SYKES ENTERPRISES INC, 10-Q filed on 8/2/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 18, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Trading Symbol SYKE  
Entity Registrant Name SYKES ENTERPRISES INC  
Entity Central Index Key 0001010612  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 0-28274  
Entity Tax Identification Number 561383460  
Entity Address, Address Line One 400 North Ashley Drive, Suite 2800  
Entity Address, City or Town Tampa  
Entity Address, State or Province FL  
Entity Address, Postal Zip Code 33602  
City Area Code 813  
Local Phone Number 274-1000  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   41,590,911
v3.19.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 136,631 $ 128,697
Receivables, net 351,191 347,425
Prepaid expenses 21,681 23,754
Other current assets 20,222 16,761
Total current assets 529,725 516,637
Property and equipment, net 125,739 135,418
Operating lease right-of-use assets 210,836  
Goodwill, net 306,050 302,517
Intangibles, net 165,509 174,031
Deferred charges and other assets 47,982 43,364
Total assets 1,385,841 1,171,967
Current liabilities:    
Accounts payable 25,128 26,923
Accrued employee compensation and benefits 104,174 95,813
Income taxes payable 126 1,433
Deferred revenue and customer liabilities 28,557 30,176
Operating lease liabilities 48,864  
Other accrued expenses and current liabilities 25,654 31,235
Total current liabilities 232,503 185,580
Long-term debt 92,000 102,000
Long-term income tax liabilities 22,116 23,787
Long-term operating lease liabilities 174,189  
Other long-term liabilities 24,504 33,991
Total liabilities 545,312 345,358
Commitments and loss contingency (Note 13)
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; 42,091 and 42,778 shares issued, respectively 421 428
Additional paid-in capital 288,879 286,544
Retained earnings 609,791 598,788
Accumulated other comprehensive income (loss) (48,564) (56,775)
Treasury stock at cost: 408 and 126 shares, respectively (9,998) (2,376)
Total shareholders' equity 840,529 826,609
Total liabilities and shareholders' equity $ 1,385,841 $ 1,171,967
v3.19.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
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 42,091,000 42,778,000
Treasury stock, shares 408,000 126,000
v3.19.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Revenues $ 389,006 $ 396,785 $ 791,931 $ 811,156
Operating expenses:        
Direct salaries and related costs 252,161 264,924 513,889 539,996
General and administrative 104,282 102,037 208,962 204,477
Depreciation, net 13,052 14,560 26,949 29,396
Amortization of intangibles 4,127 3,629 8,413 7,842
Impairment of long-lived assets 129 5,175 1,711 8,701
Total operating expenses 373,751 390,325 759,924 790,412
Income from operations 15,255 6,460 32,007 20,744
Other income (expense):        
Interest income 192 175 377 346
Interest (expense) (1,179) (1,149) (2,357) (2,355)
Other income (expense), net (533) (537) 77 (382)
Total other income (expense), net (1,520) (1,511) (1,903) (2,391)
Income before income taxes 13,735 4,949 30,104 18,353
Income taxes 2,466 (2,229) 7,148 227
Net income $ 11,269 $ 7,178 $ 22,956 $ 18,126
Net income per common share:        
Basic $ 0.27 $ 0.17 $ 0.55 $ 0.43
Diluted $ 0.27 $ 0.17 $ 0.54 $ 0.43
Weighted average common shares outstanding:        
Basic 42,038 42,125 42,107 42,035
Diluted 42,094 42,160 42,200 42,197
v3.19.2
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Net income $ 11,269 $ 7,178 $ 22,956 $ 18,126
Other comprehensive income (loss), net of taxes:        
Foreign currency translation adjustments, net of taxes 2,339 (13,597) 3,701 (13,306)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes 2,828 (481) 4,500 (3,374)
Unrealized actuarial gain (loss) related to pension liability, net of taxes 35 (46) 20 (129)
Unrealized gain (loss) on postretirement obligation, net of taxes (5) (10) (10) (20)
Other comprehensive income (loss), net of taxes 5,197 (14,134) 8,211 (16,829)
Comprehensive income (loss) $ 16,466 $ (6,956) $ 31,167 $ 1,297
v3.19.2
Condensed 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, 2017 $ 796,479 $ 429 $ 282,385 $ 546,843 $ (31,104) $ (2,074)
Beginning Balance, shares at Dec. 31, 2017   42,899        
Stock-based compensation expense 2,077   2,077      
Issuance of common stock under equity award plans, net of forfeitures     59     (59)
Issuance of common stock under equity award plans, net of forfeitures, Share   18        
Shares repurchased for tax withholding on equity awards (3,682) $ (1) (3,681)      
Shares repurchased for tax withholding on equity awards, Share   (118)        
Comprehensive income (loss) 8,253     10,948 (2,695)  
Ending Balance at Mar. 31, 2018 806,146 $ 428 280,840 560,810 (33,799) (2,133)
Ending Balance, shares at Mar. 31, 2018   42,799        
Beginning Balance at Dec. 31, 2017 796,479 $ 429 282,385 546,843 (31,104) (2,074)
Beginning Balance, shares at Dec. 31, 2017   42,899        
Comprehensive income (loss) 1,297          
Ending Balance at Jun. 30, 2018 800,863 $ 428 282,622 567,988 (47,933) (2,242)
Ending Balance, shares at Jun. 30, 2018   42,821        
Cumulative effect of accounting change | Accounting Standards Update 2014-09 [Member] 3,019     3,019    
Beginning Balance at Mar. 31, 2018 806,146 $ 428 280,840 560,810 (33,799) (2,133)
Beginning Balance, shares at Mar. 31, 2018   42,799        
Stock-based compensation expense 1,673   1,673      
Issuance of common stock under equity award plans, net of forfeitures     109     (109)
Issuance of common stock under equity award plans, net of forfeitures, Share   22        
Comprehensive income (loss) (6,956)     7,178 (14,134)  
Ending Balance at Jun. 30, 2018 800,863 $ 428 282,622 567,988 (47,933) (2,242)
Ending Balance, shares at Jun. 30, 2018   42,821        
Beginning Balance at Dec. 31, 2018 826,609 $ 428 286,544 598,788 (56,775) (2,376)
Beginning Balance, shares at Dec. 31, 2018   42,778        
Stock-based compensation expense 1,890   1,890      
Issuance of common stock under equity award plans, net of forfeitures   $ (2) 182     (180)
Issuance of common stock under equity award plans, net of forfeitures, Share   (168)        
Shares repurchased for tax withholding on equity awards (1,269)   (1,269)      
Shares repurchased for tax withholding on equity awards, Share   (45)        
Comprehensive income (loss) 14,701     11,687 3,014  
Ending Balance at Mar. 31, 2019 842,041 $ 426 287,347 610,585 (53,761) (2,556)
Ending Balance, shares at Mar. 31, 2019   42,565        
Beginning Balance at Dec. 31, 2018 826,609 $ 428 286,544 598,788 (56,775) (2,376)
Beginning Balance, shares at Dec. 31, 2018   42,778        
Repurchase of common stock (20,178)          
Comprehensive income (loss) 31,167          
Ending Balance at Jun. 30, 2019 840,529 $ 421 288,879 609,791 (48,564) (9,998)
Ending Balance, shares at Jun. 30, 2019   42,091        
Cumulative effect of accounting change | Accounting Standards Update 2016-02 [Member] 110     110    
Beginning Balance at Mar. 31, 2019 842,041 $ 426 287,347 610,585 (53,761) (2,556)
Beginning Balance, shares at Mar. 31, 2019   42,565        
Stock-based compensation expense 2,200   2,200      
Issuance of common stock under equity award plans, net of forfeitures     123     (123)
Issuance of common stock under equity award plans, net of forfeitures, Share   26        
Repurchase of common stock (20,178)         (20,178)
Retirement of treasury stock   $ (5) (791) (12,063)   12,859
Retirement of treasury stock, shares   (500)        
Comprehensive income (loss) 16,466     11,269 5,197  
Ending Balance at Jun. 30, 2019 $ 840,529 $ 421 $ 288,879 $ 609,791 $ (48,564) $ (9,998)
Ending Balance, shares at Jun. 30, 2019   42,091        
v3.19.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net income $ 22,956 $ 18,126
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 27,066 29,651
Amortization of intangibles 8,413 7,842
Amortization of deferred grants (181) (344)
Impairment losses 1,711 8,701
Unrealized foreign currency transaction (gains) losses, net (603) (370)
Stock-based compensation expense 4,090 3,750
Deferred income tax provision (benefit) 325 1,070
Unrealized (gains) losses and premiums on financial instruments, net (304) 625
Amortization of deferred loan fees 140 134
Other 417 (90)
Changes in assets and liabilities, net of acquisitions:    
Receivables, net (1,214) (8,370)
Prepaid expenses (1,122) (1,611)
Other current assets (896) (2,016)
Deferred charges and other assets (3,196) (2,186)
Accounts payable (2,824) (5,499)
Income taxes receivable / payable (5,225) (6,526)
Accrued employee compensation and benefits 6,489 (2,349)
Other accrued expenses and current liabilities 1,228 5,079
Deferred revenue and customer liabilities (2,435) (155)
Other long-term liabilities 1,086 1,922
Operating lease assets and liabilities 415  
Net cash provided by operating activities 56,336 47,384
Cash flows from investing activities:    
Capital expenditures (16,390) (26,232)
Purchase of intangible assets   (7,606)
Other 284 484
Net cash (used for) investing activities (16,106) (33,354)
Cash flows from financing activities:    
Payments of long-term debt (18,000) (190,000)
Proceeds from issuance of long-term debt 8,000 5,000
Cash paid for repurchase of common stock (20,178)  
Shares repurchased for tax withholding on equity awards (1,269) (3,682)
Cash paid for loan fees related to long-term debt (1,098)  
Other (4) 38
Net cash (used for) financing activities (32,549) (188,644)
Effects of exchange rates on cash, cash equivalents and restricted cash 655 (6,748)
Net increase (decrease) in cash, cash equivalents and restricted cash 8,336 (181,362)
Cash, cash equivalents and restricted cash – beginning 130,231 344,805
Cash, cash equivalents and restricted cash – ending 138,567 163,443
Supplemental disclosures of cash flow information:    
Cash paid during period for interest 1,874 1,975
Cash paid during period for income taxes 12,567 12,084
Non-cash transactions:    
Property and equipment additions in accounts payable 2,663 2,637
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss) $ (10) $ (20)
v3.19.2
Overview and Basis of Presentation
6 Months Ended
Jun. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Overview and Basis of Presentation

Note 1. Overview and Basis of Presentation

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 its 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 U.S. federal corporate 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 Company’s consolidated financial results began with the fourth quarter of 2017, the period of enactment. See Note 11, Income Taxes, for further information.

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 was GBP 52.5 million ($67.6 million), subject to a post-closing working capital adjustment, of which 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 acquisition date 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 three years, on or around November 1, 2019, 2020 and 2021. 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.

Subsequent to the finalization of the working capital adjustments during the six months ended June 30, 2019, the purchase price was adjusted to GBP 52.4 million ($67.5 million). The acquisition resulted in $26.1 million of intangible assets, primarily customer relationships and trade names, $2.2 million of fixed assets and $36.2 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 Accounting Standards Codification (“ASC”) 805, Business Combinations (“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 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) was paid at the closing of the transaction on July 9, 2018. Subsequent to the finalization of the working capital adjustments during the six months ended June 30, 2019, the purchase price was adjusted to AUD 30.3 million ($22.5 million). 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. The Company completed its tax analysis of the assets acquired and liabilities assumed during the second quarter of 2019, which resulted in deferred tax assets and liabilities in accordance with ASC 805. The final purchase price allocation resulted in $16.5 million of intangible assets, primarily indefinite-lived domain names, $2.4 million of fixed assets and $3.3 million of goodwill.

Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2019. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (“SEC”) on February 26, 2019.

Principles of Consolidation The condensed 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 condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events Subsequent events or transactions have been evaluated through the date and time of issuance of the condensed consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the accompanying condensed 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. 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 Condensed Consolidated Balance Sheets that sum to the amounts reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

 

 

June 30, 2019

 

 

December 31, 2018

 

 

June 30, 2018

 

 

December 31, 2017

 

Cash and cash equivalents

$

136,631

 

 

$

128,697

 

 

$

162,422

 

 

$

343,734

 

Restricted cash included in "Other current assets"

 

566

 

 

 

149

 

 

 

153

 

 

 

154

 

Restricted cash included in "Deferred charges and

   other assets"

 

1,370

 

 

 

1,385

 

 

 

868

 

 

 

917

 

 

$

138,567

 

 

$

130,231

 

 

$

163,443

 

 

$

344,805

 

 

Investments in Equity Method InvesteesIn 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 $8.9 million and $9.2 million was included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, 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 net (loss) of $(0.1) million and $(0.1) million for the three months ended June 30, 2019 and 2018, respectively, and $(0.3) million and $(0.3) million for the six months ended June 30, 2019 and 2018, respectively, was included in “Other income (expense), net” in the accompanying Condensed Consolidated Statements of Operations.

As of June 30, 2019 and December 31, 2018, the Company did not identify any instances where the carrying values of its equity method investments were not recoverable.

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

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Customer-acquisition advertising costs

$

10,036

 

 

$

11,961

 

 

$

22,140

 

 

$

21,928

 

 

Reclassifications — Certain balances in the prior period have been reclassified to conform to current period presentation.  

New Accounting Standards Not Yet Adopted

Fair Value Measurements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 measurementsThese amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019Certain 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 does not expect its adoption of ASU 2018-13 to have a material impact on its disclosures and does not expect to early adopt the standard.

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 does not expect its adoption of ASU 2018-14 to have a material impact on its financial condition, results of operations, cash flows or disclosures and does not expect to early adopt the standard.

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 does not expect its adoption of ASU 2018-15 to have a material impact on its financial condition, results of operations, cash flows or disclosures and does not expect to early adopt the standard.

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. Entities are required to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts.  Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses in November 2018 and ASU 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief in May 2019 (together, “subsequent amendments”). ASU 2016-13 and the subsequent amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.

The Company’s implementation team has begun to assess its data and design its financial models to estimate expected credit losses and continues to evaluate the critical factors of ASU 2016-13 to determine its impact on the Company’s business processes, systems, and internal controls. 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 with trade receivables have historically been insignificant. The adoption of ASU 2016-13 will require expanded quantitative and qualitative disclosures about the Company’s expected credit losses. Additionally, the Company does not anticipate early adopting ASU 2016-13.

Codification Improvements – Financial Instruments – Credit Losses, Derivatives and Hedging, and Financial Instruments

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). These amendments clarify new standards on credit losses, hedging and recognizing and measuring financial instruments and address implementation issues stakeholders have raised. The credit losses and hedging amendments have the same effective dates as the respective standards, unless an entity has already adopted the standards. The amendments related to recognizing and measuring financial instruments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company does not

expect the adoption of ASU 2019-04 to have a material impact on its financial condition, results of operations, cash flows or disclosures.

New Accounting Standards Recently Adopted

Leases

In February 2016, the FASB issued 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 classified as operating leases under ASC 840, Leases (“ASC 840”). 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 adopted ASC 842 as of January 1, 2019 using a modified retrospective transition, with the cumulative-effect adjustment to the opening balance of retained earnings as of the effective date. Periods prior to January 1, 2019 have not been restated.  

See Note 3, Leases, for further details as well as the Company’s significant accounting policy for leases.

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 adoption of ASU 2017-12 on January 1, 2019 did not have a material impact on the financial condition, results of operations, cash flows or disclosures of the Company.  No cumulative-effect adjustment was recorded to opening retained earnings on the date of adoption as there was no ineffectiveness previously recorded in retained earnings that would have been included in other comprehensive income if the new guidance had been applied since hedge inception. Upon adoption of ASU 2017-12, the Company elected the spot method for assessing the effectiveness of net investment hedges and will record the amortization of excluded components of net investment hedges in “Other income (expense), net” in its consolidated financial statements. 

v3.19.2
Revenues
6 Months Ended
Jun. 30, 2019
Revenue From Contract With Customer [Abstract]  
Revenues

Note 2. Revenues

On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”), which included 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. 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 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 penalties and holdback provisions for failure to meet specified minimum service levels and other performance-based contingencies.

Revenue from Contracts with Customers

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

The Company provides customer engagement solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to its clients’ customers. These services are delivered through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. Revenues for customer engagement solutions and services are recognized over time using output methods such as a per minute, per hour, per call, per transaction or per time and materials basis.

Other Revenues

In the Americas, 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 for enterprise support services are recognized over time using output methods such as number of positions filled.

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

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

In total, other revenues are immaterial, representing 2.6% and 0.6% of the Company’s consolidated total revenues for the three months ended June 30, 2019 and 2018, respectively, and 2.2% and 0.6% for the six months ended June 30, 2019 and 2018, respectively.

Disaggregated Revenues

The Company disaggregates its revenues from contracts with customers by service type and geographic location (see Note 16, 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):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

$

310,070

 

 

$

326,766

 

 

$

634,632

 

 

$

667,188

 

Other revenues

 

237

 

 

 

275

 

 

 

452

 

 

 

574

 

Total Americas

 

310,307

 

 

 

327,041

 

 

 

635,084

 

 

 

667,762

 

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

 

68,643

 

 

 

67,772

 

 

 

139,640

 

 

 

139,443

 

Other revenues

 

10,033

 

 

 

1,948

 

 

 

17,164

 

 

 

3,904

 

Total EMEA

 

78,676

 

 

 

69,720

 

 

 

156,804

 

 

 

143,347

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

23

 

 

 

24

 

 

 

43

 

 

 

47

 

Total Other

 

23

 

 

 

24

 

 

 

43

 

 

 

47

 

 

$

389,006

 

 

$

396,785

 

 

$

791,931

 

 

$

811,156

 

 

Trade Accounts Receivable

 

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

 

 

June 30, 2019

 

 

December 31, 2018

 

Trade accounts receivable, net, current (1)

$

336,755

 

 

$

335,377

 

Trade accounts receivable, net, noncurrent (2)

 

19,185

 

 

 

15,948

 

 

$

355,940

 

 

$

351,325

 

 

(1) Included in “Receivables, net” in the accompanying Condensed Consolidated Balance Sheets.

(2) Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets.  

The Company’s noncurrent trade accounts receivable result from contracts with customers that include renewal provisions, as well as a contract with a customer under a multi-year arrangement.  

Deferred Revenue and Customer Liabilities

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

 

 

June 30, 2019

 

 

December 31, 2018

 

Deferred revenue

$

4,266

 

 

$

3,655

 

Customer arrangements with termination rights

 

16,497

 

 

 

16,404

 

Estimated refund liabilities

 

7,794

 

 

 

10,117

 

 

$

28,557

 

 

$

30,176

 

 

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.  Accordingly, the up-front fees allocated to a contract’s termination notification period, typically varying periods up to 180 days, are recorded as deferred revenue, while the fees that extend beyond the notification period are classified as customer arrangements with termination rights.

 

Revenues of $0.3 million and $0.3 million were recognized during the three months ended June 30, 2019 and 2018, respectively, and revenues of $3.4 million and $4.2 million were recognized during the six months ended June 30, 2019 and 2018, respectively, from amounts included in deferred revenue at December 31, 2018 and January 1, 2018, respectively.  The Company expects to recognize the majority of its deferred revenue as of June 30, 2019 over the next 180 days.

 

Customer Liabilities – Customer Arrangements with Termination Rights

 

The majority of the Company’s 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”). 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 – Estimated Refund Liabilities

 

Estimated 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. Estimated 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.

v3.19.2
Leases
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Leases

Note 3. Leases

Adoption of ASC 842, Leases

On January 1, 2019, the Company adopted ASC 842, which includes ASU 2016-02 and all related amendments, using the modified retrospective method and recognized a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting for leases under ASC 840.

The adoption of ASC 842 on January 1, 2019 had a material impact on the Company’s Condensed Consolidated Balance Sheet, resulting in the recognition of $225.3 million of right-of-use ("ROU") assets, $239.3 million of operating lease liabilities, a $0.1 million increase to opening retained earnings, as well as $14.1 million primarily related to the derecognition of net straight-line lease liabilities. The retained earnings adjustment was due to the cumulative impact of adopting ASC 842, primarily resulting from the derecognition of embedded lease derivatives, the difference between deferred rent balances and the net of ROU assets and lease liabilities and the deferred tax impact.

The impact of the adoption of ASC 842 to the Company’s Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 was not material. The Company’s net cash provided by operating activities for the six months ended June 30, 2019 did not change due to the adoption of ASC 842.

Practical Expedients

The Company elected the following practical expedients:

The package of transitional practical expedients, consistently applied to all leases, that permits the Company to not reassess whether any expired or existing contracts are or contain leases, the historical lease classification for any expired or existing leases and initial direct costs for any expired or existing leases; and

The practical expedient that permits the Company to make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases entered into or modified after the January 1, 2019 adoption date.

 

Accounting Policy

In determining whether a contract contains a lease, the Company assesses whether the arrangement meets all three of the following criteria: 1) there is an identified asset; 2) the Company has the right to obtain substantially all the economic benefits from use of the identified asset; and 3) the Company has the right to direct the use of the identified asset. This involves evaluating whether the Company has the right to operate the asset or to direct others to operate the asset in a manner that it determines without the supplier having the right to change those operating instructions, as well as evaluating the Company’s involvement in the design of the asset.

The Company capitalizes operating lease obligations with terms in excess of twelve months as ROU assets with corresponding lease liabilities on its balance sheet.  Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Additionally, the ROU asset is adjusted for lease incentives, prepaid lease payments and initial direct costs. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, such as real estate taxes, insurance, common area maintenance and other operating costs.  Lease and non-lease components are generally accounted for as a single component to the extent that the costs are fixed per the arrangement. The Company has applied this accounting policy to all asset classes. To the extent that the non-lease components are not fixed per the arrangement, these costs are treated as variable lease costs and expensed as incurred.  

Certain of the Company’s lease agreements include rental payments that adjust periodically based on an index or rate, generally the applicable Consumer Price Index (“CPI”). The operating lease liability is measured using the prevailing index or rate at the measurement date (i.e., the commencement date); however, the most recent CPI in

effect as of January 1, 2019 was used to effectuate the adoption of ASC 842. Incremental payments due to changes to the index- and rate-based lease payments are treated as variable lease costs and expensed as incurred.  

For purposes of calculating operating lease liabilities, the lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The primary factors used to estimate whether an option to extend a lease term will be exercised or not generally include the extent of the Company’s capital investment, employee recruitment potential and operational cost and flexibility.

In determining the present value of lease payments, the Company typically uses incremental borrowing rates based on information available at the lease commencement date. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s incremental borrowing rate is estimated using a synthetic credit rating model and forward currency exchange rates, as applicable.  

Payments on leases with an initial term of 12 months or less are recognized in the accompanying Condensed Consolidated Statements of Operations on a straight-line basis over the lease term.

The ROU asset is evaluated for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360, Property, Plant and Equipment. A loss is recognized when the ROU asset is impaired in connection with the impairment of a site’s assets due to economic or other factors.  When the ROU asset is impaired, it is typically amortized on a straight-line basis over the shorter of the remaining lease term or its useful life, and the related operating lease would no longer qualify for straight-line treatment of total lease expense.  

Leases

The Company primarily leases facilities for its corporate headquarters, many of its customer engagement centers, several regional support offices and data centers. These leases are classified as operating leases and are included in “Operating lease right-of-use assets,” “Operating lease liabilities” and “Long-term operating lease liabilities” in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2019. The Company has no finance leases.

Lease terms for the Company’s leases are generally three to 20 years with renewal options typically ranging from one month to five years and largely require the Company to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs in addition to a base or fixed rent. The Company's operating leases have remaining lease terms of one month to 13 years as of June 30, 2019.  

The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

The Company subleases certain of its facilities that have been abandoned before the expiration of the lease term.  Operating lease costs on abandoned facilities is reduced by sublease income and included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations. The Company’s sublease arrangements do not contain renewal options or restrictive covenants. The Company’s subleases have varying remaining lease terms extending through 2025, and future contractual sublease income is expected to be $13.9 million over the remaining lease terms.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows (in thousands):

 

Statement of Operations Location

 

Three Months Ended

June 30, 2019

 

 

Six Months Ended

June 30, 2019

 

Operating lease cost

Direct salaries and related costs

 

$

58

 

 

$

133

 

Operating lease cost

General and administrative

 

 

15,008

 

 

 

29,815

 

Short-term lease cost

General and administrative

 

 

390

 

 

 

813

 

Variable lease cost

Direct salaries and related costs

 

 

(3

)

 

 

(1

)

Variable lease cost

General and administrative

 

 

1,273

 

 

 

2,310

 

Sublease income

General and administrative

 

 

(569

)

 

 

(997

)

 

 

 

$

16,157

 

 

$

32,073

 

Supplemental cash flow information related to leases was as follows (in thousands):

 

Six Months Ended

June 30, 2019

 

Cash paid for amounts included in the measurement of operating lease liabilities - operating

   cash flows

$

29,119

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

10,663

 

 

Additional supplemental information related to leases was as follows:

 

June 30, 2019

 

Weighted average remaining lease term of operating leases

5.5 years

 

Weighted average discount rate of operating leases

 

3.7

%

Maturities of operating lease liabilities as of June 30, 2019 were as follows (in thousands):

 

Amount

 

2019 (remainder of the year)

$

25,012

 

2020

 

56,277

 

2021

 

49,779

 

2022

 

38,193

 

2023

 

24,721

 

2024 and thereafter

 

54,329

 

Total future lease payments

 

248,311

 

Less: Imputed interest

 

25,258

 

Present value of future lease payments

 

223,053

 

Less: Operating lease liabilities

 

48,864

 

Long-term operating lease liabilities

$

174,189

 

As of June 30, 2019, the Company had additional operating leases for customer engagement centers that had not yet commenced with future lease payments of $2.9 million. These operating leases will commence during the third quarter of 2019 with lease terms between 2 and 8 years.

 

Disclosures related to periods prior to adoption of ASC 842

Rental expense under operating leases, primarily included in “General and administrative” in the accompanying Condensed Consolidated Statement of Operations, for the three and six months ended June 30, 2018 was $18.6 million and $34.6 million, respectively.

The following is a schedule of future minimum rental payments required under operating leases that had noncancelable lease terms as of December 31, 2018 under ASC 840 (in thousands):

 

Amount

 

2019

$

53,071

 

2020

 

48,770

 

2021

 

43,324

 

2022

 

34,063

 

2023

 

22,583

 

2024 and thereafter

 

51,456

 

 

$

253,267

 

v3.19.2
Costs Associated with Exit or Disposal Activities
6 Months Ended
Jun. 30, 2019
Restructuring And Related Activities [Abstract]  
Costs Associated with Exit or Disposal Activities

Note 4. Costs Associated with Exit or Disposal Activities

During the first quarter of 2019, the Company initiated a restructuring plan to simplify and refine its operating model in the U.S. (the “Americas 2019 Exit Plan”), in part to improve agent attrition and absenteeism. The Americas 2019 Exit Plan includes, but is not limited to, closing customer contact management centers, consolidating leased space in various locations in the U.S. and management reorganization. The Company anticipates finalizing these actions by December 31, 2019.

During the second quarter of 2018, the Company initiated a restructuring plan to manage and optimize capacity utilization, which included closing customer contact management centers and consolidating leased space in various locations in the U.S. and Canada (the “Americas 2018 Exit Plan”). The Company finalized the remainder of the site closures under the Americas 2018 Exit Plan as of December 2018, resulting in a reduction of 5,000 seats.

The Company’s actions under both the Americas 2018 and 2019 Exit Plans are anticipated to result in general and administrative cost savings and lower depreciation expense.

The cumulative costs expected and incurred to date related to cash and non-cash expenditures resulting from the Americas 2018 Exit Plan and the Americas 2019 Exit Plan are outlined below as of June 30, 2019 (in thousands):

 

 

Americas

2018 Exit Plan

 

 

Americas

2019 Exit Plan

 

Lease obligations and facility exit costs (1)

$

7,073

 

 

$

54

 

Severance and related costs (2)

 

3,426

 

 

 

191

 

Severance and related costs (1)

 

1,045

 

 

 

2,169

 

Non-cash impairment charges

 

5,875

 

 

 

1,582

 

Other non-cash charges

 

 

 

 

244

 

 

$

17,419

 

 

$

4,240

 

 

(1) Included in “General and administrative” costs.

(2) Included in “Direct salaries and related costs.

During the three months ended June 30, 2019, the Company incurred an additional $0.5 million above the amount previously expected under the Americas 2019 Exit Plan, primarily due to the refinement of previous estimates. The Company has paid a total of $11.0 million in cash through June 30, 2019, of which $10.2 million related to the Americas 2018 Exit Plan and $0.8 million related to the Americas 2019 Exit Plan.  

The following table summarizes the accrued liability and related charges for the three months ended June 30, 2019 (in thousands):

 

Americas

2018 Exit Plan

 

 

Americas

2019 Exit Plan

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

Balance at the beginning of the period

$

162

 

 

$

495

 

 

$

657

 

 

$

 

 

$

1,040

 

 

$

1,040

 

Charges (reversals) included in "Direct

   salaries and related costs"

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

184

 

 

 

184

 

Charges (reversals) included in "General

   and administrative"

 

 

 

 

(9

)

 

 

(9

)

 

 

54

 

 

 

1,079

 

 

 

1,133

 

Cash payments

 

(33

)

 

 

(261

)

 

 

(294

)

 

 

 

 

 

(742

)

 

 

(742

)

Balance at the end of the period

$

129

 

 

$

222

 

 

$

351

 

 

$

54

 

 

$

1,561

 

 

$

1,615

 

 

The following table summarizes the accrued liability and related charges for the six months ended June 30, 2019 (in thousands):

 

Americas

2018 Exit Plan

 

 

Americas

2019 Exit Plan

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

Balance at the beginning of the period

$

1,769

 

 

$

817

 

 

$

2,586

 

 

$

 

 

$

 

 

$

 

Charges (reversals) included in "Direct

   salaries and related costs"

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

191

 

 

 

191

 

Charges (reversals) included in "General

   and administrative"

 

(4

)

 

 

10

 

 

 

6

 

 

 

54

 

 

 

2,169

 

 

 

2,223

 

Cash payments

 

(298

)

 

 

(602

)

 

 

(900

)

 

 

 

 

 

(799

)

 

 

(799

)

Balance sheet reclassifications (1)

 

(1,338

)

 

 

 

 

 

(1,338

)

 

 

 

 

 

 

 

 

 

Balance at the end of the period

$

129

 

 

$

222

 

 

$

351

 

 

$

54

 

 

$

1,561

 

 

$

1,615

 

 

(1) Consists of the reclassification from the restructuring liability to “Operating lease liabilities” and “Long-term operating lease liabilities” upon adoption of ASC 842 on January 1, 2019.  

The following table summarizes the accrued liability and related charges for the three and six months ended June 30, 2018 (in thousands):

 

Americas

2018 Exit Plan

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

Balance at the beginning of the period

$

 

 

$

 

 

$

 

Charges (reversals) included in "Direct

   salaries and related costs"

 

 

 

 

402

 

 

 

402

 

Charges (reversals) included in "General

   and administrative"

 

3,028

 

 

 

219

 

 

 

3,247

 

Cash payments

 

(429

)

 

 

(131

)

 

 

(560

)

Balance sheet reclassifications (1)

 

216

 

 

 

 

 

 

216

 

Balance at the end of the period

$

2,815

 

 

$

490

 

 

$

3,305

 

 

(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 its Americas 2018 and 2019 Exit Plans (in thousands):

 

 

Americas

2018 Exit Plan

 

 

Americas

2019 Exit Plan

 

 

June 30, 2019

 

 

December 31, 2018

 

 

June 30, 2019

 

Lease obligations and facility exit costs:

 

 

 

 

 

 

 

 

 

 

 

Included in "Accounts payable"

$

 

 

$

100

 

 

$

54

 

Included in "Other accrued expenses and current

   liabilities"

 

74

 

 

 

952

 

 

 

 

Included in "Other long-term liabilities"

 

55

 

 

 

717

 

 

 

 

 

 

129

 

 

 

1,769

 

 

 

54

 

Severance and related costs:

 

 

 

 

 

 

 

 

 

 

 

Included in "Accrued employee compensation and

   benefits"

 

222

 

 

 

793

 

 

 

1,553

 

Included in "Other accrued expenses and current

   liabilities"

 

 

 

 

24

 

 

 

8

 

 

 

222

 

 

 

817

 

 

 

1,561

 

 

$

351

 

 

$

2,586

 

 

$

1,615

 

 

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

 

v3.19.2
Fair Value
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value

Note 5. Fair Value

 

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value and establishes a framework for measuring fair value. ASC 820 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.  Additionally, ASC 820 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for how 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 exchange 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 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, if applicable.

 

Cash, Short-Term and Other Investments and Accounts Payable The carrying values for cash, short-term and other investments and accounts payable approximate their fair values.

 

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.

 

Foreign Currency Contracts The Company enters into foreign currency forward contracts and options over the counter and values such contracts, including premiums paid on options, at fair value 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 Prior to the adoption of ASC 842, the Company had embedded derivatives within certain hybrid lease agreements that were bifurcated from the host contract and valued such contracts at fair value using significant unobservable inputs, which are classified in Level 3 of the fair value hierarchy.  These unobservable inputs included expected cash flows associated with the lease, currency exchange rates on the day of commencement, as well as forward currency exchange rates, the results of which were adjusted for credit risk. These items were classified in Level 3 of the fair value hierarchy. See Note 3, Leases, and Note 7, 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 8, Investments Held in Rabbi Trust.

 

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

 

 

June 30, 2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts (1)

$

3,265

 

 

$

 

 

$

3,265

 

 

$

 

Equity investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

9,101

 

 

 

9,101

 

 

 

 

 

 

 

Debt investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

4,778

 

 

 

4,778