UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
For the quarterly period ended June 30, 2018
 
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
For the transition period from ____________ to ____________
Commission File No.                0-28274

Sykes Enterprises, Incorporated
(Exact name of Registrant as specified in its charter)

Florida	  	56-1383460	
(State or other jurisdiction of incorporation or
organization)	  	(IRS Employer Identification No.)	
400 North Ashley Drive, Suite 2800, Tampa, FL    33602
(Address of principal executive offices)    (Zip Code)
Registrant’s telephone number, including area code: (813) 274-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer        	  	☒	  		  	Smaller reporting company        	  	☐	
Accelerated filer	  	☐	  	(Do not check if a smaller reporting company)	  	Emerging growth company	  	☐	
Non-accelerated filer	  	☐	  		  		  		
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of July 19, 2018, there were 42,821,212 outstanding shares of common stock.

Sykes Enterprises, Incorporated and Subsidiaries
Form 10-Q
INDEX

PART I. FINANCIAL INFORMATION	  	 	3	 	
			
Item 1.	 	Financial Statements	  	 	3	 	
	 	Condensed Consolidated Balance Sheets – June  30, 2018 and December 31, 2017 (Unaudited)	  	 	3	 	
	 	Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	  	 	4	 	
	 	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	  	 	5	 	
	 	Condensed Consolidated Statement of Changes in Shareholders’ Equity – Six Months Ended June 30, 2018 (Unaudited)	  	 	6	 	
	 	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2018 and 2017 (Unaudited)	  	 	7	 	
	 	Notes to Condensed Consolidated Financial Statements (Unaudited)	  	 	9	 	
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	46	 	
Item 3.	 	Quantitative and Qualitative Disclosures About Market Risk	  	 	58	 	
Item 4.	 	Controls and Procedures	  	 	59	 	
		
Part II. OTHER INFORMATION	  	 	60	 	
			
Item 1.	 	Legal Proceedings	  	 	60	 	
Item 1A.	 	Risk Factors	  	 	60	 	
Item 2.	 	Unregistered Sales of Equity Securities and Use of Proceeds	  	 	60	 	
Item 3.	 	Defaults Upon Senior Securities	  	 	60	 	
Item 4.	 	Mine Safety Disclosures	  	 	60	 	
Item 5.	 	Other Information	  	 	60	 	
Item 6.	 	Exhibits	  	 	61	 	
	 	SIGNATURE	  	 	62	 	
 
2

 PART I. FINANCIAL INFORMATION
 Item 1.  Financial Statements
Sykes Enterprises, Incorporated and Subsidiaries
 Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands, except per share data)	  	June 30, 2018	 	 	December 31, 2017	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents	  	$	162,422	 	 	$	343,734	 	
Receivables, net	  	 	347,885	 	 	 	341,958	 	
Prepaid expenses	  	 	23,516	 	 	 	22,132	 	
Other current assets	  	 	19,140	 	 	 	19,743	 	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	552,963	 	 	 	727,567	 	
Property and equipment, net	  	 	142,920	 	 	 	160,790	 	
Goodwill, net	  	 	265,991	 	 	 	269,265	 	
Intangibles, net	  	 	139,829	 	 	 	140,277	 	
Deferred charges and other assets	  	 	32,698	 	 	 	29,193	 	
	  	 	 	 	 	 	 	 	
	  	$	        1,134,401	 	 	$	        1,327,092	 	
	  	 	 	 	 	 	 	 	
Liabilities and Shareholders’ Equity	  				 				
Current liabilities:	  				 				
Accounts payable	  	$	22,236	 	 	$	32,133	 	
Accrued employee compensation and benefits	  	 	98,557	 	 	 	102,899	 	
Income taxes payable	  	 	843	 	 	 	2,606	 	
Deferred revenue and customer liabilities	  	 	32,503	 	 	 	34,717	 	
Other accrued expenses and current liabilities	  	 	36,765	 	 	 	30,888	 	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	190,904	 	 	 	203,243	 	
Deferred grants	  	 	2,913	 	 	 	3,233	 	
Long-term debt	  	 	90,000	 	 	 	275,000	 	
Long-term income tax liabilities	  	 	24,471	 	 	 	27,098	 	
Other long-term liabilities	  	 	25,250	 	 	 	22,039	 	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	333,538	 	 	 	530,613	 	

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; 42,821 and 42,899 shares issued,
respectively	  	 	428	 	 	 	429	 	
Additional paid-in capital	  	 	282,622	 	 	 	282,385	 	
Retained earnings	  	 	567,988	 	 	 	546,843	 	
Accumulated other comprehensive income (loss)	  	 	(47,933	) 	 	 	(31,104	) 	
Treasury stock at cost: 122 and 117 shares, respectively	  	 	(2,242	) 	 	 	(2,074	) 	
	  	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	800,863	 	 	 	796,479	 	
	  	 	 	 	 	 	 	 	
	  	$	1,134,401	 	 	$	1,327,092	 	
	  	 	 	 	 	 	 	 	
See accompanying Notes to Condensed Consolidated Financial Statements.
 
3

Sykes Enterprises, Incorporated and Subsidiaries
 Condensed Consolidated Statements of Operations
(Unaudited)

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
(in thousands, except per share data)	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Revenues	  	$	    396,785	 	 	$	    375,438	 	 	$	    811,156	 	 	$	    759,452	 	
Operating expenses:	  				 				 				 				
Direct salaries and related costs	  	 	264,924	 	 	 	248,615	 	 	 	539,996	 	 	 	495,751	 	
General and administrative	  	 	102,037	 	 	 	92,236	 	 	 	204,477	 	 	 	184,280	 	
Depreciation, net	  	 	14,560	 	 	 	13,820	 	 	 	29,396	 	 	 	27,168	 	
Amortization of intangibles	  	 	3,629	 	 	 	5,250	 	 	 	7,842	 	 	 	10,481	 	
Impairment of long-lived assets	  	 	5,175	 	 	 	4,189	 	 	 	8,701	 	 	 	4,391	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	  	 	390,325	 	 	 	364,110	 	 	 	790,412	 	 	 	722,071	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from operations	  	 	6,460	 	 	 	11,328	 	 	 	20,744	 	 	 	37,381	 	

Other income (expense):	  				 				 				 				
Interest income	  	 	175	 	 	 	144	 	 	 	346	 	 	 	299	 	
Interest (expense)	  	 	(1,149	) 	 	 	(1,865	) 	 	 	(2,355	) 	 	 	(3,564	) 	
Other income (expense), net	  	 	(537	) 	 	 	793	 	 	 	(382	) 	 	 	1,606	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense), net	  	 	(1,511	) 	 	 	(928	) 	 	 	(2,391	) 	 	 	(1,659	) 	

Income before income taxes	  	 	4,949	 	 	 	10,400	 	 	 	18,353	 	 	 	35,722	 	
Income taxes	  	 	(2,229	) 	 	 	1,555	 	 	 	227	 	 	 	8,165	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	7,178	 	 	$	8,845	 	 	$	18,126	 	 	$	27,557	 	

Net income per common share:	  				 				 				 				
Basic	  	$	0.17	 	 	$	0.21	 	 	$	0.43	 	 	$	0.66	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	  	$	0.17	 	 	$	0.21	 	 	$	0.43	 	 	$	0.66	 	

Weighted average common shares outstanding:	  				 				 				 				
Basic	  	 	42,125	 	 	 	41,854	 	 	 	42,035	 	 	 	41,756	 	
Diluted	  	 	42,160	 	 	 	41,934	 	 	 	42,197	 	 	 	41,919	 	
See accompanying Notes to Condensed Consolidated Financial Statements.
 
4

Sykes Enterprises, Incorporated and Subsidiaries
 Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
(in thousands)	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Net income	  	$	      7,178	 	 	$	      8,845	 	 	$	      18,126	 	 	$	      27,557	 	
Other comprehensive income (loss), net of taxes:	  				 				 				 				
Foreign currency translation adjustments, net of taxes	  	 	(13,597	) 	 	 	16,484	 	 	 	(13,306	) 	 	 	20,382	 	
Unrealized gain (loss) on net investment hedges, net of taxes	  	 	-	 	 	 	(2,936	) 	 	 	-	 	 	 	(3,304	) 	
Unrealized gain (loss) on cash flow hedging instruments, net of taxes	  	 	(481	) 	 	 	(396	) 	 	 	(3,374	) 	 	 	136	 	
Unrealized actuarial gain (loss) related to pension liability, net of taxes	  	 	(46	) 	 	 	(16	) 	 	 	(129	) 	 	 	(39	) 	
Unrealized gain (loss) on postretirement obligation, net of taxes	  	 	(10	) 	 	 	(12	) 	 	 	(20	) 	 	 	(25	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other comprehensive income (loss), net of taxes	  	 	(14,134	) 	 	 	13,124	 	 	 	(16,829	) 	 	 	17,150	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income (loss)	  	$	(6,956	) 	 	$	21,969	 	 	$	1,297	 	 	$	44,707	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying Notes to Condensed Consolidated Financial Statements.
 
5

Sykes Enterprises, Incorporated and Subsidiaries
 Condensed Consolidated Statement of Changes in Shareholders’ Equity
Six Months Ended June 30, 2018
(Unaudited)

 	 	Common Stock	 	 	Additional	 	 	 	 	 	Accumulated
Other	 	 	 	 	 	 	 	
(in thousands)	 	Shares
Issued	 	 	Amount	 	 	Paid-in
Capital	 	 	Retained
Earnings	 	 	Comprehensive
Income (Loss)	 	 	Treasury
Stock	 	 	Total	 	
Balance at December 31, 2017	 	 	42,899	 	 	$	429	 	 	$	282,385	 	 	$	546,843	 	 	$	(31,104	) 	 	$	(2,074	) 	 	$	796,479	 	
Cumulative effect of accounting change	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,019	 	 	 	-	 	 	 	-	 	 	 	3,019	 	
Stock-based compensation expense	 	 	-	 	 	 	-	 	 	 	3,750	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,750	 	
Issuance of common stock under equity award plans, net of forfeitures	 	 	40	 	 	 	-	 	 	 	168	 	 	 	-	 	 	 	-	 	 	 	(168	) 	 	 	-	 	
Shares repurchased for tax withholding on equity awards	 	 	(118	) 	 	 	(1	) 	 	 	(3,681	) 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,682	) 	
Comprehensive income (loss)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	18,126	 	 	 	(16,829	) 	 	 	-	 	 	 	1,297	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2018	 	 	42,821	 	 	$	428	 	 	$	282,622	 	 	$	567,988	 	 	$	(47,933	) 	 	$	(2,242	) 	 	$	800,863	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying Notes to Condensed Consolidated Financial Statements.
 
6

Sykes Enterprises, Incorporated and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
(Unaudited)

 	  	Six Months Ended June 30,	 	
(in thousands)	  	2018	 	 	2017	 	
Cash flows from operating activities:	  				 				
Net income	  	$	              18,126	 	 	$	              27,557	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  				 				
Depreciation	  	 	29,651	 	 	 	27,423	 	
Amortization of intangibles	  	 	7,842	 	 	 	10,481	 	
Amortization of deferred grants	  	 	(344	) 	 	 	(374	) 	
Impairment losses	  	 	8,701	 	 	 	4,391	 	
Unrealized foreign currency transaction (gains) losses, net	  	 	(370	) 	 	 	(611	) 	
Stock-based compensation expense	  	 	3,750	 	 	 	4,732	 	
Deferred income tax provision (benefit)	  	 	1,070	 	 	 	9,785	 	
Unrealized (gains) losses and premiums on financial instruments, net	  	 	625	 	 	 	42	 	
Amortization of deferred loan fees	  	 	134	 	 	 	134	 	
Imputed interest expense and fair value adjustments to contingent consideration	  	 	-	 	 	 	(633	) 	
Other	  	 	(90	) 	 	 	144	 	
Changes in assets and liabilities, net of acquisitions:	  				 				
Receivables, net	  	 	(8,370	) 	 	 	9,059	 	
Prepaid expenses	  	 	(1,611	) 	 	 	78	 	
Other current assets	  	 	(2,016	) 	 	 	(1,855	) 	
Deferred charges and other assets	  	 	(2,186	) 	 	 	(1,008	) 	
Accounts payable	  	 	(5,499	) 	 	 	2,420	 	
Income taxes receivable / payable	  	 	(6,526	) 	 	 	(14,086	) 	
Accrued employee compensation and benefits	  	 	(2,349	) 	 	 	(1,779	) 	
Other accrued expenses and current liabilities	  	 	5,079	 	 	 	(2,916	) 	
Deferred revenue and customer liabilities	  	 	(155	) 	 	 	2,398	 	
Other long-term liabilities	  	 	1,922	 	 	 	(3,813	) 	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	47,384	 	 	 	71,569	 	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Capital expenditures	  	 	(26,232	) 	 	 	(35,859	) 	
Cash paid for business acquisitions, net of cash acquired	  	 	-	 	 	 	(7,500	) 	
Purchase of intangible assets	  	 	(7,606	) 	 	 	(275	) 	
Other	  	 	484	 	 	 	25	 	
	  	 	 	 	 	 	 	 	
Net cash (used for) investing activities	  	 	(33,354	) 	 	 	(43,609	) 	

7

Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Continued)

 	  	Six Months Ended June 30,	 	
(in thousands)	  	2018	 	 	2017	 	
Cash flows from financing activities:	  				 				
Payments of long-term debt	  	 	(190,000	) 	 	 	-	 	
Proceeds from issuance of long-term debt	  	 	5,000	 	 	 	-	 	
Shares repurchased for tax withholding on equity awards	  	 	(3,682	) 	 	 	(3,860	) 	
Payments of contingent consideration related to acquisitions	  	 	-	 	 	 	(4,528	) 	
Other	  	 	38	 	 	 	107	 	
	  	 	 	 	 	 	 	 	
Net cash (used for) financing activities	  	 	(188,644	) 	 	 	(8,281	) 	
	  	 	 	 	 	 	 	 	
Effects of exchange rates on cash, cash equivalents and restricted cash	  	 	(6,748	) 	 	 	15,159	 	
	  	 	 	 	 	 	 	 	
Net increase (decrease) in cash, cash equivalents and restricted cash	  	 	(181,362	) 	 	 	34,838	 	
Cash, cash equivalents and restricted cash – beginning	  	 	344,805	 	 	 	267,594	 	
	  	 	 	 	 	 	 	 	
Cash, cash equivalents and restricted cash – ending	  	$	            163,443	 	 	$	            302,432	 	

Supplemental disclosures of cash flow information:	  				 				
Cash paid during period for interest	  	$	1,975	 	 	$	3,066	 	
Cash paid during period for income taxes	  	$	12,084	 	 	$	17,032	 	
Non-cash transactions:	  				 				
Property and equipment additions in accounts payable	  	$	2,637	 	 	$	3,742	 	
Unrealized gain (loss) on postretirement obligation, net of taxes in accumulated other comprehensive income (loss)	  	$	(20	) 	 	$	(25	) 	
Shares repurchased for tax withholding on equity awards included in current liabilities	  	$	-	 	 	$	119	 	
See accompanying Notes to Condensed Consolidated Financial Statements.
 
8

Sykes Enterprises, Incorporated and Subsidiaries
 Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 2018 and 2017
(Unaudited)
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 to Global 2000 companies and their end customers primarily within the communications, financial services, technology, transportation and leisure, healthcare, retail 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 includes order processing, payment processing, inventory control, product delivery and product returns handling. The Company has operations in two reportable segments entitled (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and Africa.
2017 Tax Reform Act
In December 2017, the President of the United States (“U.S.”) signed into law the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”). In general, the 2017 Tax Reform Act reduces the U.S. federal corporate tax rate from 35% to 21%, effective in 2018. The 2017 Tax Reform Act moves from a worldwide business taxation approach to a participation exemption regime. The 2017 Tax Reform Act also imposes 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 which was recorded in the fourth quarter of 2017. 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 11, Income Taxes, is reflected in the Other segment.
Acquisition
On April 24, 2017, the Company entered into a definitive Asset Purchase Agreement (the “Purchase Agreement”) to acquire certain assets from a Global 2000 telecommunications services provider. The aggregate purchase price of $7.5 million was paid on May 31, 2017, using cash on hand, resulting in $6.0 million of property and equipment and $1.5 million of customer relationship intangibles (the “Telecommunications Asset acquisition”). The Purchase Agreement contains 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 results of the Telecommunications Assets’ operations have been included in the Company’s consolidated financial statements in the Americas segment since its acquisition on May 31, 2017.
The Company accounted for the Telecommunications Asset acquisition in accordance with ASC 805, Business Combinations, 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.
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, 2018 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2018. For further information, refer to the
 
9

consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018.
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. On July 9, 2018, the Company entered into and closed a definitive Share Sale Agreement (“Sale Agreement”) to acquire all the outstanding shares of WhistleOut Pty Ltd and WhistleOut Inc. (together, known as “WhistleOut”) for AUD 30.2 million ($22.4 million). See Note 19, Subsequent Event, for further information. There were no other 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,
2018	 	 	December 31,
2017	 	 	June 30,
2017	 	 	December 31,
2016	 	
Cash and cash equivalents	 	$	162,422	 	 	$	343,734	 	 	$	301,451	 	 	$	266,675	 	
Restricted cash included in “Other current assets”	 	 	153	 	 	 	154	 	 	 	158	 	 	 	160	 	
Restricted cash included in “Deferred charges and other assets”	 	 	868	 	 	 	917	 	 	 	823	 	 	 	759	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	$	      163,443	 	 	$	      344,805	 	 	$	      302,432	 	 	$	      267,594	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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 June 30, 2018 and December 31, 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 Technologies, Inc. (“XSell”) for 32.8% of XSell’s preferred stock. The Company plans to incorporate XSell’s machine learning and artificial intelligence 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
 
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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 $9.6 million and $9.8 million was included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017, respectively. The Company paid $5.0 million in July 2017 with the remaining $5.0 million included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017. The Company’s proportionate share of XSell’s income (loss) of $(0.1) million and $(0.3) million was included in “Other income (expense), net” in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018, respectively (none in 2017).
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 for the three months ended June 30, 2018 and 2017 were $12.0 million and $8.6 million, respectively, and $22.0 million and $18.4 million for the six months ended June 30, 2018 and 2017, respectively. Total advertising costs included in “General and administrative” in the accompanying Condensed Consolidated Statements of Operations for the three months ended June 30, 2018 and 2017 were less than $0.1 million and $0.1 million, respectively, and less than $0.1 million and $0.1 million for the six months ended June 30, 2018 and 2017, respectively.
Reclassifications — Certain balances in the prior period have been reclassified to conform to current period 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. 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 and a preliminary analysis of the impact to the financial statements. The Company continues to evaluate the critical factors of ASC 842. Based on an assessment of the Company’s business and system requirements, the implementation team has selected a lease accounting software solution to assist the Company in complying with ASC 842. The Company expects the adoption of ASC 842 to result in a material increase in the assets and liabilities on the consolidated balance sheets as a result of recognizing right-of-use assets and lease liabilities for existing operating leases based on the amount of the Company’s current lease commitments. The Company believes that the majority of its leases will maintain their current lease classification under ASC 842. The Company does not expect these amendments to have a material effect on its expense recognition timing or cash flows and, as a result, the Company expects the adoption of ASC 842 will result in an insignificant impact on the Company’s consolidated statements of income and on the consolidated statements of cash flows. The Company is continuing to evaluate the magnitude of the impact and related disclosures, as well as the timing and method of adoption, with respect to the transition method and optional practical expedients. The Company is also continuing to evaluate the full impact of ASC 842, as well as its impacts on its business processes, systems, and internal controls.
 
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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. These amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its financial condition, results of operations and cash flows.
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.
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
 
12

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 Condensed Consolidated Statements of Cash Flows by $1.1 million for the six months ended June 30, 2018 and increased the beginning and ending balances of cash by $0.9 million and $1.0 million, respectively, for the six months ended June 30, 2017. Other than the change in presentation within the accompanying Condensed 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 11, Income Taxes, and in accordance with SAB 118, the Company recorded amounts that were considered provisional.
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
 
13

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 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 (in thousands):

 	 	As Previously
Reported	 	 	Adjustments
Due to the
Adoption of
ASU 2017-07	 	 	  As Revised  	 	
Three Months Ended June 30, 2017:	 				 				 				
Direct salaries and related costs	 	$	248,643	 	 	$	(28	) 	 	$	248,615	 	
General and administrative	 	 	92,246	 	 	 	(10	) 	 	 	92,236	 	
Income from operations	 	 	11,290	 	 	 	38	 	 	 	11,328	 	
Other income (expense), net	 	 	831	 	 	 	(38	) 	 	 	793	 	
				
Six Months Ended June 30, 2017:	 				 				 				
Direct salaries and related costs	 	$	495,808	 	 	$	(57	) 	 	$	495,751	 	
General and administrative	 	 	184,300	 	 	 	(20	) 	 	 	184,280	 	
Income from operations	 	 	37,304	 	 	 	77	 	 	 	37,381	 	
Other income (expense), net	 	 	1,683	 	 	 	(77	) 	 	 	1,606	 	
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 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. Revenues recognized under ASC 606 are expected to be slightly 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 three and six months ended June 30, 2018 is reported below.
 
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The cumulative effect of the adjustments made to the Company’s Condensed 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 Condensed Consolidated Balance Sheet as of June 30, 2018 were as follows (in thousands):

 	 	  As Reported  	 	 	Balances
Without the
  Impact of the  
ASC 606
Adoption	 	 	Effect of
Adoption
Increase
  (Decrease)  	 	
June 30, 2018:	 				 				 				
Receivables, net	 	$	347,885	 	 	$	345,932	 	 	$	1,953	 	
Deferred charges and other assets	 	 	32,698	 	 	 	28,280	 	 	 	4,418	 	
Income taxes payable	 	 	843	 	 	 	(733	) 	 	 	1,576	 	
Deferred revenue and customer liabilities	 	 	32,503	 	 	 	34,585	 	 	 	(2,082	) 	
Other long-term liabilities	 	 	25,250	 	 	 	25,524	 	 	 	(274	) 	
Retained earnings	 	 	567,988	 	 	 	560,837	 	 	 	7,151	 	
The financial statement line items impacted by the adoption of ASC 606 in the Company’s Condensed Consolidated Statement of Operations for the three months ended June 30, 2018 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)	 	
Three Months Ended June 30, 2018:	 				 				 				
Revenues	 	$	396,785	 	 	$	394,483	 	 	$	2,302	 	
Income from operations	 	 	6,460	 	 	 	4,158	 	 	 	2,302	 	
Income before income taxes	 	 	4,949	 	 	 	2,647	 	 	 	2,302	 	
Income taxes	 	 	(2,229	) 	 	 	(2,804	) 	 	 	575	 	
Net income	 	 	7,178	 	 	 	5,451	 	 	 	1,727	 	
Net income per common share:	 				 				 				
Basic	 	$	0.17	 	 	$	0.13	 	 	$	0.04	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	 	$	0.17	 	 	$	0.13	 	 	$	0.04	 	

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The financial statement line items impacted by the adoption of ASC 606 in the Company’s Condensed Consolidated Statement of Operations for the six months ended June 30, 2018 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)	 	
Six Months Ended June 30, 2018:	 				 				 				
Revenues	 	$	811,156	 	 	$	805,759	 	 	$	5,397	 	
Income from operations	 	 	20,744	 	 	 	15,347	 	 	 	5,397	 	
Income before income taxes	 	 	18,353	 	 	 	12,956	 	 	 	5,397	 	
Income taxes	 	 	227	 	 	 	(1,038	) 	 	 	1,265	 	
Net income	 	 	18,126	 	 	 	13,994	 	 	 	4,132	 	
Net income per common share:	 				 				 				
Basic	 	$	0.43	 	 	$	0.33	 	 	$	0.10	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	 	$	            0.43	 	 	$	            0.33	 	 	$	            0.10	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
The Company’s net cash provided by operating activities for the six months ended June 30, 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’s “Recognition of Revenues” accounting policy under ASC 606 is outlined below. For the Company’s accounting policy under ASC 605, see Note 1, Overview and Summary of Significant Accounting Policies, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
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.
 
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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”), typically varying periods 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 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 upon receipt of the invoice, payable usually within 30 or 60 days. 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 contracts include penalties and holdbacks 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 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
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 similar to the Company’s outsourced customer engagement services and solutions.
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 0.6% and 0.5% of the Company’s consolidated total revenues for the three months ended June 30, 2018 and 2017, respectively, and 0.6% and 0.6% of the Company’s consolidated total revenues for the six months ended June 30, 2018 and 2017, 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.
 
17

The following table represents revenues from contracts with customers disaggregated by service type for the three and six months ended June 30, 2018 and 2017, by the reportable segment for each category (in thousands):

 	  	  Three Months Ended June 30,  	 	  	  Six Months Ended June 30,  	 	
 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Americas:	  				  				  				  				
Customer engagement solutions and services	  	$	326,766	 	  	$	314,603	 	  	$	667,188	 	  	$	635,265	 	
Other revenues	  	 	275	 	  	 	268	 	  	 	574	 	  	 	537	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Americas	  	 	327,041	 	  	 	314,871	 	  	 	667,762	 	  	 	635,802	 	
EMEA:	  				  				  				  				
Customer engagement solutions and services	  	 	67,772	 	  	 	58,836	 	  	 	139,443	 	  	 	119,905	 	
Other revenues	  	 	1,948	 	  	 	1,704	 	  	 	3,904	 	  	 	3,702	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total EMEA	  	 	69,720	 	  	 	60,540	 	  	 	143,347	 	  	 	123,607	 	
Other:	  				  				  				  				
Other revenues	  	 	24	 	  	 	27	 	  	 	47	 	  	 	43	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Other	  	 	24	 	  	 	27	 	  	 	47	 	  	 	43	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	      396,785	 	  	$	      375,438	 	  	$	      811,156	 	  	$	      759,452	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Trade Accounts Receivable
The Company’s trade accounts receivable, net, consists of the following (in thousands):

 	  	  June 30, 2018  	 	  	 January 1, 2018 	 	
Trade accounts receivable, net, current (1)	  	$	334,818	 	  	$	332,014	 	
Trade accounts receivable, net, noncurrent (2)	  	 	4,614	 	  	 	2,078	 	
	  	 	 	 	  	 	 	 	
	  	$	339,432	 	  	$	334,092	 	
	  	 	 	 	  	 	 	 	
(1) Included in “Receivables, net” in the accompanying Condensed 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 Condensed 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 contracts with customers that include renewal provisions that take effect subsequent to the satisfaction of the associated performance obligations. Payment is expected upon renewal, which occurs in bi-annual and annual increments over the associated expected contract term, the majority of which range from two to five years.
Deferred Revenue and Customer Liabilities
Deferred revenue and customer liabilities consists of the following (in thousands):

 	  	  June 30, 2018  	 	  	 January 1, 2018 	 	
Deferred revenue	  	$	4,900	 	  	$	4,598	 	
Customer arrangements with termination rights	  	 	18,498	 	  	 	21,755	 	
Estimated refund liabilities (1)	  	 	9,105	 	  	 	7,316	 	
	  	 	 	 	  	 	 	 	
	  	$	32,503	 	  	$	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, typically varying periods up to 180 days. 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.
 
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Revenues of $0.3 million and $4.2 million were recognized during the three and six months ended June 30, 2018, respectively, from amounts included in deferred revenue as of January 1, 2018.
The Company expects to recognize its deferred revenue as of June 30, 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.
Note 3. Costs Associated with Exit or Disposal Activities
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 anticipates finalizing the remainder of the site closures under the Americas 2018 Exit Plan by December 2018.
The Company’s actions will result in a reduction in seats as well as anticipated general and administrative cost savings, including lower depreciation expense, resulting from the 2018 site closures.
The cumulative costs expected and incurred as a result of the Americas 2018 Exit Plan are outlined below as of June 30, 2018 (in thousands):

 	  	Costs Expected
To Be Incurred	 	  	Cumulative
 Costs Incurred 
To Date	 	  	Expected
    Remaining    
Costs	 	
Lease obligations and facility exit costs (1)	  	$	6,692	 	  	$	3,028	 	  	$	3,664	 	
Severance and related costs (2)	  	 	3,701	 	  	 	402	 	  	 	3,299	 	
Severance and related costs (1)	  	 	488	 	  	 	219	 	  	 	269	 	
Non-cash impairment charges	  	 	5,175	 	  	 	5,175	 	  	 	-	 	
	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	16,056	 	  	$	8,824	 	  	$	7,232	 	
	  	 	 	 	  	 	 	 	  	 	 	 	
(1) Relates to “General and administrative” costs.
(2) Relates to “Direct salaries and related costs.”
 
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The expected remaining severance charges are anticipated to be incurred during the third quarter of 2018. The expected remaining lease obligations and facility exit costs are anticipated to be incurred primarily during the third quarter of 2018 with the balance during the fourth quarter of 2018.
The following table summarizes the accrued liability and related charges for the three and six months ended June 30, 2018 (none in 2017) (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”	  	 	-	 	  	 	402	 	  	 	402	 	
Charges 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 for locations subject to closure to the restructuring liability.
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 June 30, 2018 (none in 2017) (in thousands):

 	  	Americas 2018
Exit Plan	 	
Short-term accrued restructuring liability (1)	  	$	                            2,726	 	
Short-term accrued restructuring liability (2)	  	 	490	 	
Long-term accrued restructuring liability (3)	  	 	89	 	
	  	 	 	 	
Ending accrual at June 30, 2018	  	$	3,305	 	
	  	 	 	 	
(1) Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet.
(2) Included in “Accrued employee compensation and benefits” in the accompanying Condensed Consolidated Balance Sheet.
(3) Included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheet.
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 September 2019.
 
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Note 4. Fair Value
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) 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 .	
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 — The contingent consideration is recognized at fair value based on the discounted cash flow method.	
Fair Value Measurements — 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.
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.
 
21

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.
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, the results of which are adjusted for credit risk. These items are classified in Level 3 of the fair value hierarchy. See Note 6, 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 7, Investments Held in Rabbi Trust, and Note 15, 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 acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”) and liabilities assumed as part of the Clear Link Holdings, LLC (“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 Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following as of June 30, 2018 (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,
2018	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Assets:	  				  				  				  				
Foreign currency forward and option contracts (1)	  	$	1,354	 	  	$	-	 	  	$	1,354	 	  	$	-	 	
Equity investments held in rabbi trust for the Deferred Compensation Plan (2)	  	 	8,557	 	  	 	8,557	 	  	 	-	 	  	 	-	 	
Debt investments held in rabbi trust for the Deferred Compensation  Plan (2)	  	 	3,307	 	  	 	3,307	 	  	 	-	 	  	 	-	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	          13,218	 	  	$	        11,864	 	  	$	1,354	 	  	$	-	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Liabilities:	  				  				  				  				
Foreign currency forward and option contracts (1)	  	$	1,903	 	  	$	-	 	  	$	1,903	 	  	$	-	 	
Embedded derivatives (1)	  	 	598	 	  	 	-	 	  	 	-	 	  	 	598	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	2,501	 	  	$	-	 	  	$	            1,903	 	  	$	               598	 	

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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 as of December 31, 2017 (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,
2017	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Assets:	  				  				  				  				
Foreign currency forward and option contracts (1)	  	$	3,848	 	  	$	-	 	  	$	3,848	 	  	$	-	 	
Embedded derivatives (1)	  	 	52	 	  	 	-	 	  	 	-	 	  	 	52	 	
Equity investments held in rabbi trust for the Deferred Compensation Plan (2)	  	 	8,094	 	  	 	8,094	 	  	 	-	 	  	 	-	 	
Debt investments held in rabbi trust for the Deferred Compensation Plan (2)	  	 	3,533	 	  	 	3,533	 	  	 	-	 	  	 	-	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	          15,527	 	  	$	        11,627	 	  	$	            3,848	 	  	$	52	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Liabilities:	  				  				  				  				
Foreign currency forward and option contracts (1)	  	$	256	 	  	$	-	 	  	$	256	 	  	$	-	 	
Embedded derivatives (1)	  	 	579	 	  	 	-	 	  	 	-	 	  	 	579	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	835	 	  	$	-	 	  	$	256	 	  	$	               579	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
(1) See Note 6, Financial Derivatives, for the classification in the accompanying Condensed Consolidated Balance Sheets.
(2) Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets. See Note 7, Investments Held in Rabbi Trust.
Reconciliations of Fair Value Measurements Categorized within Level 3 of the Fair Value Hierarchy
Embedded Derivatives in Lease Agreements
A rollforward of the net asset (liability) activity in the Company’s fair value of the embedded derivatives is as follows (in thousands):

 	  	    Three Months Ended June 30,    	 	 	    Six Months Ended June 30,    	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Balance at the beginning of the period	  	$	(409	) 	 	$	(375	) 	 	$	(527	) 	 	$	(555	) 	
Gains (losses) recognized in “Other income (expense), net”	  	 	(252	) 	 	 	176	 	 	 	(165	) 	 	 	315	 	
Settlements	  	 	38	 	 	 	25	 	 	 	80	 	 	 	70	 	
Effect of foreign currency	  	 	25	 	 	 	3	 	 	 	14	 	 	 	(1	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at the end of the period	  	$	(598	) 	 	$	(171	) 	 	$	(598	) 	 	$	(171	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in unrealized gains (losses) included in “Other income (expense), net” related to embedded derivatives held at the end of the period	  	$	(253	) 	 	$	48	 	 	$	(171	) 	 	$	183	 	

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Contingent Consideration
A rollforward of the activity in the Company’s fair value of the contingent consideration (liability) is as follows (none in 2018) (in thousands):

 	  	Three Months
Ended June 30,
2017	 	  	Six Months
Ended June 30,
2017	 	
Balance at the beginning of the period	  	$	(5,633	) 	  	$	(6,100	) 	
Imputed interest	  	 	(34	) 	  	 	(68	) 	
Fair value gain (loss) adjustments (1)	  	 	268	 	  	 	701	 	
Settlements	  	 	4,402	 	  	 	4,528	 	
Effect of foreign currency	  	 	(130	) 	  	 	(188	) 	
	  	 	 	 	  	 	 	 	
Balance at the end of the period	  	$	(1,127	) 	  	$	(1,127	) 	
	  	 	 	 	  	 	 	 	
Change in unrealized gains (losses) included in “General and administrative” related to contingent consideration outstanding at the end of the period	  	$	268	 	  	$	268	 	
	  	 	 	 	  	 	 	 	
(1) Included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations.
The Company recorded a fair value gain of $0.3 million and $0.7 million in “General and administrative” during the three and six months ended June 30, 2017, respectively, related to the Clearlink contingent consideration. All outstanding Clearlink contingent consideration liabilities remaining as of June 30, 2017 were paid prior to December 31, 2017.
The Company paid $4.4 million in May 2017 to settle the outstanding Qelp contingent consideration obligation.
The Company accreted interest expense each period using the effective interest method until the contingent consideration reached the estimated future value. Interest expense related to the contingent consideration was included in “Interest (expense)” in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017.
Non-Recurring Fair Value
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs, including goodwill, other intangible assets, other long-lived assets and equity method investments. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be impaired. The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities) subject to the requirements of ASC 820 were not material at June 30, 2018 and December 31, 2017.
The following table summarizes the total impairment losses related to nonrecurring fair value measurements of certain assets (no liabilities) subject to the requirements of ASC 820 (in thousands):

 	  	Total Impairment (Loss)	 	
 	  	  Three Months Ended June 30,  	 	  	    Six Months Ended June 30,    	 	
 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Americas:	  				  				  				  				
Property and equipment, net	  	$	(5,175)	 	  	$	(4,189)	 	  	$	(8,701)	 	  	$	(4,391)	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
In connection with the closure of certain under-utilized customer contact management centers in the U.S. and Canada, the Company recorded impairment charges of $5.2 million and $8.7 million related to leasehold improvements, equipment, furniture and fixtures which were not recoverable during the three and six months ended June 30, 2018, respectively. See Note 3, Costs Associated with Exit or Disposal Activities, for further information.
In connection with the closure of an under-utilized customer contact management center in the U.S., the Company recorded an impairment charge of $4.2 million during the three and six months ended June 30, 2017 related to leasehold improvements which were not recoverable and equipment, furniture and fixtures that could not be redeployed to other locations.
 
24

The Company recorded an impairment charge of $0.2 million related to the write-down of a vacant and unused parcel of land in the U.S. to its estimated fair value during the six months ended June 30, 2017.
Note 5. Goodwill and Intangible Assets
Intangible Assets
The following table presents the Company’s purchased intangible assets as of June 30, 2018 (in thousands):

 	  	Gross
 Intangibles 	 	  	Accumulated
Amortization	 	 	Net
 Intangibles 	 	  	Weighted
Average
Amortization
Period (years)	 	
Intangible assets subject to amortization:	  				  				 				  				
Customer relationships	  	$	169,749	 	  	$	(100,859	) 	 	$	68,890	 	  	 	10	 	
Trade names and trademarks	  	 	14,135	 	  	 	(9,651	) 	 	 	4,484	 	  	 	7	 	
Non-compete agreements	  	 	1,820	 	  	 	(1,356	) 	 	 	464	 	  	 	3	 	
Content library	  	 	526	 	  	 	(526	) 	 	 	-	 	  	 	2	 	
Proprietary software	  	 	1,040	 	  	 	(655	) 	 	 	385	 	  	 	4	 	
Intangible assets not subject to amortization:	  				  				 				  				
Domain names	  	 	65,606	 	  	 	-	 	 	 	65,606	 	  	 	N/A	 	
	  	 	 	 	  	 	 	 	 	 	 	 	  				
	  	$	252,876	 	  	$	(113,047)	 	 	$	139,829	 	  	 	5	 	
	  	 	 	 	  	 	 	 	 	 	 	 	  				
The following table presents the Company’s purchased intangible assets as of December 31, 2017 (in thousands):

 	  	Gross
Intangibles	 	  	Accumulated
Amortization	 	 	Net
 Intangibles 	 	  	Weighted
Average
Amortization
Period (years)	 	
Intangible assets subject to amortization:	  				  				 				  				
Customer relationships	  	$	170,853	 	  	$	(95,175	) 	 	$	75,678	 	  	 	10	 	
Trade names and trademarks	  	 	14,138	 	  	 	(8,797	) 	 	 	5,341	 	  	 	7	 	
Non-compete agreements	  	 	1,820	 	  	 	(1,052	) 	 	 	768	 	  	 	3	 	
Content library	  	 	542	 	  	 	(542	) 	 	 	-	 	  	 	2	 	
Proprietary software	  	 	1,040	 	  	 	(585	) 	 	 	455	 	  	 	4	 	
Intangible assets not subject to amortization:	  				  				 				  				
Domain names	  	 	58,035	 	  	 	-	 	 	 	58,035	 	  	 	N/A	 	
	  	 	 	 	  	 	 	 	 	 	 	 	  				
	  	$	246,428	 	  	$	(106,151)	 	 	$	140,277	 	  	 	6	 	
	  	 	 	 	  	 	 	 	 	 	 	 	  				
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to June 30, 2018 is as follows (in thousands):

Years Ending December 31,	  	  Amount  	 	
2018 (remaining six months)	  	 	7,230	 	
2019	  	 	14,022	 	
2020	  	 	11,348	 	
2021	  	 	6,799	 	
2022	  	 	5,714	 	
2023	  	 	4,882	 	
2024 and thereafter	  	 	24,228	 	
Goodwill
Changes in goodwill for the six months ended June 30, 2018 consist of the following (in thousands):

 	  	  January 1,  
2018	 	  	  Acquisition  	 	  	Effect of
Foreign
  Currency  	 	 	    June 30,    
2018	 	
Americas	  	$	258,496	 	  	$	-	 	  	$	(2,872	) 	 	$	255,624	 	
EMEA	  	 	10,769	 	  	 	-	 	  	 	(402	) 	 	 	10,367	 	
	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
	  	$	269,265	 	  	$	-	 	  	$	      (3,274	) 	 	$	      265,991	 	

25

Changes in goodwill for the year ended December 31, 2017 consist of the following (in thousands):

 	  	January 1,
2017	 	  	Acquisition	 	  	Effect of
Foreign
Currency	 	  	December 31,
2017	 	
Americas	  	$	255,842	 	  	$	390	 	  	$	2,264	 	  	$	258,496	 	
EMEA	  	 	9,562	 	  	 	-	 	  	 	1,207	 	  	 	10,769	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	    265,404	 	  	$	          390	 	  	$	        3,471	 	  	$	    269,265	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The Company performs its annual goodwill impairment test during the third quarter, or more frequently if indicators of impairment exist.
For the annual goodwill impairment test, the Company elected to forgo the option to first assess qualitative factors and performed its annual quantitative goodwill impairment test as of July 31, 2017. Under ASC 350, the carrying value of assets is calculated at the reporting unit level. The quantitative assessment of goodwill includes comparing a reporting unit’s calculated fair value to its carrying value. The calculation of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth, the useful life over which cash flows will occur and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. If the fair value of the reporting unit is less than its carrying value, goodwill is considered impaired and an impairment loss is recognized 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.
The process of evaluating the fair value of the reporting units is highly subjective and requires significant judgment and estimates as the reporting units operate in a number of markets and geographical regions. The Company considered the income and market approaches to determine its best estimates of fair value, which incorporated the following significant assumptions:
 
 	●	 	Revenue projections, including revenue growth during the forecast periods;	
 	●	 	EBITDA margin projections over the forecast periods;	
 	●	 	Estimated income tax rates;	
 	●	 	Estimated capital expenditures; and	
 	●	 	Discount rates based on various inputs, including the risks associated with the specific reporting units as well as their revenue growth and EBITDA margin assumptions.	
As of July 31, 2017, the Company concluded that goodwill was not impaired for all six of its reporting units with goodwill, based on generally accepted valuation techniques and the significant assumptions outlined above. While the fair values of four of the six reporting units were substantially in excess of their carrying value, the Qelp and Clearlink reporting units’ fair value exceeded the respective carrying value, although not substantially.
The Qelp and Clearlink reporting units are at risk of future impairment if projected operating results are not met or other inputs into the fair value measurement change. However, as of June 30, 2018, the Company believes there were no indicators of impairment related to Qelp’s $10.4 million of goodwill or Clearlink’s $71.0 million of goodwill.
 
26

Note 6. Financial Derivatives
Cash Flow Hedges – The Company has derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815 Derivatives and Hedging (“ASC 815”), consisting of Philippine Peso, Costa Rican Colon, Hungarian Forint and Romanian Leu contracts. These contracts are entered into to hedge the exposure to variability in the cash flows of a specific asset or liability, or of a forecasted transaction that is attributable to changes in exchange rates.
The deferred gains (losses) and related taxes on the Company’s cash flow hedges recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):

 	  	    June 30, 2018    	 	  	December 31, 2017	 	
Deferred gains (losses) in AOCI	  	$	(999	) 	  	$	2,550	 	
Tax on deferred gains (losses) in AOCI	  	 	                96	 	  	 	(79	) 	
	  	 	 	 	  	 	 	 	
Deferred gains (losses) in AOCI, net of taxes	  	$	(903	) 	  	$	            2,471	 	
	  	 	 	 	  	 	 	 	
Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months	  	$	(882	) 	  				
	  	 	 	 	  				
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts and options.
Non-Designated Hedges
Foreign Currency Forward Contracts – The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect the Company’s interests against adverse foreign currency moves relating primarily to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries’ functional currencies. These contracts generally do not exceed 180 days in duration.
Embedded Derivatives – The Company enters into certain lease agreements which require payments not denominated in the functional currency of any substantial party to the agreements. The foreign currency component of these contracts meets the criteria under ASC 815 as embedded derivatives. The Company has determined that the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contracts (lease agreements), and separate, stand-alone instruments with the same terms as the embedded derivative instruments would otherwise qualify as derivative instruments, thereby requiring separation from the lease agreements and recognition at fair value. Such instruments do not qualify for hedge accounting under ASC 815.
The Company had the following outstanding foreign currency forward contracts and options, and embedded derivatives (in thousands):

 	  	June 30, 2018	 	  	December 31, 2017	 	
Contract Type	  	Notional
Amount in
USD	 	  	Settle
Through
Date	 	  	Notional
Amount
in USD	 	  	Settle
Through
Date	 	
Cash flow hedges:	  				  				  				  				
Options:	  				  				  				  				
US Dollars/Philippine Pesos	  	$	        61,750	 	  	 	September 2019  	 	  	$	        78,000	 	  	 	December 2018  	 	
Forwards:	  				  				  				  				
US Dollars/Philippine Pesos	  	 	53,400	 	  	 	September 2019	 	  	 	3,000	 	  	 	June 2018	 	
US Dollars/Costa Rican Colones	  	 	82,500	 	  	 	August 2019	 	  	 	70,000	 	  	 	March 2019	 	
Euros/Hungarian Forints	  	 	1,726	 	  	 	December 2018	 	  	 	3,554	 	  	 	December 2018	 	
Euros/Romanian Leis	  	 	6,894	 	  	 	December 2018	 	  	 	13,977	 	  	 	December 2018	 	
Non-designated hedges:	  				  				  				  				
Forwards	  	 	6,153	 	  	 	September 2018	 	  	 	9,253	 	  	 	March 2018	 	
Embedded derivatives	  	 	12,676	 	  	 	April 2030	 	  	 	13,519	 	  	 	April 2030	 	
 
27

Master netting agreements exist with each respective counterparty to reduce credit risk by permitting net settlement of derivative positions. In the event of default by the Company or one of its counterparties, these agreements include a set-off clause that provides the non-defaulting party the right to net settle all derivative transactions, regardless of the currency and settlement date. The maximum amount of loss due to credit risk that, based on gross fair value, the Company would incur if parties to the derivative transactions that make up the concentration failed to perform according to the terms of the contracts was $1.4 million and $3.8 million as of June 30, 2018 and December 31, 2017, respectively. After consideration of these netting arrangements and offsetting positions by counterparty, the total net settlement amount as it relates to these positions are asset positions of $0.9 million and $3.6 million as of June 30, 2018 and December 31, 2017, respectively, and liability positions of $1.4 million and $0 as of June 30, 2018 and December 31, 2017, respectively.
Although legally enforceable master netting arrangements exist between the Company and each counterparty, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in the accompanying Condensed Consolidated Balance Sheets. Additionally, the Company is not required to pledge, nor is it entitled to receive, cash collateral related to these derivative transactions.
The following tables present the fair value of the Company’s derivative instruments included in the accompanying Condensed Consolidated Balance Sheets (in thousands):

 	  	Derivative Assets	 	
 	  	June 30, 2018	 	  	December 31, 2017	 	
Derivatives designated as cash flow hedging instruments under ASC 815:	  				  				
Foreign currency forward and option contracts (1)	  	$	1,343	 	  	$	3,604	 	
Foreign currency forward and option contracts (2)	  	 	11	 	  	 	-	 	
	  	 	 	 	  	 	 	 	
	  	 	1,354	 	  	 	3,604	 	
			
Derivatives not designated as hedging instruments under ASC 815:	  				  				
Foreign currency forward contracts (1)	  	 	-	 	  	 	244	 	
Embedded derivatives (1)	  	 	-	 	  	 	9	 	
Embedded derivatives (2)	  	 	-	 	  	 	43	 	
	  	 	 	 	  	 	 	 	
Total derivative assets	  	$	                                1,354	 	  	$	                                3,900	 	

 	  	Derivative Liabilities	 	
 	  	June 30, 2018	 	  	December 31, 2017	 	
Derivatives designated as cash flow hedging instruments under ASC 815:	  				  				
Foreign currency forward and option contracts (3)	  	$	1,595	 	  	$	175	 	
Foreign currency forward and option contracts (4)	  	 	129	 	  	 	81	 	
	  	 	 	 	  	 	 	 	
	  	 	1,724	 	  	 	256	 	
			
Derivatives not designated as hedging instruments under ASC 815:	  				  				
Foreign currency forward contracts (3)	  	 	179	 	  	 	-	 	
Embedded derivatives (3)	  	 	108	 	  	 	189	 	
Embedded derivatives (4)	  	 	490	 	  	 	390	 	
	  	 	 	 	  	 	 	 	
Total derivative liabilities	  	$	2,501	 	  	$	835	 	
	  	 	 	 	  	 	 	 	
(1) Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets.
(2) Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets.
(3) Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets.
(4) Included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets.
 
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The following table presents the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the three months ended June 30, 2018 and 2017 (in thousands):

 	  	Gain (Loss)
Recognized in AOCI
on Derivatives
(Effective Portion)	 	 	Gain (Loss)
Reclassified From
AOCI Into
“Revenues”
(Effective Portion)	 	 	Gain (Loss)
Recognized in
“Revenues” on
Derivatives
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)	 	
 	  	June 30,	 	 	June 30,	 	 	June 30,	 	
 	  	2018	 	 	2017	 	 	2018	 	  	2017	 	 	2018	 	  	2017	 	
Derivatives designated as cash flow hedging instruments under ASC 815:	  				 				 				  				 				  				
Foreign currency forward and option contracts	  	$	(305	) 	 	$	(1,232	) 	 	$	191	 	  	$	(820	) 	 	$	2	 	  	$	-	 	
Derivatives designated as net investment hedging instruments under ASC 815:	  				 				 				  				 				  				
Foreign currency forward contracts	  	 	-	 	 	 	(4,774	) 	 	 	-	 	  	 	-	 	 	 	-	 	  	 	-	 	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
	  	$	        (305)	 	 	$	      (6,006)	 	 	$	        191	 	  	$	      (820)	 	 	$	            2	 	  	$	              -	 	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
The following table presents the gains (losses) recognized in “Other income (expense), net” of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the three months ended June 30, 2018 and 2017 (in thousands):

 	  	      Three Months Ended June 30,      	 	
 	  	2018	 	  	2017	 	
Derivatives not designated as hedging instruments under ASC 815:	  				  				
Foreign currency forward contracts	  	$	(93)	 	  	$	921	 	
Embedded derivatives	  	 	(252	) 	  	 	176	 	
	  	 	 	 	  	 	 	 	
	  	$	(345	) 	  	$	1,097	 	
	  	 	 	 	  	 	 	 	
The following table presents the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the six months ended June 30, 2018 and 2017 (in thousands):

 	  	Gain (Loss)
Recognized in AOCI
on Derivatives
(Effective Portion)	 	 	Gain (Loss)
Reclassified From
AOCI Into
“Revenues”
(Effective Portion)	 	 	Gain (Loss)
Recognized in
“Revenues” on
Derivatives
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)	 	
 	  	June 30,	 	 	June 30,	 	 	June 30,	 	
 	  	2018	 	 	2017	 	 	2018	 	  	2017	 	 	2018	 	  	2017	 	
Derivatives designated as cash flow hedging instruments under ASC 815:	  				 				 				  				 				  				
Foreign currency forward and option contracts	  	$	(3,001	) 	 	$	(1,466	) 	 	$	428	 	  	$	(1,580	) 	 	$	8	 	  	$	-	 	
Derivatives designated as net investment hedging instruments under ASC 815:	  				 				 				  				 				  				
Foreign currency forward contracts	  	 	-	 	 	 	(5,373	) 	 	 	-	 	  	 	-	 	 	 	-	 	  	 	-	 	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
	  	$	    (3,001)	 	 	$	      (6,839)	 	 	$	        428	 	  	$	    (1,580)	 	 	$	            8	 	  	$	              -	 	

29

The following table presents the gains (losses) recognized in “Other income (expense), net” of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the six months ended June 30, 2018 and 2017 (in thousands):

 	  	Six Months Ended June 30,	 	
 	  	2018	 	  	2017	 	
Derivatives not designated as hedging instruments under ASC 815:	  				  				
Foreign currency forward contracts	  	$	(1,262	) 	  	$	82	 	
Embedded derivatives	  	 	(165	) 	  	 	315	 	
	  	 	 	 	  	 	 	 	
	  	$	            (1,427	) 	  	$	              397	 	
	  	 	 	 	  	 	 	 	
Note 7. Investments Held in Rabbi Trust
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets, at fair value, consist of the following (in thousands):

 	  	June 30, 2018	 	  	December 31, 2017	 	
 	  	Cost	 	  	Fair Value	 	  	Cost	 	  	Fair Value	 	
Mutual funds	  	$	        8,252	 	  	$	        11,864	 	  	$	        8,096	 	  	$	        11,627	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The mutual funds held in rabbi trust were 72% equity-based and 28% debt-based as of June 30, 2018. Net investment income (losses), included in “Other income (expense), net” in the accompanying Condensed Consolidated Statements of Operations consists of the following (in thousands):

 	  	  Three Months Ended June 30,  	 	  	    Six Months Ended June 30,    	 	
 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Net realized gains (losses) from sale of trading securities	  	$	27	 	  	$	149	 	  	$	32	 	  	$	149	 	
Dividend and interest income	  	 	43	 	  	 	25	 	  	 	68	 	  	 	39	 	
Net unrealized holding gains (losses)	  	 	72	 	  	 	149	 	  	 	17	 	  	 	542	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net investment income (losses)	  	$	142	 	  	$	323	 	  	$	117	 	  	$	730	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Note 8. Deferred Grants
Deferred grants, net of accumulated amortization, consist of the following (in thousands):

 	  	    June 30, 2018    	 	  	  December 31, 2017  	 	
Property grants	  	$	                2,587	 	  	$	    2,843	 	
Lease grants	  	 	441	 	  	 	507	 	
Employment grants	  	 	68	 	  	 	61	 	
	  	 	 	 	  	 	 	 	
Total deferred grants	  	 	3,096	 	  	 	3,411	 	
Less: Lease grants - short-term (1)	  	 	(115	) 	  	 	(117	) 	
Less: Employment grants - short-term (1)	  	 	(68	) 	  	 	(61	) 	
	  	 	 	 	  	 	 	 	
Total long-term deferred grants	  	$	2,913	 	  	$	3,233	 	
	  	 	 	 	  	 	 	 	
(1) Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets.
Note 9. Borrowings
On May 12, 2015, the Company entered into a $440 million revolving credit facility (the “Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner, Administrative Agent, Swing Line Lender and Issuing Lender (“KeyBank”). The Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants.
The Credit Agreement includes a $200 million alternate-currency sub-facility, a $10 million swingline sub-facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that exist under the
 
30

revolving credit facility, if necessary. However, there can be no assurance that such facility will be available to the Company, even though it is a binding commitment of the financial institutions.
The Credit Agreement matures on May 12, 2020, and had outstanding borrowings of $90.0 million and $275.0 million at June 30, 2018 and December 31, 2017, respectively, included in “Long-term debt” in the accompanying Condensed Consolidated Balance Sheets.
Borrowings under the Credit Agreement bear interest at the rates set forth in the Credit Agreement. In addition, the Company is required to pay certain customary fees, including a commitment fee determined quarterly based on the Company’s leverage ratio and due quarterly in arrears as calculated on the average unused amount of the Credit Agreement.
The Credit Agreement is guaranteed by all the Company’s existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the direct foreign subsidiaries of the Company and those of the guarantors.
In May 2015, the Company paid an underwriting fee of $0.9 million for the Credit Agreement, which is deferred and amortized over the term of the loan, along with the deferred loan fees of $0.4 million related to the previous credit agreement.
The following table presents information related to our credit agreements (dollars in thousands):

 	  	  Three Months Ended June 30,  	 	 	    Six Months Ended June 30,    	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Average daily utilization	  	$	100,110	 	 	$	267,000	 	 	$	110,691	 	 	$	267,000	 	
Interest expense (1), (2)	  	$	915	 	 	$	1,600	 	 	$	1,916	 	 	$	3,043	 	
Weighted average interest rate (2)	  	 	3.7	% 	 	 	2.4	% 	 	 	3.5	% 	 	 	2.3	% 	
(1) Excludes the amortization of deferred loan fees.
(2) Includes the commitment fee.
In January 2018, the Company repaid $175.0 million of long-term debt outstanding under its Credit Agreement, primarily using funds repatriated from its foreign subsidiaries.
Note 10. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Condensed Consolidated Statements of Changes in Shareholders’ Equity in accordance with ASC 220, Comprehensive Income (“ASC 220”). ASC 220 establishes rules for the reporting of comprehensive income (loss) and its components. The components of accumulated other comprehensive income (loss) consist of the following (in thousands):

 	  	Foreign
Currency
Translation
Adjustments	 	 	Unrealized
Gain
(Loss) on
Net
Investment
Hedge	 	 	Unrealized
Gain (Loss)
on
Cash Flow
Hedging
Instruments	 	 	Unrealized
Actuarial
Gain
(Loss)
Related
to Pension
Liability	 	 	Unrealized
Gain
(Loss) on
Post
Retirement
Obligation	 	 	Total	 	
Balance at January 1, 2017	  	$	(72,393	) 	 	$	    6,266	 	 	$	(2,225	) 	 	$	    1,125	 	 	$	        200	 	 	$	  (67,027	) 	
Pre-tax amount	  	 	       36,101	 	 	 	(8,352	) 	 	 	     2,276	 	 	 	527	 	 	 	(30	) 	 	 	30,522	 	
Tax (provision) benefit	  	 	-	 	 	 	3,132	 	 	 	(54	) 	 	 	(18	) 	 	 	-	 	 	 	3,060	 	
Reclassification of (gain) loss to net income	  	 	-	 	 	 	-	 	 	 	2,444	 	 	 	(53	) 	 	 	(50	) 	 	 	2,341	 	
Foreign currency translation	  	 	(23	) 	 	 	-	 	 	 	30	 	 	 	(7	) 	 	 	-	 	 	 	-	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2017	  	 	(36,315	) 	 	 	1,046	 	 	 	2,471	 	 	 	1,574	 	 	 	120	 	 	 	(31,104	) 	
Pre-tax amount	  	 	(13,522	) 	 	 	-	 	 	 	(2,993	) 	 	 	-	 	 	 	-	 	 	 	(16,515	) 	
Tax (provision) benefit	  	 	-	 	 	 	-	 	 	 	194	 	 	 	7	 	 	 	-	 	 	 	201	 	
Reclassification of (gain) loss to net income	  	 	-	 	 	 	-	 	 	 	(460	) 	 	 	(35	) 	 	 	(20	) 	 	 	(515	) 	
Foreign currency translation	  	 	216	 	 	 	-	 	 	 	(115	) 	 	 	(101	) 	 	 	-	 	 	 	-	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2018	  	$	(49,621	) 	 	$	1,046	 	 	$	(903	) 	 	$	1,445	 	 	$	100	 	 	$	(47,933	) 	

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The following table summarizes the amounts reclassified to net income from accumulated other comprehensive income (loss) and the associated line item in the accompanying Condensed Consolidated Statements of Operations (in thousands):

 	  	    Three Months Ended    
June 30,	 	 	    Six Months Ended    
June 30,	 	 	Statements of
Operations	 	
 	  	2018	 	  	2017	 	 	2018	 	  	2017	 	 	Location	 	
Gain (Loss) on Cash Flow Hedging Instruments: (1)	  				  				 				  				 				
Pre-tax amount	  	$	193	 	  	$	(820	) 	 	$	436	 	  	$	(1,580	) 	 	 	Revenues	 	
Tax (provision) benefit	  	 	17	 	  	 	17	 	 	 	24	 	  	 	58	 	 	 	Income taxes	 	
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 				
Reclassification to net income	  	 	210	 	  	 	(803	) 	 	 	460	 	  	 	(1,522	) 	 				
Actuarial Gain (Loss) Related to Pension Liability: (2)	  				  				 				  				 				
Pre-tax amount	  	 	14	 	  	 	11	 	 	 	29	 	  	 	21	 	 	 	Other income
(expense), net	 
 	
Tax (provision) benefit	  	 	3	 	  	 	-	 	 	 	6	 	  	 	-	 	 	 	Income taxes	 	
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 				
Reclassification to net income	  	 	17	 	  	 	11	 	 	 	35	 	  	 	21	 	 				
Gain (Loss) on Post Retirement Obligation: (2),(3)	  				  				 				  				 				
Reclassification to net income	  	 	10	 	  	 	13	 	 	 	20	 	  	 	25	 	 	 	Other income
(expense), net	 

Total reclassification of gain (loss) to net income	  	$	        237	 	  	$	        (779	) 	 	$	         515	 	  	$	    (1,476	) 	 				
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 				
(1) See Note 6, Financial Derivatives, for further information.
(2) See Note 14, Defined Benefit Pension Plan and Postretirement Benefits, for further information.
(3) No related tax (provision) benefit.
As discussed in Note 11, Income Taxes, for periods prior to December 31, 2017, any remaining outside basis differences associated with the Company’s investments in its foreign subsidiaries are considered to be indefinitely reinvested and no provision for income taxes on those earnings or translation adjustments has been provided.
Note 11. Income Taxes
The Company’s effective tax rates were (45.0)% and 15.0% for the three months ended June 30, 2018 and 2017, respectively. The decrease in the effective tax rate in 2018 compared to 2017 was primarily due to a $2.0 million increase in benefit associated with the settlement of tax audits and ancillary issues. In addition, the Company recognized a benefit of $0.5 million from the reduction in the U.S. federal corporate tax rate from 35% to 21% as a result of the 2017 Tax Reform Act. The decrease in the effective tax rate was also significantly affected by shifts in earnings among the various jurisdictions in which the Company operates. Several additional factors, none of which are individually material, also impacted the rate. The difference between the Company’s effective tax rate as compared to the U.S. statutory federal tax rate of 21.0% was primarily due to the aforementioned factors as well as the recognition of tax benefits resulting from foreign tax rate differentials, income earned in certain tax holiday jurisdictions and tax credits, partially offset by the tax impact of permanent differences, state income and foreign withholding.
The Company’s effective tax rates were 1.2% and 22.9% for the six months ended June 30, 2018 and 2017, respectively. The decrease in the effective tax rate was primarily due to the aforementioned $2.0 million increase in discrete benefit. In addition, the Company recognized a benefit of $1.1 million from the reduction in the U.S. federal corporate tax rate from 35% to 21% as a result of the 2017 Tax Reform Act. This was partially offset by a $0.6 million decrease in the amount of excess tax benefits from stock-based compensation recognized in the six months ended June 30, 2018 as compared to June 30, 2017. The decrease in the effective tax rate was also significantly affected by shifts in earnings among the various jurisdictions in which the Company operates. Several additional factors, none of which are individually material, also impacted the rate. The difference between the Company’s effective tax rate as compared to the U.S. statutory federal tax rate of 21.0% was primarily due to the aforementioned factors as well as the recognition of tax benefits resulting from foreign tax rate differentials, income earned in certain tax holiday jurisdictions and tax credits, partially offset by the tax impact of permanent differences, state income and foreign withholding.
The 2017 Tax Reform Act made significant changes to the Internal Revenue Code, including, but not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a participation exemption regime, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company estimated its provision for income taxes in accordance with the 2017 Tax Reform Act and guidance available upon enactment and as a result
 
32

recorded $32.7 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was signed into law. The $32.7 million estimate includes the provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings of $32.7 million based on cumulative foreign earnings of $531.8 million and $1.0 million of foreign withholding taxes on certain anticipated distributions. The provisional tax expense was partially offset by a provisional benefit of $1.0 million related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future. The Company has not determined the need for nor recorded any adjustments to this provisional amount as of June 30, 2018. The Company anticipates finalizing these provisional amounts no later than the fourth quarter of 2018.
Prior to December 31, 2017, no additional income taxes have been provided for any remaining outside basis differences inherent in the Company’s investments in its foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining outside basis difference in these entities is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates.
On December 22, 2017, the SEC issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Reform Act. In accordance with SAB 118, the Company has determined that the deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at June 30, 2018 and December 31, 2017. Additional work is necessary for a more detailed analysis of the Company’s deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of identification, but no later than one year from the enactment date.
The 2017 Tax Reform Act instituted a number of new provisions effective January 1, 2018, including GILTI, Foreign Derived Intangible Income (“FDII”) and Base Erosion and Anti-Abuse Tax (“BEAT”). The Company made a reasonable estimate of the impact of each of these provisions of the 2017 Tax Reform Act on its effective tax rate for the three and six months ended June 30, 2018 and determined that the resulting impact was not material. The Company will continue to refine its provisional estimates related to the GILTI, FDII and BEAT rules as additional information is made available.
The Company received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and the Company paid mandatory security deposits to Canada as part of this process. As of June 30, 2017, the Company determined that all material aspects of the Canadian audit were effectively settled pursuant to ASC 740. As a result, the Company recognized an income tax benefit of $1.2 million, net of the U.S. tax impact, at that time and the deposits were applied against the anticipated liability. During the three months ended June 30, 2018, the Company finalized procedures ancillary to the Canadian audit and recognized an additional $2.7 million income tax benefit due to the elimination of certain assessed penalties, interest and withholding taxes.
With the effective settlement of the Canadian audit, the Company has no significant tax jurisdictions under audit; however, the Company is currently under audit in several tax jurisdictions. The Company believes it is adequately reserved for the remaining audits and their resolution is not expected to have a material impact on its financial conditions and results of operations.
 
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Note 12. Earnings Per Share
Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the respective periods and the further dilutive effect, if any, from stock appreciation rights, restricted stock, restricted stock units and shares held in rabbi trust using the treasury stock method.
The numbers of shares used in the earnings per share computation are as follows (in thousands):

 	  	  Three Months Ended June 30,  	 	  	    Six Months Ended June 30,    	 	
 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Basic:	  				  				  				  				
Weighted average common shares outstanding	  	 	42,125	 	  	 	41,854	 	  	 	42,035	 	  	 	41,756	 	
Diluted:	  				  				  				  				
Dilutive effect of stock appreciation rights, restricted stock, restricted stock units and shares held in rabbi trust	  	 	35	 	  	 	80	 	  	 	162	 	  	 	163	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total weighted average diluted shares outstanding	  	 	42,160	 	  	 	41,934	 	  	 	42,197	 	  	 	41,919	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Anti-dilutive shares excluded from the diluted earnings per share calculation	  	 	31	 	  	 	46	 	  	 	6	 	  	 	16	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
On August 18, 2011, the Company’s Board of Directors (the “Board”) authorized the Company to purchase up to 5.0 million shares of its outstanding common stock (the “2011 Share Repurchase Program”). On March 16, 2016, the Board authorized an increase of 5.0 million shares to the 2011 Share Repurchase Program for a total of 10.0 million shares. A total of 5.3 million shares have been repurchased under the 2011 Share Repurchase Program since inception. The shares are purchased, from time to time, through open market purchases or in negotiated private transactions, and the purchases are based on factors, including but not limited to, the stock price, management discretion and general market conditions. The 2011 Share Repurchase Program has no expiration date.
There were no shares repurchased under the Company’s share repurchase program during the three and six months ended June 30, 2018 and 2017.
Note 13. Commitments and Loss Contingency
Commitments
During the six months ended June 30, 2018, the Company entered into several leases in the ordinary course of business. The following is a schedule of future minimum rental payments required under operating leases that have noncancelable lease terms as of June 30, 2018 (in thousands):

    	  	Amount	 	
2018 (remaining six months)	  	$	630	 	
2019	  	 	8,118	 	
2020	  	 	8,520	 	
2021	  	 	8,643	 	
2022	  	 	7,959	 	
2023	  	 	3,343	 	
2024 and thereafter	  	 	8,211	 	
	  	 	 	 	
	  	$	        45,424	 	

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During the six months ended June 30, 2018, the Company entered into agreements with third-party vendors in the ordinary course of business whereby the Company committed to purchase goods and services used in its normal operations. These agreements generally are not cancelable, range from one to five-year periods and may contain fixed or minimum annual commitments. Certain of these agreements allow for renegotiation of the minimum annual commitments. The following is a schedule of the future minimum purchases remaining under the agreements as of June 30, 2018 (in thousands):

    	  	Amount	 	
2018 (remaining six months)	  	$	10,237	 	
2019	  	 	6,346	 	
2020	  	 	1,699	 	
2021	  	 	193	 	
2022	  	 	-	 	
2023	  	 	-	 	
2024 and thereafter	  	 	-	 	
	  	 	 	 	
	  	$	      18,475	 	
	  	 	 	 	
Loss Contingency
Contingencies are recorded in the consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with ASC 450, Contingencies (“ASC 450”). Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450.
The Company received a state audit assessment and is currently rebutting the position. The Company has determined that the likelihood of a liability is reasonably possible and developed a range of possible loss up to $1.0 million, net of federal benefit.
The Company, from time to time, is involved in legal actions arising in the ordinary course of business. With respect to these matters, management believes that the Company has adequate legal defenses and/or, when possible and appropriate, has provided adequate accruals related to those matters such that the ultimate outcome will not have a material adverse effect on the Company’s financial position or results of operations.
Note 14. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The following table provides information about the net periodic benefit cost for the Company’s pension plans (in thousands):

 	  	  Three Months Ended June 30,  	 	 	    Six Months Ended June 30,    	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Service cost	  	$	109	 	 	$	128	 	 	$	223	 	 	$	253	 	
Interest cost	  	 	48	 	 	 	49	 	 	 	98	 	 	 	98	 	
Recognized actuarial (gains)	  	 	(14	) 	 	 	(11	) 	 	 	(29	) 	 	 	(21	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	$	143	 	 	$	166	 	 	$	292	 	 	$	330	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company’s service cost for its qualified pension plans was included in “Direct salaries and related costs” and “General and administrative” costs in its Condensed Consolidated Statements of Operations for the three and six months ended June 30, 3018 and 2017. The remaining components of net periodic benefit cost were included in “Other income (expense), net” in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017. See Note 1, Overview and Basis of Presentation, for further information related to the adoption of ASU 2016-18.
 
35

Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements. Under the plan provisions, the Company matches 50% of participant contributions to a maximum matching amount of 2% of participant compensation. The Company’s contributions included in the accompanying Condensed Consolidated Statements of Operations were as follows (in thousands):

 	  	  Three Months Ended June 30,  	 	  	    Six Months Ended June 30,    	 	
 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
401(k) plan contributions	  	$	344	 	  	$	309	 	  	$	803	 	  	$	620	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands):

 	  	    June 30, 2018    	 	  	December 31, 2017	 	
Postretirement benefit obligation	  	$	12	 	  	$	15	 	
Unrealized gains (losses) in AOCI (1)	  	 	100	 	  	 	120	 	
(1) Unrealized gains (losses) are due to changes in discount rates related to the postretirement obligation.
Note 15. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, the Non-Employee Director Fee Plan and the Deferred Compensation Plan. The following table summarizes the stock-based compensation expense (primarily in the Americas) and income tax benefits related to the stock-based compensation (in thousands):

 	  	  Three Months Ended June 30,  	 	 	    Six Months Ended June 30,    	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Stock-based compensation (expense) (1)	  	$	(1,673	) 	 	$	(2,261	) 	 	$	(3,750	) 	 	$	(4,732	) 	
Income tax benefit (2)	  	 	402	 	 	 	871	 	 	 	900	 	 	 	1,822	 	
(1) Included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations.
(2) Included in “Income taxes” in the accompanying Condensed Consolidated Statements of Operations.
There were no capitalized stock-based compensation costs as of June 30, 2018 and December 31, 2017.
Beginning January 1, 2017, as a result of the adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), the Company began accounting for forfeitures as they occur, rather than estimating expected forfeitures. The net cumulative effect of this change was recognized as a $0.2 million reduction to retained earnings as of January 1, 2017. Additionally, excess tax benefits (deficiencies) from stock compensation are included in “Income taxes” in the accompanying Condensed Consolidated Statements of Operations subsequent to the adoption of ASU 2016-09.
2011 Equity Incentive Plan — The Company’s Board of Directors (the “Board”) adopted the Sykes Enterprises, Incorporated 2011 Equity Incentive Plan (the “2011 Plan”) on March 23, 2011, as amended on May 11, 2011 to reduce the number of shares of common stock available to 4.0 million shares. The 2011 Plan was approved by the shareholders at the May 2011 Annual Shareholders’ Meeting. The 2011 Plan replaced and superseded the Company’s 2001 Equity Incentive Plan (the “2001 Plan”), which expired on March 14, 2011. The outstanding awards granted under the 2001 Plan will remain in effect until their exercise, expiration or termination. The 2011 Plan permits the grant of restricted stock, stock appreciation rights, stock options and other stock-based awards to certain employees of the Company, members of the Company’s Board and certain non-employees who provide services to the Company in order to encourage them to remain in the employment of, or to faithfully provide services to, the Company and to increase their interest in the Company’s success.
 
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Stock Appreciation Rights — The Board, at the recommendation of the Compensation and Human Resources Development Committee (the “Compensation Committee”), has approved in the past, and may approve in the future, awards of stock-settled stock appreciation rights (“SARs”) for eligible participants. SARs represent the right to receive, without payment to the Company, a certain number of shares of common stock, as determined by the Compensation Committee, equal to the amount by which the fair market value of a share of common stock at the time of exercise exceeds the grant price. The SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date. The SARs have a term of 10 years from the date of grant. The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses various assumptions.
The following table summarizes the assumptions used to estimate the fair value of SARS granted:

 	  	        Six Months Ended June 30,        	 	
 	  	2018	 	 	2017	 	
Expected volatility	  	 	21.4	% 	 	 	19.3	% 	
Weighted-average volatility	  	 	21.4	% 	 	 	19.3	% 	
Expected dividend rate	  	 	0.0	% 	 	 	0.0	% 	
Expected term (in years)	  	 	5.0	 	 	 	5.0	 	
Risk-free rate	  	 	2.5	% 	 	 	1.9	% 	
The following table summarizes SARs activity as of June 30, 2018 and for the six months then ended:

Stock Appreciation Rights	  	Shares (000s)	 	 	Weighted
Average
Exercise
Price	 	  	Weighted
Average
Remaining
Contractual
Term
(in years)	 	  	Aggregate
Intrinsic
 Value (000s) 	 	
Outstanding at January 1, 2018	  	 	734	 	 	$	              -	 	  				  				
Granted	  	 	333	 	 	$	-	 	  				  				
Exercised	  	 	(43	) 	 	$	-	 	  				  				
Forfeited or expired	  	 	-	 	 	$	-	 	  				  				
	  	 	 	 	 				  				  				
Outstanding at June 30, 2018	  	 	1,024	 	 	$	-	 	  	 	8.6	 	  	$	790	 	
	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Vested or expected to vest at June 30, 2018	  	 	1,024	 	 	$	-	 	  	 	8.6	 	  	$	790	 	
	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Exercisable at June 30, 2018	  	 	363	 	 	$	-	 	  	 	7.6	 	  	$	580	 	
	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR amounts):

 	  	        Six Months Ended June 30,        	 	
 	  	2018	 	  	2017	 	
Number of SARs granted	  	 	333	 	  	 	396	 	
Weighted average grant-date fair value per SAR	  	$	6.84	 	  	$	6.24	 	
Intrinsic value of SARs exercised	  	$	305	 	  	$	1,678	 	
Fair value of SARs vested	  	$	1,950	 	  	$	1,846	 	
The following table summarizes nonvested SARs activity as of June 30, 2018 and for the six months then ended:

Nonvested Stock Appreciation Rights	  	  Shares (000s)  	 	  	Weighted
Average
Grant-Date
Fair Value	 	
Nonvested at January 1, 2018	  	 	600	 	  	$	                  6.88	 	
Granted	  	 	333	 	  	$	6.84	 	
Vested	  	 	(272	) 	  	$	7.16	 	
Forfeited or expired	  	 	-	 	  	$	-	 	
	  	 	 	 	  				
Nonvested at June 30, 2018	  	 	661	 	  	$	6.74	 	

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As of June 30, 2018, there was $4.0 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested SARs granted under the 2011 Plan. This cost is expected to be recognized over a weighted average period of 1.5 years.
Restricted Shares – The Board, at the recommendation of the Compensation Committee, has approved in the past, and may approve in the future, awards of performance and employment-based restricted shares (“restricted shares”) for eligible participants. In some instances, where the issuance of restricted shares has adverse tax consequences to the recipient, the Board may instead issue restricted stock units (“RSUs”). The restricted shares are shares of the Company’s common stock (or in the case of RSUs, represent an equivalent number of shares of the Company’s common stock) which are issued to the participant subject to (a) restrictions on transfer for a period of time and (b) forfeiture under certain conditions. The performance goals, including revenue growth and income from operations targets, provide a range of vesting possibilities from 0% to 100% and will be measured at the end of the performance period. If the performance conditions are met for the performance period, the shares will vest and all restrictions on the transfer of the restricted shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common stock will be issued to the recipient). The Company recognizes compensation cost, net of actual forfeitures, based on the fair value (which approximates the current market price) of the restricted shares (and RSUs) on the date of grant ratably over the requisite service period based on the probability of achieving the performance goals.
Changes in the probability of achieving the performance goals from period to period will result in corresponding changes in compensation expense. The employment-based restricted shares currently outstanding vest one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date.
The following table summarizes nonvested restricted shares/RSUs activity as of June 30, 2018 and for the six months then ended:

Nonvested Restricted Shares and RSUs	  	  Shares (000s)  	 	  	Weighted
Average
Grant-Date
Fair Value	 	
Nonvested at January 1, 2018	  	 	1,109	 	  	$	            28.50	 	
Granted	  	 	488	 	  	$	28.15	 	
Vested	  	 	(323	) 	  	$	25.78	 	
Forfeited or expired	  	 	(59	) 	  	$	27.00	 	
	  	 	 	 	  				
Nonvested at June 30, 2018	  	 	1,215	 	  	$	29.15	 	
	  	 	 	 	  				
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands, except per restricted share/RSU amounts):

  	  	        Six Months Ended June 30,        	 	
 	  	2018	 	  	2017	 	
Number of restricted shares/RSUs granted	  	 	488	 	  	 	480	 	
Weighted average grant-date fair value per restricted share/RSU	  	$	28.15	 	  	$	29.42	 	
Fair value of restricted shares/RSUs vested	  	$	            8,342	 	  	$	            6,868	 	
As of June 30, 2018, there was $32.3 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested restricted shares/RSUs granted under the 2011 Plan. This cost is expected to be recognized over a weighted average period of 1.8 years.
Non-Employee Director Fee Plan — The Company’s 2004 Non-Employee Director Fee Plan (the “2004 Fee Plan”), as amended on May 17, 2012, provided that all new non-employee directors joining the Board would receive an initial grant of shares of common stock on the date the new director is elected or appointed, the number of which will be determined by dividing $60,000 by the closing price of the Company’s common stock on the trading day immediately preceding the date a new director is elected or appointed, rounded to the nearest whole number of shares. The initial grant of shares vested in twelve equal quarterly installments, one-twelfth on the date of grant and an additional one-twelfth on each successive third monthly anniversary of the date of grant. The award lapses with respect to all unvested shares in the event the non-employee director ceases to be a director of the Company, and any unvested shares are forfeited.
 
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The 2004 Fee Plan also provided that each non-employee director would receive, on the day after the annual shareholders’ meeting, an annual retainer for service as a non-employee director (the “Annual Retainer”). Prior to May 17, 2012, the Annual Retainer was $95,000, of which $50,000 was payable in cash, and the remainder was paid in stock. The annual grant of cash vested in four equal quarterly installments, one-fourth on the day following the annual meeting of shareholders, and an additional one-fourth on each successive third monthly anniversary of the date of grant. The annual grant of shares paid to non-employee directors prior to May 17, 2012 vests in eight equal quarterly installments, one-eighth on the day following the annual meeting of shareholders, and an additional one-eighth on each successive third monthly anniversary of the date of grant. On May 17, 2012, upon the recommendation of the Compensation Committee, the Board adopted the Fifth Amended and Restated Non-Employee Director Fee Plan (the “Amendment”), which increased the common stock component of the Annual Retainer by $30,000, resulting in a total Annual Retainer of $125,000, of which $50,000 was payable in cash and the remainder paid in stock. In addition, the Amendment also changed the vesting period for the annual equity award, from a two-year vesting period, to a one-year vesting period (consisting of four equal quarterly installments, one-fourth on the date of grant and an additional one-fourth on each successive third monthly anniversary of the date of grant). The award lapses with respect to all unpaid cash and unvested shares in the event the non-employee director ceases to be a director of the Company, and any unvested shares and unpaid cash are forfeited.
In addition to the Annual Retainer award, the 2004 Fee Plan also provided for any non-employee Chairman of the Board to receive an additional annual cash award of $100,000, and each non-employee director serving on a committee of the Board to receive an additional annual cash award. The additional annual cash award for the Chairperson of the Audit Committee is $20,000 and Audit Committee members are entitled to an annual cash award of $10,000. The annual cash awards for the Chairpersons of the Compensation Committee, Finance Committee and Nominating and Corporate Governance Committee are $15,000, $12,500 and $12,500, respectively, and all other members of such committees are entitled to an annual cash award of $7,500.
The 2004 Fee Plan expired in May 2014, prior to the 2014 annual shareholders’ meeting. In March 2014, upon the recommendation of the Compensation Committee, the Board determined that, following the expiration of the 2004 Fee Plan, the compensation of non-employee Directors should continue on the same terms as provided in the Fifth Amended and Restated Non-Employee Director Fee Plan, except the amounts of cash and equity grants shall be determined annually by the Board and that the stock portion of such compensation would be issued under the 2011 Plan.
At the Board’s regularly scheduled meeting on December 10, 2014, upon the recommendation of the Compensation Committee, the Board determined that the amount of the cash and equity compensation payable to non-employee directors beginning on the date of the 2015 annual shareholders’ meeting would be increased as follows: cash compensation would be increased by $5,000 per year to a total of $55,000 and equity compensation would be increased by $25,000 per year to a total of $100,000. No change would be made in the additional amounts payable to the Chairman of the Board or the Chairs or members of the various Board committees for their service on such committees, and no changes would be made in the payment terms described above for such cash and equity compensation.
At the Board’s regularly scheduled meeting on December 6, 2016, upon the recommendation of the Compensation Committee, the Board determined that the amount of the cash compensation payable to non-employee directors beginning on the date of the 2017 annual shareholders’ meeting would be increased by $15,000 per year to a total of $70,000.
The Board may pay additional cash compensation to any non-employee director for services on behalf of the Board over and above those typically expected of directors, including but not limited to service on a special committee of the Board. Directors who are executive officers of the Company receive no compensation for service as members of either the Board of Directors or any committees of the Board.
 
39

The following table summarizes nonvested common stock share award activity as of June 30, 2018 and for the six months then ended:

Nonvested Common Stock Share Awards	  	  Shares (000s)  	 	  	Weighted
Average
Grant-Date
Fair Value	 	
Nonvested at January 1, 2018	  	 	8	 	  	$	32.21	 	
Granted	  	 	34	 	  	$	                27.68	 	
Vested	  	 	(15	) 	  	$	29.87	 	
Forfeited or expired	  	 	-	 	  	$	-	 	
	  	 	 	 	  				
Nonvested at June 30, 2018	  	 	27	 	  	$	27.73	 	
	  	 	 	 	  				
The following table summarizes information regarding common stock share awards granted and vested (in thousands, except per share award amounts):

 	  	    Six Months Ended June 30,    	 	
 	  	2018	 	  	2017	 	
Number of share awards granted	  	 	34	 	  	 	24	 	
Weighted average grant-date fair value per share award	  	$	27.68	 	  	$	32.93	 	
Fair value of share awards vested	  	$	            450	 	  	$	            430	 	
As of June 30, 2018, there was $0.7 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested common stock share awards granted under the Fee Plan. This cost is expected to be recognized over a weighted average period of less than one year.
Deferred Compensation Plan — The Company’s non-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”), which is not shareholder-approved, was adopted by the Board effective December 17, 1998. It was last amended and restated on August 15, 2017, effective January 1, 2018. Eligibility is limited to a select group of key management and employees who are expected to receive an annualized base salary (which will not take into account bonuses or commissions) that exceeds the amount taken into account for purposes of determining highly compensated employees under Section 414(q) of the Internal Revenue Code of 1986 based on the current year’s base salary and applicable dollar amounts. The Deferred Compensation Plan provides participants with the ability to defer between 1% and 80% of their compensation (between 1% and 100% prior to June 30, 2016, the effective date of the first amendment) until the participant’s retirement, termination, disability or death, or a change in control of the Company. Using the Company’s common stock, the Company matches 50% of the amounts deferred by participants on a quarterly basis up to a total of $12,000 per year for the president, chief executive officer and executive vice presidents, $7,500 per year for senior vice presidents, global vice presidents and vice presidents, and, effective January 1, 2017, $5,000 per year for all other participants (there was no match for other participants prior to January 1, 2017, the effective date of the second amendment). Matching contributions and the associated earnings vest over a seven-year service period. Vesting will be accelerated in the event of the participant’s death or disability, a change in control or retirement (defined as separate from service after age 65). In the event of a distribution of benefits as a result of a change in control of the Company, the Company will increase the benefit by an amount sufficient to offset the income tax obligations created by the distribution of benefits. Deferred compensation amounts used to pay benefits, which are held in a rabbi trust, include investments in various mutual funds and shares of the Company’s common stock (see Note 7, Investments Held in Rabbi Trust).
As of June 30, 2018 and December 31, 2017, liabilities of $11.8 million and $11.6 million, respectively, of the Deferred Compensation Plan were recorded in “Accrued employee compensation and benefits” in the accompanying Condensed Consolidated Balance Sheets. Additionally, the Company’s common stock match associated with the Deferred Compensation Plan, with a carrying value of approximately $2.2 million and $2.1 million as of June 30, 2018 and December 31, 2017, respectively, is included in “Treasury stock” in the accompanying Condensed Consolidated Balance Sheets.
 
40

The following table summarizes nonvested common stock activity as of June 30, 2018 and for the six months then ended:

Nonvested Common Stock	  	  Shares (000s)  	 	  	Weighted
Average
Grant-Date
Fair Value	 	
Nonvested at January 1, 2018	  	 	3	 	  	$	              29.56	 	
Granted	  	 	10	 	  	$	28.86	 	
Vested	  	 	(7	) 	  	$	28.89	 	
Forfeited or expired	  	 	-	 	  	$	-	 	
	  	 	 	 	  				
Nonvested at June 30, 2018	  	 	6	 	  	$	29.19	 	
	  	 	 	 	  				
The following table summarizes information regarding shares of common stock granted and vested (in thousands, except per common stock amounts):

 	 	      Six Months Ended June 30,      	 	
 	 	2018	 	 	2017	 	
Number of shares of common stock granted	 	 	10	 	 	 	10	 	
Weighted average grant-date fair value per common stock	 	$	28.86	 	 	$	30.66	 	
Fair value of common stock vested	 	$	213	 	 	$	240	 	
Cash used to settle the obligation	 	$	644	 	 	$	422	 	
As of June 30, 2018, there was $0.1 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected to be recognized over a weighted average period of 3.7 years.
Note 16. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, and provides outsourced customer engagement solutions (with an emphasis on inbound technical support, digital support and demand generation, and customer service) and technical staffing and (2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer engagement solutions (with an emphasis on technical support and customer service) and fulfillment services. The sites within Latin America, Australia and the Asia Pacific Rim are included in the Americas segment given the nature of the business and client profile, which is primarily made up of U.S.-based companies that are using the Company’s services in these locations to support their customer engagement needs.
 
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Information about the Company’s reportable segments is as follows (in thousands):

 	  	  Americas  	 	 	EMEA	 	 	    Other  (1)     	 	 	Consolidated	 	
Three Months Ended June 30, 2018:	  				 				 				 				
Revenues	  	$	327,041	 	 	$	      69,720	 	 	$	24	 	 	$	396,785	 	
Percentage of revenues	  	 	82.4	% 	 	 	17.6	% 	 	 	0.0	% 	 	 	100.0	% 	
Depreciation, net	  	$	12,335	 	 	$	1,476	 	 	$	749	 	 	$	14,560	 	
Amortization of intangibles	  	$	3,415	 	 	$	214	 	 	$	-	 	 	$	3,629	 	
Income (loss) from operations	  	$	19,824	 	 	$	2,220	 	 	$	(15,584	) 	 	$	6,460	 	
Total other income (expense), net	  				 				 	 	(1,511	) 	 	 	(1,511	) 	
Income taxes	  				 				 	 	2,229	 	 	 	2,229	 	
	  				 				 				 	 	 	 	
Net income	  				 				 				 	$	7,178	 	
	  				 				 				 	 	 	 	
Three Months Ended June 30, 2017:	  				 				 				 				
Revenues	  	$	314,871	 	 	$	60,540	 	 	$	27	 	 	$	375,438	 	
Percentage of revenues	  	 	83.9	% 	 	 	16.1	% 	 	 	0.0	% 	 	 	100.0	% 	
Depreciation, net	  	$	11,842	 	 	$	1,254	 	 	$	724	 	 	$	13,820	 	
Amortization of intangibles	  	$	4,989	 	 	$	261	 	 	$	-	 	 	$	5,250	 	
Income (loss) from operations	  	$	26,127	 	 	$	2,163	 	 	$	(16,962)	 	 	$	11,328	 	
Total other income (expense), net	  				 				 	 	(928	) 	 	 	(928	) 	
Income taxes	  				 				 	 	(1,555	) 	 	 	(1,555	) 	
	  				 				 				 	 	 	 	
Net income	  				 				 				 	$	8,845	 	
	  				 				 				 	 	 	 	
Six Months Ended June 30, 2018:	  				 				 				 				
Revenues	  	$	667,762	 	 	$	143,347	 	 	$	47	 	 	$	811,156	 	
Percentage of revenues	  	 	82.3	% 	 	 	17.7	% 	 	 	0.0	% 	 	 	100.0	% 	
Depreciation, net	  	$	25,018	 	 	$	2,887	 	 	$	1,491	 	 	$	29,396	 	
Amortization of intangibles	  	$	7,407	 	 	$	435	 	 	$	-	 	 	$	7,842	 	
Income (loss) from operations	  	$	45,688	 	 	$	6,859	 	 	$	(31,803)	 	 	$	20,744	 	
Total other income (expense), net	  				 				 	 	(2,391	) 	 	 	(2,391	) 	
Income taxes	  				 				 	 	(227	) 	 	 	(227	) 	
	  				 				 				 	 	 	 	
Net income	  				 				 				 	$	18,126	 	
	  				 				 				 	 	 	 	
Six Months Ended June 30, 2017:	  				 				 				 				
Revenues	  	$	635,802	 	 	$	123,607	 	 	$	43	 	 	$	759,452	 	
Percentage of revenues	  	 	83.7	% 	 	 	16.3	% 	 	 	0.0	% 	 	 	100.0	% 	
Depreciation, net	  	$	23,310	 	 	$	2,440	 	 	$	1,418	 	 	$	27,168	 	
Amortization of intangibles	  	$	9,967	 	 	$	514	 	 	$	—	 	 	$	10,481	 	
Income (loss) from operations	  	$	64,099	 	 	$	7,743	 	 	$	(34,461)	 	 	$	37,381	 	
Total other income (expense), net	  				 				 	 	(1,659	) 	 	 	(1,659	) 	
Income taxes	  				 				 	 	(8,165	) 	 	 	(8,165	) 	
	  				 				 				 	 	 	 	
Net income	  				 				 				 	$	27,557	 	
	  				 				 				 	 	 	 	
(1) Other items (including corporate and other costs, other income and expense, and income taxes) are included for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the periods shown. Inter-segment revenues are not material to the Americas and EMEA segment results.
The Company’s reportable segments are evaluated regularly by its chief operating decision maker to decide how to allocate resources and assess performance. The chief operating decision maker evaluates performance based upon reportable segment revenue and income (loss) from operations. Because assets by segment are not reported to or used by the Company’s chief operating decision maker to allocate resources, or to assess performance, total assets by segment are not disclosed.
 
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The following table represents a disaggregation of revenue from contracts with customers by geographic location for the three and six months ended June 30, 2018 and 2017, by the reportable segment for each category (in thousands):

 	  	  Three Months Ended June 30,  	 	  	    Six Months Ended June 30,    	 	
 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Americas:	  				  				  				  				
United States	  	$	165,648	 	  	$	151,654	 	  	$	337,094	 	  	$	305,298	 	
The Philippines	  	 	56,571	 	  	 	56,779	 	  	 	116,657	 	  	 	115,319	 	
Costa Rica	  	 	30,973	 	  	 	32,924	 	  	 	63,048	 	  	 	66,249	 	
Canada	  	 	24,828	 	  	 	27,020	 	  	 	52,017	 	  	 	56,742	 	
El Salvador	  	 	20,584	 	  	 	18,369	 	  	 	40,595	 	  	 	36,714	 	
People’s Republic of China	  	 	8,149	 	  	 	9,282	 	  	 	17,497	 	  	 	18,542	 	
Australia	  	 	7,700	 	  	 	6,440	 	  	 	15,402	 	  	 	13,090	 	
Mexico	  	 	5,632	 	  	 	5,832	 	  	 	11,950	 	  	 	11,441	 	
Other	  	 	6,956	 	  	 	6,571	 	  	 	13,502	 	  	 	12,407	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Americas	  	 	327,041	 	  	 	314,871	 	  	 	667,762	 	  	 	635,802	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
EMEA:	  				  				  				  				
Germany	  	 	22,404	 	  	 	18,457	 	  	 	46,579	 	  	 	38,894	 	
Sweden	  	 	13,674	 	  	 	14,043	 	  	 	27,804	 	  	 	28,344	 	
United Kingdom	  	 	11,960	 	  	 	9,407	 	  	 	25,307	 	  	 	19,140	 	
Romania	  	 	8,191	 	  	 	6,685	 	  	 	16,327	 	  	 	13,078	 	
Other	  	 	13,491	 	  	 	11,948	 	  	 	27,330	 	  	 	24,151	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total EMEA	  	 	69,720	 	  	 	60,540	 	  	 	143,347	 	  	 	123,607	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Other	  	 	24	 	  	 	27	 	  	 	47	 	  	 	43	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	396,785	 	  	$	375,438	 	  	$	811,156	 	  	$	759,452	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Revenues are attributed to countries based on location of customer, except for revenues for The Philippines, Costa Rica, the People’s Republic of China and India which are primarily comprised of customers located in the U.S., but serviced by centers in those respective geographic locations.
Note 17. Other Income (Expense)
Other income (expense), net consists of the following (in thousands):

 	  	  Three Months Ended June 30,  	 	 	    Six Months Ended June 30,    	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Foreign currency transaction gains (losses)	  	$	641	 	 	$	(535	) 	 	$	2,089	 	 	$	644	 	
Gains (losses) on derivative instruments not designated as hedges	  	 	(345	) 	 	 	1,097	 	 	 	(1,427	) 	 	 	397	 	
Other miscellaneous income (expense)	  	 	(833	) 	 	 	231	 	 	 	(1,044	) 	 	 	565	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	$	(537	) 	 	$	793	 	 	$	(382	) 	 	$	1,606	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Note 18. Related Party Transactions
In January 2008, the Company entered into a lease for a customer engagement center located in Kingstree, South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes, the founder, former Chairman and former Chief Executive Officer of the Company and the father of Charles Sykes, President and Chief Executive Officer of the Company. The lease payments on the 20-year lease were negotiated at or below market rates, and the lease is cancellable at the option of the Company. The Company paid $0.1 million to the landlord during both the three months ended June 30, 2018 and 2017 and $0.2 million during both the six months ended June 30, 2018 and 2017 under the terms of the lease.
During the three and six months ended June 30, 2018, the Company contracted to receive services from XSell, an equity method investee, for $0.1 million. There were no such transactions in 2017. These related party transactions occurred in the normal course of business on terms and conditions that are similar to those of transactions with unrelated parties and, therefore, were measured at the exchange amount.
 
43

Note 19. Subsequent Event
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 a 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 “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, is subject to certain post-closing adjustments related to WhistleOut’s working capital. The purchase price was funded through $22.0 million of additional borrowings under the Company’s Credit Agreement. The Sale Agreement provides for a three-year, retention based earnout of AUD 14.0 million.
The Sale Agreement contains customary representations and warranties, indemnification obligations and covenants.
 
44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
Tampa, Florida
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Sykes Enterprises, Incorporated and subsidiaries (the “Company”) as of June 30, 2018, the related condensed consolidated statements of operations and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2018 and 2017, changes in shareholders’ equity for the six-month period ended June 30, 2018, and of cash flows for the six-month periods ended June 30, 2018 and 2017, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
Tampa, Florida
August 7, 2018
 
45

 Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report and the consolidated financial statements and notes in the Sykes Enterprises, Incorporated (“SYKES,” “our,” “we” or “us”) Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission (“SEC”).
Our discussion and analysis may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, and projections about SYKES, our beliefs, and assumptions made by us. In addition, we may make other written or oral statements, which constitute forward-looking statements, from time to time. Words such as “believe,” “estimate,” “project,” “expect,” “intend,” “may,” “anticipate,” “plan,” “seek,” variations of such words, and similar expressions are intended to identify such forward-looking statements. Similarly, statements that describe our future plans, objectives, or goals also are forward-looking statements. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties, including those discussed below and elsewhere in this report. Our actual results may differ materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not be placed on such statements. All forward-looking statements are made as of the date hereof, and we undertake no obligation to update any such forward-looking statements, whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to: (i) the impact of economic recessions in the U.S. and other parts of the world, (ii) fluctuations in global business conditions and the global economy, (iii) currency fluctuations, (iv) the timing of significant orders for our products and services, (v) variations in the terms and the elements of services offered under our standardized contract including those for future bundled service offerings, (vi) changes in applicable accounting principles or interpretations of such principles, (vii) difficulties or delays in implementing our bundled service offerings, (viii) failure to achieve sales, marketing and other objectives, (ix) construction delays of new or expansion of existing customer engagement centers, (x) delays in our ability to develop new products and services and market acceptance of new products and services, (xi) rapid technological change, (xii) loss or addition of significant clients, (xiii) political and country-specific risks inherent in conducting business abroad, (xiv) our ability to attract and retain key management personnel, (xv) our ability to continue the growth of our support service revenues through additional technical and customer engagement centers, (xvi) our ability to further penetrate into vertically integrated markets, (xvii) our ability to expand our global presence through strategic alliances and selective acquisitions, (xviii) our ability to continue to establish a competitive advantage through sophisticated technological capabilities, (xix) the ultimate outcome of any lawsuits, (xx) our ability to recognize deferred revenue through delivery of products or satisfactory performance of services, (xxi) our dependence on the demand for outsourcing, (xxii) risk of interruption of technical and customer engagement center operations due to such factors as fire, earthquakes, inclement weather and other disasters, power failures, telecommunication failures, unauthorized intrusions, computer viruses and other emergencies, (xxiii) the existence of substantial competition, (xxiv) the early termination of contracts by clients, (xxv) the ability to obtain and maintain grants and other incentives (tax or otherwise), (xxvi) the potential of cost savings/synergies associated with acquisitions not being realized, or not being realized within the anticipated time period, (xxvii) risks related to the integration of the acquisitions and the impairment of any related goodwill, and (xxviii) other risk factors that are identified in our most recent Annual Report on Form 10-K, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Executive Summary
We are a leading provider of multichannel demand generation and global comprehensive customer engagement services. We provide differentiated full lifecycle customer engagement solutions and services to Global 2000 companies and their end customers primarily in the communications, financial services, technology, transportation and leisure, healthcare, retail and other industries. Our differentiated full lifecycle management services platform effectively engages customers at every touchpoint within the customer journey, including digital marketing and acquisition, sales expertise, customer service, technical support and retention. We serve our clients through two geographic operating regions: the Americas (United States, Canada, Latin America, Australia and the Asia Pacific Rim) and EMEA (Europe, the Middle East and Africa). Our Americas and EMEA regions primarily provide customer engagement solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to our clients’ customers. These services, which represented 99.4% and 99.5% of consolidated revenues during the three months ended June 30, 2018 and 2017, respectively, and 99.4% and 99.4% of consolidated
 
46

revenues during the six months ended June 30, 2018 and 2017, respectively, are delivered through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. We also provide various enterprise support services in the United States (“U.S.”) that include services for our clients’ internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, we also provide fulfillment services, which includes order processing, payment processing, inventory control, product delivery and product returns handling. Our complete service offering helps our clients acquire, retain and increase the lifetime value of their customer relationships. We have developed an extensive global reach with customer engagement centers across six continents, including North America, South America, Europe, Asia, Australia and Africa. We deliver cost-effective solutions that generate demand, enhance the customer service experience, promote stronger brand loyalty, and bring about high levels of performance and profitability.
Recent Developments
Americas 2018 Exit Plan
During the second quarter of 2018, we 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. We anticipate finalizing the remainder of the site closures under the Americas 2018 Exit Plan by December 2018.
The actions are expected to impact approximately 4,500 seats, of which 2,200 seats have been rationalized as of June 30, 2018. We anticipate annualized gross general and administrative cost savings, including lower depreciation expense, of approximately $24.6 million as a result of the 2018 site closures.
See Note 3, Costs Associated with Exit and Disposal Activities, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
2017 Tax Reform Act
In December 2017, the President of the United States (“U.S.”) signed into law the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”). In general, the 2017 Tax Reform Act reduces the U.S. federal corporate tax rate from 35% to 21%, effective in 2018. The 2017 Tax Reform Act moves from a worldwide business taxation approach to a participation exemption regime. The 2017 Tax Reform Act also imposes 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 which was recorded in the fourth quarter of 2017. The impact of the 2017 Tax Reform Act on our consolidated financial results began with the fourth quarter of 2017, the period of enactment. This impact, along with the transitional taxes discussed in Note 11, Income Taxes, of the accompanying “Notes to Condensed Consolidated Financial Statements” is reflected in the Other segment.
Acquisition of Telecommunications Assets
In May 2017, we completed the acquisition of certain assets of a Global 2000 telecommunications service provider (the “Telecommunications Asset acquisition”) to strengthen and create new partnerships and expand our geographic footprint in North America. The total purchase price of $7.5 million was funded through cash on hand. The results of operations of the Telecommunications Asset acquisition have been reflected in our consolidated financial statements since May 31, 2017.
 
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Results of Operations
The following table sets forth, for the periods indicated, the amounts presented in the accompanying Condensed Consolidated Statements of Operations as well as the change between the respective periods:

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
(in thousands)	  	2018	 	 	2017	 	 	$ Change	 	 	2018	 	 	2017	 	 	$ Change	 	
Revenues	  	$	    396,785	 	 	$	  375,438	 	 	$	    21,347	 	 	$	    811,156	 	 	$	    759,452	 	 	$	      51,704	 	
Operating expenses:	  				 				 				 				 				 				
Direct salaries and related costs	  	 	264,924	 	 	 	248,615	 	 	 	16,309	 	 	 	539,996	 	 	 	495,751	 	 	 	44,245	 	
General and administrative	  	 	102,037	 	 	 	92,236	 	 	 	9,801	 	 	 	204,477	 	 	 	184,280	 	 	 	20,197	 	
Depreciation, net	  	 	14,560	 	 	 	13,820	 	 	 	740	 	 	 	29,396	 	 	 	27,168	 	 	 	2,228	 	
Amortization of intangibles	  	 	3,629	 	 	 	5,250	 	 	 	(1,621	) 	 	 	7,842	 	 	 	10,481	 	 	 	(2,639	) 	
Impairment of long-lived assets	  	 	5,175	 	 	 	4,189	 	 	 	986	 	 	 	8,701	 	 	 	4,391	 	 	 	4,310	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	  	 	390,325	 	 	 	364,110	 	 	 	26,215	 	 	 	790,412	 	 	 	722,071	 	 	 	68,341	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from operations	  	 	6,460	 	 	 	11,328	 	 	 	(4,868	) 	 	 	20,744	 	 	 	37,381	 	 	 	(16,637	) 	

Other income (expense):	  				 				 				 				 				 				
Interest income	  	 	175	 	 	 	144	 	 	 	31	 	 	 	346	 	 	 	299	 	 	 	47	 	
Interest (expense)	  	 	(1,149	) 	 	 	(1,865	) 	 	 	716	 	 	 	(2,355	) 	 	 	(3,564	) 	 	 	1,209	 	
Other income (expense), net	  	 	(537	) 	 	 	793	 	 	 	(1,330	) 	 	 	(382	) 	 	 	1,606	 	 	 	(1,988	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense), net	  	 	(1,511	) 	 	 	(928	) 	 	 	(583	) 	 	 	(2,391	) 	 	 	(1,659	) 	 	 	(732	) 	

Income before income taxes	  	 	4,949	 	 	 	10,400	 	 	 	(5,451	) 	 	 	18,353	 	 	 	35,722	 	 	 	(17,369	) 	
Income taxes	  	 	(2,229	) 	 	 	1,555	 	 	 	(3,784	) 	 	 	227	 	 	 	8,165	 	 	 	(7,938	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	7,178	 	 	$	8,845	 	 	$	(1,667	) 	 	$	18,126	 	 	$	27,557	 	 	$	(9,431	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
Revenues

 	 	Three Months Ended June 30,	 	 	 	
 	 	2018	 	2017	 	 	 	
(in thousands)	 	Amount	 	 	% of Revenues	 	Amount	 	 	% of Revenues	 	$ Change	 	
Americas	 	$	327,041	 	 	82.4%	 	$	314,871	 	 	83.9%	 	$	12,170	 	
EMEA	 	 	69,720	 	 	17.6%	 	 	60,540	 	 	16.1%	 	 	9,180	 	
Other	 	 	24	 	 	0.0%	 	 	27	 	 	0.0%	 	 	(3	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated	 	$	      396,785	 	 	100.0%	 	$	      375,438	 	 	100.0%	 	$	      21,347	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated revenues increased $21.3 million, or 5.7%, for the three months ended June 30, 2018 from the comparable period in 2017.
The increase in Americas’ revenues was due to higher volumes from existing clients of $17.7 million, new clients of $8.8 million and a positive foreign currency impact of $2.7 million, partially offset by end-of-life client programs of $17.0 million. Revenues from our offshore operations represented 39.4% of Americas’ revenues in 2018, compared to 41.2% for the comparable period in 2017.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $3.9 million, new clients of $1.1 million and a positive foreign currency impact of $4.7 million, partially offset by end-of-life client programs of $0.5 million.
We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments (together, “ASC 606”) on January 1, 2018. See Note 2, Revenues, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
On a consolidated basis, we had 51,200 brick-and-mortar seats as of June 30, 2018, a decrease of 200 seats from the comparable period in 2017. The capacity utilization rate on a combined basis was 70% compared to 72% in the comparable period in 2017.
 
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On a segment basis, 43,900 seats were located in the Americas, a decrease of 500 seats from the comparable period in 2017, and 7,300 seats were located in EMEA, an increase of 300 seats from the comparable period in 2017. Capacity utilization rates as of June 30, 2018 were 68% for the Americas and 77% for EMEA, compared to 71% and 80%, respectively, in the comparable period in 2017. The decrease in utilization in the Americas was primarily due to operational inefficiencies, capacity additions in certain geographies to address demand opportunities and also in part by the short-term inefficiencies created by the progress in implementing initiatives to rationalize underutilized capacity. We are executing on initiatives to rationalize up to 10% of our total seat capacity on a gross basis by the end of 2018. We strive to attain a capacity utilization rate of 85% at each of our locations.
Direct Salaries and Related Costs

 	 	Three Months Ended June 30,	 	 	 	 	 	
 	 	2018	 	2017	 	 	 	 	 	
(in thousands)	 	  Amount  	 	 	% of
  Revenues  	 	  Amount  	 	 	% of
  Revenues  	 	  $ Change  	 	 	Change in % of
Revenues	
Americas	 	$	214,502	 	 	65.6%	 	$	205,000	 	 	65.1%	 	$	9,502	 	 	0.5%	
EMEA	 	 	50,422	 	 	72.3%	 	 	43,615	 	 	72.0%	 	 	6,807	 	 	0.3%	
	 	 	 	 	 		 	 	 	 	 		 	 	 	 	 		
Consolidated	 	$	    264,924	 	 	66.8%	 	$	    248,615	 	 	66.2%	 	$	    16,309	 	 	0.6%	
	 	 	 	 	 		 	 	 	 	 		 	 	 	 	 		
The increase of $16.3 million in direct salaries and related costs included a positive foreign currency impact of $0.2 million in the Americas and a negative foreign currency impact of $3.1 million in EMEA.
The increase in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to higher customer-acquisition advertising costs of 0.9% and higher severance costs of 0.2%, partially offset by lower auto tow claim costs of 0.4% and lower other costs of 0.2%.
The increase in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to higher communications costs of 0.2%, higher fulfillment materials costs of 0.1%, higher recruiting costs of 0.1%, higher travel costs of 0.1%, higher facility and office supplies of 0.1% and higher other costs of 0.4%, partially offset by lower compensation costs of 0.7%.
General and Administrative

 	  	Three Months Ended June 30,	 	 	 	 	 	
 	  	2018	 	2017	 	 	 	 	 	
(in thousands)	  	  Amount  	 	  	% of
  Revenues  	 	  Amount  	 	  	% of
  Revenues  	 	  $ Change  	 	 	Change in % of
Revenues	
Americas	  	$	71,790	 	  	22.0%	 	$	62,724	 	  	19.9%	 	$	9,066	 	 	2.1%	
EMEA	  	 	15,388	 	  	22.1%	 	 	13,247	 	  	21.9%	 	 	2,141	 	 	0.2%	
Other	  	 	14,859	 	  	-	 	 	16,265	 	  	-	 	 	(1,406	) 	 	-	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	 		
Consolidated	  	$	    102,037	 	  	25.7%	 	$	    92,236	 	  	24.6%	 	$	      9,801	 	 	1.1%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	 		
The increase of $9.8 million in general and administrative expenses included a positive foreign currency impact of $0.2 million in the Americas and a negative foreign currency impact of $0.9 million in EMEA.
The increase in Americas’ general and administrative expenses, as a percentage of revenues, was primarily attributable to higher facility-related costs of 0.8% resulting from the Americas 2018 Exit Plan (see Note 3, Costs Associated with Exit and Disposal Activities, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information), higher compensations costs of 0.7%, higher software and maintenance costs of 0.3% and higher legal and professional fees of 0.3%.
The increase in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily attributable to higher recruiting costs of 0.3%, higher software and maintenance costs of 0.2% and higher other costs of 0.3%, partially offset by lower advertising and marketing costs of 0.3% and lower legal and professional costs of 0.3%.
The decrease of $1.4 million in Other general and administrative expenses, which includes corporate and other costs, was primarily attributable to lower compensation costs of $0.7 million, lower legal and professional fees of $0.6 million, lower merger and integration costs of $0.1 million and lower other costs of $0.2 million, partially offset by higher software and maintenance costs of $0.2 million.
 
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Depreciation, Amortization and Impairment of Long-Lived Assets

 	  	Three Months Ended June 30,	 	 	 	 	 	 	 	
 	  	2018	 	 	2017	 	 	 	 	 	 	 	
(in thousands)	  	  Amount  	 	  	% of
  Revenues  	 	 	Amount	 	  	% of
  Revenues  	 	 	  $ Change  	 	 	Change in % of
Revenues	 	
Depreciation, net:	  				  				 				  				 				 				
Americas	  	$	12,335	 	  	 	3.8%	 	 	$	    11,842	 	  	 	3.8%	 	 	$	493	 	 	 	0.0%	 	
EMEA	  	 	1,476	 	  	 	2.1%	 	 	 	1,254	 	  	 	2.1%	 	 	 	222	 	 	 	0.0%	 	
Other	  	 	749	 	  	 	-	 	 	 	724	 	  	 	-	 	 	 	25	 	 	 	-	 	
	  	 	 	 	  				 	 	 	 	  				 	 	 	 	 				
Consolidated	  	$	14,560	 	  	 	3.7%	 	 	$	13,820	 	  	 	3.7%	 	 	$	740	 	 	 	0.0%	 	

Amortization of intangibles:	  				  				 				  				 				 				
Americas	  	$	3,415	 	  	 	1.0%	 	 	$	4,989	 	  	 	1.6%	 	 	$	(1,574	) 	 	 	-0.6%	 	
EMEA	  	 	214	 	  	 	0.3%	 	 	 	261	 	  	 	0.4%	 	 	 	(47	) 	 	 	-0.1%	 	
Other	  	 	-	 	  	 	-	 	 	 	-	 	  	 	-	 	 	 	-	 	 	 	-	 	
	  	 	 	 	  				 	 	 	 	  				 	 	 	 	 				
Consolidated	  	$	3,629	 	  	 	0.9%	 	 	$	5,250	 	  	 	1.4%	 	 	$	(1,621	) 	 	 	-0.5%	 	

Impairment of long-lived assets:	  				  				 				  				 				 				
Americas	  	$	5,175	 	  	 	1.6%	 	 	$	4,189	 	  	 	1.3%	 	 	$	986	 	 	 	0.3%	 	
EMEA	  	 	-	 	  	 	0.0%	 	 	 	-	 	  	 	0.0%	 	 	 	-	 	 	 	0.0%	 	
Other	  	 	-	 	  	 	-	 	 	 	-	 	  	 	-	 	 	 	-	 	 	 	-	 	
	  	 	 	 	  				 	 	 	 	  				 	 	 	 	 				
Consolidated	  	$	      5,175	 	  	 	1.3%	 	 	$	4,189	 	  	 	1.1%	 	 	$	986	 	 	 	0.2%	 	
	  	 	 	 	  				 	 	 	 	  				 	 	 	 	 				
The increase in depreciation was primarily due to new depreciable fixed assets placed into service supporting site expansions and infrastructure upgrades, partially offset by certain fully depreciated fixed assets.
The decrease in amortization was primarily due to certain fully amortized intangible assets.
See Note 3, Costs Associated with Exit and Disposal Activities, and Note 4, Fair Value, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information regarding the impairment of long-lived assets.
Other Income (Expense)

 	  	      Three Months Ended June 30,      	 	  	 	 	
(in thousands)	  	2018	 	  	2017	 	  	$ Change	 	
Interest income	  	$	            175	 	  	$	            144	 	  	$	              31	 	

Interest (expense)	  	$	(1,149	) 	  	$	(1,865	) 	  	$	716	 	

Other income (expense), net:	  				  				  				
Foreign currency transaction gains (losses)	  	$	641	 	  	$	(535	) 	  	$	1,176	 	
Gains (losses) on derivative instruments not designated as hedges	  	 	(345	) 	  	 	1,097	 	  	 	(1,442	) 	
Other miscellaneous income (expense)	  	 	(833	) 	  	 	231	 	  	 	(1,064	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total other income (expense), net	  	$	(537	) 	  	$	793	 	  	$	(1,330	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	
Interest income remained relatively consistent with the comparable period.
The decrease in interest (expense) was primarily due to a decrease in the outstanding borrowings under the Credit Agreement as a result of a $175.0 million repayment in January 2018, partially offset by an increase in weighted average interest rates on outstanding borrowings.
The change in other miscellaneous income (expense) was primarily due to payroll tax compliance costs, the net investment income (losses) related to the investments held in a rabbi trust and losses from our equity method investee, XSell. See Note 7, Investments Held in Rabbi Trust, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
 
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Income Taxes

 	  	Three Months Ended June 30,	 	 	 	 	
(in thousands)	  	2018	 	 	2017	 	 	    $ Change    	 	
Income before income taxes	  	$	              4,949	 	 	$	            10,400	 	 	$	(5,451	) 	
Income taxes	  	 	(2,229	) 	 	 	1,555	 	 	$	(3,784	) 	
 	  	 	 	 	 	 	 	% Change	 	
Effective tax rate	  	 	-45.0	% 	 	 	15.0	% 	 	 	-60.0	% 	
The decrease in the effective tax rate in 2018 compared to 2017 was primarily due to a $2.0 million increase in benefit related to the settlement of tax audits and ancillary issues. In addition, we recognized a benefit of $0.5 million from the reduction in the U.S. federal corporate tax rate from 35% to 21% as a result of the 2017 Tax Reform Act. The decrease in the effective tax rate was also significantly affected by shifts in earnings among the various jurisdictions in which we operate. Several additional factors, none of which are individually material, also impacted the rate.
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
Revenues

 	  	Six Months Ended June 30,	 	 	 	
 	  	2018	 	2017	 	 	 	
(in thousands)	  	Amount	 	  	% of Revenues	 	Amount	 	  	% of Revenues	 	$ Change	 	
Americas	  	$	667,762	 	  	82.3%	 	$	635,802	 	  	83.7%	 	$	31,960	 	
EMEA	  	 	143,347	 	  	17.7%	 	 	123,607	 	  	16.3%	 	 	19,740	 	
Other	  	 	47	 	  	0.0%	 	 	43	 	  	0.0%	 	 	4	 	
	  	 	 	 	  	 	 	 	 	 	  	 	 	 	 	 	
Consolidated	  	$	      811,156	 	  	100.0%	 	$	      759,452	 	  	100.0%	 	$	      51,704	 	
	  	 	 	 	  	 	 	 	 	 	  	 	 	 	 	 	
Consolidated revenues increased $51.7 million, or 6.8%, for the six months ended June 30, 2018 from the comparable period in 2017.
The increase in Americas’ revenues was due to higher volumes from existing clients of $48.9 million, new clients of $13.4 million and a positive foreign currency impact of $6.6 million, partially offset by end-of-life client programs of $36.9 million. Revenues from our offshore operations represented 39.4% of Americas’ revenues in 2018, compared to 41.0% for the comparable period in 2017.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $5.8 million, new clients of $2.0 million and a positive foreign currency impact of $13.3 million, partially offset by end-of-life client programs of $1.4 million.
See Note 2, Revenues, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information regarding the adoption of ASC 606.
Direct Salaries and Related Costs

 	  	Six Months Ended June 30,	 	 	 	  	 	
 	  	2018	 	2017	 	 	 	  	 	
(in thousands)	  	Amount	 	  	% of
  Revenues  	 	Amount	 	  	% of
  Revenues  	 	$ Change	 	  	Change in % of
Revenues	
Americas	  	$	437,655	 	  	65.5%	 	$	408,702	 	  	64.3%	 	$	28,953	 	  	1.2%	
EMEA	  	 	102,341	 	  	71.4%	 	 	87,049	 	  	70.4%	 	 	15,292	 	  	1.0%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	  		
Consolidated	  	$	    539,996	 	  	66.6%	 	$	    495,751	 	  	65.3%	 	$	    44,245	 	  	1.3%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	  		
The increase of $44.2 million in direct salaries and related costs included a negative foreign currency impact of $0.5 million in the Americas and a negative foreign currency impact of $9.0 million in EMEA.
The increase in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to higher compensation costs of 1.1% driven by a decrease in agent productivity due to operational inefficiencies principally within the financial services, transportation and communications verticals in the current period, higher customer-acquisition advertising costs of 0.4% and higher other costs of 0.2%, partially offset by lower auto tow claim costs of 0.3% and lower recruiting costs of 0.2%.
 
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The increase in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to higher compensation costs of 0.3%, higher communications costs of 0.2%, higher recruiting costs of 0.1% and higher other costs of 0.4%.
General and Administrative

 	  	Six Months Ended June 30,	 	 	 	 	 	
 	  	2018	 	2017	 	 	 	 	 	
(in thousands)	  	Amount	 	  	% of
  Revenues  	 	Amount	 	  	% of
  Revenues  	 	$ Change	 	 	Change in % of
Revenues	
Americas	  	$	143,293	 	  	21.5%	 	$	125,333	 	  	19.7%	 	$	17,960	 	 	1.8%	
EMEA	  	 	30,825	 	  	21.5%	 	 	25,861	 	  	20.9%	 	 	4,964	 	 	0.6%	
Other	  	 	30,359	 	  	-	 	 	33,086	 	  	-	 	 	(2,727	) 	 	-	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	 		
Consolidated	  	$	    204,477	 	  	25.2%	 	$	    184,280	 	  	24.3%	 	$	    20,197	 	 	0.9%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	 		
The increase of $20.2 million in general and administrative expenses included a positive foreign currency impact of $0.1 million in the Americas and a negative foreign currency impact of $2.8 million in EMEA.
The increase in Americas’ general and administrative expenses, as a percentage of revenues, was primarily attributable to higher compensations costs of 0.7%, higher facility-related costs of 0.4% resulting from the Americas 2018 Exit Plan (see Note 3, Costs Associated with Exit and Disposal Activities, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information), higher software and maintenance costs of 0.3%, higher ongoing facility-related costs of 0.2%, higher legal and professional fees of 0.2% and higher other costs of 0.2%, partially offset by lower technology equipment and maintenance costs of 0.2%.
The increase in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily attributable to higher recruiting costs of 0.4%, higher compensation costs of 0.2% and higher other costs of 0.5%, partially offset by lower advertising and marketing costs of 0.3% and lower legal and professional fees of 0.2%.
The decrease of $2.7 million in Other general and administrative expenses, which includes corporate and other costs, was primarily attributable to lower compensation costs of $2.0 million, lower legal and professional fees of $0.9 million, lower merger and integration costs of $0.2 million and lower travel costs of $0.2 million, partially offset by higher software and maintenance costs of $0.2 million, higher severance costs of $0.2 million and higher other costs of $0.2 million.
Depreciation, Amortization and Impairment of Long-Lived Assets

 	  	Six Months Ended June 30,	 	 	 	 	 	 	 	
 	  	2018	 	2017	 	 	 	 	 	 	 	
(in thousands)	  	Amount	 	  	% of
  Revenues  	 	Amount	 	  	% of
  Revenues  	 	 	$ Change	 	 	Change in % of
Revenues	 	
Depreciation, net:	  				  		 				  				 				 				
Americas	  	$	25,018	 	  	3.7%	 	$	23,310	 	  	 	3.7%	 	 	$	1,708	 	 	 	0.0%	 	
EMEA	  	 	2,887	 	  	2.0%	 	 	2,440	 	  	 	2.0%	 	 	 	447	 	 	 	0.0%	 	
Other	  	 	1,491	 	  	-	 	 	1,418	 	  	 	-	 	 	 	73	 	 	 	-	 	
	  	 	 	 	  		 	 	 	 	  				 	 	 	 	 				
Consolidated	  	$	29,396	 	  	3.6%	 	$	27,168	 	  	 	3.6%	 	 	$	2,228	 	 	 	0.0%	 	

Amortization of intangibles:	  				  		 				  				 				 				
Americas	  	$	7,407	 	  	1.1%	 	$	9,967	 	  	 	1.6%	 	 	$	(2,560	) 	 	 	-0.5%	 	
EMEA	  	 	435	 	  	0.3%	 	 	514	 	  	 	0.4%	 	 	 	(79	) 	 	 	-0.1%	 	
Other	  	 	-	 	  	-	 	 	-	 	  	 	-	 	 	 	-	 	 	 	-	 	
	  	 	 	 	  		 	 	 	 	  				 	 	 	 	 				
Consolidated	  	$	7,842	 	  	1.0%	 	$	10,481	 	  	 	1.4%	 	 	$	(2,639	) 	 	 	-0.4%	 	

Impairment of long-lived assets:	  				  		 				  				 				 				
Americas	  	$	8,701	 	  	1.3%	 	$	4,391	 	  	 	0.7%	 	 	$	4,310	 	 	 	0.6%	 	
EMEA	  	 	-	 	  	0.0%	 	 	-	 	  	 	0.0%	 	 	 	-	 	 	 	0.0%	 	
Other	  	 	-	 	  	-	 	 	-	 	  	 	-	 	 	 	-	 	 	 	-	 	
	  	 	 	 	  		 	 	 	 	  				 	 	 	 	 				
Consolidated	  	$	      8,701	 	  	1.1%	 	$	      4,391	 	  	 	0.6%	 	 	$	      4,310	 	 	 	0.5%	 	

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The increase in depreciation was primarily due to new depreciable fixed assets placed into service supporting site expansions and infrastructure upgrades, partially offset by certain fully depreciated fixed assets.
The decrease in amortization was primarily due to certain fully amortized intangible assets.
See Note 3, Costs Associated with Exit and Disposal Activities, and Note 4, Fair Value, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information regarding the impairment of long-lived assets.
Other Income (Expense)

 	  	Six Months Ended June 30,	 	 	 	 	
(in thousands)	  	2018	 	 	2017	 	 	$ Change	 	
Interest income	  	$	                  346	 	 	$	                  299	 	 	$	                47	 	

Interest (expense)	  	$	(2,355	) 	 	$	(3,564	) 	 	$	1,209	 	

Other income (expense), net:	  				 				 				
Foreign currency transaction gains (losses)	  	$	2,089	 	 	$	644	 	 	$	1,445	 	
Gains (losses) on derivative instruments not designated as hedges	  	 	(1,427	) 	 	 	397	 	 	 	(1,824	) 	
Other miscellaneous income (expense)	  	 	(1,044	) 	 	 	565	 	 	 	(1,609	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense), net	  	$	(382	) 	 	$	1,606	 	 	$	(1,988	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Interest income remained relatively consistent with the comparable period.
The decrease in interest (expense) was primarily due to a decrease in the outstanding borrowings under the Credit Agreement as a result of the $175.0 million repayment in January 2018, partially offset by an increase in weighted average interest rates on outstanding borrowings.
The change in other miscellaneous income (expense) was primarily due to payroll tax compliance costs, the net investment income (losses) related to the investments held in a rabbi trust and losses from our equity method investee, XSell. See Note 7, Investments Held in Rabbi Trust, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
Income Taxes

 	  	Six Months Ended June 30,	 	 	 	 	
(in thousands)	  	2018	 	 	2017	 	 	$ Change	 	
Income before income taxes	  	$	              18,353	 	 	$	                  35,722	 	 	$	        (17,369	) 	
Income taxes	  	 	227	 	 	 	8,165	 	 	$	(7,938	) 	
 	  	 	 	 	 	 	 	% Change	 	
Effective tax rate	  	 	1.2	% 	 	 	22.9	% 	 	 	-21.7	% 	
The decrease in the effective tax rate in 2018 compared to 2017 was primarily due to a $2.0 million increase in benefit related to the settlement of tax audits and ancillary issues. In addition, we recognized a benefit of $1.1 million from the reduction in the U.S. federal corporate tax rate from 35% to 21% as a result of the 2017 Tax Reform Act. This was partially offset by a $0.6 million decrease in the amount of excess tax benefits from stock-based compensation recognized in 2018 as compared to 2017. The decrease in the effective tax rate was also significantly affected by shifts in earnings among the various jurisdictions in which we operate. Several additional factors, none of which are individually material, also impacted the rate.
 
53

Client Concentration
Our top ten clients accounted for approximately 45.8% and 48.7% of our consolidated revenues in the three months ended June 30, 2018 and 2017, respectively, and approximately 45.9% and 49.1% of our consolidated revenues in the six months ended June 30, 2018 and 2017, respectively.
Total revenues by segment from AT&T Corporation (“AT&T”), a major provider of communication services for which we provide various customer support services over several distinct lines of AT&T businesses, were as follows (in thousands):

 	  	Three Months Ended June 30,	 	Six Months Ended June 30,	
 	  	2018	 	2017	 	2018	 	2017	
 	  	Amount	 	  	% of
Revenues	 	Amount	 	  	% of
Revenues	 	Amount	 	  	% of
Revenues	 	Amount	 	  	% of
Revenues	
Americas	  	$	40,947	 	  	12.5%	 	$	55,627	 	  	17.7%	 	$	82,935	 	  	12.4%	 	$	117,161	 	  	18.4%	
EMEA	  	 	-	 	  	  0.0%	 	 	-	 	  	  0.0%	 	 	-	 	  	  0.0%	 	 	-	 	  	  0.0%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	  		 	 	 	 	  		
	  	$	    40,947	 	  	10.3%	 	$	    55,627	 	  	14.8%	 	$	    82,935	 	  	10.2%	 	$	    117,161	 	  	15.4%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	  		 	 	 	 	  		
We have multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire at varying dates between 2018 and 2020. We have historically renewed most of these contracts. However, there is no assurance that these contracts will be renewed, or if renewed, will be on terms as favorable as the existing contracts. Each line of business is governed by separate business terms, conditions and metrics. Each line of business also has a separate decision maker such that a loss of one line of business would not necessarily impact our relationship with the client and decision makers on other lines of business. The loss of (or the failure to retain a significant amount of business with) any of our key clients, including AT&T, could have a material adverse effect on our performance. Many of our contracts contain penalty provisions for failure to meet minimum service levels and are cancelable by the client at any time or on short notice. Also, clients may unilaterally reduce their use of our services under our contracts without penalty.
Total revenues by segment from our next largest client, which was in the financial services vertical in each of the periods, were as follows (in thousands):

 	  	Three Months Ended June 30,	 	Six Months Ended June 30,	
 	  	2018	 	2017	 	2018	 	2017	
 	  	Amount	 	  	% of
 Revenues 	 	Amount	 	  	% of
 Revenues 	 	Amount	 	  	% of
 Revenues 	 	Amount	 	  	% of
 Revenues 	
Americas	  	$	29,922	 	  	9.1%	 	$	24,818	 	  	7.9%	 	$	60,531	 	  	9.1%	 	$	47,744	 	  	7.5%	
EMEA	  	 	-	 	  	0.0%	 	 	-	 	  	0.0%	 	 	-	 	  	0.0%	 	 	-	 	  	0.0%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	  		 	 	 	 	  		
	  	$	    29,922	 	  	7.5%	 	$	    24,818	 	  	6.6%	 	$	    60,531	 	  	7.5%	 	$	    47,744	 	  	6.3%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	  		 	 	 	 	  		
Other than AT&T, total revenues by segment of our clients that each individually represents 10% or greater of that segment’s revenues in each of the periods were as follows (in thousands):

 	  	Three Months Ended June 30,	 	Six Months Ended June 30,	
 	  	2018	 	2017	 	2018	 	2017	
 	  	Amount	 	  	% of
 Revenues 	 	Amount	 	  	% of
 Revenues 	 	Amount	 	  	% of
 Revenues 	 	Amount	 	  	% of
 Revenues 	
Americas	  	$	-	 	  	0.0%	 	$	-	 	  	0.0%	 	$	-	 	  	0.0%	 	$	-	 	  	0.0%	
EMEA	  	 	25,996	 	  	37.3%	 	 	18,819	 	  	31.1%	 	 	53,641	 	  	37.4%	 	 	50,523	 	  	40.9%	
	  	 	 	 	  		 	 	 	 	  		 	 	 	 	  		 	 	 	 	  		
	  	$	    25,996	 	  	6.6%	 	$	    18,819	 	  	5.0%	 	$	    53,641	 	  	6.6%	 	$	    50,523	 	  	6.7%	

54

Business Outlook
For the three months ended September 30, 2018, we anticipate the following financial results:
 
 	●	 	Revenues in the range of $402.0 million to $407.0 million;	
 	●	 	Effective tax rate of approximately 14%;	
 	●	 	Fully diluted share count of approximately 42.2 million;	
 	●	 	Diluted earnings per share in the range of $0.33 to $0.36; and	
 	●	 	Capital expenditures in the range of $12.0 million to $15.0 million.	
For the twelve months ended December 31, 2018, we anticipate the following financial results:
 
 	●	 	Revenues in the range of $1,630.0 million to $1,640.0 million;	
 	●	 	Effective tax rate of approximately 12%;	
 	●	 	Fully diluted share count of approximately 42.2 million;	
 	●	 	Diluted earnings per share in the range of $1.30 to $1.37; and	
 	●	 	Capital expenditures in the range of $45.0 million to $50.0 million.	
We are revising our full-year 2018 revenue outlook downward by approximately $50.0 million relative to the outlook provided in May 2018. Roughly half, or $25.0 million, of the revision is related to a combination of weakness in the communications vertical representing approximately $10.0 million and $15.0 million related to the decision we made to discontinue a specific program – as opposed to shifting it to another geography or at-home, as has been the case with others – because of its long-term viability in the market it was operating. Another approximately $15.0 million of the revision is related to foreign exchange volatility, with the remainder related to a slight extension in the sales cycle as well as a ramp of new client and program wins, partially offset by the contribution from WhistleOut. The benefits of the capacity rationalization initiatives are expected to start flowing through in the fourth quarter of 2018, which should yield significant improvement in year-over-year operating margins relative to the fourth quarter of 2017. Additionally, based on the rapid pace of progress reported thus far, we expect to rationalize a few hundred additional seats, bringing the total gross number of seats rationalized close to the upper end of the 10% target outlined in our May 2018 outlook.
Our third quarter 2018 business outlook anticipates a pre-tax charge of approximately $8.1 million, or $0.15 on an after-tax basis, related to capacity rationalization. The pre-tax charge is expected to be mostly in cash. The full-year outlook reflects a pre-tax charge of approximately $22.3 million, or $0.40 on an after-tax basis, split roughly evenly between non-cash and cash.
Our revenues and earnings per share assumptions for the third quarter and full year 2018 are based on foreign exchange rates as of July 2018. Therefore, the continued volatility in foreign exchange rates between the U.S. Dollar and the functional currencies of the markets we serve could have a further impact, positive or negative, on revenues and earnings per share relative to the business outlook for the third quarter and full-year as discussed above.
We anticipate total other interest income (expense), net of approximately $(1.0) million for the third quarter and $(4.6) million for the full year 2018. The amounts in the other interest income (expense), net, however, exclude the potential impact of any future foreign exchange gains or losses.
We expect a further reduction in our full-year 2018 effective tax rate compared to what was provided in our May 2018 outlook due largely to discrete benefits in the second quarter of 2018.
Not included in this guidance is the impact of any future acquisitions, share repurchase activities or a potential sale of previously exited customer engagement centers.
Liquidity and Capital Resources
Our primary sources of liquidity are generally cash flows generated by operating activities and from available borrowings under our revolving credit facility. We utilize these capital resources to make capital expenditures associated primarily with our customer engagement services, invest in technology applications and tools to further develop our service offerings and for working capital and other general corporate purposes, including repurchase of our common stock in the open market and to fund acquisitions. In future periods, we anticipate similar uses of these funds.
On August 18, 2011, the Board authorized us to purchase up to 5.0 million shares of our outstanding common stock (the “2011 Share Repurchase Program”). On March 16, 2016, the Board authorized an increase of 5.0 million shares to the 2011 Share Repurchase Program, for a total of 10.0 million. A total of 5.3 million shares have been repurchased under the 2011 Share Repurchase Program since inception. The shares are purchased, from time to time, through open market purchases or in negotiated private transactions, and the purchases are based on factors, including but not limited to, the stock price, management discretion and general market conditions. The 2011 Share Repurchase Program has no expiration date.
During the six months ended June 30, 2018, cash increased $47.4 million from operating activities, $5.0 million from proceeds from issuance of long-term debt and $0.4 million from other investing and financing activities. This increase was offset by $190.0 million used to repay long-term debt, $26.2 million used for capital expenditures, a $7.6 million purchase of intangible assets and $3.7 million to repurchase common stock for tax withholding on equity awards, resulting in a $181.4 million decrease in available cash, cash equivalents and restricted cash (including the unfavorable effects of foreign currency exchange rates on cash, cash equivalents and restricted cash of $6.7 million).
Net cash flows provided by operating activities for the six months ended June 30, 2018 were $47.4 million, compared to $71.6 million for the comparable period in 2017. The $24.2 million decrease in net cash flows from operating activities was due to a $9.4 million decrease in net income, a net decrease of $10.2 million in cash flows from assets and liabilities and a $4.6 million decrease in non-cash reconciling items such as depreciation, amortization, impairment and deferred income tax provision (benefit). The $10.2 million decrease in 2018 from 2017 in cash flows from assets and liabilities was principally a result of a $17.4 million increase in accounts receivable, a $3.0 million increase in other assets and a $2.6 million decrease in deferred revenue, partially offset by a $7.6 million decrease in taxes receivable, net, and a $5.2 million increase in other liabilities. The $17.4 million increase in the change in accounts receivable in the six months ended June 30, 2018 over the comparable period in 2017 was primarily due to the timing of billings and collections. The $7.6 million decrease in the change in taxes receivable, net, in the six months ended
 
55

June 30, 2018 over the comparable period in 2017 was primarily due to the effective settlement of the Canadian Revenue Agency audit and an increase in tax liabilities.
Capital expenditures, which are generally funded by cash generated from operating activities, available cash balances and borrowings available under our credit facilities, were $26.2 million for the six months ended June 30, 2018, compared to $35.9 million for the comparable period in 2017, a decrease of $9.7 million. In 2018, we anticipate capital expenditures in the range of $45.0 million to $50.0 million, primarily for new seat additions, facility upgrades, maintenance and systems infrastructure.
On May 12, 2015, we entered into a $440 million revolving credit facility (the “Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent, Swing Line Lender and Issuing Lender (“KeyBank”). The Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants. At June 30, 2018, we were in compliance with all loan requirements of the Credit Agreement and had $90.0 million of outstanding borrowings under this facility.
Our Credit Agreement had an average daily utilization of $100.1 million and $267.0 million during the three months ended June 30, 2018 and 2017, respectively, and $110.7 million and $267.0 million during the six months ended June 30, 2018 and 2017, respectively. During the three months ended June 30, 2018 and 2017, the related interest expense, including the commitment fee and excluding the amortization of deferred loan fees, was $0.9 million and $1.6 million, respectively, which represented weighted average interest rates of 3.7% and 2.4%, respectively. During the six months ended June 30, 2018 and 2017, the related interest expense, including the commitment fee and excluding the amortization of deferred loan fees, was $1.9 million and $3.0 million, respectively, which represented weighted average interest rates of 3.5% and 2.3%, respectively.
The Credit Agreement includes a $200 million alternate-currency sub-facility, a $10 million swingline sub-facility and a $35 million letter of credit sub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. We are not currently aware of any inability of our lenders to provide access to the full commitment of funds that exist under the Credit Agreement, if necessary. However, there can be no assurance that such facility will be available to us, even though it is a binding commitment of the financial institutions. The Credit Agreement will mature on May 12, 2020.
Borrowings under the Credit Agreement bear interest at the rates set forth in the Credit Agreement. In addition, we are required to pay certain customary fees, including a commitment fee determined quarterly based on our leverage ratio and due quarterly in arrears as calculated on the average unused amount of the Credit Agreement.
The Credit Agreement is guaranteed by all our existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all of our direct foreign subsidiaries and those of the guarantors.
We received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and we paid mandatory security deposits to Canada as part of this process of approximately $13.8 million. As of June 30, 2017, we determined that all material aspects of the Canadian audit were effectively settled pursuant to ASC 740, Income Taxes . As a result, we recognized a net income tax benefit of $1.2 million and the deposits were netted against the anticipated liability at that time. During the three months ended June 30, 2018, we finalized procedures ancillary to the Canadian audit and recognized an additional $2.7 million income tax benefit due to the elimination of certain penalties, interest and assessed withholding taxes.
With the effective settlement of the Canadian audit, we have no significant tax jurisdictions under audit; however, we are currently under audit in several tax jurisdictions. We believe we are adequately reserved for the remaining audits and their resolution is not expected to have a material impact on our financial condition and results of operations.
 
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The 2017 Tax Reform Act provides for a one-time transition tax based on our undistributed foreign earnings on which we previously had deferred U.S. income taxes. We recorded a $28.3 million provisional liability, which is net of $5.0 million of available tax credits, for our one-time transition tax. As of June 30, 2018, $2.1 million of the provisional liability was netted in “Income taxes receivable” and $3.8 million was included in “Income taxes payable” as of December 31, 2017 in the accompanying Condensed Consolidated Balance Sheets. As of June 30, 2018 and December 31, 2017, $22.4 million and $24.5 million, respectively, of the long-term provisional liability were included in “Long-term income tax liabilities” in the accompanying Condensed Consolidated Balance Sheets. This transition tax liability will be paid over the next eight years. As of December 31, 2017, no additional income taxes have been provided for any remaining outside basis difference inherent in our investments in our foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.
On July 9, 2018, we entered into and closed a definitive Share Sale Agreement to acquire all the outstanding shares of WhistleOut Pty Ltd and WhistleOut Inc. (together, “WhistleOut”) for AUD 30.2 million ($22.4 million). The purchase price was paid upon closing using $22.0 million of additional borrowings under our Credit Agreement. WhistleOut is a consumer comparison platform focused on mobile, broadband and pay TV services, principally across Australia and the U.S. The acquisition broadens our digital marketing capabilities geographically and extends our home services product portfolio.
As of June 30, 2018, we had $162.4 million in cash and cash equivalents, of which approximately 87.9%, or $142.7 million, was held in international operations. As a result of the 2017 Tax Reform Act, most of these funds will not be subject to additional taxes if repatriated to the United States. There are circumstances where we may be unable to repatriate some of the cash and cash equivalents held by our international operations due to country restrictions.
We expect our current cash levels and cash flows from operations to be adequate to meet our anticipated working capital needs, including investment activities such as capital expenditures and debt repayment for the next twelve months and the foreseeable future. However, from time to time, we may borrow funds under our Credit Agreement as a result of the timing of our working capital needs, including capital expenditures.
Our cash resources could also be affected by various risks and uncertainties, including but not limited to, the risks described in our Annual Report on Form 10-K for the year ended December 31, 2017.
Off-Balance Sheet Arrangements and Other
As of June 30, 2018, we did not have any material commercial commitments, including guarantees or standby repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
From time to time, during the normal course of business, we may make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include, but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence or willful misconduct and (ii) indemnities involving breach of contract, the accuracy of representations and warranties, or other liabilities assumed by us in certain contracts. In addition, we have agreements whereby we will indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the applicable insurance coverage is generally adequate to cover any estimated potential liability under these indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and other guarantees in the accompanying Condensed Consolidated Balance Sheets. In addition, we have some client contracts that do not contain contractual provisions for the limitation of liability and other client contracts that contain agreed upon exceptions to limitation of liability. We have not recorded any liability in the accompanying Condensed Consolidated Balance Sheets with respect to any client contracts under which we have or may have unlimited liability.
 
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Contractual Obligations
During the six months ended June 30, 2018, we repaid $185.0 million, net, of long-term debt outstanding under our Credit Agreement, primarily using funds repatriated from our foreign subsidiaries, resulting in a remaining outstanding debt balance of $90.0 million.
See Note 13, Commitments and Loss Contingency, to the accompanying “Notes to Condensed Consolidated Financial Statements” for operating leases and purchase obligations entered into in the normal course of business during the six months ended June 30, 2018.
See Note 19, Subsequent Event, to the accompanying “Notes to Condensed Consolidated Financial Statements” for information related to an acquisition we completed on July 9, 2018.
Except for the contractual obligations mentioned above, there have not been any material changes to the outstanding contractual obligations from the disclosure in our Annual Report on Form 10-K as of and for the year ended December 31, 2017.
Critical Accounting Estimates
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of our critical accounting estimates.
The adoption of ASC 606 did not result in a material change to our “Recognition of Revenues” critical accounting estimate. See Note 2, Revenues, of the accompanying “Notes to Condensed Consolidated Financial Statements” for further information on the adoption of ASC 606.
New Accounting Standards Not Yet Adopted
See Note 1, Overview and Basis of Presentation, of the accompanying “Notes to Condensed Consolidated Financial Statements” for information related to recent accounting pronouncements.
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Our earnings and cash flows are subject to fluctuations due to changes in currency exchange rates. We are exposed to foreign currency exchange rate fluctuations when subsidiaries with functional currencies other than the U.S. Dollar (“USD”) are translated into our USD consolidated financial statements. As exchange rates vary, those results, when translated, may vary from expectations and adversely impact profitability. The cumulative translation effects for subsidiaries using functional currencies other than USD are included in “Accumulated other comprehensive income (loss)” in shareholders’ equity. Movements in non-USD currency exchange rates may negatively or positively affect our competitive position, as exchange rate changes may affect business practices and/or pricing strategies of non-U.S. based competitors.
We employ a foreign currency risk management program that periodically utilizes derivative instruments to protect against unanticipated fluctuations in certain earnings and cash flows caused by volatility in foreign currency exchange (“FX”) rates. We also utilize derivative contracts to hedge intercompany receivables and payables that are denominated in a foreign currency and to hedge net investments in foreign operations.
We serve a number of U.S.-based clients using customer engagement center capacity in The Philippines and Costa Rica, which are within our Americas segment. Although a substantial portion of the costs incurred to render services under these contracts are denominated in Philippine Pesos (“PHP”) and Costa Rican Colones (“CRC”), the contracts with these clients are priced in USDs, which represent FX exposures. Additionally, our EMEA segment services clients in Hungary and Romania with a substantial portion of the costs incurred to render services under these contracts denominated in Hungarian Forints (“HUF”) and Romanian Leis (“RON”), where the contracts are priced in Euros (“EUR”).
In order to hedge a portion of our anticipated revenues denominated in USD and EUR, we had outstanding forward contracts and options as of June 30, 2018 with counterparties through September 2019 with notional amounts totaling $206.3 million. As of June 30, 2018, we had net total derivative liabilities associated with these contracts with a fair value of $0.4 million. If the USD was to weaken against the PHP and CRC and the EUR was to weaken against the
 
58

HUF and RON by 10% from current period-end levels, we would incur a loss of approximately $18.6 million on the underlying exposures of the derivative instruments. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We had outstanding forward exchange contracts as of June 30, 2018 with notional amounts totaling $6.2 million that are not designated as hedges. The purpose of these derivative instruments is to protect against FX volatility pertaining to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than our subsidiaries’ functional currencies. As of June 30, 2018, the fair value of these derivatives was a net liability of $0.2 million. The potential loss in fair value at June 30, 2018, for these contracts resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately $1.3 million. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We had embedded derivative contracts with notional amounts totaling $12.7 million that are not designated as hedges. As of June 30, 2018, the fair value of these derivatives was a net liability of $0.6 million. The potential loss in fair value at June 30, 2018, for these contracts resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately $1.9 million. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into contracts with those considered to have minimal credit risk. We periodically monitor changes to counterparty credit quality as well as our concentration of credit exposure to individual counterparties.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates. As a general rule, we do not use financial instruments to hedge local currency denominated operating expenses in countries where a natural hedge exists. For example, in many countries, revenue from the local currency services substantially offsets the local currency denominated operating expenses.
Interest Rate Risk
Our exposure to interest rate risk results from variable rate debt outstanding under our revolving credit facility. We pay interest on outstanding borrowings at interest rates that fluctuate based upon changes in various base rates. As of June 30, 2018, we had $90.0 million in borrowings outstanding under the revolving credit facility. Based on our level of variable rate debt outstanding during the three and six months ended June 30, 2018, a 1.0% increase in the weighted average interest rate, which generally equals the LIBOR rate plus an applicable margin, would have had an impact of $0.2 million and $0.5 million, respectively, on our results of operations.
We have not historically used derivative instruments to manage exposure to changes in interest rates.
Fluctuations in Quarterly Results
For the year ended December 31, 2017, quarterly revenues as a percentage of total consolidated annual revenues were approximately 24%, 24%, 26% and 26%, respectively, for each of the respective quarters of the year. We have experienced and anticipate that in the future we will experience variations in quarterly revenues. The variations are due to the timing of new contracts and renewal of existing contracts, the timing and frequency of client spending for customer engagement services, non-U.S. currency fluctuations, and the seasonal pattern of customer engagement support and fulfillment services.
 Item 4. Controls and Procedures
As of June 30, 2018, under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a – 15(e) under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We concluded that, as of June 30, 2018, our disclosure controls and procedures were effective at the reasonable assurance level.
There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
59

 Part II. OTHER INFORMATION
 Item 1. Legal Proceedings
From time to time, we are involved in legal actions arising in the ordinary course of business. With respect to these matters, we believe that we have adequate legal defenses and/or, when possible and appropriate, has provided adequate accruals related to those matters such that the ultimate outcome will not have a material adverse effect on our future financial position or results of operations.
 Item 1A. Risk Factors
For risk factors, see Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2017.
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Below is a summary of stock repurchases for the three months ended June 30, 2018 (in thousands, except average price per share). See Note 12, Earnings Per Share, of “Notes to Condensed Consolidated Financial Statements” for information regarding our stock repurchase program.

Period	  	Total
Number of
Shares
  Purchased  	 	 	 	  	    Average    
Price
Paid Per
Share	 	  	Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or  Programs	 	  	Maximum Number
of Shares That May
Yet Be Purchased
Under Plans or
Programs (1)	 	
April 1, 2018 - April 30, 2018	  	 	-	 	 		  	$	-	 	  	 	-	 	  	 	4,748	 	
May 1, 2018 - May 31, 2018	  	 	-	 	 		  	$	-	 	  	 	-	 	  	 	4,748	 	
June 1, 2018 - June 30, 2018	  	 	-	 	 		  	$	-	 	  	 	-	 	  	 	4,748	 	
	  	 	 	 	 		  				  	 	 	 	  	 	 	 	
Total	  	 	-	 	 		  				  	 	        -	 	  	 	        4,748	 	
	  	 	 	 	 		  				  	 	 	 	  	 	 	 	
(1) The total number of shares approved for repurchase under the 2011 Share Repurchase Plan dated August 18, 2011, as amended on March 16, 2017, is 10.0 million. The 2011 Share Repurchase Plan has no expiration date.
 Item 3. Defaults Upon Senior Securities
None.
 Item 4. Mine Safety Disclosures
Not Applicable.
 Item 5. Other Information
None.
 
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 Item 6. Exhibits
The following documents are filed as an exhibit to this Report:

No.	 	Description	
		
15*	 	Awareness letter.	
		
31.1*	 	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a).	
		
31.2*	 	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a).	
		
32.1**	 	Certification of Chief Executive Officer, pursuant to 18 U.S.C. §1350.	
		
32.2**	 	Certification of Chief Financial Officer, pursuant to 18 U.S.C. §1350.	
		
101.INS*+	 	XBRL Instance Document	
		
101.SCH*+	 	XBRL Taxonomy Extension Schema Document	
		
101.CAL*+	 	XBRL Taxonomy Extension Calculation Linkbase Document	
		
101.LAB*+	 	XBRL Taxonomy Extension Label Linkbase Document	
		
101.PRE*+	 	XBRL Taxonomy Extension Presentation Linkbase Document	
		
101.DEF*+	 	XBRL Taxonomy Extension Definition Linkbase Document	
		
*	 	Filed herewith as an Exhibit.	
**	 	Furnished herewith as an Exhibit.	
+	 	Submitted electronically with this Quarterly Report.	
 
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 SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	 		  	SYKES ENTERPRISES, INCORPORATED	
	 	                    	  	(Registrant)	
			
Date: August 7, 2018	 		  	By: /s/ John Chapman	
	 		  	John Chapman	
	 		  	Executive Vice President and Chief Financial Officer	
	 		  	(Principal Financial and Accounting Officer)	
 
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Exhibit 15
August 7, 2018
Sykes Enterprises, Incorporated
400 North Ashley Drive
Tampa, Florida
We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Sykes Enterprises, Incorporated and subsidiaries for the periods ended June 30, 2018, and 2017, as indicated in our report dated August 7, 2018; because we did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, is incorporated by reference in Registration Statement No. 333-178670 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
Tampa, Florida

EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)
I, Charles E. Sykes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sykes Enterprises, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and	
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: August 7, 2018	
	
/s/ Charles E. Sykes	
 	
Charles E. Sykes, President, Chief Executive Officer and Director

EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)
I, John Chapman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sykes Enterprises, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and	
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: August 7, 2018	
	
/s/ John Chapman
 	
John Chapman, Executive Vice President and Chief Financial Officer   	

EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Sykes Enterprises, Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles E. Sykes, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2018     By: /s/ Charles E. Sykes	
                                                                                                              	
                                              Charles E. Sykes	
                                              President and Chief Executive Officer and Director	
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Sykes Enterprises, Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Chapman, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2018     By: /s/ John Chapman	
                                                                                                                               	
                                              John Chapman	
                                              Executive Vice President and Chief Financial Officer	
                                              (Principal Financial and Accounting Officer)	
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.