tax security deposits (Note 20)……
Non-current deferred tax assets (Note 20)……………………
Rent and other deposits ………………………………………
Non-current value added tax receivables ………………………
Other …………………………………………………………
2016
$
2015
$
13,810
12,983
4,816
581
6,304
38,494
13,418
1,899
3,803
673
6,351
26,144
$
$
Note 14. 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 …………………………………………
2016
$
2015
$
38,774
17,607
17,540
12,134
6,497
92,552
28,215
16,439
17,754
8,465
6,373
77,246
$
$
Note 15. Deferred Revenue
Deferred revenue consists of the following (in thousands):
December 31,
Future service ……………………………………
Estimated potential penalties and holdbacks ……
Estimated chargebacks ……………………………
2016
$
$
27,116
6,593
5,027
38,736
2015
$
22,112
6,007
-
$
28,119
Note 16. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consist of the following (in thousands):
December 31,
Contingent consideration (Note 4) ………………………………………
Accrued legal and professional fees ……………………………………
Accrued rent ……………………………………………………………
Customer deposits ………………………………………………………
Financial derivatives (Note 10) …………………………………………
Accrued roadside assistance claim costs ………………………………
Accrued utilities …………………………………………………………
Accrued telephone charges ………………………………………………
Accrued equipment and software ………………………………………
Accrued restructuring (Note 3) …………………………………………
Other ……………………………………………………………………
2016
$
6,100
2,956
2,911
2,291
2,086
1,997
1,704
1,444
745
-
15,685
37,919
2015
-
$
3,079
1,812
714
835
1,405
1,097
1,381
935
631
9,587
21,476
$
$
86
Note 17. Deferred Grants
Deferred grants consist of the following (in thousands):
December 31,
2016
2015
Property grants ………...………………………
Lease grants ………...……………………………
$
Employment grants ………...……………………
Total deferred grants ………………………
Less: Property grants - short-term (1) ………...…
Less: Lease grants - short-term (1) ………...……
Less: Employment grants - short-term (1) ………
Total long-term deferred grants ………...…
3,353
502
67
3,922
-
(94)
(67)
$
4,377
513
149
5,039
-
(80)
(149)
$
4,810
$
3,761
(1)
Included in "Other accrued expenses and current
Consolidated Balance Sheets.
liabilities" in the accompanying
Note 18. Borrowings
On May 12, 2015, the Company entered into a $440 million revolving credit facility (the “2015 Credit Agreement”)
with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner, Administrative
Agent, Swing Line Lender and Issuing Lender (“KeyBank”). The 2015 Credit Agreement replaced the Company’s
previous $245 million revolving credit facility dated May 3, 2012 (the “2012 Credit Agreement”), as amended,
which agreement was terminated simultaneous with entering into the 2015 Credit Agreement. The 2015 Credit
Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive
covenants.
The 2015 Credit Agreement includes a $200 million alternate-currency sub-facility, a $10 million swingline sub-
facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including
acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The
Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that
exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be
available to the Company, even though it is a binding commitment of the financial institutions.
Borrowings consist of the following (in thousands):
December 31,
Revolving credit facility …………………………………
Less: Current portion ……………………………………
Total long-term debt ………………………………………
267,000
-
267,000
$
$
70,000
-
70,000
2016
$
2015
$
On April 1, 2016, the Company borrowed $216.0 million under its 2015 Credit Agreement in connection with the
acquisition of Clearlink, of which $4.0 million represented a short-term loan to Clearlink for working capital
purposes.
The 2015 Credit Agreement matures on May 12, 2020 and has no varying installments due.
Borrowings under the 2015 Credit Agreement will bear interest at the rates set forth in the 2015 Credit Agreement.
In addition, the Company is required to pay certain customary fees, including a commitment fee determined
quarterly based on the Company’s leverage ratio and due quarterly in arrears and calculated on the average unused
amount of the 2015 Credit Agreement.
The 2015 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.
87
In May 2015, the Company paid an underwriting fee of $0.9 million for the 2015 Credit Agreement, which is
deferred and amortized over the term of the loan, along with the deferred loan fees of $0.4 million related to the
2012 Credit Agreement.
The following table presents information related to our credit agreements (dollars in thousands):
Average daily utilization …………………………………
2016
$
222,612
Years Ended December 31,
2015
$
69,964
2014
$
85,874
Interest expense, including commitment fee (1) ……….
$
3,952
$
1,307
$
1,425
Weighted average interest rate (2) ………………………
1.8%
1.9%
1.7%
(1) Excludes the amortization of deferred loan fees.
(2) Includes the commitment fee.
Note 19. 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, 2014 ………………………
Pre-tax amount ………………………………..
Tax (provision) benefit …………………………
Reclassification of (gain) loss to net income ……
Foreign currency translation ……………………
Balance at December 31, 2014 ……………………
Pre-tax amount ………………………………..
Tax (provision) benefit …………………………
Reclassification of (gain) loss to net income ……
Foreign currency translation ……………………
Balance at December 31, 2015 ……………………
Pre-tax amount ………………………………..
Tax (provision) benefit …………………………
Reclassification of (gain) loss to net income ……
Foreign currency translation ……………………
Balance at December 31, 2016……………………
Foreign
Currency
Translation
Gain (Loss)
12,751
$
(34,947)
-
-
120
(22,076)
(37,178)
-
647
6
(58,601)
(13,832)
-
-
40
(72,393)
Unrealized
Gain (Loss) on
Net
Investment
Hedges
Unrealized
Actuarial Gain
(Loss) Related
to Pension
Liability
$
$
Unrealized
Gain (Loss) on
Cash Flow
Hedging
Instruments
$
Unrealized
Gain (Loss) on
Post
Retirement
Obligation
$
1,150
(50)
57
(35)
(114)
1,008
121
(2)
(53)
(45)
1,029
212
(8)
(52)
(56)
1,125
(2,535)
(2,790)
(17)
5,237
(6)
(111)
1,708
32
(2,195)
39
(527)
(2,313)
72
527
16
(2,225)
Total
$
7,997
(31,366)
(2,345)
5,153
-
(20,561)
(29,260)
(2,177)
(1,664)
-
(53,662)
(12,533)
(1,249)
417
-
$
(67,027)
314
77
-
(49)
-
342
(12)
-
(63)
-
267
(9)
-
(58)
-
200
$
$
$
$
$
(3,683)
6,344
(2,385)
-
-
276
6,101
(2,207)
-
-
4,170
3,409
(1,313)
-
-
6,266
88
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 Statements of Operations (in
thousands):
Foreign Currency Translation Gain (Loss): (1)
Pre-tax amount ……………………………….………….
Tax (provision) benefit ………………………………….
Reclassification to net income …………………………..
Actuarial Gain (Loss) Related to Pension Liability: (2)
Pre-tax amount ……………………………….………….
Tax (provision) benefit ………………………………….
Reclassification to net income …………………………..
Gain (Loss) on Cash Flow Hedging Instruments: (3)
Pre-tax amount ……………………………….………….
Tax (provision) benefit ………………………………….
Reclassification to net income …………………………..
Gain (Loss) on Post Retirement Obligation: (2)
Pre-tax amount ……………………………….………….
Tax (provision) benefit ………………………………….
Reclassification to net income …………………………..
Total reclassification of gain (loss) to net income …..
Years Ended December 31,
2015
2014
2016
S tatements of Operations
Location
-
$
-
-
$
(647)
-
(647)
-
$
-
-
Other income (expense)
Income taxes
40
12
52
(558)
31
(527)
41
12
53
2,150
45
2,195
50
(15)
35
(5,342)
105
(5,237)
Direct salaries and related costs
Income taxes
Revenues
Income taxes
58
-
58
(417)
$
63
-
63
1,664
$
49
-
49
(5,153)
$
General and administrative
Income taxes
(1) See Note 26, Other Income (Expense), for further information.
(2) See Note 23, Defined Benefit Pension Plan and Postretirement Benefits, for further information.
(3) See Note 10, Financial Derivatives, for further information.
Except as discussed in Note 20, Income Taxes, earnings associated with the Company’s investments in its foreign
subsidiaries are considered to be indefinitely reinvested and no provision for income taxes on those earnings or
translation adjustments have been provided.
Note 20. Income Taxes
The income before income taxes includes the following components (in thousands):
Years Ended December 31,
2015
$
$
41,178
48,805
89,983
$
$
2016
34,761
54,123
88,884
2014
28,563
48,596
77,159
Domestic (U.S., state and local) ………………………………………
$
Foreign ………………………………………………………………
Total income before income taxes …………………………………
$
89
Significant components of the income tax provision are as follows (in thousands):
Years Ended December 31,
2015
2016
2014
Current:
U.S. federal ………………………………………………...……….
State and local …………………………………………...………….
Foreign ………………………………………………………………
Total current provision for income taxes …………………………
$
9,514
1,958
12,683
24,155
$
7,374
1,051
10,446
18,871
$
2,579
542
11,382
14,503
Deferred:
U.S. federal …………………...…………………………………….
State and local ……………...……………………………………….
Foreign ………………………………………………………………
Total deferred provision (benefit) for income taxes ………………
2,007
(526)
858
2,339
3,873
(1,227)
(131)
2,515
5,437
(446)
(126)
4,865
Total provision for income taxes …………………………………
$
26,494
$
21,386
$
19,368
The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as
follows (in thousands):
Net operating loss and tax credit carryforwards ……………………
Accrued expenses/liabilities …………………………………………
Depreciation and amortization ………………………………………
Valuation allowance …………………………………………………
Deferred statutory income ……………………………………………
Other …………………………………………………………………
Total deferred provision (benefit) for income taxes ………………
$
$
285
1,173
1,286
901
(1,394)
88
2,339
2016
Years Ended December 31,
2015
$
$
3,564
2,856
(2,231)
(1,958)
266
18
2,515
2014
19,335
(4,505)
(6,220)
(3,706)
(29)
(10)
4,865
$
$
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):
2016
$
Years Ended December 31,
2015
$
2014
$
Tax at U.S. federal statutory tax rate …………………………………
State income taxes, net of federal tax benefit ………………………..
Foreign rate differential ………………………………………………
Tax holidays …………………………………………………………
Permanent differences ………………………………………………
Tax credits ……………………………………………………………
Foreign withholding and other taxes …………………………………
Change in valuation allowance, net of related adjustments …………
Changes in uncertain tax positions ……………………………………
Other …………………………………………………………………
Total provision for income taxes …………………………………
31,109
1,432
(15,837)
(3,314)
12,768
(4,396)
2,667
994
398
673
26,494
31,494
(177)
(14,030)
(4,031)
11,737
(4,102)
2,321
(631)
(1,858)
663
21,386
27,005
934
(13,164)
(2,749)
10,170
(4,894)
2,541
(7)
(468)
-
19,368
$
$
$
Withholding taxes on offshore cash movements assessed by certain foreign governments of $2.0 million, $1.7
million and $1.8 million were included in the provision for income taxes in the accompanying Consolidated
Statements of Operations for the years ended December 31, 2016, 2015 and 2014, respectively.
Earnings associated with the investments in the Company’s foreign subsidiaries of $418.6 million at December 31,
2016 are considered to be indefinitely reinvested outside of the U.S. Therefore, a U.S. provision for income taxes
on those earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740
“Income Taxes.” Determination of any unrecognized deferred tax liability related to these investments in foreign
subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which the
Company operates.
90
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 2019 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 in the local jurisdiction, the impact of which is not practicable to estimate due to the
inherent complexity of estimating critical variables such as long-term future profitability, tax regulations and rates in
the multi-national tax environment in which the Company operates. The Company’s tax holidays decreased the
provision for income taxes by $3.3 million ($0.08 per diluted share), $4.0 million ($0.09 per diluted share) and $2.7
million ($0.06 per diluted share) for the years ended December 31, 2016, 2015 and 2014, 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,
2016
2015
Net operating loss and tax credit carryforwards ……………………
Valuation allowance ………………...………………………………
Accrued expenses ……………………………………………………
Deferred revenue ……………………………………………………
Depreciation and amortization ………………………………………
Other …………………………………………………………………
$
Deferred tax liabilities:
Depreciation and amortization ………………………………………
Deferred statutory income ……………………………………………
Accrued liabilities ……………………………………………………
Other …………………………………………………………………
Net deferred tax assets …………………………………………..
$
31,297
(30,221)
25,593
7,031
1,062
15
34,777
(23,177)
(986)
(1,604)
(104)
(25,871)
8,906
$
32,328
(30,065)
24,276
3,193
953
54
30,739
(19,826)
(579)
(1,104)
(119)
(21,628)
9,111
$
Classified as follows:
December 31,
2016
2015
Other current assets (Note 9) ………………………………………
Deferred charges and other assets (Note 13)…………………………
Current deferred income tax liabilities ………………………………
Other long-term liabilities ………………………………………..
$
-
12,983
-
(4,077)
8,906
$
$
12,009
1,899
(1,120)
(3,677)
9,111
Net deferred tax assets …………………………………………
$
There are approximately $145.4 million of income tax loss carryforwards as of December 31, 2016, with varying
expiration dates, approximately $109.5 million relating to foreign operations and $35.9 million relating to U.S. state
operations. With respect to foreign operations, $88.9 million of the net operating loss carryforwards have an
indefinite expiration date and the remaining $20.6 million net operating loss carryforwards have varying expiration
dates through December 2037. Regarding the U.S. state and foreign aforementioned tax loss carryforwards, no
benefit has been recognized for $20.0 million and $106.0 million, respectively, as the Company does not anticipate
that the losses will more likely than not be fully utilized.
The Company has accrued $8.5 million and $8.1 million as of December 31, 2016 and 2015, respectively, excluding
penalties and interest, for the liability for unrecognized tax benefits. The increase is primarily due to the effects of
foreign exchange rate adjustments. The $8.5 million and $8.1 million of the unrecognized tax benefits at December
31, 2016 and 2015, respectively, were recorded in “Long-term income tax liabilities” in the accompanying
Consolidated Balance Sheets. Had the Company recognized these tax benefits, approximately $8.5 million and $8.1
million, and the related interest and penalties, would have favorably impacted the effective tax rate in 2016 and
2015, respectively. The Company anticipates that approximately $0.5 million of the unrecognized tax benefits will
be recognized in the next twelve months due to a lapse in the applicable statute of limitations.
91
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income
taxes. The Company had $10.8 million and $10.4 million accrued for interest and penalties as of December 31, 2016
and 2015, respectively. Of the accrued interest and penalties at December 31, 2016 and 2015, $3.5 million and $3.4
million, respectively, relate to statutory penalties. The amount of interest and penalties, net, included in the provision
for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31,
2016, 2015 and 2014 was $0.4 million, $0.3 million and $(0.5) million, respectively.
The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):
Gross unrecognized tax benefits as of January 1, …………………
Decreases due to lapse in applicable statute of limitations …………
Foreign currency translation increases (decreases) …………………
Gross unrecognized tax benefits as of December 31, ...……………
8,116
-
415
8,531
$
13,285
(2,206)
(2,963)
8,116
$
14,991
-
(1,706)
13,285
$
$
$
Years Ended December 31,
2015
2014
2016
$
The Company is currently under audit in several tax jurisdictions. The Company received assessments for the
Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian
Revenue Agency and the U.S. Internal Revenue Service and the Company paid mandatory security deposits to
Canada as part of this process. The total amount of deposits, net of the effects of foreign exchange rate adjustments,
were $13.8 million and $13.4 million as of December 31, 2016 and 2015, respectively, and are included in
“Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. 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
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, 2016:
Tax Jurisdiction
Canada ……………………………………………………………...…2003 to present
United States (1) ………………………………………………………2013 to present
Tax Year Ended
(1) The 2002 to 2012 tax years are open to the extent of the tax credit carryforward
amounts.
92
Note 21. Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the periods.
Diluted earnings per share includes the weighted average number of common shares outstanding during the
respective periods and the further dilutive effect, if any, from stock 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 ……………
41,847
41,899
42,609
Years Ended December 31,
2015
2014
2016
Diluted:
Dilutive effect of stock appreciation rights, restricted
stock, restricted stock units and shares held
in rabbi trust …………………………………………..
Total weighted average diluted shares outstanding ……………
Anti-dilutive shares excluded from the diluted earnings per
share calculation …………………………….………………..
392
42,239
548
42,447
205
42,814
20
20
37
On August 18, 2011, the Company’s Board of Directors (the “Board”) authorized the Company to purchase up to
5.0 million shares of its outstanding common stock (the “2011 Share Repurchase Program”). On March 16, 2016,
the Board authorized an increase of 5.0 million shares to the 2011 Share Repurchase Program for a total of 10.0
million shares. A total of 5.3 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 shares repurchased under the Company’s share repurchase programs were as follows (in thousands, except per
share amounts):
For the Years Ended
December 31, 2016 ……………………
December 31, 2015 ……………………
December 31, 2014 ……………………
Total Number
of S hares
Repurchased
390
860
630
Range of Prices Paid Per S hare
Low
$
$
$
27.81
22.81
19.80
High
$
$
$
30.00
25.00
20.00
Total Cost of
S hares
Repurchased
11,144
$
$
20,879
$
12,581
Note 22. Commitments and Loss Contingency
Lease and Purchase Commitments
The Company leases certain equipment and buildings under operating leases, which expire at various dates through
2035, many with options to cancel at varying points during the lease. Fair value renewal and escalation clauses exist
for many of the operating leases. Rental expense under operating leases was as follows (in thousands):
Rental expense ……………………………………………
2016
$
55,584
Years Ended December 31,
2015
$
47,208
2014
$
44,916
93
The following is a schedule of future minimum rental payments required under operating leases that have
noncancelable lease terms as of December 31, 2016 (in thousands):
Amount
$
2017 ………………………………………………………
2018 ………………………………………………………
2019 ………………………………………………………
2020 ………………………………………………………
2021 ………………………………………………………
2022 and thereafter ………………………………………
Total minimum payments required ……………………
$
46,712
39,774
33,666
27,680
22,012
48,808
218,652
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 generally are not
cancelable, range from one to five year periods and may 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, 2016
(in thousands):
Amount
$
2017 ………………………………………………………
2018 ………………………………………………………
2019 ………………………………………………………
2020 ………………………………………………………
2021 ………………………………………………………
2022 and thereafter ………………………………………
Total minimum payments required ……………………
$
40,667
7,359
4,091
1,083
239
334
53,773
On July 2, 2015, the Company completed the Qelp acquisition, which included contingent consideration based on
achieving targets tied to revenues and EBITDA for the years ended December 31, 2016, 2017 and 2018. On
September 26, 2016, the Company entered into an addendum to the Qelp Purchase Agreement with the Sellers to
settle the outstanding contingent consideration for EUR 4.0 million ($4.2 million as of December 31, 2016) to be
paid on June 30, 2017.
As part of the April 2016 Clearlink acquisition, the Company assumed contingent consideration liabilities related to
four separate acquisitions made by Clearlink in 2015 and 2016, prior to the Clearlink acquisition. The fair value of
the contingent consideration related to these previous acquisitions was $2.8 million as of April 1, 2016 and was
based on achieving targets primarily tied to revenues for varying periods of time during 2016 and 2017. As of
December 31, 2016, the fair value of the contingent consideration was $1.9 million. The estimated future value of
the contingent consideration is $2.0 million and is expected to be paid on varying dates through July 2017.
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.
94
The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum
potential for future payments the Company could be obligated to make. The Company has not recorded any liability
for these indemnities, commitments and guarantees in the accompanying Consolidated Balance Sheets. In addition,
the Company has some client contracts that do not contain contractual provisions for the limitation of liability, and
other client contracts that contain agreed upon exceptions to limitation of liability. The Company has not recorded
any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under which the
Company has or may have unlimited liability.
Loss Contingency
The Company, from time to time, is involved in legal actions arising in the ordinary course of business. With respect
to these matters, management believes that the Company 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 23. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The Company sponsors 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, 2016, the Pension Plans were unfunded. The Company expects to make no cash contributions to
its Pension Plans during 2017.
The following table provides 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,
2016
$
2015
$
Beginning benefit obligation ……………………………
Service cost ………………………………………………
Interest cost ………………………………………………
Actuarial (gains) losses …………………………………
Benefits paid ……………………………………………
Effect of foreign currency translation ……………………
Ending benefit obligation ……………………………
3,409
443
165
(212)
(72)
(182)
3,551
$
$
3,100
433
135
(121)
-
(138)
3,409
Unfunded status …………………………………………
Net amount recognized ……………………………
$
(3,551)
(3,551)
(3,409)
(3,409)
$
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 …………………………
5.5-5.6%
2.0%
5.0-5.4%
2.0%
Years Ended December 31,
2015
2016
2014
4.5-4.9%
2.0%
The Company evaluates these assumptions on a periodic basis taking into consideration current market conditions
and historical market data. The discount rate is used to calculate expected future cash flows at a present value on the
measurement date, which is December 31. This rate represents the market rate for high-quality fixed income
investments. A lower discount rate would increase the present value of benefit obligations. Other assumptions
include demographic factors such as retirement, mortality and turnover.
95
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,
2016
2015
2014
Service cost …………………………………………………
$
443
$
433
$
387
Interest cost …………………………………………………
Recognized actuarial (gains) ………………………………
Net periodic benefit cost ……………………………………
Unrealized net actuarial (gains), net of tax …………………
Total amount recognized in net periodic benefit cost
and other accumulated comprehensive income (loss) ……
165
(40)
568
(1,126)
135
(41)
527
(1,029)
104
(50)
441
(1,008)
$
(558)
$
(502)
$
(567)
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):
Years Ending December 31,
2017 …………………………………………………
2018 …………………………………………………
2019 …………………………………………………
2020 …………………………………………………
2021 …………………………………………………
2022 - 2026 …………………………………………
Amount
$
101
42
244
133
146
1,136
The Company expects to recognize less than $0.1 million of net actuarial gains as a component of net periodic
benefit cost in 2017.
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):
401(k) plan contributions …………………
$
969
$
832
$
870
2016
Years Ended December 31,
2015
2014
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,
2016
2015
Postretirement benefit obligation …………
Unrealized gains (losses) in AOCI (1) ………
$
27
200
$
37
267
(1)
Unrealized gains (losses) are due to changes in discount rates related to the
postretirement obligation.
96
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 24. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the 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,
2016
2015
2014
Stock-based compensation (expense) (1) ……………………………………
Income tax benefit (2) ………………………………………………………
Excess tax benefit (deficiency) from stock-based compensation (3) ………
$
(10,779)
$
(8,749)
$
(6,381)
4,150
2,098
3,281
422
2,233
(82)
(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, 2016, 2015 and 2014.
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,
members of the Company’s Board of Directors 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 Resources
Development Committee (the “Compensation 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
Compensation Committee, equal to the amount by which the fair market value of a share of common stock at the
time of exercise exceeds the grant price.
The SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest
one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the
Company on such date. The SARs have a term of 10 years from the date of grant. In the event of a change in
control, the SARs will vest on the date of the change in control, provided that the participant is employed by the
Company on the date of the change in control.
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
97
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,
2016
2015
2014
Expected volatility …………………………..……………………………
Weighted-average volatility …………………………………………….…
Expected dividend rate ……………………………………………………
Expected term (in years) ……………………………………………………
Risk-free rate ………………………………………………………………
25.3%
25.3%
0.0%
5.0
1.5%
34.1%
34.1%
0.0%
5.0
1.6%
38.9%
38.9%
0.0%
5.0
1.7%
The following table summarizes SARs activity as of December 31, 2016 and for the year then ended:
S tock Appreciation Rights
S hares (000s)
Outstanding at January 1, 2016………………………………………..……
Granted ……………………………………..………………….…………
481
323
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (000s)
Weighted
Average
Exercise Price
$
-
$
-
Exercised …………………………...………………………………………
(151)
$
-
Forfeited or expired ……………………………………………………….
(20)
$
-
Outstanding at December 31, 2016 ……………………………………
Vested or expected to vest at December 31, 2016 ………………………
Exercisable at December 31, 2016 ………………………………….……
633
633
118
$
-
$
-
$
-
8.2
8.2
5.8
$
1,941
$
1,941
$
785
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR
amounts):
Number of SARs granted …………………………………………………
323
217
246
Years Ended December 31,
2016
2015
2014
Weighted average grant-date fair value per SAR ……………………………
$
7.68
$
8.17
$
7.20
Intrinsic value of SARs exercised …………………………………………
$
1,691
$
5,957
$
391
Fair value of SARs vested …………………………………………………
$
1,520
$
1,302
$
1,553
98
The following table summarizes nonvested SARs activity as of December 31, 2016 and for the year then ended:
Nonvested S tock Appreciation Rights
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2016 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
424
323
$
7.50
$
7.68
Vested ……………………………………………………………..…………………………
(213)
$
7.14
Forfeited or expired ……………………………………………..…………………………
(19)
$
7.68
Nonvested at December 31, 2016 ………………………………………………...…………
515
$
7.76
As of December 31, 2016, there was $2.5 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested SARs granted under the 2011 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 Compensation 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) 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.
99
The following table summarizes nonvested restricted shares/RSUs activity as of December 31, 2016 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, 2016 …………………………………………..…………………..…
1,246
$
20.03
Granted …………………………………………………………..…………………………
451
$
30.32
Vested ……………………………………………………………..…………………………
Forfeited or expired ……………………………………………..…………………………
(421)
(140)
$
16.10
$
20.87
Nonvested at December 31, 2016 ………………………………………………...…………
1,136
$
25.47
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands,
except per restricted share/RSU amounts):
Years Ended December 31,
2016
2015
2014
Number of restricted shares/RSUs granted …………………………………
451
441
500
Weighted average grant-date fair value per restricted share/RSU …………
$
30.32
$
25.06
$
19.77
Fair value of restricted shares/RSUs vested ………………………………
$
6,785
$
2,019
$
895
As of December 31, 2016, based on the probability of achieving the performance goals, there was $17.5 million of
total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted shares/RSUs
granted under the 2011 Plan. This cost is expected to be recognized over a weighted average period of 1.7 years.
Non-Employee Director Fee Plan — The Company’s 2004 Non-Employee Director Fee Plan (the “2004 Fee
Plan”), as amended on May 17, 2012, provided that all new non-employee directors joining the Board would 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 vested 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 provided that each non-employee director would 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 vested 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 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 was 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 provided 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
100
Chairperson of the Audit Committee is $20,000 and Audit Committee members’ are entitled to an annual cash
award of $10,000. The annual cash awards for the Chairpersons of the Compensation Committee, Finance
Committee and Nominating and Corporate Governance Committee are $15,000, $12,500 and $12,500, respectively,
and all other members of such committees are entitled to an annual cash award of $7,500.
The 2004 Fee Plan expired in May 2014, prior to the 2014 Annual Shareholder Meeting. In March 2014, upon the
recommendation of the Compensation Committee, the Board determined that, following the expiration of the 2004
Fee Plan, the compensation of non-employee Directors should continue on the same terms as provided in the Fifth
Amended and Restated Non-Employee Director Fee Plan, except the amounts of cash and equity grants shall be
determined annually by the Board, and that the stock portion of such compensation would be issued under the 2011
Plan.
At the Board’s regularly scheduled meeting on December 10, 2014, upon the recommendation of the Compensation
Committee, the Board determined that the amount of the cash and equity compensation payable to non-employee
directors beginning on the date of the 2015 annual shareholder meeting would be increased as follows: cash
compensation would be increased by $5,000 per year to a total of $55,000 and equity compensation would be
increased by $25,000 per year to a total of $100,000. No change would be made in the additional amounts payable
to the Chairman of the Board or the Chairs or members of the various Board committees for their service on such
committees, and no changes would be made in the payment terms described above for such cash and equity
compensation.
At the Board’s regularly scheduled meeting on December 9, 2015, upon the recommendation of the Compensation
Committee, the Board determined that the amount of the cash and equity compensation payable to non-employee
directors beginning on the date of the 2016 annual shareholders’ meeting would remain unchanged.
At the Board’s regularly scheduled meeting on December 6, 2016, upon the recommendation of the Compensation
Committee, the Board determined that the amount of the cash compensation payable to non-employee directors
beginning on the date of the 2017 annual shareholder meeting would be increased by $15,000 per year to a total of
$70,000.
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, 2016 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, 2016 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
11
32
$
23.74
$
29.04
Vested ……………………………………………………………..…………………………
(32)
$
27.49
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2016 ………………………………………………...…………
(1)
10
$
24.70
$
28.69
The following table summarizes information regarding common stock share awards granted and vested (in
thousands, except per share award amounts):
Years Ended December 31,
2015
2014
2016
Number of share awards granted ……………………………………………
Weighted average grant-date fair value per share award ……………………
Fair value of share awards vested …………………………………………
32
29.04
850
$
$
32
24.70
790
$
$
36
20.15
630
$
$
101
As of December 31, 2016, there was $0.2 million of total unrecognized compensation costs, net of estimated
forfeitures, related to nonvested common stock share awards granted under the 2004 Fee Plan. This cost is expected
to be recognized over a weighted average period of 0.6 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.
It was last amended and restated on December 9, 2015, effective as of January 1, 2016, and was subsequently
amended on May 18, 2016, effective as of June 30, 2016, and August 17, 2016, effective as of January 1, 2017.
Eligibility is limited to a select group of key management and employees who are expected to receive an annualized
base salary (which will not take into account bonuses or commissions) that exceeds the amount taken into account
for purposes of determining highly compensated employees under Section 414(q) of the Internal Revenue Code of
1986 based on the current year’s base salary and applicable dollar amounts. The Deferred Compensation Plan
provides participants with the ability to defer between 1% and 80% of their compensation (between 1% and 100%
prior to June 30, 2016, the effective date of the first amendment) 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 participants on a quarterly basis up to a total of $12,000 per year for the
president, chief executive officer and executive vice presidents, $7,500 per year for senior vice presidents, global
vice presidents and vice presidents, and, effective January 1, 2017, $5,000 per year for all other participants (there
was no match for other participants prior to January 1, 2017, the effective date of the second amendment). Matching
contributions and the associated earnings vest over a seven-year service period. Vesting will be accelerated in the
event of the participant’s death or disability, a change in control or retirement (defined as separate from service after
age 65). In the event of a distribution of benefits as a result of a change in control of the Company, the Company
will increase the benefit by an amount sufficient to offset the income tax obligations created by the distribution of
benefits. 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 11, Investments Held in Rabbi
Trust). As of December 31, 2016 and 2015, liabilities of $9.4 million and $7.9 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 $1.8 million and $1.6 million at December 31, 2016 and 2015, respectively, is included in
“Treasury stock” in the accompanying Consolidated Balance Sheets.
The following table summarizes nonvested common stock activity as of December 31, 2016 and for the year then
ended:
Nonvested Common S tock
S hares (000s)
Weighted
Average Grant-
Date Fair
Value
Nonvested at January 1, 2016 …………………………………………..…………………..…
Granted …………………………………………………………..…………………………
3
8
$
19.53
$
29.36
Vested ……………………………………………………………..…………………………
(9)
$
27.91
Forfeited or expired ……………………………………………..…………………………
Nonvested at December 31, 2016 ………………………………………………...…………
-
2
$
23.49
$
22.77
The following table summarizes information regarding shares of common stock granted and vested (in thousands,
except per common stock amounts):
Years Ended December 31,
2015
2014
2016
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 …………………………………………
8
29.36
255
396
$
$
$
8
25.06
244
65
$
$
$
10
20.54
212
1,493
$
$
$
102
As of December 31, 2016, there was less than $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 2.7 years.
Note 25. 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 engagement solutions (with an emphasis on
inbound technical support, digital marketing and demand generation, and customer service) and technical staffing
and (2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer engagement
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 engagement needs.
103
Information about the Company’s reportable segments was as follows (in thousands):
Year Ended December 31, 2016:
Revenues ……………………………………………
Percentage of revenues ………………………………
$
1,220,818
83.6%
$
239,089
16.4%
$
130
0.0%
$
1,460,037
100.0%
Americas
EMEA
Other (1)
Consolidated
Depreciation, net ……………………………………
Amortization of intangibles …………………………
$
$
42,436
18,329
$
$
4,532
1,048
$
2,045
$
-
$
$
49,013
19,377
Income (loss) from operations ………………………
Other (expense), net ………………………………..
Income taxes …………………………………………
$
140,131
Net income ……………………………………………
$
18,380
$
(66,263)
(3,364)
(26,494)
$
92,248
(3,364)
(26,494)
$
62,390
Total assets as of December 31, 2016 ……………
$
1,777,546
$
1,493,764
$
(2,034,907)
$
1,236,403
Year Ended December 31, 2015:
Revenues ……………………………………………
Percentage of revenues ………………………………
$
1,045,415
81.3%
$
240,826
18.7%
$
99
0.0%
$
1,286,340
100.0%
Depreciation, net ……………………………………
Amortization of intangibles …………………………
$
$
37,842
13,648
$
$
4,559
522
$
1,351
$
-
$
$
43,752
14,170
Income (loss) from operations ………………………
Other (expense), net ………………………………..
Income taxes …………………………………………
$
135,443
Net income ……………………………………………
$
15,336
$
(56,515)
(4,281)
(21,386)
$
94,264
(4,281)
(21,386)
$
68,597
Total assets as of December 31, 2015………………… 1,058,467
$
$
1,419,578
$
(1,530,273)
$
947,772
Year Ended December 31, 2014:
Revenues ……………………………………………
Percentage of revenues ………………………………
$
1,070,824
80.7%
$
256,699
19.3%
-
$
0.0%
$
1,327,523
100.0%
Depreciation, net ……………………………………
Amortization of intangibles …………………………
$
$
40,557
14,396
$
4,806
$
-
$
-
$
-
$
$
45,363
14,396
Income (loss) from operations ………………………
Other (expense), net ………………………………..
Income taxes …………………………………………
$
113,549
$
16,208
Net income ……………………………………………
$
(50,202)
(2,396)
(19,368)
$
79,555
(2,396)
(19,368)
$
57,791
Total assets as of December 31, 2014………………… 1,080,010
$
$
1,373,590
$
(1,509,100)
$
944,500
(1) Other items (including corporate and other costs, impairment costs, other income and expense, and income taxes) are shown for
purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the years ended December 31,
2016, 2015 and 2014.
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 revenues and income (loss) from operations, and does not include
segment assets or other income and expense items for management reporting purposes.
104
Total revenues by segment from AT&T Corporation (“AT&T”), a major provider of communication services for
which the Company provides various customer support services over several distinct lines of AT&T businesses,
were as follows (in thousands):
2016
Amount
$
$
239,033
-
239,033
Years Ended December 31,
2015
Amount
$
$
217,449
3,003
220,452
% of
Revenues
20.8%
1.2%
17.1%
% of
Revenues
19.6%
0.0%
16.4%
Americas………………
EM EA…………………
2014
Amount
$
$
212,607
3,519
216,126
% of
Revenues
19.9%
1.4%
16.3%
The Company has multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire at
varying dates between 2017 and 2018. 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 the contracts without penalty.
Total revenues by segment from the Company’s next largest client, which was in the financial services vertical in
each of the years, were as follows (in thousands):
Americas………………
EM EA…………………
2016
Amount
$
$
90,508
-
90,508
% of
Revenues
7.4%
0.0%
6.2%
Years Ended December 31,
2015
Amount
$
62,980
-
62,980
$
% of
Revenues
6.0%
0.0%
4.9%
2014
Amount
$
$
70,255
-
70,255
% of
Revenues
6.6%
0.0%
5.3%
Other than AT&T, total revenues by segment of the Company’s clients that each individually represents 10% or
greater of that segment’s revenues in each of the periods were as follows (in thousands):
2016
Years Ended December 31,
2015
2014
Amount
$
-
96,115
96,115
$
% of
Revenues
0.0%
40.2%
6.6%
Amount
-
$
68,720
68,720
$
% of
Revenues
0.0%
28.5%
5.3%
Amount
$
-
79,811
79,811
$
% of
Revenues
0.0%
31.1%
6.0%
Americas………………
EM EA…………………
The Company’s top ten clients accounted for approximately 49.2%, 48.5% and 46.8% of its consolidated revenues
during the years ended December 31, 2016, 2015 and 2014, respectively.
105
Information about the Company’s revenues by geographic location was as follows (in thousands):
Revenues: (1)
Years Ended December 31,
2015
2016
2014
$
$
$
United States ……………………………………………
The Philippines …………………………………………
Costa Rica ………………………………………………
Canada ……………………………………………………
El Salvador ………………………………………………
China ……………………………………………………
Australia …………………………………………………
M exico ……………………………………………………
Colombia …………………………………………………
Brazil ……………………………………………………
India ………………………………………………………
Total Americas ………………………………………
Germany …………………………………………………
Sweden ……………………………………………………
United Kingdom …………………………………………
Romania …………………………………………………
Hungary …………………………………………………
Norway …………………………………………………
Finland ……………………………………………………
Netherlands ………………………………………………
Egypt ……………………………………………………
Denmark …………………………………………………
Slovakia …………………………………………………
Total EM EA …………………………………………
Total Other ……………………………………………
578,753
235,333
124,823
115,226
69,937
34,851
24,267
18,167
8,901
6,474
4,086
1,220,818
78,982
59,313
38,167
21,387
10,762
8,815
6,827
6,080
4,766
3,990
-
239,089
130
1,460,037
422,584
216,170
114,483
133,549
63,462
36,270
23,960
18,338
7,381
5,442
3,776
1,045,415
82,120
56,600
50,209
15,474
9,164
8,382
4,643
3,783
3,552
3,898
3,001
240,826
99
1,286,340
425,746
205,332
97,295
195,739
52,609
32,167
33,126
20,439
3,073
3,005
2,293
1,070,824
88,887
68,057
42,328
18,288
8,723
10,265
4,295
3,126
4,633
4,578
3,519
256,699
-
1,327,523
$
$
$
(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.
106
Information about the Company’s long-lived assets by geographic location was as follows (in thousands):
Long-Lived Assets: (1)
December 31,
2016
2015
$
$
United States ……………………………………………
The Philippines …………………………………………
Costa Rica ………………………………………………
Canada ……………………………………………………
El Salvador ………………………………………………
China ……………………………………………………
Australia …………………………………………………
M exico ……………………………………………………
Colombia …………………………………………………
Brazil ……………………………………………………
India ………………………………………………………
Total Americas ………………………………………
Germany …………………………………………………
Sweden ……………………………………………………
United Kingdom …………………………………………
Romania …………………………………………………
Hungary …………………………………………………
Norway …………………………………………………
Finland ……………………………………………………
Netherlands ………………………………………………
Egypt ……………………………………………………
Denmark …………………………………………………
Slovakia …………………………………………………
Total EM EA …………………………………………
Total Other ……………………………………………
230,001
14,149
10,848
7,810
3,860
2,949
1,625
1,114
2,132
1,316
928
276,732
1,934
1,165
2,570
2,061
527
458
481
5,746
109
42
-
15,093
17,444
309,269
93,941
10,844
7,382
10,278
3,329
3,523
2,396
1,307
1,299
1,047
301
135,647
1,973
1,681
3,652
678
536
278
226
7,243
105
81
-
16,453
10,758
162,858
$
$
(1)
Long-lived assets include property and equipment, net, and intangibles, net.
Goodwill by segment was as follows (in thousands):
December 31,
2016
2015
Americas ………………………………………………
EM EA …………………………………………………
$
255,842
9,562
265,404
$
186,049
9,684
195,733
$
$
Revenues for the Company’s products and services were as follows (in thousands):
Customer engagement services …………………………
Fulfillment services ………………………………………
Enterprise support services ………………………………
$
$
Years Ended December 31,
2015
1,261,465
21,434
3,441
1,286,340
$
2016
1,448,621
10,422
994
1,460,037
$
$
2014
1,303,607
18,392
5,524
1,327,523
$
107
Note 26. Other Income (Expense)
Other income (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) ……………...……………………………………
2016
$
Years Ended December 31,
2015
$
2014
$
3,348
(2,270)
-
521
1,599
(2,924)
1,374
(647)
(287)
(2,484)
(1,740)
(44)
-
441
(1,343)
$
$
$
Note 27. Related Party Transactions
In January 2008, the Company entered into a lease for a customer engagement 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 of the Company 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 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,
2016, 2015 and 2014 under the terms of the lease.
108
Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2016, 2015 and 2014:
(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, 2016 ……………………
Year ended December 31, 2015 ………………………
Year ended December 31, 2014 ………………………
$
3,574
4,661
4,987
89
278
(181)
$
(738)
(1,365)
(145)
$
2,925
3,574
4,661
Valuation allowance for net deferred tax assets:
Year ended December 31, 2016 …………………… 30,065
Year ended December 31, 2015 ……………………… 34,146
Year ended December 31, 2014 ……………………… 42,664
$
$
156
(4,081)
(8,518)
-
$
-
-
$
30,221
30,065
34,146
Reserves for value added tax receivables:
Year ended December 31, 2016 ……………………
Year ended December 31, 2015 ………………………
Year ended December 31, 2014 ………………………
$
283
275
2,530
$
(148)
-
(638)
$
(58)
8
(1,617)
$
77
283
275
(1) Net write-offs and recoveries, including the effect of foreign currency translation.
109
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SYKES is a global business process outsourcing (BPO) leader in providing comprehensive inbound
customer engagement services to Global 2000 companies, primarily in the communications,
financial services, healthcare, technology, transportation and retail industries. SYKES’ differentiated
end-to-end service platform effectively engages consumers at every touch point in their customer
lifecycle, starting from digital marketing and acquisition to customer support, technical support,
up-sell/cross-sell and retention. Headquartered in Tampa, Florida, with customer contact engagement
centers throughout the world, SYKES provides its services through multiple communication
channels encompassing phone, email, web, chat, social media and digital self-service. Utilizing its
integrated onshore/offshore and virtual at-home agent delivery models, 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
order processing, inventory control, product delivery and product returns handling. For additional
information please visit www.sykes.com.
BOARD OF DIRECTORS
JAMES S. MACLEOD
Chairman of the Board
Chairman and CEO
CoastalSouth Bancshares, Inc.
CARLOS E. EVANS
Director
Board Affiliations:
Goldman Sachs Middle Market BDC
VANESSA C.L. CHANG
Director
Director, EL & EL Investments
Director, Edison International
Director, Transocean Ltd.
Director, American Funds Family and
other funds advised by Capital Group
PAUL L. WHITING
Director
President
Seabreeze Holdings, Inc.
Chief Executive Officer (retired)
Spalding & Evenflo Companies, Inc.
LORRAINE LEIGH LUTTON
Director
Chief Executive Officer
Roper St. Francis Healthcare
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
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
WILLIAM D. MUIR, JR.
Director
Chief Operating Officer
Jabil Circuit, Inc.
CHARLES E. SYKES
Director
(Principal Executive Officer)
President and Chief Executive Officer
Sykes Enterprises, Incorporated
PRINCIPAL OFFICERS
CHARLES E. SYKES
President and Chief Executive Officer
ANDREW J. BLANCHARD
Executive Vice President
and General Manager
JOHN CHAPMAN
Executive Vice President and
Chief Financial Officer
JAMES D. FARNSWORTH
Executive Vice President
and General Manager
JAMES T. HOLDER
Executive Vice President,
General Counsel and Corporate Secretary
JENNA R. NELSON
Executive Vice President,
Human Resources
DAVID L. PEARSON
Executive Vice President
and Chief Information Officer
LAWRENCE R. ZINGALE
Executive Vice President
and General Manager
CORPORATE HEADQUARTERS
400 North Ashley Drive, Suite 2800, Tampa, FL USA 33602 • phone: (813) 274-1000 • fax: (813) 273-0148 • www.sykes.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP • 201 N. Franklin St., Suite 3600, Tampa, FL USA 33602
REGISTRAR AND TRANSFER AGENT
Computershare • P.O. Box 43078, Providence, RI 02940-3078 • (800) 962-4284
SYKES’ shares trade on The NasdaqGS Stock Market under the symbol “SYKE”
ANNUAL MEETING
SYKES’ annual meeting of shareholders will be held at 8:00 a.m. (EDT) • Wednesday, May 24, 2017
The meeting will be held at: Rivergate Tower, 400 N. Ashley Drive, Suite 320, 3rd Floor, Conference Room A, Tampa, FL 33602
INVESTOR INFORMATION
Quarterly Reports on Form 10-Q and the Form 10-K Annual Report filed with the Securities and Exchange Commission
are available on the Company’s website at: http://investor.sykes.com or upon written request to SYKES’ Investor Relations
department in Tampa, Florida, or by contacting:
Subhaash Kumar • Global Vice President, Finance and Investor Relations • phone: (813) 274-1000
@
Sykes Enterprises, Incorporated
400 North Ashley Drive, Suite 2800
Tampa, FL 33602, USA
www.sykes.com
Annual Report 2016