SYKES ENTERPRISES INC, 10-K filed on 2/26/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 07, 2019
Jun. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol SYKE    
Entity Registrant Name SYKES ENTERPRISES INC    
Entity Central Index Key 0001010612    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   42,777,546  
Entity Public Float     $ 1,185,240,552
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 128,697 $ 343,734
Receivables, net 347,425 341,958
Prepaid expenses 23,754 22,132
Other current assets 16,761 19,743
Total current assets 516,637 727,567
Property and equipment, net 135,418 160,790
Goodwill, net 302,517 269,265
Intangibles, net 174,031 140,277
Deferred charges and other assets 43,364 29,193
Total assets 1,171,967 1,327,092
Current liabilities:    
Accounts payable 26,923 32,133
Accrued employee compensation and benefits 95,813 102,899
Income taxes payable 1,433 2,606
Deferred revenue and customer liabilities 30,176 34,717
Other accrued expenses and current liabilities 31,235 30,888
Total current liabilities 185,580 203,243
Deferred grants 2,241 3,233
Long-term debt 102,000 275,000
Long-term income tax liabilities 23,787 27,098
Other long-term liabilities 31,750 22,039
Total liabilities 345,358 530,613
Commitments and loss contingency (Note 22)
Shareholders' equity:    
Preferred stock, $0.01 par value per share, 10,000 shares authorized; no shares issued and outstanding
Common stock, $0.01 par value per share, 200,000 shares authorized; 42,778 and 42,899 shares issued, respectively 428 429
Additional paid-in capital 286,544 282,385
Retained earnings 598,788 546,843
Accumulated other comprehensive income (loss) (56,775) (31,104)
Treasury stock at cost: 126 and 117 shares, respectively (2,376) (2,074)
Total shareholders' equity 826,609 796,479
Total liabilities and shareholders' equity $ 1,171,967 $ 1,327,092
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares issued 42,778,000 42,899,000
Treasury stock, shares 126,000 117,000
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Revenues $ 1,625,687 $ 1,586,008 $ 1,460,037
Operating expenses:      
Direct salaries and related costs 1,072,907 1,039,677 947,593
General and administrative 407,285 376,825 351,681
Depreciation, net 57,350 55,972 49,013
Amortization of intangibles 15,542 21,082 19,377
Impairment of long-lived assets 9,401 5,410  
Total operating expenses 1,562,485 1,498,966 1,367,664
Income from operations 63,202 87,042 92,373
Other income (expense):      
Interest income 706 696 607
Interest (expense) (4,743) (7,689) (5,570)
Other income (expense), net (2,248) 1,258 1,474
Total other income (expense), net (6,285) (5,735) (3,489)
Income before income taxes 56,917 81,307 88,884
Income taxes 7,991 49,091 26,494
Net income $ 48,926 $ 32,216 $ 62,390
Net income per common share:      
Basic $ 1.16 $ 0.77 $ 1.49
Diluted $ 1.16 $ 0.76 $ 1.48
Weighted average common shares outstanding:      
Basic 42,090 41,822 41,847
Diluted 42,246 42,141 42,239
v3.10.0.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement Of Income And Comprehensive Income [Abstract]      
Net income $ 48,926 $ 32,216 $ 62,390
Other comprehensive income (loss), net of taxes:      
Foreign currency translation adjustments, net of taxes (21,938) 36,078 (13,792)
Unrealized gain (loss) on net investment hedges, net of taxes   (5,220) 2,096
Unrealized gain (loss) on cash flow hedging instruments, net of taxes (4,335) 4,696 (1,698)
Unrealized actuarial gain (loss) related to pension liability, net of taxes 682 449 96
Unrealized gain (loss) on postretirement obligation, net of taxes (80) (80) (67)
Other comprehensive income (loss), net of taxes (25,671) 35,923 (13,365)
Comprehensive income (loss) $ 23,255 $ 68,139 $ 49,025
v3.10.0.1
Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2015 $ 678,680 $ 428 $ 275,380 $ 458,325 $ (53,662) $ (1,791)
Beginning Balance, shares at Dec. 31, 2015   42,785        
Stock-based compensation expense 10,779   10,779      
Excess tax benefit from stock-based compensation 2,098   2,098      
Issuance of common stock under equity award plans, net of forfeitures   $ 4 190     (194)
Issuance of common stock under equity award plans, net of forfeitures, Share   425        
Shares repurchased for tax withholding on equity awards (4,916) $ (2) (4,914)      
Shares repurchased for tax withholding on equity awards, Share   (169)        
Repurchase of common stock (11,144)         (11,144)
Retirement of treasury stock   $ (1) (2,176) (2,104)   4,281
Retirement of treasury stock, shares   (146)        
Comprehensive income (loss) 49,025     62,390 (13,365)  
Ending Balance at Dec. 31, 2016 724,522 $ 429 281,357 518,611 (67,027) (8,848)
Ending Balance, shares at Dec. 31, 2016   42,895        
Stock-based compensation expense 7,621   7,621      
Issuance of common stock under equity award plans, net of forfeitures   $ 4 250     (254)
Issuance of common stock under equity award plans, net of forfeitures, Share   386        
Shares repurchased for tax withholding on equity awards (3,882) $ (1) (3,881)      
Shares repurchased for tax withholding on equity awards, Share   (132)        
Retirement of treasury stock   $ (3) (3,194) (3,831)   7,028
Retirement of treasury stock, shares   (250)        
Comprehensive income (loss) 68,139     32,216 35,923  
Ending Balance at Dec. 31, 2017 796,479 $ 429 282,385 546,843 (31,104) (2,074)
Ending Balance, shares at Dec. 31, 2017   42,899        
Cumulative effect of accounting change | Accounting Standards Update 2016-09 [Member] 79   232 (153)    
Stock-based compensation expense 7,543   7,543      
Issuance of common stock under equity award plans, net of forfeitures     302     (302)
Issuance of common stock under equity award plans, net of forfeitures, Share   (3)        
Shares repurchased for tax withholding on equity awards (3,687) $ (1) (3,686)      
Shares repurchased for tax withholding on equity awards, Share   (118)        
Comprehensive income (loss) 23,255     48,926 (25,671)  
Ending Balance at Dec. 31, 2018 826,609 $ 428 $ 286,544 598,788 $ (56,775) $ (2,376)
Ending Balance, shares at Dec. 31, 2018   42,778        
Cumulative effect of accounting change | Accounting Standards Update 2014-09 [Member] $ 3,019     $ 3,019    
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net income $ 48,926 $ 32,216 $ 62,390
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 57,817 56,482 49,600
Amortization of intangibles 15,542 21,082 19,377
Amortization of deferred grants (657) (716) (845)
Impairment losses 9,401 5,410  
Unrealized foreign currency transaction (gains) losses, net (843) (4,671) (1,104)
Stock-based compensation expense 7,543 7,621 10,779
Deferred income tax provision (benefit) (1,509) 7,908 2,339
Net (gain) loss on disposal of property and equipment 312 474 314
Write-downs (recoveries) of value added tax receivables     (148)
Unrealized (gains) losses and premiums on financial instruments, net 805 (98) 521
Amortization of deferred loan fees 269 269 269
Imputed interest expense and fair value adjustments to contingent consideration   (529) (1,496)
Other 834 (34) (37)
Changes in assets and liabilities, net of acquisitions:      
Receivables, net (8,224) (10,154) (32,905)
Prepaid expenses (1,690) (221) (3,587)
Other current assets (693) (1,433) (3,398)
Deferred charges and other assets (13,621) (930) (1,286)
Accounts payable (1,571) 7,286 (2,938)
Income taxes receivable / payable (1,066) 1,137 4,999
Accrued employee compensation and benefits (6,418) 5,101 15,699
Other accrued expenses and current liabilities 449 (5,548) 5,090
Deferred revenue and customer liabilities (1,623) (5,866) 6,343
Other long-term liabilities 5,111 20,003 2,850
Net cash provided by operating activities 109,094 134,789 132,826
Cash flows from investing activities:      
Capital expenditures (46,884) (63,344) (78,342)
Cash paid for business acquisitions, net of cash acquired (78,395) (9,075) (205,324)
Net investment hedge settlement   (5,122) 10,339
Purchase of intangible assets (8,156) (4,825) (10)
Investment in equity method investees (5,000) (5,012)  
Other 1,495 101 582
Net cash (used for) investing activities (136,940) (87,277) (272,755)
Cash flows from financing activities:      
Payments of long-term debt (231,000)   (19,000)
Proceeds from issuance of long-term debt 58,000 8,000 216,000
Cash paid for repurchase of common stock     (11,144)
Proceeds from grants 31 163 202
Shares repurchased for tax withholding on equity awards (3,687) (3,882) (4,916)
Payments of contingent consideration related to acquisitions   (5,760) (1,396)
Net cash provided by (used for) financing activities (176,656) (1,479) 179,746
Effects of exchange rates on cash, cash equivalents and restricted cash (10,072) 31,178 (8,468)
Net increase (decrease) in cash, cash equivalents and restricted cash (214,574) 77,211 31,349
Cash, cash equivalents and restricted cash – beginning 344,805 267,594 236,245
Cash, cash equivalents and restricted cash – ending 130,231 344,805 267,594
Supplemental disclosures of cash flow information:      
Cash paid during period for interest 3,888 6,680 4,003
Cash paid during period for income taxes 19,587 24,342 18,764
Non-cash transactions:      
Property and equipment additions in accounts payable 1,944 6,056 10,692
Unrealized gain (loss) on postretirement obligation in accumulated other comprehensive income (loss) $ (80) $ (80) $ (67)
v3.10.0.1
Overview and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Overview and Summary of Significant Accounting Policies

Note 1. Overview and Summary of Significant Accounting Policies

Business Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) is a leading provider of multichannel demand generation and global customer engagement services.  SYKES provides differentiated full lifecycle customer engagement solutions and services primarily to Global 2000 companies and their end customers principally within the financial services, communications, technology, transportation & leisure, healthcare and other industries. SYKES primarily provides customer engagement solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. SYKES also provides various enterprise support services in the United States that include services for its clients’ internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services, which include order processing, payment processing, inventory control, product delivery and product returns handling. Additionally, through the Company’s acquisition of robotic processing automation (“RPA”) provider Symphony Ventures Ltd (“Symphony”) coupled with our investment in artificial intelligence (“AI”) through XSell Technologies, Inc. (“XSell”), the Company also provides a suite of solutions such as consulting, implementation, hosting and managed services that optimizes its differentiated full lifecycle management services platform. The Company has operations in two reportable segments entitled (1) the Americas, 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, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim; and (2) EMEA, which includes Europe, the Middle East and Africa.

U.S. 2017 Tax Reform Act

On December 20, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”) was approved by Congress and received presidential approval on December 22, 2017. In general, the 2017 Tax Reform Act reduced the United States (“U.S.”) corporate income tax rate from 35% to 21%, effective in 2018. The 2017 Tax Reform Act moved from a worldwide business taxation approach to a participation exemption regime. The 2017 Tax Reform Act also imposed base-erosion prevention measures on non-U.S. earnings of U.S. entities, as well as a one-time mandatory deemed repatriation tax on accumulated non-U.S. earnings. The impact of the 2017 Tax Reform Act on the consolidated financial results began with the fourth quarter of 2017, the period of enactment. This impact, along with the transitional taxes discussed in Note 20, Income Taxes, is reflected in the Other segment.

Acquisitions

On November 1, 2018, the Company completed the acquisition of Symphony, pursuant to a definitive Share Purchase Agreement (the “Symphony Purchase Agreement”) entered into on October 18, 2018 (the “Symphony acquisition”). The Company has reflected Symphony’s results in its consolidated financial statements in the EMEA segment since November 1, 2018.  

On July 9, 2018, the Company completed the acquisition of WhistleOut Pty Ltd and WhistleOut Inc. (together, “WhistleOut”), pursuant to a definitive Share Sale Agreement (the “WhistleOut Sale Agreement”).  The Company has reflected WhistleOut’s results in its consolidated financial statements in the Americas segment since July 9, 2018.  

In May 2017, the Company completed the acquisition of certain assets of a Global 2000 telecommunications services provider, pursuant to a definitive Asset Purchase Agreement (the “Telecommunications Asset Acquisition Purchase Agreement”) entered into on April 24, 2017 (the “Telecommunications Asset acquisition”).  The Company has reflected the Telecommunications Asset acquisition’s results in its consolidated financial statements in the Americas segment since May 31, 2017.  

In April 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 Clearlink’s results in its consolidated financial statements in the Americas segment since April 1, 2016.

The Company’s acquisitions during 2017 and 2018 were immaterial to the Company individually and in the aggregate.  See Note 3, Acquisitions, for additional information.  

Principles of Consolidation The consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. Investments in less than majority-owned subsidiaries in which the Company does not have a controlling interest, but does have significant influence, are accounted for as equity method investments. 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. On February 14, 2019, the Company entered into a new credit agreement.  See Note 18, Borrowings, for further information. There were no other material subsequent events that required recognition or disclosure in the accompanying consolidated financial statements.

Cash, Cash Equivalents and Restricted cash — Cash and cash equivalents consist of cash and highly liquid short-term investments, primarily held in non-interest-bearing investments which have original maturities of less than 90 days. Cash in the amount of $128.7 million and $343.7 million at December 31, 2018 and 2017, respectively, was primarily held in non-interest bearing accounts. Cash and cash equivalents of $115.7 million and $335.1 million at December 31, 2018 and 2017, respectively, were held in international operations. Most of these funds will not be subject to additional taxes if repatriated to the United States. There are circumstances where the Company may be unable to repatriate some of the cash and cash equivalents held by its international operations due to country restrictions.

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.  

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheets that sum to the amounts reported in the Consolidated Statements of Cash Flows (in thousands):

 

 

December 31,

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

Cash and cash equivalents

$

128,697

 

 

$

343,734

 

 

$

266,675

 

 

$

235,358

 

Restricted cash included in "Other current assets"

 

149

 

 

 

154

 

 

 

160

 

 

 

207

 

Restricted cash included in "Deferred charges and

   other assets"

 

1,385

 

 

 

917

 

 

 

759

 

 

 

680

 

 

$

130,231

 

 

$

344,805

 

 

$

267,594

 

 

$

236,245

 

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 publicly available credit and capital market information, a review of the current status of the Company’s trade accounts receivable and the 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 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. Other than what has been disclosed in Note 5, Fair Value, the Company determined that its property and equipment was not impaired as of December 31, 2018 and 2017.

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. The Company may elect to forgo this option and proceed to the quantitative goodwill impairment test.  If the Company elects 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 the Company elects to forgo this qualitative assessment, the Company will proceed to the quantitative goodwill impairment test where the fair value of a reporting unit is calculated based on discounted future probability-weighted cash flows. If the quantitative goodwill impairment test indicates that the carrying value of a reporting unit is in excess of its fair value, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

Intangible Assets — Definite-lived intangible assets, primarily customer relationships, 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 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.  

Investments in Equity Method Investees — The Company uses the equity method to account for investments in companies if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss of an equity method investment is included in consolidated net income. Judgment regarding the level of influence over an equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.

The Company evaluates an equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.  As of December 31, 2018 and 2017, the Company did not identify any instances where the carrying values of its equity method investments were not recoverable.

In July 2017, the Company made a strategic investment of $10.0 million in XSell for 32.8% of XSell’s preferred stock. The Company is incorporating XSell’s machine learning and AI algorithms into its business. The Company believes this will increase the sales performance of its agents to drive revenue for its clients, improve the experience of the Company’s clients’ end customers and enhance brand loyalty, reduce the cost of customer care and leverage analytics and machine learning to source the best agents and improve their performance.

The Company’s net investment in XSell of $9.2 million and $9.8 million was included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets as of December 31, 2018 and 2017, respectively.  The Company’s investment was paid in two installments of $5.0 million, one in July 2017 and one in August 2018. The Company’s proportionate share of XSell’s income (loss) of $(0.7) million and $(0.1) million was included in “Other income (expense), net” in the accompanying Consolidated Statements of Operations for the years ended December 31, 2018 and 2017, respectively.  

Customer-Acquisition Advertising Costs — The Company’s advertising costs are expensed as incurred. Total advertising costs included in the accompanying Consolidated Statements of Operations were as follows (in thousands):

 

 

Years Ended December 31,

 

 

2018

 

 

2017

 

 

2016

 

Customer-acquisition advertising costs included

   in "Direct salaries and related costs"

$

49,657

 

 

$

36,659

 

 

$

28,116

 

Customer-acquisition advertising costs included

   in "General and administrative"

 

60

 

 

 

115

 

 

 

 

 

Stock-Based Compensation — The Company has three stock-based compensation plans: the 2011 Equity Incentive Plan (for employees and certain non-employees), approved by the Company’s shareholders, the Non-Employee Director Fee Plan (for non-employee directors) 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.  

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 the debt bears interest based on variable market rates, as outlined in the debt agreement.

 

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.

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 11, 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 12, 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 B.V. (“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 balance sheet 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), net” 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 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), net” 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, 2018 and 2017, 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), net”, depending on the underlying risk exposure.  See Note 11, 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

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”) and subsequent amendments (together, “ASC 842”). 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 have the option to either apply the amendments (1) at the beginning of the earliest period presented using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements or (2) at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without the need to restate prior periods. There are also certain optional practical expedients that an entity may elect to apply.

The Company’s implementation team has compiled a detailed inventory of leases, performed a preliminary analysis of the impact to the financial statements, and implemented a lease accounting software solution to assist in complying with ASC 842. Additionally, the implementation team is evaluating the impact of ASC 842 on the Company’s business processes, systems and internal controls, and has begun the process of instituting changes where needed.

The Company elected to use the package of practical expedients that allows it to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company additionally elected to use the practical expedients that allows lessees to treat the lease and non-lease components of leases as a single lease component as well as the short-term lease recognition exemption for certain of the Company’s asset classes. The Company will adopt this guidance at the adoption date of January 1, 2019, using the transition method that allows it to initially apply ASC 842 as of January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company does not expect to recognize a material adjustment to retained earnings upon adoption.

The adoption of ASC 842 will have a material impact on the Company’s Consolidated Balance Sheet due to the recognition of the right-of-use (“ROU”) assets and lease liabilities. The Company believes that the majority of its leases will maintain their current lease classification under ASC 842. The adoption of ASC 842 is not expected to have a material impact on the Company’s Consolidated Statement of Operations or Consolidated Statement of Cash Flows. Because of the transition method the Company has elected, ASC 842 will not be applied to periods prior to adoption and, therefore, will have no impact on the Company’s previously reported results. The future undiscounted minimum lease payments for the Company’s operating leases of $253.3 million as of December 31, 2018 are discussed in Note 22, Commitments and Loss Contingency. Upon adoption of ASC 842, the Company expects to recognize operating lease ROU assets in the range of $212.0 million to $217.0 million and lease liabilities in the range of $225.0 million to $230.0 million, which generally reflects the present value of these future payments. After the adoption of ASC 842, the Company will first report the ROU assets and lease liabilities as of March 31, 2019 based on its lease portfolio as of that date.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). These amendments remove, modify or add certain disclosure requirements for fair value measurements.  These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Certain of the amendments will be applied prospectively in the initial year of adoption while the remainder are required to be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company is evaluating the timing of its adoption of ASU 2018-13 but does not expect a material impact on its disclosures.

Retirement Benefits

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans - General (Subtopic 715-20) – Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). These amendments remove, modify or add certain disclosure requirements for defined benefit plans.  These amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted.  The Company is evaluating the timing of its adoption of ASU 2018-14 but does not expect a material impact on its disclosures.

Cloud Computing

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. These amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early application permitted in any interim period after issuance of this update.  The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.  The Company is evaluating the timing of its adoption of ASU 2018-15 but does not expect a material impact on its financial condition, results of operations, cash flows and disclosures.

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedge Activities (“ASU 2017-12”). These amendments help simplify certain aspects of hedge accounting and better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  For cash flow and net investment hedges as of the adoption date, the guidance requires a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively.  These amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early application permitted in any interim period after issuance of this update.  The Company does not expect the adoption of ASU 2017-12 to materially impact its financial condition, results of operations, cash flows and disclosures.

Financial Instruments – Credit Losses

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. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (“ASU 2018-19”). These amendments clarify that receivables arising from operating leases are accounted for using the lease guidance in ASC 842 and not as financial instruments. 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 expects ASU 2016-13 to apply to its trade receivables but does not expect the adoption of the amendments to have a material impact on its financial condition, results of operations or cash flows because credit losses associated from trade receivables have historically been insignificant. Additionally, the Company does not anticipate early adopting ASU 2016-13.

New Accounting Standards Recently Adopted

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) and subsequent amendments (together, “ASC 606”). ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and indicates 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.  The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective transition method.

See Note 2, Revenues, for further details as well as the Company’s significant accounting policy for the Recognition of Revenues.

Financial Instruments

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 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 applies 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 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 adoption of ASU 2016-01 on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements.

Statement of 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 have been applied using a retrospective transition method to each period presented. The adoption of ASU 2016-15 on January 1, 2018 did not have a material impact on the Company’s 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 have been applied using a retrospective transition method to each period presented. The inclusion of restricted cash increased the beginning balance of cash in the Consolidated Statements of Cash Flows by $1.1 million for the year ended December 31, 2018, increased the beginning and ending balance of cash by $0.9 million and $1.1 million, respectively, for the year ended December 31, 2017 and increased the beginning and ending balances of cash by $0.9 million and $0.9 million, respectively, for the year ended December 31, 2016. Other than the change in presentation within the accompanying Consolidated Statements of Cash Flows, the retrospective adoption of ASU 2016-18 on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements.

Income Taxes

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.  The adoption of ASU 2016-16 on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements and no cumulative-effect adjustment to retained earnings was required.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the 2017 Tax Reform Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. The Company evaluated the accounting treatment options related to the GILTI provisions and elected to treat any potential GILTI inclusions as a current period cost.  The election did not have a material impact on the Company’s consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”). These amendments add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”). SAB 118, issued in December 2017, directs taxpayers to consider the implications of the 2017 Tax Reform Act as provisional when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. As described in Note 20, Income Taxes, and in accordance with SAB 118, the Company recorded amounts that were considered provisional as of December 31, 2017 and finalized the calculations in December 2018.

Other Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”). These amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Reform Act. These amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendment in this update is permitted, including adoption in any interim period. These amendments can be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate tax rate in the 2017 Tax Reform Act is recognized. The early adoption of ASU 2018-02 on June 30, 2018 had no impact on the Company’s consolidated financial statements or disclosures.

Business Combinations

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 were applied prospectively.  The adoption of ASU 2017-01 on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements.

Retirement Benefits

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). These amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component outside of a subtotal of income from operations.  If a separate line item is not used, the line items used in the income statement to present other components of net benefit cost must be disclosed.  These amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods.  These amendments were applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.  The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.

The Company adopted the income statement presentation aspects of ASU 2017-07 on a retrospective basis effective January 1, 2018. The following is a reconciliation of the effect of the reclassification of the interest cost and amortization of actuarial gain (loss) from operating expenses to other income (expense) in the Company’s Consolidated Statements of Operations for the years ended December 31, 2017 and 2016 (in thousands):

 

 

As Previously

Reported

 

 

Adjustments

Due to the

Adoption of

ASU 2017-07

 

 

As Revised

 

Year Ended December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

Direct salaries and related costs

$

1,039,790

 

 

$

(113

)

 

$

1,039,677

 

General and administrative

 

376,863

 

 

 

(38

)

 

 

376,825

 

Income from operations

 

86,891

 

 

 

151

 

 

 

87,042

 

Other income (expense), net

 

(5,584

)

 

 

(151

)

 

 

(5,735

)

Year Ended December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

Direct salaries and related costs

$

947,677

 

 

$

(84

)

 

$

947,593

 

General and administrative

 

351,722

 

 

 

(41

)

 

 

351,681

 

Income from operations

 

92,248

 

 

 

125

 

 

 

92,373

 

Other income (expense), net

 

(3,364

)

 

 

(125

)

 

 

(3,489

)

 

v3.10.0.1
Revenues
12 Months Ended
Dec. 31, 2018
Revenue From Contract With Customer [Abstract]  
Revenues

Note 2. Revenues

Adoption of ASC 606, Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASC 606, which includes ASU 2014-09 and all related amendments, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting for revenues under ASC 605, Revenue Recognition (“ASC 605”).

The Company recorded an increase to opening retained earnings of $3.0 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606.  The impact, all in the Americas segment, primarily related to the change in the timing of revenue recognition associated with certain customer contracts that provide fees upon renewal, as well as changes in estimating variable consideration with respect to penalty and holdback provisions for failure to meet specified minimum service levels and other performance-based contingencies.  Revenues recognized under ASC 606 were higher during 2018 than revenues would have been under ASC 605. This is primarily attributable to the change in the timing of revenue recognition, as discussed above. The impact on revenues recognized for the year ended December 31, 2018 is reported below.

The cumulative effect of the adjustments made to the Company’s Consolidated Balance Sheet as of December 31, 2017 for the line items impacted by the adoption of ASC 606 was as follows (in thousands):

 

 

December 31, 2017

 

 

Adjustments

Due to the

Adoption of

ASC 606

 

 

January 1, 2018

 

Receivables, net

$

341,958

 

 

$

825

 

 

$

342,783

 

Deferred charges and other assets

 

29,193

 

 

 

2,045

 

 

 

31,238

 

Income taxes payable

 

2,606

 

 

 

697

 

 

 

3,303

 

Deferred revenue and customer liabilities

 

34,717

 

 

 

(1,048

)

 

 

33,669

 

Other long-term liabilities

 

22,039

 

 

 

202

 

 

 

22,241

 

Retained earnings

 

546,843

 

 

 

3,019

 

 

 

549,862

 

 

The financial statement line items impacted by the adoption of ASC 606 in the Company’s Consolidated Balance Sheet as of December 31, 2018, including the impact of acquisitions, were as follows (in thousands):

 

 

As Reported

 

 

Balances

Without the

Impact of

the ASC 606

Adoption

 

 

Effect of

Adoption

Increase

(Decrease)

 

Receivables, net

$

347,425

 

 

$

344,975

 

 

$

2,450

 

Other current assets

 

16,761

 

 

 

16,648

 

 

 

113

 

Deferred charges and other assets

 

43,364

 

 

 

27,398

 

 

 

15,966

 

Income taxes payable

 

1,433

 

 

 

(2,088

)

 

 

3,521

 

Deferred revenue and customer liabilities

 

30,176

 

 

 

32,609

 

 

 

(2,433

)

Other accrued expenses and current liabilities

 

31,235

 

 

 

31,100

 

 

 

135

 

Other long-term liabilities

 

31,750

 

 

 

28,021

 

 

 

3,729

 

Retained earnings

 

598,788

 

 

 

585,211

 

 

 

13,577

 

 

The financial statement line items impacted by the adoption of ASC 606 in the Company’s Consolidated Statement of Operations for the year ended December 31, 2018, including the impact of acquisitions, were as follows, along with the impact per share (in thousands, except per share data):

 

 

As Reported

 

 

Balances

Without the

Impact of

the ASC 606

Adoption

 

 

Effect of

Adoption

Increase

(Decrease)

 

Revenues

$

1,625,687

 

 

$

1,608,731

 

 

$

16,956

 

Direct salaries and related costs

 

1,072,907

 

 

 

1,069,667

 

 

 

3,240

 

Income from operations

 

63,202

 

 

 

49,486

 

 

 

13,716

 

Income before income taxes

 

56,917

 

 

 

43,201

 

 

 

13,716

 

Income taxes

 

7,991

 

 

 

4,833

 

 

 

3,158

 

Net income

 

48,926

 

 

 

38,368

 

 

 

10,558

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

1.16

 

 

$

0.91

 

 

$

0.25

 

Diluted

$

1.16

 

 

$

0.91

 

 

$

0.25

 

 

The Company’s net cash provided by operating activities for the year ended December 31, 2018 did not change due to the adoption of ASC 606.

Practical Expedients

The Company utilized the practical expedient that allows for the application of ASC 606 to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio.

Costs of Obtaining Customer Contracts

ASC 606 requires an entity to recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.  The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (e.g., a sales commission).  Because the Company’s sales commissions are not directly incremental to obtaining customer contracts, they are expensed as incurred.

Recognition of Revenues Accounting Policy

The Company recognizes revenues in accordance with ASC 606, whereby revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services.

Customer Engagement Solutions and Services

Under ASC 606, the Company accounts for a contract with a client when it has approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.  The Company’s customer engagement solutions and services are classified as stand-ready performance obligations.  Because the Company’s customers simultaneously receive and consume the benefits of its services as they are delivered, the performance obligations are satisfied over time. The Company recognizes revenues over time using output methods such as a per minute, per hour, per call, per transaction or per time and materials basis.  These output methods faithfully depict the satisfaction of the Company’s obligation to deliver the services as requested and represent a direct measurement of value to the customer. The Company’s contracts have a single performance obligation as the promise to transfer the customer solutions and services are not separately identifiable from other promises in the contract, and therefore not distinct.  

The stated term of the Company’s contracts with customers range from 30 days to six years.  The majority of these contracts include termination for convenience or without cause provisions allowing either party to cancel the contract without substantial cost or penalty within a defined notification period (“termination rights”). The periods vary typically up to 180 days.  Because of the termination rights, only the noncancelable portion qualifies as a legally enforceable contract under Step 1, Identify the Contract with a Customer, of ASC 606 (“Step 1”) and is accounted for as such, even if the customer is unlikely to exercise its termination right.  Furthermore, the amounts excluded from assessment under Step 1 are, in effect, optional customer purchases of additional services.  

If the termination right is only provided to the customer, the unsatisfied performance obligations will be evaluated as a customer option.  The Company typically does not include options in customer contracts that would result in a material right.  If options to purchase additional services or options to renew are included in customer contracts, the Company evaluates the option in order to determine if the arrangement includes promises that may represent a material right and needs to be accounted for as a performance obligation in the contract with the customer.

The Company’s primary billing terms are that payment is due within 30 or 60 days of the invoice date.  Invoices are generally issued on a monthly basis as control transfers and/or as services are rendered.  Revenue recognition is limited to the established transaction price, the amount to which the Company expects to be entitled to under the contract, including the amount of expected fees for those contracts with renewal provisions, and the amount that is not contingent upon delivery of any future product or service or meeting other specified performance obligations.  The transaction price, once determined, is allocated to the single performance obligation on a contract by contract basis.

The Company’s customer contracts include penalty and holdback provisions for failure to meet specified minimum service levels and other performance-based contingencies, as well as 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.  Certain customers also receive cash discounts for early payment. These provisions are accounted for as variable consideration and are estimated using the expected value method based on historical service and pricing trends, the individual contract provisions, and the Company’s best judgment at the time.  None of these variable consideration components are subject to constraint due to the short time period to resolution, the Company’s extensive history with similar transactions, and the limited number of possible outcomes and third-party influence. The portion of the consideration received under the contract that the Company expects to ultimately refund to the customer is excluded from the transaction price and is recorded as a refund liability.

Other Revenues

The Company offers RPA services, including RPA consulting, implementation, hosting and managed services for front, middle and back-office processes, in Europe and the U.S. Revenues are primarily recognized over time using output methods such as per time and materials basis.

The Company offers fulfillment services that are integrated with its customer care and technical support services, primarily to clients operating in Europe. The Company’s fulfillment solutions include order processing, payment processing, inventory control, product delivery and product returns handling. Revenues are recognized upon shipment to the customer and satisfaction of all obligations.

The Company provides a range of enterprise support services including technical staffing services and outsourced corporate help desk services, primarily in the U.S.  Revenues are recognized over time using output methods such as number of positions filled.

The Company also has miscellaneous other revenues in the Other segment.

In total, other revenues are immaterial, representing 1.0%, 0.6% and 0.8% of the Company’s consolidated total revenues for the years ended December 31, 2018, 2017 and 2016, respectively.

Disaggregated Revenues

The Company disaggregates its revenues from contracts with customers by service type and geographic location (see Note 25, Segments and Geographic Information), for each of its reportable segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by economic factors.

The following table represents revenues from contracts with customers disaggregated by service type and by the reportable segment for each category (in thousands):

 

 

Years Ended December 31,

 

 

2018

 

 

2017

 

 

2016

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

$

1,329,614

 

 

$

1,324,534

 

 

$

1,219,824

 

Other revenues

 

1,024

 

 

 

1,109

 

 

 

994

 

Total Americas

 

1,330,638

 

 

 

1,325,643

 

 

 

1,220,818

 

EMEA:

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

 

280,437

 

 

 

252,423

 

 

 

228,667

 

Other revenues

 

14,517

 

 

 

7,860

 

 

 

10,422

 

Total EMEA

 

294,954

 

 

 

260,283

 

 

 

239,089

 

Other:

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

95

 

 

 

82

 

 

 

130

 

Total Other

 

95

 

 

 

82

 

 

 

130

 

 

$

1,625,687

 

 

$

1,586,008

 

 

$

1,460,037

 

 

Trade Accounts Receivable

The Company’s trade accounts receivable, net, consists of the following (in thousands):

 

 

December 31, 2018

 

 

January 1, 2018

 

Trade accounts receivable, net, current (1)

$

335,377

 

 

$

332,014

 

Trade accounts receivable, net, noncurrent (2)

 

15,948

 

 

 

2,078

 

 

$

351,325

 

 

$

334,092

 

 

 

(1)

Included in “Receivables, net” in the accompanying Consolidated Balance Sheets.  The January 1, 2018 balance includes the $0.8 million adjustment recorded upon adoption of ASC 606.  

 

(2)

Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets.  The January 1, 2018 balance includes a $2.1 million adjustment recorded upon adoption of ASC 606.  

The Company’s noncurrent trade accounts receivable result from (1) contracts with customers that include renewal provisions, and (2) a contract with a customer under a multi-year arrangement.  For contracts with customers that include renewal provisions, revenue is recognized up-front upon satisfaction of the associated performance obligations, but payments are received upon renewal.  Renewals occur in bi-annual and annual increments over the associated expected contract term, the majority of which range from two to five years.  The Company’s contract with a customer under a multi-year arrangement has a term of four years and is invoiced annually at the beginning of each annual coverage period.  The Company records a receivable related to revenue recognized for the multi-year arrangement as the Company has an unconditional right to invoice and receive payment in the future related to that arrangement.

Where the timing of revenue recognition differs from the timing of invoicing and payment, the Company has determined that its contracts do not include a significant financing component. A substantial amount of the consideration promised by the customer under the contracts that include renewal provisions is variable, and the amount and timing of that consideration varies based on the occurrence or nonoccurrence of future events that are not substantially within the Company’s control.  Furthermore, the primary purpose of the multi-year arrangement invoicing terms is to provide the customer with a simplified and predictable way of purchasing certain products, not to provide financing or to receiving financing from the Company’s customer.

Deferred Revenue and Customer Liabilities

Deferred revenue and customer liabilities consists of the following (in thousands):

 

 

December 31, 2018

 

 

January 1, 2018

 

Deferred revenue

$

3,655

 

 

$

4,598

 

Customer arrangements with termination rights

 

16,404

 

 

 

21,755

 

Estimated refund liabilities (1)

 

10,117

 

 

 

7,316

 

 

$

30,176

 

 

$

33,669

 

 

 

(1)

The January 1, 2018 balance includes the $1.0 million adjustment recorded upon adoption of ASC 606.

Deferred Revenue

The Company receives up-front fees in connection with certain contracts. In accordance with ASC 606, the up-front fees are recorded as a contract liability only to the extent a legally enforceable contract exists.  The termination right notice period, which typically vary up to 180 days, is the portion of the contract that is legally enforceable.  Accordingly, the up-front fees allocated to the notification period are recorded as deferred revenue, while the fees that extend beyond the notification period are classified as a customer arrangement with termination rights. These up-front fees do not represent a significant financing component since they were structured primarily to reduce the administrative burden in managing the operations of certain contracts, to provide the customer with un-interrupted service, and to assist in managing the overall risk and profitability of providing the services.

Revenues of $4.4 million were recognized during the year ended December 31, 2018 from amounts included in deferred revenue at January 1, 2018.  The Company expects to recognize the majority of its deferred revenue as of December 31, 2018 over the next 180 days.

Customer Liabilities – Customer Arrangements with Termination Rights

Customer arrangements with termination rights represent the amount of up-front fees received for unsatisfied performance obligations for periods that extend beyond the legally enforceable contract period. All customer arrangements with termination rights are classified as current as the customer can terminate the contracts and demand pro-rata refunds of the up-front fees over varying periods, typically up to 180 days.  The Company expects to recognize the majority of the customer arrangements with termination rights into revenue as the Company has not historically experienced a high rate of contract terminations.

Customer Liabilities – Refund Liabilities

Refund liabilities represent consideration received under the contract that the Company expects to ultimately refund to the customer and primarily relates to estimated penalties, holdbacks and chargebacks.  Penalties and holdbacks result from the failure to meet specified minimum service levels in certain contracts and other performance-based contingencies.  Chargebacks reflect 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.  

Refund liabilities are generally resolved in 180 days, once it is determined whether the requisite service levels and client requirements were achieved to settle the contingency.

v3.10.0.1
Acquisitions
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions

Note 3. Acquisitions

Symphony Acquisition

On October 18, 2018, the Company as guarantor and its wholly-owned subsidiary, SEI International Services S.a.r.l, a Luxembourg company, entered into the Symphony Purchase Agreement with Pascal Baker, Ian Barkin, David Brain, David Poole, FIS Nominee Limited, Baronsmead Venture Trust plc and Baronsmead Second Venture Trust plc (together, the “Symphony Sellers”) to acquire all of the outstanding shares of Symphony.

Symphony, headquartered in London, England, provides RPA services, offering RPA consulting, implementation, hosting and managed services for front, middle and back-office processes. Symphony serves numerous industries globally, including financial services, healthcare, business services, manufacturing, consumer products, communications, media and entertainment.

The aggregate purchase price of GBP 52.5 million ($67.6 million) is subject to certain post-closing adjustments related to Symphony’s working capital.  The Company paid GBP 44.6 million ($57.6 million) at the closing of the transaction on November 1, 2018 using cash on hand as well as $31.0 million of additional borrowings under the Company’s Credit Agreement. The present value of the remaining GBP 7.9 million ($10.0 million) of purchase price has been deferred and will be paid in equal installments over the next three years. The Symphony Purchase Agreement also provides for a three-year, retention based earnout payable in restricted stock units (“RSUs”) with a value of GBP 3.0 million. The acquisition resulted in $26.1 million of intangible assets, primarily customer relationships and trade names, $2.2 million of fixed assets and $36.4 million of goodwill.  

The Symphony Purchase Agreement contains customary representations and warranties, indemnification obligations and covenants.

The Company accounted for the Symphony acquisition in accordance with ASC 805, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. Certain amounts are provisional and are subject to change, including the finalization of the working capital adjustment, tax analysis of the assets acquired and liabilities assumed, and goodwill.  The Company expects to complete its analysis of the purchase price allocation during the fourth quarter of 2019 and any resulting adjustments will be recorded in accordance with ASC 805.

WhistleOut Acquisition

On July 9, 2018, the Company, as guarantor, and its wholly-owned subsidiaries, Sykes Australia Pty Ltd, an Australian company, and Clear Link Technologies, LLC, a Delaware limited liability company, entered into and closed the WhistleOut Sale Agreement with WhistleOut Nominees Pty Ltd as trustee for the WhistleOut Holdings Unit Trust, CPC Investments USA Pty Ltd, JJZL Pty Ltd, Kenneth Wong as trustee for Wong Family Trust and C41 Pty Ltd as trustee for the Ottery Family Trust (together, the “WhistleOut Sellers”) to acquire all of the outstanding shares of WhistleOut.  

The aggregate purchase price of AUD 30.2 million ($22.4 million), paid at the closing of the transaction on July 9, 2018, resulted in $16.5 million of intangible assets, primarily indefinite-lived domain names, $2.4 million of fixed assets and $2.2 million of goodwill. The purchase price was funded through $22.0 million of additional borrowings under the Company’s Credit Agreement. The WhistleOut Sale Agreement provides for a three-year, retention based earnout of AUD 14.0 million.

The WhistleOut Sale Agreement contained customary representations and warranties, indemnification obligations and covenants.

The Company accounted for the WhistleOut acquisition in accordance with ASC 805, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. Certain amounts are provisional and are subject to change, including the tax analysis of the assets acquired and liabilities assumed, and goodwill. The Company expects to complete its analysis of the purchase price allocation during the second quarter of 2019 and any resulting adjustments will be recorded in accordance with ASC 805.

Telecommunications Asset Acquisition

On April 24, 2017, the Company entered into the Telecommunications Asset Acquisition Purchase Agreement to acquire certain assets from a Global 2000 telecommunications services provider. The aggregate purchase price of $7.5 million, paid on May 31, 2017 using cash on hand, resulted in $6.0 million of property and equipment and $1.5 million of customer relationship intangibles. The Telecommunications Asset Acquisition Asset Purchase Agreement contained customary representations and warranties, indemnification obligations and covenants. The Telecommunications Asset acquisition was completed to strengthen and create new partnerships for the Company and expand its geographic footprint in North America.

The Company accounted for the Telecommunications Asset acquisition in accordance with ASC 805, whereby the fair value of the purchase price was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values as of the closing date. The Company completed its analysis of the purchase price allocation during the second quarter of 2017.

Clearlink Acquisition

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 U.S., 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”) in the Americas segment. The strategic acquisition of Clearlink expanded the Company’s suite of service offerings while creating differentiation in the marketplace, broadened its addressable market opportunity and extended 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, intangibles 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:

 

 

Total

 

Cash (1)

$

209,186

 

Working capital adjustment

 

(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 escrow was released pursuant to the terms of the escrow agreement, but the Company subsequently asserted a claim of approximately $0.4 million against the Clearlink members.  This claim has been resolved by the parties for $0.2 million, with the outstanding amount received by the Company in December 2017.

The Company accounted for the Clearlink acquisition in accordance with 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 adjustments of $0.3 million to income taxes payable and goodwill were recorded in accordance with ASC 805.

Fair values were based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach.

The amount of Clearlink’s revenues and net income since the April 1, 2016 acquisition date, included in the Company’s Consolidated Statement of Operations for the period indicated below, was as follows (in thousands):

 

 

From April 1, 2016

Through

December 31, 2016

 

Revenues

$

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 year ended December 31, 2016. 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 (in thousands):

 

 

Year Ended

December 31, 2016

 

Revenues

$

1,493,866

 

Net income

$

65,662

 

 

 

 

 

Net income per common share:

 

 

 

Basic

$

1.57

 

Diluted

$

1.55

 

 

These amounts were 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, 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.

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 2018 and 2017) (in thousands):

 

 

Year Ended

December 31, 2016

 

Severance costs:

 

 

 

Americas

$

135

 

 

 

 

 

Transaction and integration costs:

 

 

 

Americas

 

29

 

Other

 

4,470

 

 

 

4,499

 

 

 

 

 

Total merger and integration costs

$

4,634

 

 

v3.10.0.1
Costs Associated with Exit or Disposal Activities
12 Months Ended
Dec. 31, 2018
Restructuring And Related Activities [Abstract]  
Costs Associated with Exit or Disposal Activities

Note 4. Costs Associated with Exit or Disposal Activities

Americas 2018 Exit Plan

During the second quarter of 2018, the Company initiated a restructuring plan to streamline excess capacity through targeted seat reductions (the “Americas 2018 Exit Plan”) in an on-going effort to manage and optimize capacity utilization. The Americas 2018 Exit Plan includes, but is not limited to, closing customer contact management centers and consolidating leased space in various locations in the U.S. and Canada. The Company finalized the remainder of the site closures under the Americas 2018 Exit Plan as of December 31, 2018.

The Company’s actions resulted in a reduction in seats as well as anticipated general and administrative cost savings, and lower depreciation expense resulting from the 2018 site closures.

The cumulative total costs expected and incurred to date related to cash and non-cash expenditures resulting from the Americas 2018 Exit Plan are outlined below as of December 31, 2018 (in thousands):

 

 

Cumulative Costs Incurred To Date

 

Lease obligations and facility exit costs (1)

$

7,077

 

Severance and related costs (2)

 

3,429

 

Severance and related costs (1)

 

1,035

 

Non-cash impairment charges

 

5,875

 

 

$

17,416

 

 

 

(1)

Related to “General and administrative” costs.

 

(2)

Related to “Direct salaries and related costs.

The total costs expected to be incurred under the Americas 2018 Exit Plan increased $1.4 million since the initiation of the plan as the Company progressed with its plan and actual costs became known. No further costs are expected to be incurred under the plan.  The Company has paid $9.3 million in cash through December 31, 2018.  

The following table summarizes the accrued liability and related charges for the year ended December 31, 2018 (none in 2017 and 2016) (in thousands):

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

Balance at the beginning of the period

$

 

 

$

 

 

$

 

Charges included in "Direct salaries and related costs"

 

 

 

 

3,429

 

 

 

3,429

 

Charges included in "General and administrative"

 

7,077

 

 

 

1,035

 

 

 

8,112

 

Cash payments

 

(5,643

)

 

 

(3,647

)

 

 

(9,290

)

Balance sheet reclassifications (1)

 

335

 

 

 

 

 

 

335

 

Balance at the end of the period

$

1,769

 

 

$

817

 

 

$

2,586

 

 

 

(1)

Consists of the reclassification of deferred rent balances to the restructuring liability for locations subject to closure.  

Restructuring Liability Classification

The following table summarizes the Company’s short-term and long-term accrued liabilities associated with the Americas 2018 Exit Plan as of December 31, 2018 (none in 2017) (in thousands):

 

 

December 31, 2018

 

Lease obligations and facility exit costs:

 

 

 

Included in "Accounts payable"

$

100

 

Included in "Other accrued expenses and current liabilities"

 

952

 

Included in "Other long-term liabilities"

 

717

 

 

 

1,769

 

Severance and related costs:

 

 

 

Included in "Accrued employee compensation and benefits"

 

793

 

Included in "Other accrued expenses and current liabilities"

 

24

 

 

 

817

 

 

$

2,586

 

 

The long-term accrued restructuring liability relates to future rent obligations to be paid through the remainder of the lease terms, the last of which ends in June 2021.

v3.10.0.1
Fair Value
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value

Note 5. Fair Value

The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following (in thousands):

 

 

 

 

 

 

Fair Value Measurements Using:

 

 

Balance at

 

 

Quoted

Prices in

Active Markets

For Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

 

December 31, 2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward and option

   contracts (1)

$

1,068

 

 

$

 

 

$

1,068

 

 

$

 

Embedded derivatives (1)

 

10

 

 

 

 

 

 

 

 

 

10

 

Equity investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

8,075

 

 

 

8,075

 

 

 

 

 

 

 

Debt investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

3,367

 

 

 

3,367

 

 

 

 

 

 

 

 

$

12,520

 

 

$

11,442

 

 

$

1,068

 

 

$

10

 

Liabilities: