Sykes Enterprises, Incorporated Annual Report 2001

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FY2001 Annual Report · Sykes Enterprises, Incorporated

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M a n a g i n g C u s t o m e r R e l a t i o n s h i p s

SYKESSM

L O B

A n n u a l R e p o r t

C o r p o r a t e P r o f i l e

Sykes Enterprises, Incorporated (Sykes) is a global leader in providing

customer management solutions and services to external and inter-

nal customers of companies primarily in the technology/consumer,

communications and financial services markets. Sykes specializes in

providing flexible, high quality customer support outsourcing solu-

tions with an emphasis on technical support and customer service.

These services are delivered through multiple communication

channels encompassing phone, e-mail, web and chat. Sykes com-

plements its customer support outsourcing services with technical

staffing, CRM consulting and fulfillment services—providing solu-

tions that are tailored to meet the needs of our clients. With a team of

15,000 employees, we strive to deliver solutions that help compa-

nies around the world acquire, retain and grow the relationships

with their customers. Sykes employs over 13,000 customer care

agents across 15 countries and provides support in more than

30 languages. Headquartered in Tampa, Florida, Sykes has 40 customer

support centers and four fulfillment centers with operations through-

out the United States, Canada, Europe, Latin America, Asia and Africa.

F i n a n c i a l H i g h l i g h t s

2001 Revenue by Geographic Region

2001 Revenue by Vertical Market

Americas 66%

EMEA 34%

Technology & Consumer
Products 56%

Communications 26%

Financial Services 3%

Other 15%

Americas—United States, Canada, Latin America and Asia Pacific
EMEA—Europe, Middle East and Africa

(dollars in millions, except per share amounts)

Pro forma income statement items*

Revenues
Income from operations
Income before cumulative effect

of change in accounting principle
Diluted EPS before cumulative effect
of change in accounting principle

Balance sheet items
Cash and cash equivalents
Long-term debt
Shareholders’ equity
Book value per share

2001

2000

1999

$496.0
16.2

$535.3
28.2

$444.0
40.1

11.3

14.8

23.6

$ 0.28

$ 0.35

$ 0.55

$ 50.0
—
191.2
$ 4.74

$ 30.1
8.8
195.9
$ 4.88

$ 31.0
80.1
193.2
$ 4.52

* Pro forma income statement items exclude one-time items and the results of operations from those businesses exited by the Company in

2000, including U.S. fulfillment and distribution, worldwide localization, and SHPS, Incorporated.

L e t t e r t o O u r S h a r e h o l d e r s

F O C

We strive to grow Sykes’ business and improve profitability with the principles that have made our company successful in the

customer management outsourcing industry. We will further our efforts to enhance Sykes’ service offerings, target focused and growing

vertical markets, and provide the high quality support that has built a reputation of excellence for Sykes.

To Our Shareholders,

2001 proved to be a challenging, and at times, unpredictable

such an uncertain environment, we commenced 2001 with

year. No one could have imagined the obstacles 2001 would

a simple business strategy to do what Sykes does best—help

bring. The technology market, a founding strength of Sykes,

leading companies around the world acquire, retain and

began to soften, and sales cycles with new and existing

grow the relationships with their customers.

clients in many vertical markets lengthened. It was clear it

To do this, Sykes established four primary goals to move

was time for Sykes to look back at its roots and the

us forward in the direction of success. We set out to align

strengths that built the Company. To ensure that Sykes

our operations to target three leading verticals in the

emerged a stronger, more highly-focused company amidst

customer management outsourcing industry—technology/

consumer, communications and financial services. We reor-

companies. What’s more, we are happy to report, our new

ganized our company in a way that Sykes could be more

business wins in communications continue into 2002 with

responsive and productive to its clients. Additionally, we

the announcement of a multi-year, multi-million dollar cus-

sought to control spending and reduce capital expenditures,

tomer care agreement with Siemens’ Information and

leveraging the capital investments and leading edge infra-

Communications Mobile unit in Germany.

structure we had already built into Sykes’ global network.

It was also one of Sykes’ goals to enter the financial

Lastly, we committed to strengthening our balance sheet

services market as a recognized provider of customer support

further and improving upon the Company’s overall finan-

services. We met this goal in 2001 by commencing several

cial flexibility. By the end of 2001, Sykes had accomplished

new pilot, or start-up programs, with some of the largest

all of these goals, firmly positioning the Company for success.

financial services companies in the U.S., including Spanish-

Since 1996, Sykes has provided world-class technical

speaking support through our offshore facilities in Costa

support to technology companies across the globe. As the

Rica. We are confident that Sykes will expand the financial

technology market softened and forecasts fluctuated, so

services market over the next several years, using clear goals

did Sykes’ business. By the end of 2001, we stabilized our

and strategies, just as we successfully did when we entered

relationships with several leading technology companies. As

the technology and communications markets.

technology companies reduced the number of outsourcers

Part of our strategy for success in our chosen markets

they utilized and shifted to a blended offshore solution, our

was to better align Sykes’ sales force with the key vertical

service offering allowed Sykes to remain a viable participant

markets we target and we did just that. We put in place

in assisting them to meet their customer support needs,

dedicated business development managers in North America

helping them improve customer retention at the best

and Europe with expertise specific to each of our target

possible value.

markets. To that end, we are pleased to report, Sykes has

During the year, Sykes also further expanded and devel-

experienced great success in winning new business in all of

oped relationships with some of the world’s largest com-

our target markets.

munications companies. In 1999, only 10 percent of Sykes’

In pursuit of our goals, we continued the expansion of

revenues were generated from communications companies

our offshore operations in Costa Rica and Manila in 2001 to

in supporting broadband Internet, dial-up Internet, and wire-

support the increasing demand for a lower cost and flexible

less equipment and service providers. During the year, we

alternative for our clients’ customer support needs.

extended the terms of our agreements with several existing

Companies primarily in the technology and financial serv-

communications clients both in Europe and the United

ices markets are expanding their service requirements to

States, most recently with Deutsche Telekom, Europe’s largest

include offshore locations and Sykes has a proven record

communications company. We also announced a new

of success with operations in both Costa Rica and Manila

agreement with T-Online, a subsidiary of Deutsche Telekom,

for nearly five years.

to provide Internet and software support. By the end of

Since 1977, Sykes has seen the dynamics of business

2001, the percentage of revenues from communications

change, especially in recent years. The size of Sykes’ clients

companies more than doubled to 26 percent. In fact, three

and the services we provide for them have grown over the

of Sykes’ top ten clients are now leading communications

years, demanding a more responsive and client-focused

C O M

M I

M E

organization. As a result, we implemented a customer cen-

whose collapse in 2000 became a financial risk. Today,

tric model in 2001 throughout the organization to more

dot.coms represent less than 2 percent of Sykes’ revenues

effectively manage our clients’ needs. By organizing the

compared to 7 percent at the start of 2001.

business around the client, instead of the contact center,

While there remains some caution with respect to an

we were able to streamline operations and improve client

economic recovery, we remain optimistic about the oppor-

communications. We created a client specialist for each

tunities in 2002. We strive to grow our business and

client, establishing clear accountability and providing a single

improve profitability with the principles that have made

support line to each and every client. The changes also

Sykes successful. We will further our efforts to enhance

allowed the support centers to focus solely on the most

Sykes’ service offerings, target focused and growing vertical

critical day-to-day functions of hiring, training and providing

markets, and provide the high quality support that has built

the high quality customer service for which Sykes is known.

a reputation of excellence for Sykes. Everyday we help lead-

Essentially, we now have the means of rapidly catering to

ing companies across four continents and 15 countries

our clients’ customer needs, which adds even more value

operate more efficiently and build stronger loyalty for their

to the service Sykes provides.

products and services. We will utilize our global presence,

In addition to the Company’s fourth quarter cost reduc-

advanced technological infrastructure and expertise to drive

tion program designed to improve efficiencies by rationalizing

their success and ours even further.

U.S. seat capacity and eliminating certain under-performing

We are thankful for the commitment of our employees

operations, Sykes made significant strides in reducing capi-

whose continued dedication and service helped to strengthen

tal expenditures in 2001, which declined 40 percent from

and focus Sykes’ business during a challenging year. I want

the previous year. With the development of our global com-

to personally thank our clients for their continued support

munications network complete, Sykes will leverage its

and belief in our abilities to manage their customer man-

investments to provide a flexible solution for its clients and

agement needs. For our shareholders, I express my kind

improve profitability of the Company. Through Sykes’ pri-

gratitude for their continued support during a challenging

vate asynchronous transfer mode (ATM) network and

year. As stated earlier in this letter, we saw many obstacles

dynamic intelligent call routing capabilities, Sykes can rapidly

in 2001, but much success awaits us. To firmly grasp such

respond to changes in client call volumes and move traffic

success, Sykes, as a pioneer, will be resolved to approach

based on agent availability and skill, improving the respon-

each obstacle and opportunity alike with dedication,

siveness and productivity of our agents. The Company’s

discernment, and the integrity and excellence for which

technological and communications infrastructure has truly

Sykes is known.

differentiated Sykes in the marketplace.

In our quest for success and added value to our stake-

holders, we continued to strengthen our balance sheet and

improve upon the Company’s financial flexibility in 2001.

We generated $60.7 million in operating cash flow and

finished the year with essentially no outstanding debt and

$50.0 million in available cash. We also made the decision to

John H. Sykes
Chairman and Chief Executive Officer

unwind certain relationships with several dot.com companies

March 2002

SYKES

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[x] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the fiscal year ended December 31, 2001

[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For The Transition Period From _________ To _________

Commission File Number 0-28274

S y k e s E n t e r p r i s e s , I n c o r p o ra t e d
(Exact name of registrant as specified in its charter)

Florida
(State or other jurisdiction of
incorporation or organization)

100 N. Tampa Street, Suite 3900, Tampa, Florida
(Address of principal executive offices)

56-1383460
(IRS Employer
Identification No.)

33602
(Zip Code)

(813) 274-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class

Voting Common Stock $.01 Par Value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]

As of March 5, 2002, there were 40,328,354 shares of Common Stock outstanding. The aggregate market value of the
voting stock held by non-affiliates of the registrant based on the last sale price reported on the Nasdaq National Market(cid:2)
on March 5, 2002 was $208,371,262.

Documents Incorporated by Reference:

Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portions of the Proxy Statement for the year 2002

Form 10-K Reference

Annual Meeting of Shareholders. . . . . . . . . . . . . . . . . . . . . .

Part III Items 10–13

SYKES

FORM 10-K ANNUAL REPORT
Table of Contents

Page No.

PART I
Item 1
Item 2
Item 3
Item 4

Business ............................................................................................................................................
Properties ..........................................................................................................................................
Legal Proceedings .............................................................................................................................
Submission of Matters to a Vote of Security Holders .........................................................................

PART II
Item 5 Market for the Registrant’s Common Equity and Related Shareholder Matters ...................................
Selected Financial Data.....................................................................................................................
Item 6
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations................
Item 7a Quantitative and Qualitative Disclosures About Market Risk ............................................................
Financial Statements and Supplementary Data..................................................................................
Item 8
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ............
Item 9

PART III
Item 10 Directors and Executive Officers of the Registrant .............................................................................
Item 11 Executive Compensation ...................................................................................................................
Item 12 Security Ownership of Certain Beneficial Owners and Management ................................................
Item 13 Certain Relationships and Related Transactions .................................................................................

PART IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K ....................................................

7
18
20
20

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22
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31
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SYKES

P A R T I

R e c e n t D e v e l o p m e n t s

Item 1. Business

G e n e r a l

Sykes Enterprises, Incorporated and consolidated sub-
sidiaries (“Sykes” or the “Company”) is a global leader in
providing outsourced customer management solutions
and services to customers of companies primarily in the
technology/consumer, communications and financial
services markets. Sykes’ Business Services group provides
customer support outsourcing with emphasis on techni-
cal support and customer service. These services are
delivered through multiple communications channels
encompassing phone, e-mail, web and chat. Sykes’
Business Solutions group provides consultative profes-
sional services and technical staffing in customer rela-
tionship management with a focus on business strategy,
project management, business process redesign, change
management, knowledge management, education, train-
ing and web development. Sykes also provides fulfillment
services throughout Europe including multi-lingual
sales order processing via the Internet and phone, full
multi-currency financial management, inventory control
and storage, vendor management, product delivery and
product returns handling. Sykes has developed an exten-
sive global reach with 40 state-of-the-art customer
support centers throughout the United States, Canada,
Europe, Latin America, Asia and Africa.

The Company believes that outsourcing by technology-
enabled companies for customer management solutions
and services will continue to grow as pressures of the
economy place greater emphasis on customer-facing
activities to enhance customer relationships, build brand
loyalty and maximize efficiencies. Rapid changes in tech-
nology, pricing pressures, growth rates and global com-
petition are making it increasingly difficult for companies
to cost-effectively maintain quality, long-term relation-
ships with their customers.

Sykes was founded in 1977 in North Carolina and
moved its headquarters to Florida in 1993. In March
1996, Sykes changed its state of incorporation from
North Carolina to Florida. Sykes’ headquarters are located
at 100 North Tampa Street, Suite 3900, Tampa, Florida
33602, and its telephone number is (813) 274-1000.

In December 2001, in response to the economic slow-
down and increasing demand for the Company’s offshore
capabilities, the Company approved a cost reduction
plan designed to improve efficiencies in its core busi-
nesses. As a result of the Company’s cost reduction plan,
the Company recorded $16.1 million in restructuring,
other and impairment charges during the fourth quarter
of 2001. This included $14.6 million in charges related
to the closure and consolidation of two U.S. Business
Services customer support centers, two U.S. Business
Solutions offices and one European fulfillment center. In
addition, the Company plans to reduce the number of
employees by 230 by the end of March 2002. The
restructuring charge also includes $1.4 million for future
lease obligations related to the closed facilities. The
Company also recorded a $1.5 million impairment
charge related to the write-off of certain non-performing
assets, including software and equipment no longer used
by the Company. The Company estimates it may achieve
up to approximately $5.7 million in annualized pre-tax
savings related to the closed operations included in the
restructuring and impairment charges.

In connection with the Company’s continued efforts to
concentrate resources on its core competencies and
focus on the needs of its clients, the Company imple-
mented a customer centric model and philosophy
throughout the organization in 2001. With the changing
demands of the Company’s global customers and the
implementation of the customer centric model, the
Company aligned its business into two geographic
regions effective January 1, 2002 to more effectively
manage the business and support the customer care
needs of every client. Beginning with the first quarter of
2002, these geographic regions will be the Americas,
which includes the United States, Canada, Latin America
and the Asia Pacific Rim, and EMEA, which includes
Europe, the Middle East and Africa.

I n d u s t r y B a c k g r o u n d

In today’s ever-changing marketplace, companies
require innovative customer management solutions that
allow them to enhance the end user’s experience with
their products and services, strengthen and enhance
company brands, maximize the lifetime value of
customers, efficiently and effectively deliver human inter-
action when customers value it most, and deploy best-
in-class Customer Relationship Management (CRM)
strategies, processes and technologies.

SYKES

Technological changes, pricing pressures, global
competition and a dynamic economic environment are
making it increasingly difficult for companies to cost-
effectively maintain in-house the necessary personnel to
handle all of their customer management needs.
Companies are increasingly turning to outsourcers to per-
form specialized functions and services in CRM due to
the following factors:
• Increasing importance of companies to focus on

customer-facing activities;

• Increasing need for companies to focus on core
competencies rather than non-revenue producing
activities;

• Rapid changes in technology requiring personnel with

specialized technical expertise;
• Growing capital requirements

for sophisticated
technology needed to maintain the necessary infra-
structure to provide timely technical and customer
support service;

• Increasing need to integrate and continually update
complex systems incorporating a variety of hardware
and software components spanning a number of tech-
nology generations;

• Extensive and ongoing staff training and associated
costs required to maintain responsive, up-to-date in-
house technical and customer support services; and
• Cost savings from converting fixed employee costs to

flexible, variable costs.

S t r a t e g y

The Company’s objective is to continue to grow and
expand its global customer base as a leading provider of
reliable and affordable outsourced customer manage-
ment solutions and services while maintaining its focus
on its core competencies of technical support and
customer service. The Company’s principal strategies are
as follows:

Continue Growing the Company’s Customer
Support Outsourcing Encompassing Technical
Support and Customer Service.
Sykes has grown its
Customer Support Outsourcing operations utilizing a
strategy of both internal growth and external acquisitions.
This plan has resulted in an increase from three customer
support centers in 1994 to 40 worldwide as of February 14,
2002. The Company’s customer support centers, which
are the focus of the Company’s core competencies, cur-
rently have the capacity to handle millions of customer
contacts per year over numerous contact media. Sykes
has standardized the establishment and ongoing opera-
tion of its customer support centers by: (i) locating the
centers in smaller communities, near a college or univer-
sity, with a relatively low cost structure and a technically
proficient, stable work force; (ii) constructing the cus-
tomer support centers modeled after the same prototype;

(iii) utilizing standardized procedures to hire and train
customer care agents; and (iv) maintaining consistently
responsive and highly reliable services through global
deployment of a common communication platform and
performance management technologies and procedures.
The Company’s systematic approach and procedures, tai-
lored to the unique needs of its customers, are part of its
strategy of providing responsive, high quality and cost-
efficient support. In addition to Sykes’ network of cus-
tomer support centers throughout North America and
Europe, the Company continues to develop its offshore
capabilities in the Philippines and Costa Rica, which
offers its clients a flexible solution at lower costs. During
the fourth quarter of 2001, the Company announced the
expansion of its Manila and Costa Rican operations to
support the increasing demand for Sykes’ offshore cus-
tomer management solutions. The Company also believes
there are further opportunities to expand its global reach
and the scope and quality of its support services by
acquiring or merging with companies that operate cus-
tomer support centers in certain geographic markets,
such as Latin America and the Asia Pacific Rim, and to
enhance the breadth of services provided to companies
within the technology/consumer, communications and
financial services markets.

Leverage Customer Relationship Management
Practice and Technical Staffing.
The Company’s
expertise in technical staffing, change management,
knowledge management, education and training, cou-
pled with Sykes’ customer support outsourcing capabili-
ties, enable the Company to deliver broad based
customer management solutions on a global basis. Sykes
works with large and medium size companies to review,
plan and build their CRM strategies by conducting assess-
ments, audits, strategy definitions, process redesigns as
well as the selection and implementation of technology.
These capabilities also enable Sykes to tailor its customer
care solutions to meet the unique needs of its customers
such as outsourcing, in-sourcing, staff augmentation or a
combination of all approaches.

Expand Vertical Market Reach.

The Company
markets its services on a worldwide basis primarily to
technology-enabled companies within the technology/
consumer, communications and financial services mar-
kets. The Company built its industry knowledge by ini-
tially focusing on software publishers, personal computer
manufacturers and peripheral hardware manufacturers
within the technology market, providing Sykes with a
competitive advantage in technical support. Beginning in
2000, the Company’s growth strategy targeted the com-
munications market, where Sykes has leveraged its techni-
cal support capabilities to capitalize on dial-up Internet,
broadband Internet and wireless services opportunities.
Sykes’ established presence in these markets provides

SYKES

tremendous opportunities for outsourced services and
growth in new target markets such as financial services.

Maintain a Competitive Advantage Through
Sophisticated Technology.
The Company seeks to
maintain a competitive advantage by continuing to capi-
talize on its sophisticated and specialized technological
capabilities, including its current private asynchronous
transfer mode (ATM) network between North America,
Latin America and the Philippines that provides the
Company the ability to redirect inquiries and to also
carry voice and data over the same network. Sykes’ flexi-
ble, secure and scalable network infrastructure allows the
Company to rapidly respond to changes in client voice
and data traffic and quickly establish support operations
for new and existing clients. Through strategic technology
relationships, the Company is able to provide fully inte-
grated communication services encompassing e-mail,
chat and web self-service platforms. Additional techno-
logical capabilities include automatic call distributors,
sophisticated call routing and workforce management
capabilities based on agent skill and availability, call
tracking software, quality management systems and
computer-telephony integration (CTI) that enable
Sykes’ customer support centers to serve as the trans-
parent extension of the Company’s clients, receive
telephone calls and data directly from its clients’ sys-
tems, and report detailed information concerning the
status and results of the Company’s services on a
daily basis. The Company’s European deployment of
Global Direct, Sykes’ CRM/e-commerce application,
establishes a platform whereby its clients can manage
all customer profile and contact information from
every communication channel making it a viable cus-
tomer-facing infrastructure solution to support its
clients’ CRM initiatives.

S e r v i c e s

The Company provides innovative customer man-
agement services and solutions. The following is a
description of Sykes’ customer management services
and solutions:

Business Services

Customer Support Outsourcing.

Sykes provides
customer support management solutions that support its
clients’ customers and employees through the partial or
complete outsourcing of people, processes and technolo-
gies. Sykes specializes in providing technical support and
customer service through multiple communication chan-
nels encompassing phone, e-mail, web and chat through
its 17 stand-alone customer support centers in the United
States, 3 centers in Canada, 2 centers in Costa Rica, and
18 international customer support centers located in
Europe, South Africa, People’s Republic of China and

the Philippines. Client customers or employees, through
telephony support, e-mail, web or chat, contact a Sykes’
customer care agent who is specially trained in the
applicable product and/or service. The agent acts as a
transparent extension of the client in diagnosing prob-
lems and providing a solution. The Company’s extensive
network of customer support centers provide global sup-
port capabilities in over 30 languages.

Technical support and customer service provided
through the Company’s support centers are generally
billed to the client based on a per minute, per transaction
or time and material basis.
Fulfillment Services.

Fully integrated with cus-
tomer care services, the Company provides Pan-European
fulfillment solutions including multi-lingual sales order
processing via the Internet and phone, full multi-currency
financial management, inventory control and storage,
vendor management, product delivery and product
returns handling.

Business Solutions

CRM Consulting.

The Company’s Customer
Relationship Management (CRM) practice provides the
full range of capabilities required for effectively perform-
ing assessments and audits, defining CRM/eCRM strate-
gies, selecting appropriate technologies, defining training
and knowledge management methodologies and manag-
ing full implementation programs.
Enterprise Support Services.

The Company pro-
vides a wide range of enterprise support services for a
company’s internal support operations ranging from tech-
nical staffing services, managed services and consulting
services to the partial or complete co-sourcing or
in-sourcing of a company’s internal help desk. Help desk
services are provided to major companies, either at their
facilities or through Sykes’ support centers. Employees of
Sykes’ clients telephone the help desk number provided
to them by their employer for technical assistance.
Trained technicians dedicated to a specific client, answer
questions and diagnose and resolve technical problems
ranging from a simplistic error message to a wide area
network failure.

O p e r a t i o n s

Customer Support Centers.

The Company’s strat-
egy in the United States is to locate its customer support
centers in smaller communities with similar demographic
characteristics, typically near a college or university. The
Company believes these characteristics tend to provide
a well-educated, technically proficient employee
pool from which to attract qualified candidates. These
locations also tend to have lower labor and infrastruc-
ture costs than large metropolitan areas. The Company’s
strategy internationally is to locate its customer support

SYKES

centers near a major metropolitan area, or near a large
facility of a major client, if it is the first entrance into the
country. Otherwise, the Company follows the same strat-
egy used in the United States for locating international
customer support centers.

New customer support centers are established
to accommodate anticipated growth in the Company’s
business or in response to a specific customer need.
The Company currently believes there are opportunities to
establish additional customer support centers in Europe,
the Asia Pacific Rim and potentially South America.

A typical domestic customer support center is approx-
imately 42,000 square feet, has 432 workstations and
can handle in excess of 12,000 user transactions per day.
The technical and customer support centers employ cur-
rent technology in PBX switches, call tracking software,
telephone-computer integration, interactive voice
response and relational database management systems
that are integrated into centrally managed local area net-
works and wide area networks. The Company’s equip-
ment and technology enable it to serve as the transparent
extension of its clients at a low cost per transaction and
provide its clients with immediate access to the status
and results of the Company’s services. Due to its modu-
lar, open system architecture, the Company’s computer
system allows timely system updates and modifications.

The Company utilizes sophisticated workforce
management systems to provide efficient scheduling of
personnel to accommodate fluctuations in call volume.
To complement the Company’s workforce management
systems, the Company has developed a digital private
communications network that allows for effective call
volume management and disaster recovery back up.
Through the Company’s private asynchronous transfer
mode (ATM) network and dynamic intelligent call routing
capabilities, the Company can rapidly respond to
changes in client call volumes and move call volume
traffic based on agent availability and skill throughout its
network of support centers, improving the responsiveness
and productivity of its agents.

Customer support center systems capture and down-
load to permanent databases a variety of information
concerning each call for reporting on a daily basis to
clients, including number and duration of calls which
are important for billing purposes, response time and
results of the call. Summary data and complete databases
are made available to the client to enable it to monitor
the level of service provided by the Company, as well
as to determine whether end users of its products are
encountering recurring problems that require modi-
fication. The databases also provide Sykes’ clients with
considerable marketing information concerning end users,
such as whether the user is a home or business user and

regional differences in purchasing patterns or usage. The
Company maintains tape backups and offsite storage to
assure the integrity of its reporting systems and databases.
The customer support centers are protected by a fire
extinguishing system and backup generators and short-
term battery backup in the event of a power outage,
reduced voltage or a power surge. Rerouting of telephone
calls to one of the other technical support centers is also
available in the event of a telecommunications failure,
natural disaster or other emergency. Security measures
are imposed to prevent unauthorized access. Software
and related data files are backed up daily and stored off
site at multiple locations. The Company carries business
interruption insurance covering interruptions that might
occur as a result of damage to its business. In addition,
the Company believes that it has adequate arrangements
with its equipment vendors pursuant to which damaged
equipment can be replaced promptly.

CRM Consulting and Enterprise Support Services
Offices. Consultative professional personnel from
Sykes’ CRM Consulting and Enterprise Support Services
teams are assigned to one of the Company’s 6 offices,
which are located in metropolitan areas throughout the
United States. The Company’s CRM consulting practice
provides the full range of capabilities required for effec-
tively performing assessments and audits, defining
CRM/eCRM strategies, selecting appropriate technolo-
gies, defining training and knowledge management
methodologies and managing full implementation pro-
grams. In addition, the Company provides a wide range
of enterprise support services for a company’s internal
support operations ranging from training development,
knowledge management and technical staffing services,
to the partial or complete outsourcing or in-sourcing of a
company’s internal help desk. These CRM Consulting and
Enterprise Support Services offices provide a strong
recruiting platform for high-end knowledge workers and
establish a local presence to service major accounts.
Each office is responsible for staffing the consultative pro-
fessional personnel needs of clients or managing program
implementations within its geographic region. These
offices give Sykes the ability to (i) offer a broad range of
consultative professional services to existing clients, and
(ii) deliver flexible, innovative solutions to new and exist-
ing clients in each market.

Each office is staffed with one or more account execu-
tives whose goal is to become the client’s partner in eval-
uating and meeting their customer care needs. The
account executive’s primary responsibilities include:
client development; understanding and identifying
clients’ customer management needs; working closely
with recruiters to staff assignments appropriately; setting
billing rates for each assignment; and monitoring ongoing

SYKES

assignments. Each account executive is responsible for
between four and ten active corporate accounts, some of
which may involve several projects with multiple operat-
ing units of a particular company. The account executive
cultivates and maintains relationships with the executive
officers and numerous department and project managers
within the client’s organization.

The account executive has responsibility for staffing an
assignment on a timely basis. Upon receiving a new
assignment, the account executive prepares a proposal
with assignment specifications and distributes the pro-
posal to a recruiter who is familiar with the professionals
who have the expertise required for the assignment. The
account executive reviews the recruiter’s recommended
candidates, submits the resumes of qualified employees
and other available candidates to the client and sched-
ules client interviews of the candidates. Typically, an
assignment is staffed within five working days.

Fulfillment Centers.

Sykes currently has 4 ful-
fillment centers located in Europe. Sykes provides its
fulfillment services primarily to certain clients operating
in Europe who desire this complementary service in
connection with customer support services. During 2001,
Sykes announced the closure of one if its European fulfill-
ment centers.

Q u a l i t y A s s u r a n c e

Sykes trains, monitors and supervises its employees to
enhance the efficiency and the quality of its services.
Representatives of the Company’s clients conduct the
training of new customer care agents in-house at the cus-
tomer support centers through certified trainers or Sykes
actively recruits highly skilled professionals to staff spe-
cific assignment needs of its clients. Generally, employ-
ees also receive ongoing training throughout the year to
respond to changes in technology.

A support center manager supervises project leaders,
team leaders, technicians and customer support repre-
sentatives dedicated to individual client accounts. Each
team leader at the support centers monitors approxi-
mately ten customer care agents. A project leader super-
vises a particular client’s account by monitoring calls and
reviewing quality standards. Using call tracking software,
the project leader monitors the number of calls each
technician handles, the duration of each call, time
between calls, response time, number of queries resolved
after the first call and other statistics important in measur-
ing and enhancing productivity and service levels.
Remote and on-site call monitoring systems and on-line
performance tracking are used to enhance high quality
services. Clients have daily access to a variety of meas-
ures of service performance tracked by the Company’s
technology and can monitor calls directly through the
Company’s remote call monitoring systems.

The Company emphasizes a team approach in order to
provide high quality, customized solutions to meet its
clients’ customer management needs. The Company’s
account executives and recruiters who work together to
achieve a successful relationship between the client and
the Company provide the central role in this team
approach. The team shares information on active and
prospective clients, reviews the availability of the staff
and discusses general market conditions. Such forums
enable the teams to remain informed and knowledgeable
on the latest technologies and to identify business devel-
opment opportunities as they emerge.

The Company is in the process of certifying three of its
international customer support centers in accordance
with the COPC-2000(cid:2) Standard (Customer Operations
Performance Center Inc.) for technical support and help
desk services. The COPC-2000(cid:2) Standard was developed
in 1996 by representatives from American Express, Dell,
L.L. Bean, Microsoft, Motorola, Novell and other cus-
tomer-focused companies that wanted measurable stan-
dards to improve the level of service quality their
customers received from external customer service
providers. The development team used the criteria and
framework of the Malcolm Baldrige National Quality
Award as the foundation of the standard, and adapted the
Baldrige criteria to accommodate the practical realities of
the customer support industry. The Company’s commit-
ment to quality has also resulted in receiving the STAR
Award for the years 1995 through 1999 in the highest call
volume category and received a lifetime achievement
award during 2000. This award has been presented annu-
ally since 1988 by the Software Support Professionals
Association (SSPA) to the software support company that
achieves superior customer satisfaction and call metrics.

S a l e s a n d M a r k e t i n g

The Company’s marketing objective is to develop
long-term relationships with existing and potential clients
to become the preferred vendor for their customer man-
agement outsourcing services. Sykes believes that its
client base provides excellent opportunities for further
marketing and cross selling of its complimentary cus-
tomer management services. The Company markets its
services through a variety of methods, including client
referrals, personal sales calls, advertising in industry pub-
lications, attending trade shows, direct mailings to
targeted customers, telemarketing and cross selling
additional services to existing clients. The Company
currently employs 50 people in its global sales force.

As part of its marketing efforts, the Company invites
potential and existing clients to visit the customer support
centers, where the Company demonstrates its sophisti-
cated telecommunications and call tracking technology,

SYKES

quality procedures and the knowledge of its tech-
nicians. The Company also demonstrates its ability to
quickly accommodate a new client or a significant
increase in business from an existing client by empha-
sizing its systematic approach to establishing and man-
aging support centers.

The Company emphasizes account development to
strengthen its relationships with its customers. Business
development managers are generally assigned to markets
in their area of expertise in order to develop a complete
understanding of each customer’s particular needs, to
form strong customer relationships and encourage cross
selling of other services offered by the Company.

The Company’s sales force is composed of new
business development managers and client services exec-
utives that manage relationships with existing accounts.
In addition, the Company has inside customer sales rep-
resentatives who receive customer inquiries and provide
outbound lead generation for the field sales force.

C l i e n t s

The Company serves clients in the United States,
Canada, Latin America, Europe, The Philippines, Peoples
Republic of China and South Africa. The Company prima-
rily markets to Fortune 500 corporations within the
technology/consumer, communications and financial
services industries. The Company believes its globally
recognized client base presents opportunities for further
cross marketing of its services.

Total revenue includes $58.5 million, or 11.8% of
consolidated revenues, and $35.6 million, or 6.3% of
consolidated revenues exclusive of SHPS, for the years
ended December 31, 2001 and 2000, respectively, from
SBC Communications Inc. and affiliates (“SBC”), a major
provider of communications services (none in 1999). The
Company’s loss of (or the failure to retain a significant
amount of business with) SBC or any of its key clients
could have a material adverse effect on the Company.
The Company’s largest ten clients accounted for approxi-
mately 56.7% of the consolidated revenues in 2001.
Many of the Company’s contracts are cancelable by the
client at any time or on short-term notice, and clients
may unilaterally reduce their use of the Company’s serv-
ices under such contracts without penalty. Sykes pro-
vided services to hundreds of clients during 2001.

C o m p e t i t i o n

The industry in which the Company competes is
extremely competitive and highly fragmented. While
many companies provide customer management solu-
tions and services, management believes no one com-
pany is dominant. There are numerous and varied
providers of such services, including firms specializing in
various CRM consulting, support center operations, prod-
uct distribution, general management consulting firms,
major accounting firms, divisions of large hardware and
software companies and niche providers of customer
management solutions and services, many of whom com-
pete in only certain markets. The Company’s competitors
include many companies who may possess substantially
greater resources, greater name recognition and a more
established customer base than the Company.

The Company believes that the most significant com-
petitive factors in the sale of its services include quality,
reliability, scalability, security, flexibility, experience,
price and tailored service offerings. As a result of intense
competition, customer management solutions and serv-
ices frequently are subject to pricing pressure. Customers
also require vendors to be able to provide services in
multiple locations. Competition for contracts for many of
Sykes’ services takes the form of competitive bidding in
response to requests for proposals.

I n t e l l e c t u a l P r o p e r t y

The Company relies upon a combination of contract
provisions and trade secret laws to protect the proprietary
technology it uses at its technical and customer support
centers and facilities, and relies on a combination of
copyright, trademark and trade secret laws to protect its
proprietary software. The Company attempts to further
protect its trade secrets and other proprietary information
through agreements with employees and consultants. The
Company does not hold any patents and does not have
any patent applications pending. There can be no assur-
ance that the steps taken by the Company to protect its
proprietary technology will be adequate to deter misap-
propriation of its proprietary rights or third party develop-
ment of similar proprietary software. Sykes(cid:2), REAL
PEOPLE. REAL SOLUTIONS.(cid:2), and Sykes Answerteam(cid:2)
are registered service marks of the Company. Sykes holds
a number of registered trademarks, including ETSC(cid:2), FS
PRO(cid:2) and FS PRO MARKETPLACE(cid:2).

SYKES

E m p l o y e e s

As of February 14, 2002, the Company had 15,000
employees (full-time and part-time), consisting of 13,200
customer care agents at the technical and customer sup-
port centers, 320 in CRM consulting, 230 in distribution
and fulfillment services, 50 in sales and marketing and
1,200 in management, administration and finance.

The technical and service nature of the Company’s
business makes its employees an important corporate
asset. While the market for qualified personnel is
extremely competitive, the Company believes its relation-
ship with its employees is good. The Company’s employ-
ees, with the exception of about 1,300 employees in
Europe, are not represented by any labor unions.

The Company recruits its personnel through a continu-
ally updated recruiting network. This network includes a
seasoned team of technical recruiters, a Company-wide
candidate database, internet/newspaper advertising, can-
didate referral programs and job fairs. However, demand
for qualified professionals conversant with certain tech-
nologies may exceed supply, as new skills are needed to
keep pace with the requirements of customer engage-
ments. Competition for such personnel is intense and
employee turnover in this industry is high.

Fa c t o r s I n f l u e n c i n g F u t u r e R e s u l t s
a n d A c c u r a c y o f Fo r w a r d - L o o k i n g
S t a t e m e n t s

This report contains forward-looking statements
(within the meaning of the Private Securities Litigation
Reform Act of 1995) that are based on current expecta-
tions, estimates, forecasts, and projections about the
Company, management’s beliefs, and assumptions made
by management. In addition, other written or oral state-
ments, which constitute forward-looking statements, may
be made from time to time by or on behalf of Sykes.
Words such as “may,” “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” variations of
such words, and similar expressions are intended to
identify such forward-looking statements. Similarly, state-
ments that describe the Company’s future plans, objec-
tives, 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. The Company’s actual results may differ materially
from what is expressed or forecasted in such forward-
looking statements. The Company undertakes no obliga-
tion to update publicly any forward-looking statements,
whether as a result of new information, future events
or otherwise.

Factors that could cause actual results to differ materi-
ally from what is expressed or forecasted in such forward-
looking statements include, but are not limited to: the
marketplace’s continued receptivity to Sykes’ terms and
elements of services offered under Sykes’ standardized
contract for future bundled service offerings; Sykes’ abil-
ity to continue the growth of its support service revenues
through additional technical and customer support cen-
ters; Sykes’ ability to leverage its customer relationship
practice; Sykes’ ability to further penetrate into vertically
integrated markets; Sykes’ ability to expand revenues
within the global markets; Sykes’ ability to continue to
establish a competitive advantage through sophisticated
technological capabilities, and the following risk factors:

The Company Faces Uncertainties Relating to
Pending Litigation

Sykes faces uncertainties relating to the pending litiga-
tion described in “Item 3. Legal Proceedings.” Although
the Company intends to defend these actions vigorously,
it cannot predict the outcome or the impact they may
have on the Company. Sykes also cannot predict whether
any other material suits, claims, or investigations may
arise in the future based on the same or other claims.
Regardless of the outcome of any of these lawsuits or any
future actions, claims, or investigations relating to the
same or any other subject matter, the Company may
incur substantial defense costs and such actions may
cause a diversion of management time and attention.
Also, it is possible that Sykes may be required to pay sub-
stantial damages or settlement costs which could have a
material adverse effect on its financial condition and
results of operations.

Dependence on Key Clients

Sykes derives a substantial portion of its revenues from
a few key clients. Total revenue includes $58.5 million,
or 11.8% of consolidated revenues, and $35.6 million, or
6.3% of consolidated revenues exclusive of SHPS, for the
years ended December 31, 2001 and 2000, respectively,
from SBC Communications Inc. and affiliates (“SBC”), a
major provider of communications services (none in
1999). Sykes’ largest ten clients accounted for approxi-
mately 57%, 49%, and 52% of its consolidated revenues
for the years ended December 31, 2001, 2000, and
1999, respectively, exclusive of SHPS revenue. Sykes’
loss of, or the failure to retain a significant amount of
business with, SBC or any of its key clients could have a
material adverse effect on Sykes’ business, financial con-
dition and results of operations. Generally, Sykes’ con-
tracts with its clients are cancelable by the client at any
time or on short-term notice, and clients may unilaterally

SYKES

reduce their use of Sykes’ services under such contracts
without penalty. Thus, Sykes’ contracts with its clients do
not ensure that Sykes will generate a minimum level of
revenues.

• the risk that the acquired businesses will fail to main-
tain the quality of services that Sykes has historically
provided;

• the need to implement financial and other systems and

Inability to Attract and Retain Experienced
Personnel May Adversely Impact Sykes’ Business

Sykes’ business is labor intensive and places significant
importance on its ability to recruit, train, and retain qual-
ified technical and consultative professional personnel.
Sykes generally experiences high turnover of its person-
nel and is continuously required to recruit and train
replacement personnel as a result of a changing and
expanding work force. Additionally, demand for qualified
consultative professionals conversant with certain tech-
nologies is intense and may exceed supply, as new and
additional skills are required to keep pace with evolving
computer technology. Sykes’ ability to locate and train
employees is critical to Sykes achieving its growth objec-
tive. Sykes’ inability to attract and retain qualified person-
nel or an increase in wages or other costs of attracting,
training, or retaining qualified personnel could have a
material adverse effect on Sykes’ business, financial con-
dition and results of operations.

The Company Faces Potential Difficulties in
Continuing to Expand and Manage Growth

Sykes has grown rapidly. The Company cannot guaran-
tee that it will be able to continue to expand or success-
fully manage its growth. This growth has placed, and is
expected to continue to place, significant demands on
Sykes’ management. The Company also cannot guarantee
that it will achieve levels of revenue and profitability or
otherwise perform as expected.

The Company’s Strategy of Growing Through
Selective Acquisitions and Mergers Involves
Potential Risks

The Company evaluates opportunities to expand the
scope of its services through acquisitions and mergers.
The Company may be unable to identify companies that
complement its strategies, and even if it identifies a com-
pany that complements its strategies, Sykes may be
unable to acquire or merge with the company. In addi-
tion, the decrease in the price of the Company’s common
stock could hinder Sykes’ growth strategy by limiting
growth through stock acquisitions.

The Company’s acquisition strategy involves other

potential risks. These risks include:
• the inability to obtain the capital required to finance

potential acquisitions on satisfactory terms;

• the diversion of management’s attention to the integra-

tion of the businesses to be acquired;

add management resources;

• the risk that key employees of the acquired business

will leave after the acquisition;

• potential liabilities of the acquired business;
• unforeseen difficulties in the acquired operations;
• adverse short-term effects on Sykes’ operating results;
• lack of success in assimilating or integrating the opera-

tions of acquired businesses with those of Sykes;

• the dilutive effect of the issuance of additional equity

securities;

• the impairment of goodwill and other intangible assets

involved in any acquisitions;

• the businesses we acquire not proving profitable; and
• potentially incurring additional indebtedness.

Rapid Technological Change

Rapid technological advances, frequent new product
introductions and enhancements, and changes in client
requirements characterize the market for information
technology services. Sykes’ future success will depend in
large part on its ability to service new products, plat-
forms, and rapidly changing technology. These factors
will require Sykes to provide adequately trained person-
nel to address the increasingly sophisticated, complex
and evolving needs of its clients. In addition, Sykes’ abil-
ity to capitalize on its acquisitions will depend on its
ability to continually enhance software and services and
adapt such software to new hardware and operating sys-
tem requirements. Any failure by Sykes to anticipate or
respond rapidly to technological advances, new products
and enhancements, or changes in client requirements
could have a material adverse effect on Sykes’ business,
financial condition and results of operations.

Reliance on Technology and Computer Systems

Sykes has invested significantly in sophisticated and
specialized communications and computer technology
and has focused on the application of this technology to
meet its clients’ needs. Sykes anticipates that it will be
necessary to continue to invest in and develop new and
enhanced technology on a timely basis to maintain its
competitiveness. Significant capital expenditures may be
required to keep Sykes’ technology up-to-date. There can
be no assurance that any of Sykes’ information systems
will be adequate to meet its future needs or that Sykes
will be able to incorporate new technology to enhance
and develop its existing services. Moreover, investments
in technology, including future investments in upgrades
and enhancements to software, may not necessarily
maintain Sykes’ competitiveness. Sykes’ future success

SYKES

will also depend in part on its ability to anticipate and
develop information technology solutions that keep
pace with evolving industry standards and changing
client demands.

Dependence on Trend Toward Outsourcing

Sykes’ business and growth depend in large part on the
industry trend toward outsourcing customer manage-
ment. Outsourcing means that an entity contracts with a
third party, such as Sykes, to provide support services
rather than perform such services in house. There can be
no assurance that this trend will continue, as organiza-
tions may elect to perform such services themselves. A
significant change in this trend could have a material
adverse effect on Sykes’ business, financial condition and
results of operations. Additionally, there can be no assur-
ance that Sykes’ cross-selling efforts will cause its clients
to purchase additional services from Sykes or adopt a
single-source outsourcing approach.

Risk of Emergency Interruption of Customer Support
Center Operations

Sykes’ operations are dependent upon its ability to
protect its customer support centers and its information
databases against damage that may be caused by fire and
other disasters, power failure, telecommunications fail-
ures, unauthorized intrusion, computer viruses and other
emergencies. The temporary or permanent loss of such
systems could have a material adverse effect on Sykes’
business, financial condition and results of operations.
Notwithstanding precautions taken by the Company to
protect itself and its clients from events that could inter-
rupt delivery of its services, there can be no assurance
that a fire, natural disaster, human error, equipment mal-
function or inadequacy, or other event would not result
in a prolonged interruption in Sykes’ ability to provide
support services to its clients. Such an event could have a
material adverse effect on Sykes’ business, financial con-
dition and results of operations.

Risks Associated with International Operations
and Expansion

The Company intends to continue to pursue growth
opportunities in markets outside the United States. At
December 31, 2001, Sykes’ international operations
were conducted from 18 customer support centers
located in Sweden, The Netherlands, France, Germany,
South Africa, Scotland, Ireland, Hungary, Turkey, Peoples
Republic of China, and The Philippines. Revenues from
these operations for the years ended December 31, 2001,
2000, and 1999, were 37%, 38%, and 36%, of consoli-
dated revenues, respectively, exclusive of revenue from
SHPS which was sold in June 2000. The Company also

conducts business in Canada and Costa Rica. Inter-
national operations are subject to certain risks common
to international activities, such as changes in foreign gov-
ernmental regulations, tariffs and taxes, import/export
license requirements, the imposition of trade barriers,
difficulties in staffing and managing foreign operations,
political uncertainties, longer payment cycles, foreign
exchange restrictions that could limit the repatriation of
earnings, possible greater difficulties in accounts receiv-
able collection, potentially adverse tax consequences,
and economic instability.

Sykes conducts business in various foreign currencies
and is therefore exposed to market risk from changes in
foreign currency exchange rates and interest rates, which
could impact its results of operations and financial condi-
tion. Sykes is also subject to certain exposures arising
from the translation and consolidation of the financial
results of its foreign subsidiaries. Sykes has, from time to
time, taken limited actions to attempt to mitigate Sykes’
foreign transaction exposure. However, there can be no
assurance that the Company will take any actions to mit-
igate such exposure in the future, and if taken that such
actions taken will be successful or that future changes in
currency exchange rates will not have a material impact
on Sykes’ future operating results. A significant change in
the value of the dollar against the currency of one or
more countries where Sykes operates may have a mate-
rial adverse effect on Sykes’ results. Sykes has historically
not entered into hedge contracts for either its translation
risk or its economic risk.

The Company’s Fundamental Shift Towards
Offshore Markets

The Company intends to continue to expand and
pursue growth opportunities in offshore markets. The
Company’s offshore locations include Costa Rica and the
Philippines, and while Sykes has operated there for five
years, there can be no assurance that the Company will
be able to successfully conduct and expand such opera-
tions, and a failure to do so would have a material adverse
effect on Sykes’ business, financial condition, and results
of operations. While it has been the industry trend to
move towards offshore markets, such movement could
result in excess capacity in the United States. The success
of the Company’s offshore operations will be subject to
numerous contingencies, some of which are beyond man-
agement’s control, including general and regional eco-
nomic conditions, prices for the Company’s services,
competition, changes in regulation and other risks. In addi-
tion, as with all of the Company’s operations outside of the
United States, the Company is subject to various additional
political, economic, and market uncertainties. (See “Risks
Associated with International Operations and Expansion.”)

SYKES

Control by Principal Shareholder and
Anti-Takeover Considerations

As of the date of this report, John H. Sykes, Sykes’
Chairman of the Board, President and Chief Executive
Officer, beneficially owned more than 38% of Sykes’
outstanding common stock. As a result, Mr. Sykes
will have substantial influence in the election of the
Company’s directors and in determining the outcome of
other matters requiring shareholder approval.

Sykes’ Board of Directors is divided into three classes
serving staggered three-year terms. The staggered Board
of Directors and the anti-takeover effects of certain provi-
sions contained in the Florida Business Corporation Act
and in Sykes’ Articles of Incorporation and Bylaws,
including the ability of the Board of Directors of Sykes to
issue shares of preferred stock and to fix the rights and
preferences of those shares without shareholder approval,
may have the effect of delaying, deferring or preventing
an unsolicited change in the control of Sykes. This may
adversely affect the market price of Sykes’ common stock
or the ability of shareholders to participate in a transac-
tion in which they might otherwise receive a premium for
their shares.

Volatility of Stock Price May Result in Loss
of Investment

The trading price of Sykes’ common stock has been
and may continue to be subject to wide fluctuations over
short and long periods of time. Sykes believes that market
prices of information technology stocks in general have
experienced volatility, which could affect the market
price of Sykes’ common stock regardless of Sykes’ finan-
cial results or performance. Sykes further believes that
various factors such as general economic conditions,
changes or volatility in the financial markets, changing
market conditions in the information technology industry,
quarterly variations in Sykes’ financial results, the
announcement of acquisitions, strategic partnerships, or
new product offerings, and changes in financial estimates
and recommendations by securities analysts could cause
the market price of Sykes’ common stock to fluctuate
substantially in the future.

Existence of Substantial Competition

The markets for Sykes’ services are highly competitive,
subject to rapid change, and highly fragmented. While
many companies provide information technology serv-
ices, Sykes believes no one company is dominant. There
are numerous and varied providers of such services,
including firms specializing in call center operations,
temporary staffing and personnel placement companies,
general management consulting firms, divisions of large
hardware and software companies and niche providers of
information technology services, many of whom compete
in only certain markets. Sykes’ competitors include many
companies who may possess substantially greater
resources, greater name recognition and a more estab-
lished customer base than it does. In addition to Sykes’
competitors, many companies who might utilize the serv-
ices of Sykes or one of its competitors may utilize in-
house personnel to perform such services. Increased
competition, the failure of Sykes to compete successfully,
pricing pressures, loss of market share and loss of clients
could have a material adverse effect on Sykes’ business,
financial condition, and results of operations.

Many of Sykes’ large clients purchase customer man-
agement solutions and services primarily from a limited
number of preferred vendors. Sykes has experienced and
continues to anticipate significant pricing pressure from
these clients in order to remain a preferred vendor. These
companies also require vendors to be able to provide
services in multiple locations. Although Sykes believes it
can effectively meet its clients’ demands, there can be
no assurance that it will be able to compete effectively
with other information technology services companies.
Sykes believes that the most significant competitive
factors in the sale of its services include quality, reliabil-
ity, scalability, flexibility, experience, price and tailored
service offerings.

Dependence on Senior Management

The success of Sykes is largely dependent upon the
efforts, direction and guidance of its senior management.
Sykes’ continued growth and success also depend in part
on its ability to attract and retain skilled employees and
managers and on the ability of its executive officers and
key employees to manage its operations successfully.
Sykes has entered into employment and non-competition
agreements with its executive officers. The loss of any
of Sykes’ senior management or key personnel, or its
inability to attract, retain or replace key management
personnel in the future, could have a material adverse
effect on Sykes’ business, financial condition and results
of operation.

SYKES

E x e c u t i v e O f f i c e r s o f t h e R e g i s t r a n t

The following table provides the names and ages of the Company’s executive officers, and the positions and offices

with the Company currently held by each of them:

Name

Age

Principal Position

John H. Sykes
W. Michael Kipphut
Charles E. Sykes
Harry A. Jackson, Jr.
Gerry L. Rogers
Jenna R. Nelson

James T. Holder
William N. Rocktoff

65
48
39
49
56
38

43
39

Chairman and Chief Executive Officer
Group Executive, Senior Vice President—Finance
General Manager, Senior Vice President—Americas
General Manager, Senior Vice President—EMEA
Group Executive, Senior Vice President—Chief Information Officer
Group Executive, Senior Vice President—Human Resources
and Administration
General Counsel and Corporate Secretary
Vice President and Controller

John H. Sykes has held the titles and responsibilities of
Chairman and Chief Executive Officer of the Company
since December 1998. He has been President of the
Company from inception in 1977 until December 1998.
Previously, Mr. Sykes was Senior Vice President of CDI
Corporation, a publicly held technical services firm.

W. Michael Kipphut, a CPA, joined the Company in
March 2000 as Vice President and Chief Financial Officer
and was named Group Executive, Senior Vice President—
Finance in June 2001. From September 1998 to February
2000, Mr. Kipphut held the position of Vice President and
Chief Financial Officer for USA Floral Products, Inc., a
publicly held worldwide perishable products distributor.
From September 1994 until September 1998, Mr. Kipphut
held the position of Vice President and Treasurer for
Spalding & Evenflo Companies, Inc., a global manufac-
turer of consumer products. Previously, Mr. Kipphut held
various financial positions including Vice President and
Treasurer in his 17 years at Tyler Corporation, a publicly
held diversified holding company.

Charles E. Sykes joined the Company in 1986 and was
named General Manager, Senior Vice President—Americas
in June 2001. Prior to that, he held the position of Senior
Vice President, Marketing since March 2000. In December
1996, Mr. Sykes was appointed Vice President Sales and
held the position of Regional Manager of the Midwest
Region for Professional Services from 1992 until 1996. Mr.
Charles E. Sykes is the son of Mr. John H. Sykes.

Harry A. Jackson, Jr. joined the Company in 1997 and
was named General Manager, Senior Vice President—
EMEA in June 2001. Before relocating to Europe in 1998 to
assume responsibility for the EMEA operations group as
Group Vice President of Operations, Mr. Jackson served as
a Client services Director in the U.S. Prior to joining the
Company in 1997, Mr. Jackson held various positions with
MCI, Synergetics and Brooks International.

Gerry L. Rogers joined the Company in February 1999
as Group Vice President, North America and was named
Group Executive, Senior Vice President and Chief Infor-
mation Officer during July 2000. From March 2000 until
July 2000, Mr. Rogers held the position of Senior Vice
President—The Americas. From 1968 to 1999, Mr. Rogers
held various management positions with AT&T, a publicly
held telecommunications firm, most recently as General
Manager for the Business Growth Markets.

Jenna R. Nelson joined the Company in August 1993
and was named Group Executive, Senior Vice President—
Human Resources and Administration in July 2001. From
January 2001 until July 2001, Ms. Nelson held the position
of Group Executive and Vice President, Human Resources.
In August 1998, Ms. Nelson was appointed Vice President,
Human Resources and held the position of Director,
Human Resources and Administration from August 1996 to
July 1998. From August 1993 until July 1996, Ms. Nelson
served in various management positions within the
Company, including Director of Administration.

James T. Holder joined the Company in December 2000
as General Counsel and was named Corporate Secretary in
January 2001. From November 1999 until November
2000, Mr. Holder served in a consulting capacity as
Special Counsel to Checkers Drive-In Restaurants, Inc., a
publicly held restaurant operator and franchisor. From
November 1993 until November 1999, Mr. Holder served
in various capacities at Checkers including Corporate
Secretary, Chief Financial Officer and Senior Vice President
and General Counsel.

William N. Rocktoff joined the Company in August
1997 as Corporate Controller and was named Treasurer
and Corporate Controller in December 1999 and Vice
President and Controller in March 2002. From November
1989 to August 1997, Mr. Rocktoff held various financial
positions, including Corporate Controller, at Kimmins
Corporation, a publicly held contracting company.

SYKES

Item 2. Properties

The Company’s principal executive offices are located in Tampa, Florida. This facility currently serves as the headquar-
ters for senior management, the financial and administrative departments and the Tampa office. The following table sets
forth additional information concerning the Company’s facilities:

Properties

General Usage

UNITED STATES LOCATIONS
Tampa, Florida
Tampa, Florida

Corporate headquarters
Office

Ada, Oklahoma
Bismarck, North Dakota
Marianna, Florida
Palatka, Florida
Wise, Virginia
Greeley, Colorado
Hays, Kansas
Klamath Falls, Oregon
Manhattan, Kansas
Milton-Freewater, Oregon
Morganfield, Kentucky
Perry County, Kentucky
Minot, North Dakota
Pikesville, Kentucky
Ponca City, Oklahoma
Scottsbluff, Nebraska
Sterling, Colorado
Eveleth, Minnesota

Customer support center
Customer support centers (2)
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center

Square
Feet

18,000
56,900

42,000
84,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
42,000
34,000
42,000

Lease Expiration

December 2002
June 2002

Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned
Company owned

Nashville, Tennessee

Distribution center

91,200

October 2002

Atlanta, Georgia
Cary, North Carolina
Charlotte, North Carolina
Charlotte, North Carolina
Dallas, Texas
Poughkeepsie, New York
St. Louis, Missouri

Office
Office
Office
Office
Office
Office
Office

4,900
3,700
4,400
37,800
3,000
1,000
5,700

June 2003
March 2003
May 2003
October 2003
June 2003
January 2003
September 2004

SYKES

Properties

General Usage

INTERNATIONAL LOCATIONS
Amsterdam, The Netherlands
London, Ontario, Canada

Customer support center/Headquarters
Customer support center/Headquarters

Budapest, Hungary
Edinburgh, Scotland
Heredia, Costa Rica
Toronto, Ontario, Canada
Toronto, Ontario, Canada
Moncton, New Brunswick
North Bay, Ontario, Canada
Turku, Finland
Les Ulis, France
Bochum, Germany
Hannover, Germany
Pasewalk, Germany
Wilhelmshaven, Germany
Manila, the Philippines
Manila, the Philippines

Sunninghill, South Africa
Ed, Sweden
Sveg, Sweden
Istanbul, Turkey
Shanghai, PRC
Florence, Italy
Shannon, Ireland

Customer support center
Customer support center/Office
Customer support centers (2)/Office
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support centers (2)
Customer support center
Customer support center

Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center
Customer support center and

Distribution center

Square
Feet

70,500
45,000

15,700
36,000
58,000
14,600
1,912
8,200
5,371
12,510
36,200
37,780
12,500
46,070
36,800
22,747
38,983

24,090
44,000
34,960
20,700
41,900
32,300
66,000

Lease Expiration

July 2004
Company owned

June 2002
September 2019
December 2006
December 2006
August 2002
December 2006
March 2004
February 2005
January 2007
July 2004
November 2008
March 2007
March 2003
January 2005
September 2002/
March 2005
June 2002
November 2002
June 2002
June 2002
May 2002
September 2002
April 2013

Aachen, Germany
Sevran, France
Galashiels, Scotland
Upplands Vasby, Sweden

Distribution center
Distribution center
Distribution center
Distribution center and Sales office

49,400
19,400
126,700
23,498

September 2002
August 2002
Company owned
October 2004

Vancouver, British Columbia

Sales office

400

June 2002

Esslingen, Germany

Office

9,200

December 2005

SYKES

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote

of Security Holders

No matter was submitted to a vote of security holders
during the fourth quarter of the year covered by
this report.

P A R T I I

Item 5. Market for the Registrant’s

Common Equity and Related
Shareholder Matters

Sykes’ common stock is quoted on the Nasdaq
National Market under the symbol SYKE. The following
table sets forth, for the periods indicated, certain
information as to the high and low sale prices per share
of Sykes’ common stock as quoted on the Nasdaq
National Market.

High

Low

Year ended December 31, 2001:

First Quarter........................................
Second Quarter ...................................
Third Quarter ......................................
Fourth Quarter ....................................

Year ended December 31, 2000:

First Quarter.........................................
Second Quarter....................................
Third Quarter .......................................
Fourth Quarter .....................................

$ 5.94
11.10
13.47
12.00

$52.25
23.25
16.00
7.00

$ 4.31
4.75
5.24
5.58

$13.38
12.25
4.38
3.31

Holders of Sykes’ common stock are entitled to receive
dividends out of the funds legally available when and if
declared by the Board of Directors. Sykes has not
declared or paid any cash dividends on its common stock
in the past. Sykes currently anticipates that all of its earn-
ings will be retained for development and expansion of
the Company’s business and does not anticipate paying
any cash dividends in the foreseeable future. In addition,
the Company’s credit facilities contain substantial restric-
tions on the payment of cash dividends.

As of March 5, 2002, there were approximately 2,150
holders of record of the common stock. The Company
believes that there were approximately 11,000 beneficial
owners of its common stock.

A . C l a s s A c t i o n L i t i g a t i o n

A consolidated class action lawsuit against the
Company is pending in the United States District Court
for the Middle District of Florida. The plaintiffs purport to
assert claims on behalf of a class of purchasers of Sykes’
common stock during the period from July 27, 1998
through September 18, 2000. The consolidated action
claims violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promul-
gated thereunder. Among other things, the consolidated
action alleges that during 2000, 1999, and 1998, the
Company and certain of its officers made materially false
statements concerning the Company’s financial condition
and its future prospects. The consolidated complaint also
claims that certain of the Company’s quarterly financial
statements during 1999 and 1998 were not prepared in
accordance with generally accepted accounting princi-
ples. The consolidated action seeks compensatory and
other damages, and costs and expenses associated with
the litigation. Although the Company denies the plaintiff’s
allegations and intends to defend the actions vigorously,
it cannot predict the outcome or the impact this action
may have on the Company. The outcome of this lawsuit
or any future lawsuits, claims, or investigations relating to
the same subject matter may have a material adverse
impact on the Company’s financial condition and results
of operations.

During the third quarter of 2001, the Company suc-
cessfully settled the lawsuit filed by Kyrus Corporation
that asserted functionality issues associated with software
that Kyrus had licensed from the Company in 1998. In
settlement of the lawsuit, the Company returned 1.0 mil-
lion shares of Kyrus convertible preferred stock valued
at $5.5 million, originally received in exchange for the
license. Upon return of the stock, the Company received
a $5.0 million cash payment from its insurance carrier.
The remaining $0.5 million investment in the Kyrus pre-
ferred stock was written off against previously established
reserves, and accordingly, there was no impact from this
settlement on the results of operations for the year ended
December 31, 2001.

B . O t h e r L i t i g a t i o n

The Company from time to time is involved in legal
actions arising in the ordinary course of business. With
respect to these matters, management believes that it has
adequate legal defenses and/or provided adequate accru-
als for related costs such that the ultimate outcome will
not have a material adverse effect on the Company’s
future financial position or results of operations.

SYKES

Item 6. Selected Financial Data

S e l e c t e d F i n a n c i a l D a t a

The following selected financial data has been derived from the Company’s consolidated financial statements. The
information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” and the Company’s Consolidated Financial Statements and related notes.

(In thousands, except per share data)

INCOME STATEMENT DATA:
Revenues ..................................................................
Income (loss) from operations(2,3,5,6,8)..........................
Net income(2 3,4,5,6,7,8,9) ................................................
Net income per basic share(2,3,4,5,6,7,8,9) ........................
Net income per diluted share(2,3,4,5,6,7,8,9) .....................
PRO FORMA INFORMATION ASSUMING
ACCOUNTING CHANGE IS APPLIED
RETROACTIVELY (1):
Revenues ..................................................................
Income (loss) from operations(2,3,5,6,8)..........................
Net income(2 3,4,5,6,7,8,9) ................................................
Net income per basic share(2,3,4,5,6,7,8,9) ........................
Net income per diluted share(2,3,4,5,6,7,8,9) .....................
BALANCE SHEET DATA:
Working capital ........................................................
Total assets ...............................................................
Long-term debt, less current installments..................
Shareholders’ equity .................................................

2001

$496,722
135
409
0.01
0.01

$ 96,547
309,780
—
191,212

Years Ended December 31,
1999

1998

2000

1997

$603,606
(12,308)
46,787
1.13
1.13

$572,742
37,037
20,534
0.49
0.48

$460,102
31,414
1,656
0.04
0.04

$351,593
24,392
7,631
0.19
0.18

$603,606
(12,308)
47,706
1.15
1.15

$571,243
35,538
19,615
0.47
0.46

$460,102
31,414
1,656
0.04
0.04

$351,593
24,392
7,631
0.19
0.18

$ 92,964
357,954
8,759
195,892

$ 93,075
420,732
80,053
193,233

$ 84,632
362,270
75,448
158,316

$116,661
268,197
35,990
152,560

(1) Effective January 1, 2000, the Company changed its policy regarding the recognition of revenue based on criteria established by Staff

Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”).

(2) The amounts for 2001 are inclusive of $14.6 million of restructuring and other charges and $1.5 million of charges associated with

the impairment of long-lived assets.

(3) The amounts for 2000 are inclusive of $7.8 million of compensation expense related to payments made to certain SHPS,
Incorporated (“SHPS”) option holders as part of the Company’s sale of a 93.5% ownership interest in SHPS that occurred on June 30,
2000 and $30.5 million of restructuring and other charges.

(4) The amounts for 2000 are inclusive of an $84.0 million gain from the sale of a 93.5% ownership interest in SHPS that occurred on
June 30, 2000 and a gain of $0.7 million related to the sale of a small Canadian operation that sold roadside assistance memberships
for which the Company provides customer support and $38.3 million of one-time items as identified in note (3) above.

(5) The amounts for 1999 are inclusive of $6.0 million of charges associated with the impairment of long-lived assets.
(6) The amounts for 1998 are inclusive of $0.5 million of expense associated with accrued severance costs, $1.4 million of one-time
merger and related charges associated with acquisitions and $14.5 million of acquisition related in-process research and
development costs.

(7) The amounts for 1998 are inclusive of $3.9 million of acquisition related in-process research and development costs incurred by a
joint venture entity, $7.3 million of charges associated with the write-down of marketable securities and $16.4 million of one-time
charges as identified in note (6) above.

(8) The amounts for 1997 are inclusive of $12.2 million of charges associated with the impairment of long-lived assets and one-time

merger and related charges associated with an acquisition.

(9) The amounts for 1997 are inclusive of $2.8 million of expense associated with acquisition related in-process research and develop-
ment costs incurred by a joint venture entity, $1.2 million of one-time merger and related charges associated with an acquisition and
$12.2 million of one-time charges as identified in note (8) above.

SYKES

Item 7. Management’s Discussion and

Analysis of Financial Condition
and Results of Operations

The following should be read in conjunction with the
Consolidated Financial Statements and the notes thereto
that appear elsewhere in this document. The following
discussion and analysis compares the year ended
December 31, 2001 (“2001”) to the year ended
December 31, 2000 (“2000”), and 2000 to the year
ended December 31, 1999 (“1999”).

The following discussion and analysis and other sec-
tions of this document contain forward-looking state-
ments that involve risks and uncertainties. Words such as
“may,” “expects,” “projects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” variations of
such words, and similar expressions are intended to iden-
tify such forward-looking statements. Similarly, state-
ments that describe the Company’s future plans,
objectives, or goals also are forward-looking statements.
Future events and the Company’s actual results could dif-
fer materially from the results reflected in these forward-
looking statements, as a result of certain of the factors set
forth below and elsewhere in this analysis and in this
Form 10-K for the year ended December 31, 2001 in
Item 1 in the section entitled “Factors Influencing Future
Results and Accuracy of Forward-Looking Statements.”

O v e r v i e w

The Company derives its revenue from providing out-
sourced customer management solutions and services
through two business segments—Business Services and
Business Solutions.

Business Services provides customer support outsourc-
ing with emphasis on technical support and customer
service, delivered through multiple communication chan-
nels encompassing phone, e-mail, web and chat.
Revenue from technical support and customer service,
provided through the Company’s support centers, is rec-
ognized as services are rendered. These services are
billed on an amount per e-mail, a fee per call, a rate per
minute or on a time and material basis. Revenue from
fulfillment services is generally billed on a per unit basis.
Business Solutions provides consultative professional
services and technical staffing in customer relationship
management (CRM) with a focus on business strategy,

project management, business process redesign, change
management, knowledge management, education, train-
ing and web development. Revenues from Business
Solutions usually are billed on a time and material basis,
generally by the hour, and revenues generally are recog-
nized as the services are provided. Revenues from fixed
price contracts, generally with terms of less than one
year, are recognized using the percentage-of-completion
method. A significant majority of the Company’s revenue
is derived from non-fixed price contracts. The Company
has not experienced material losses due to fixed price
contracts and does not anticipate a significant increase in
revenue derived from such contracts in the future.

Direct salaries and related costs include direct person-
nel compensation, statutory and other benefits associated
with such personnel and other direct costs associated
with providing services to customers. General and
administrative expenses include administrative, sales and
marketing, occupancy, depreciation and amortization,
and other costs.

Other income (expense) consists primarily of interest
expense, net of interest income, the gain on sale of SHPS
in 2000 and foreign currency transaction gains and
losses. Foreign currency transaction gains and losses gen-
erally result from exchange rate fluctuations on intercom-
pany transactions.

Recognition of income associated with grants from
local or state governments of land and the acquisition of
property, buildings and equipment is deferred and recog-
nized as a reduction of depreciation expense included
within general and administrative costs over the corre-
sponding useful lives of the related assets. Amounts
received in excess of the cost of the building are allo-
cated to equipment and, only after the grants are released
from escrow, recognized as a reduction of depreciation
expense over the weighted average useful life of the
related equipment, which approximates five years.
Deferred property and equipment grants, net of amortiza-
tion, totaled $39.5 million and $31.8 million at
December 31, 2001 and 2000, respectively.

The Company’s effective tax rate for the periods
presented reflects the effects of foreign taxes, net of for-
eign income not taxed in the United States, non-
deductible expenses for income tax purposes and a tax
basis difference on the sale of an equity interest in SHPS
during 2000.

SYKES

R e s u l t s o f O p e r a t i o n s

2 0 0 1 C o m p a r e d t o 2 0 0 0

The following table sets forth for the periods indicated
the percentage of revenues represented by certain items
reflected in the Company’s statements of operations:

Years Ended December 31,
1999
2000
2001

100.0% 100.0% 100.0%

63.4
33.3

63.3
32.4

64.6
27.9

—

2.9

0.3

0.1
—

1.3

5.0

—

1.0

(2.0)
13.4

6.5
(0.6)

PERCENTAGES
OF REVENUES:
Revenues................................
Direct salaries and

related costs .......................
General and administrative.....
Compensation expense

associated with
exercise of options .............

Restructuring and

other charges......................

Impairment of

long-lived assets .................

Income (loss) from

operations ..........................
Other income (expense)(1).......

Income before provision

(benefit) for income taxes
and cumulative effect of
change in accounting
principle.............................

Provision (benefit) for

0.1

11.4

income taxes ......................

—

3.5

Income before cumulative

effect of change in
accounting principle ..........

Cumulative effect of change

0.1

7.9

in accounting principle ......

—

(0.2)

5.9

2.4

3.5

—

Net income ....................

0.1%

7.7%

3.5%

(1) Includes gain on sale of a 93.5% ownership interest in SHPS of 13.9%

in 2000.

Revenues

For 2001, the Company recorded consolidated rev-
enues of $496.7 million, a decrease of $106.9 million or
17.7%, from $603.6 million of consolidated revenues for
the comparable period during 2000. Exclusive of SHPS,
in which 93.5% of the Company’s ownership interest was
sold on June 30, 2000, and exclusive of U.S. fulfillment
and the Company’s localization operations, from which
the Company exited in connection with the fourth quar-
ter 2000 restructuring, revenues decreased $39.3 million
or 7.3% for 2001 to $496.0 million, from $535.3 million
for the comparable period during 2000. This decrease in
revenue was the result of a $31.8 million or 6.5%
decrease in Business Services’ revenues, exclusive of
SHPS and U.S. fulfillment operations, and a decrease of
$7.5 million or 17.0% from Business Solutions’ revenues,
exclusive of the Company’s localization operations.

The decrease in Business Services’ revenues for 2001
was primarily attributable to continued delays in new
sales due to cautious spending decisions and reductions
in clients and client volumes as a result of the economic
slowdown and the Company’s decision to unwind certain
relationships with high-risk dot.com companies. The
Company’s revenues were also affected by continued
declines in European fulfillment revenues due to lower
overall demand and cutbacks from clients that are chal-
lenged by the current economic and market environment
and a $3.5 million one-time licensing fee recorded dur-
ing the comparable period in 2000.

The decrease in Business Solutions’ revenues for 2001
was primarily due to competitive pricing pressures and a
decline in the demand for consultative professional serv-
ices, including technical staffing, from clients who have
been affected by the economic slowdown and have
reacted by delaying technical projects.

SYKES

Direct Salaries and Related Costs

Restructuring and Other Charges

Direct salaries and related costs decreased $67.1 mil-
lion or 17.6% to $315.1 million for 2001, from $382.2
million in 2000. As a percentage of revenues (excluding
the $3.5 million one-time licensing fee in 2000), direct
salaries and related costs decreased slightly to 63.4% in
2001 from 63.7% for the comparable period in 2000.
The decrease in direct salaries and related costs was pri-
marily attributable to a $49.5 million decrease in direct
salaries and related costs associated with SHPS, U.S. ful-
fillment and the Company’s localization operations and
an $8.5 million decrease in direct material costs asso-
ciated primarily with the European fulfillment services.
As a percentage of revenues (excluding the $3.5 million
one-time licensing fee in 2000), direct salaries and related
costs, exclusive of SHPS, U.S. fulfillment and the
Company’s localization operations, increased to 63.5%
in 2001 from 62.5% for the comparable period in 2000.

General and Administrative

General and administrative expenses decreased $30.0
million or 15.4% to $165.4 million for 2001, from
$195.4 million in 2000. As a percentage of revenues
(excluding the $3.5 million one-time licensing fee in
2000), general and administrative expenses increased to
33.3% in 2001 from 32.6% for the comparable period
in 2000. The decrease in the dollar amount of general
and administrative expenses was primarily attributable
to a $28.2 million decrease in general and administrative
expenses associated with SHPS, U.S. fulfillment and
the Company’s localization operations, a $2.6 million
decrease in telephone expense and a $4.7 million decrease
in bad debt expense offset by a $3.9 million increase in
depreciation and amortization associated with facility
and capital equipment expenditures incurred in connec-
tion with both technology infrastructure and the expan-
sion of the Company’s technical and customer support
centers. As a percentage of revenues (excluding the
$3.5 million one-time licensing fee in 2000), general
and administrative expenses, exclusive of SHPS, U.S.
fulfillment and the Company’s localization operations,
increased to 33.3% in 2001 from 32.8% for the compa-
rable period in 2000.

Compensation Expense

Compensation expense associated with the exercise of
options was zero and $7.8 million for 2001 and 2000,
respectively. The charge in 2000 related to payments
made to certain SHPS’ option holders as part of the
Company’s sale of a 93.5% ownership interest in SHPS
that occurred on June 30, 2000.

The Company recorded restructuring and other charges
of $14.6 million and $30.5 million during 2001 and
2000, respectively. The 2001 charges included (1) the clo-
sure and consolidation of two U.S. Business Services
customer support centers; (2) the closure of two U.S.
Business Solutions offices; (3) the closure of one European
fulfillment center; (4) elimination of redundant property,
leasehold improvements and equipment; (5) lease termi-
nation costs associated with vacated properties and equip-
ment; and (6) severance and related costs. The 2000
charges included (1) the consolidation of certain of the
Company’s fulfillment operations and its Tampa, Florida
technical support center and the elimination of the
worldwide translation and localization business; (2) the
consolidation of certain of the Company’s professional
services locations; (3) elimination of redundant property,
leasehold improvements and equipment; (4) lease termi-
nation costs associated with vacated properties and trans-
portation equipment; and (5) severance and related costs.

Impairment of Long-Lived Assets

The Company recorded an impairment charge of
$1.5 million during 2001 related to the write-off of
certain non-performing assets, including software and
equipment no longer used by the Company.

Other Income and Expense

Other income was $0.1 million during 2001 com-
pared to other expense of $2.8 million during 2000,
exclusive of the gain on the sale of SHPS of $84.0 mil-
lion. This decrease was attributable to a decrease of $3.4
million in interest expense associated with a decrease in
the Company’s average outstanding debt position. The
Company’s average outstanding debt balance for 2001
was $1.4 million compared to $54.4 million for 2000.
The decrease in the average debt balance is principally
due to the repayment of debt from net cash flows pro-
vided by operating activities and the proceeds generated
from the sale of SHPS.

On June 30, 2000, the Company sold 93.5% of its own-
ership interest in SHPS for $165.5 million cash. The sale of
SHPS resulted in a gain for financial accounting purposes
of $84.0 million ($59.9 million net of taxes) in 2000.

Income Taxes

The benefit for income taxes was $0.2 million for 2001,
compared to a provision for income taxes of $21.2 mil-
lion for 2000. The decrease of $21.4 million in the provi-
sion (benefit) for income taxes was primarily attributable
to the decrease in income for 2001 (as the comparable

SYKES

period in 2000 included the gain on sale of SHPS), shifts
in the Company’s mix of earnings within tax jurisdictions
and the tax benefit associated with the disposition of a for-
eign subsidiary initiated during the third quarter of 2001.
The provision (benefit) for income taxes differs from the
expected provision (benefit) for income taxes, when
applying the statutory federal income tax rate, primarily
due to the beneficial effects of the disposition of a foreign
subsidiary, the effects of foreign, state and local income
taxes, foreign income not subject to federal and state
income taxes, valuations on net operating loss carryfor-
wards and foreign asset basis step up, non-deductible
intangibles and other permanent differences.

Net Income

As a result of the foregoing, inclusive of restructuring,
other and impairment charges identified above, net
income decreased to $0.4 million in 2001 from $46.8 mil-
lion in 2000. Exclusive of $14.6 million in restructuring
and other charges and $1.5 million in impairment charges,
net income for 2001 would have been $11.3 million.

2 0 0 0 C o m p a r e d t o 1 9 9 9

Revenues

For 2000, the Company recorded consolidated rev-
enues of $603.6 million, an increase of $30.9 million or
5.4%, from the $572.7 million of consolidated revenues
for the comparable period during 1999. Exclusive of
SHPS (in which 93.5% of the Company’s ownership
interest was sold on June 30, 2000), revenues increased
$68.2 million or 13.6% to $567.9 million for 2000 from
$499.7 million for the comparable period during 1999.
This growth in revenue was the result of a $29.0 million
or 5.5% increase in Business Services’ revenues ($66.3 mil-
lion or 14.8% exclusive of SHPS) and an increase of
$1.9 million or 3.8% from Business Solutions’ revenues.
The increase in Business Services’ revenues for 2000
was primarily attributable to an increase in the number
of technical and customer support centers providing
services throughout the period, and the resulting increase
in e-mail requests and telephony call volumes from
clients, the licensing of the Company’s diagnostic soft-
ware, partially offset by a decrease from distribution and
fulfillment services revenues. The new support centers
were required as a result of continued organic growth
of technical and customer support services from
both e-commerce and telephony support services. The
Company had an additional four domestic and two inter-
national technical and customer support centers fully

operational in 2000 and significantly expanded an addi-
tional four international centers. During 2000, the
Company recognized $8.0 million of revenue associ-
ated with the licensing of the Company’s diagnostic
software, of which $3.5 million related to a one-year
AnswerTeam(cid:3) licensing agreement and $3.6 million
related to the pro rata recognition of revenue associated
with a multi-year AnswerTeam(cid:3) licensing agreement
completed during 1999. The decrease in distribution and
fulfillment services revenues for 2000 was primarily attrib-
utable to the closing of three international and two
domestic distribution and fulfillment centers as part of the
Company’s restructuring plans and a client’s decision to
discontinue its operations within North America.

The increase in Business Solutions’ revenues was attrib-
utable to a focus on professional e-commerce services,
including web design, development and program man-
agement and an increase in the average bill rate charged
for consulting services. The increase in Business Solutions’
revenues for 2000 is partially offset by a $0.7 million
decline in worldwide translation and localization services
and a $1.9 million reduction in revenues associated with
the sale of the Company’s Manufacturing and Distribution
operations during the second quarter of 1999.

Direct Salaries and Related Costs

Direct salaries and related costs increased $12.3 mil-
lion or 3.3% to $382.2 million for 2000, from $369.9 mil-
lion in 1999. As a percentage of revenues, direct salaries
and related costs decreased to 63.3% in 2000 from
64.6% for the comparable period in 1999. The increase
in the dollar amount was primarily attributable to a
$43.4 million increase in salaries and benefits to support
revenue growth and associated training costs, partially
offset by a $27.3 million decrease in direct material costs
associated with distribution and fulfillment services.
Exclusive of SHPS, direct salaries and all related costs
increased $35.1 million or 10.8% to $359.0 million or
63.2% of revenue. The decrease in direct salaries and all
related costs as a percentage of revenue resulted from
economies of scale associated with spreading costs over
a larger revenue base.

General and Administrative

General and administrative expenses

increased
$35.5 million or 22.2% to $195.4 million for 2000, from
$159.9 million in 1999. As a percentage of revenues,
general and administrative expenses increased to 32.4%
in 2000 from 27.9% for the comparable period in 1999.
The increase in both the dollar amount and percentage
of revenue of general and administrative expense was

SYKES

primarily attributable to a $15.2 million increase in
salaries and benefits to support the Company’s organic
growth, an $8.2 million increase in telecom costs, a $4.0
million increase in lease and rent expense, a $2.5 million
increase in depreciation expense associated with facility
and capital equipment expenditures all generally
incurred in connection with the expansion of the
Company’s technical and customer support services, and
a $6.9 million increase in bad debt expense due princi-
pally to weaker economic conditions for dot.com clients.
Exclusive of SHPS, general and administrative expenses
increased $45.8 million or 33.0% to $184.5 million, or
32.5% of revenue.

Compensation Expense

Compensation expense associated with the exercise of
options was $7.8 million for 2000. This charge related to
payments made to certain SHPS’ option holders as part of
the Company’s sale of a 93.5% ownership interest in
SHPS that occurred on June 30, 2000.

Restructuring and Other Charges

The Company recorded restructuring and other
charges of $30.5 million during 2000. These charges
were associated with (1) the consolidation of certain of
the Company’s fulfillment operations in Europe and its
Tampa, Florida technical support center; (2) the closure
of the U.S. fulfillment operations; (3) the elimination of
the worldwide translation and localization business;
(4) the consolidation of certain of the Company’s profes-
sional services locations; (5) elimination of redundant
property, leasehold improvements and equipment;
(6) lease termination costs associated with vacated prop-
erties and transportation equipment; and (7) severance
payments to the Company’s former President.

Other Income and Expense

Other income was $81.2 million during 2000, com-
pared to other expense of $3.5 million during 1999.
Excluding the $84.0 million gain associated with the sale
of SHPS, the Company reported other expense of
$2.8 million for 2000. The decrease in other expense for

2000, excluding the gain for the sale of SHPS, was attrib-
utable to a decrease in interest expense associated with a
decrease in the Company’s average outstanding debt
position, partially offset by additional interest expense of
$0.7 million related to the cancellation of a contractual
obligation. The Company’s average debt balance for 2000
was $44.8 million compared to $78.8 million for 1999.
The decrease in the average debt balance is principally
due to the repayment of debt from the proceeds gener-
ated from the sale of SHPS, partially offset by increases in
debt from capital expenditures and the Company’s repur-
chase of 3.0 million shares of its common stock during
2000 that are being held as treasury shares. On June 30,
2000, the Company sold 93.5% of its ownership interest
in SHPS for $165.5 million cash. The sale of SHPS
resulted in a gain for financial accounting purposes of
$84.0 million ($59.9 million net of taxes).

Income Taxes

The provision for income taxes increased $8.2 million
to $21.2 million for 2000 from $13.0 million for the
comparable period in 1999. The increase in the provision
for income taxes was primarily attributable to the gain
associated with the sale of SHPS, partially offset by the
compensation expense associated with the exercise of
options and the restructuring and other charges that
were incurred during 2000. The Company’s effective
tax rate exclusive of the gain and one-time items was
38.7% for 2000 compared to 38.7% for the comparable
1999 period.

Net Income

As a result of the foregoing, inclusive of one-time items
identified above, net income increased to $46.8 million
in 2000 from $20.5 million in 1999. Exclusive of one-
time items, including a gain of $84.0 million for the sale
of SHPS, $7.8 million related to payouts made to SHPS’
options holders and $30.5 million in restructuring and
other charges, net income for 2000 would have been
$12.9 million.

SYKES

Q u a r t e r l y R e s u l t s

The following information presents unaudited quarterly operating results for the Company for 2001 and 2000.
The data has been prepared by the Company on a basis consistent with the Consolidated Financial Statements included
elsewhere in this Form 10-K, and include all adjustments, consisting of normal recurring accruals that the Company
considers necessary for a fair presentation thereof. The operating results for the quarters ended September 30, 2000,
June 30, 2000 and March 31, 2000 have been adjusted to give effect to Staff Accounting Bulletin No. 101, “Revenue
Recognition in Financial Statements,” which was adopted in the fourth quarter of 2000, retroactive to January 1, 2000
in accordance with Statement of Financial Accounting Standards No. 3, “Reporting Accounting Changes in Interim
Financial Statements.”

AS ADJUSTED FOR SAB 101,
EFFECTIVE JANUARY 1, 2000
(In thousands, except per share data)

12/31/01

9/30/01

6/30/01

3/31/01

12/31/00

9/30/00

6/30/00

3/31/00

Revenues........................................................... $120,307 $112,742 $123,252 $140,421 $148,144 $136,954 $155,798 $162,710
101,871
Direct salaries and related costs ........................
General and administrative................................
46,914
Compensation expense associated

87,940
52,064

78,413
40,193

98,422
47,787

88,712
43,247

76,670
41,431

71,323
40,518

94,003
48,609

with exercise of options.................................
Restructuring and other charges ........................
Impairment of long-lived assets .........................

—
14,600
1,480

Income (loss) from operations............................
Other income (expense)(1)..................................

(13,874)
114

—
—
—

901
139

—
—
—

—
20,828
—

—
—
—

7,836
9,640
—

—
—
—

4,646
158

8,462
(360)

(15,296)
800

(3,050)
(1,434)

(7,887)
83,076

13,925
(1,237)

Income (loss) before provision (benefit) for
income taxes and cumulative effect of
change in accounting principle .....................
Provision (benefit) for income taxes...................

Income (loss) before cumulative effect of

(13,760)
(4,412)

1,040
(667)

4,804
1,777

8,102
3,079

(14,496)
(3,765)

(4,484)
(1,660)

75,189
21,693

12,688
4,923

change in accounting principle .....................

(9,348)

1,707

3,027

5,023

(10,731)

(2,824)

53,496

7,765

Cumulative effect of change in accounting

principle, net of income taxes of $580 ..........

—

(919)

Net income (loss) .............................................. $ (9,348) $ 1,707 $ 3,027 $ 5,023 $ (10,731) $ (2,824) $ 53,496 $ 6,846

Net income (loss) per basic share(2):

Income (loss) before cumulative effect

of change in accounting principle ............. $

(0.23) $

0.04 $

0.08 $

0.13 $

(0.27) $

(0.07) $

1.27 $

0.18

Cumulative effect of change in

accounting principle..................................

—

(0.02)

Net income (loss) per basic share .................. $

(0.23) $

0.04 $

0.08 $

0.13 $

(0.27) $

(0.07) $

1.27 $

0.16

Total weighted average basic shares ..................
Net income (loss) per diluted share(2):

Income (loss) before cumulative effect

40,242

40,175

40,164

40,137

40,373

41,134

42,031

42,606

of change in accounting principle ............. $

(0.23) $

0.04 $

0.07 $

0.12 $

(0.27) $

(0.07) $

1.27 $

0.18

Cumulative effect of change in

accounting principle..................................

—

(0.02)

Net income (loss) per diluted share ............... $

(0.23) $

0.04 $

0.07 $

0.12 $

(0.27) $

(0.07) $

1.27 $

0.16

Total weighted average diluted shares ...............

40,242

40,520

40,463

40,251

40,373

41,134

42,098

42,902

(1) The quarter ended June 30, 2000 includes an $84.0 million gain associated with the sale of SHPS.
(2) Net income (loss) per basic and diluted share are computed independently for each of the quarters presented and therefore may not sum to the total for

the year.

SYKES

L i q u i d i t y a n d C a p i t a l R e s o u r c e s

The Company’s primary sources of liquidity are cash
flows generated by operating activities and from available
borrowings under its credit facilities. The Company has
utilized its capital resources to make capital expenditures
associated primarily with its technical and customer sup-
port services, invest in technology applications and tools
to further develop the Company’s service offerings and
for working capital and other general corporate purposes.
In future periods, the Company intends similar uses of
any such funds, including possible acquisitions providing
access to certain geographic markets.

In 2001, the Company generated $60.7 million in cash
from operating activities and received $9.1 million in
cash from grant proceeds which were used primarily to
invest $39.1 million in capital expenditures, pay down
$8.4 million in borrowings under the Company’s credit
facilities and increase available cash $19.9 million.

Net cash flows provided by operating activities for
2001 was $60.7 million compared to $23.3 million for
2000. The $37.4 million increase in net cash flows pro-
vided by operating activities or $46.7 million decrease in
net cash flows excluding the gain on sale of SHPS in
2000, was a result of a decrease in net income of $46.4
million and a net decrease in non-cash expenses of $9.7
million offset by a net increase in assets and liabilities of
$9.4 million. This net increase in assets and liabilities
of $9.4 million was principally due to an increase in the
net cash flows generated from the decrease of $77.2 mil-
lion in receivables, primarily due to increased collection
efforts and a decrease in revenues, a decrease of $5.0
million in other assets, related to the settlement of the
Kyrus lawsuit, offset by a decrease in deferred revenue of
$10.1 million, primarily related to revenue for diagnostic
software, a decrease in income taxes payable of $17.9
million, primarily related to the taxes on the gain on the
sale of SHPS in 2000, and a decrease of $44.8 million in
accounts payable and other accrued accounts.

Capital expenditures, which are generally funded by
cash generated from operating activities and borrowings
available under the Company’s credit facilities, were
$39.1 million for 2001 compared to $72.3 million for
2000. Capital expenditures for 2001 were $33.2 million

lower than 2000, or $25.9 million lower excluding SHPS.
In 2001, approximately 75% of the capital expenditures
were the result of investing in new and existing technical
and customer support centers and 25% was expended
for systems infrastructure and other assets. The Company
anticipates capital expenditures in the range of $30.0
million to $35.0 million for the year 2002.

The primary sources of cash flows from financing
activities are from borrowings under the Company’s
credit facilities with a syndicate of lenders. On December
21, 2001, in connection with a reorganization of certain
of the Company’s legal entities intended to provide for a
more efficient transfer of funds on a global basis, the
Company amended and restated its existing credit facili-
ties (the “Amended Credit Facilities”). The Amended
Credit Facilities provided that two new U.S. subsidiaries
become additional guarantors and that the Company
pledge between 65% and 100% of the common stock of
all of the Company’s material subsidiaries. Pursuant to the
terms of the Amended Credit Facilities, the amount of
the Company’s revolving credit facility is $100.0 million.
The $100.0 million revolving credit facility includes a
$10.0 million swingline loan to be used for working capi-
tal purposes. In addition, the Company has a $15.0 mil-
lion multi-currency credit facility that provides for
multi-currency lending. The revolving credit facility
expires on February 28, 2003, and the multi-currency
facility expired on February 28, 2002. The Amended
Credit Facilities prohibit, without the consent of the syndi-
cated lenders, the Company from incurring additional
indebtedness, limits certain investments, advances or
loans, and restricts substantial asset sales, capital expendi-
tures, stock repurchases and cash dividends. At December
31, 2001, the Company was in compliance with all loan
requirements. At December 31, 2001, the Company had
$50.0 million in cash and cash equivalents and $115.0
million of availability under its credit facilities.

The Company believes that its current cash levels,
available funds under its credit facilities and cash flows
from future operations, will be adequate to meet its debt
repayment requirements, continued expansion objectives
and anticipated levels of capital expenditures for the fore-
seeable future.

SYKES

The following summarizes the Company’s contractual cash obligations at December 31, 2001, and the effect such

obligations are expected to have on its liquidity and cash flow in future periods.

(In thousands)

Total

Less Than 1 Year

1–3 Years

4–5 Years

After 5 Years

CONTRACTUAL CASH OBLIGATIONS:
Capital lease obligations ......................................................
Operating leases...................................................................
Unconditional purchase obligations .....................................

94
49,623
4,709

Total contractual cash obligations ....................................

$54,426

94
11,225
2,400

$13,719

—
13,070
2,309

$ —
6,455
—

—
18,873
—

$15,379

$6,455

$18,873

Payments Due By Period

At December 31, 2001 and 2000, the Company did
not have any other commercial commitments, such as
guarantees or standby repurchase obligations, or any
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as struc-
tured finance or special purpose entities, which would
have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually
narrow or limited purposes.

C r i t i c a l A c c o u n t i n g Po l i c i e s
a n d E s t i m a t e s

The preparation of consolidated financial statements in
conformity with accounting principles generally accepted
in the United States requires the Company to make esti-
mates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses dur-
ing the reporting period. These estimates and assump-
tions are based on historical experience and various
other factors that are believed to be reasonable under the
circumstances. Actual results could differ from these esti-
mates under different assumptions or conditions.

The Company believes the following accounting poli-
cies are the most critical since these policies require sig-
nificant judgment or involve complex estimations that are
important to the portrayal of the Company’s financial
condition and operating results:
• The Company recognizes revenue associated with the
grants of land and the grants for the acquisition of
property, buildings and equipment for customer sup-
port centers over the corresponding useful lives of the
related assets. Should the useful lives of these assets
change for reasons such as the sale or disposal of the
property, the amount of revenue recognized would be
adjusted accordingly.

• The Company recognizes revenue as work progresses
on fixed price contracts using the percentage-of-
completion method of accounting, which relies on
estimates of total expected revenue and related costs.
Revisions to these estimates, which could result in
adjustments to fixed price contracts and estimated
losses, would be recorded in the period when such
adjustments or losses are known.

• The Company maintains allowances for doubtful
accounts for estimated losses arising from the inability
of its customers to make required payments. If the
financial condition of the Company’s customers were
to deteriorate, resulting in a reduced ability to make
payments, additional allowances may be required
which would reduce income.

• The Company records valuation allowances to reduce
the deferred tax assets to the amount that is more
likely than not to be recognized. While the Company
considers taxable income in assessing the need for a
valuation allowance, in the event the Company deter-
mines it would be able to realize its deferred tax assets
in the future in excess of the net recorded amount, an
adjustment would be made and income increased in
the period of such determination. Likewise, in the
event the Company determines it would not be able to
realize all or part of its deferred tax assets in the future,
an adjustment would be made and charged against
income in the period of such determination.

• The Company holds a minority interest in SHPS,
Incorporated as a result of the sale of a 93.5% owner-
ship interest in June 2000. If the Company believes the
investment has experienced a decline in value that is
other than temporary, the Company would record an
impairment charge or loss. Future adverse changes in
market conditions or poor operating results of the
underlying investment could result in losses or an
inability to recover the carrying value of the invest-
ment that may not be reflected therein; and therefore,
might require the Company to record an impairment
charge in the future.

SYKES

• The Company reviews long-lived assets, including
goodwill and certain identifiable intangibles, for
impairment whenever events or changes in circum-
stances indicate that the carrying value of an asset may
not be recoverable. Upon determination that the carry-
ing value of the asset is impaired, the Company would
record an impairment charge or loss. Future adverse
changes in market conditions or poor operating results
of the underlying investment could result in losses or
an inability to recover the carrying value of the invest-
ment that may not be reflected therein; and therefore,
might require the Company to record an impairment
charge in the future.

R e l a t e d Pa r t y Tr a n s a c t i o n s

During 2000, the Company terminated its ten-year
operating lease agreement with the Company’s Chairman
(and majority shareholder) for its corporate aircraft and
paid a lease termination fee of $3.5 million. This lease
termination payment is included in restructuring and
other charges in the accompanying Consolidated
Statement of Income for the year ended December 31,
2000. Since the lease termination, the Company paid the
Chairman (and majority shareholder) $0.8 million and
$0.2 million for the use of the corporate aircraft in 2001
and 2000, respectively. The lease expense for each of the
years ended December 31, 2000 and 1999, exclusive of
lease termination payments, was $0.3 million and $0.6
million, respectively.

The Board of Directors determined that a note receiv-
able of $0.4 million due from the Company’s Chairman
(and majority shareholder) was a corporate expense to be
forgiven and charged against income for the year ended
December 31, 2001.

During the years ended December 31, 2001 and
2000, the Company also paid a company, in which the
Chairman (and majority shareholder) has an 80% equity
interest, $0.5 million and $0.3 million, respectively, for
management and site development services. This arrange-
ment was terminated in July 2001.

A member of the board of directors of the Company
received broker commissions from the Company’s 401(k)
investment firm of $0.03 million for each of the years
ended December 31, 2001, 2000, and 1999, respectively,
and insurance commissions for the placement of the
Company’s various corporate insurance programs of
$0.08 million for each of the years ended December 31,
2001, 2000 and 1999, respectively.

R e c e n t P r o n o u n c e m e n t s

In July 2001, the FASB issued SFAS No. 141, “Business
Combinations,” and SFAS No. 142, “Goodwill and Other
Intangible Assets.” SFAS No. 141 requires that the pur-
chase method of accounting be used for all business
combinations initiated after June 30, 2001. It also speci-
fies the types of acquired intangible assets that are
required to be recognized and reported separate from
goodwill. SFAS No. 142 requires that goodwill and cer-
tain intangibles with indefinite lives no longer be amor-
tized, but instead tested for impairment at least annually.
Upon adoption of SFAS No. 142 effective January 1,
2002, there was no impairment of goodwill and the
application of the non-amortization provision of SFAS
No. 142 for goodwill is expected to result in an increase
in income from operations of $0.7 million in 2002.

In June 2001, the FASB issued SFAS No. 143,
“Accounting for Asset Retirement Obligations,” which
addresses financial accounting and reporting for obliga-
tions associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The stan-
dard applies to legal obligations associated with the
retirement of long-lived assets that result from the acqui-
sition, construction, and development and (or) normal
use of the asset. The Company is required and plans to
adopt the provisions of SFAS No. 143 for the quarter end-
ing March 31, 2003. Because of the effort necessary to
comply with the adoption of SFAS No. 143, it is not prac-
ticable for management to estimate the impact of adopt-
ing this Statement at the date of this report.

In October 2001, the FASB issued SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-
Lived Assets.” SFAS No. 144 addresses the accounting
and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of” and APB Opinion No. 30,
“Reporting the Results of Operations—Reporting the
Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring
Events and Transactions.” The objective of SFAS No. 144
is to establish one accounting model for long-lived assets
to be disposed of by sale as well as resolve implementa-
tion issues related to SFAS No. 121. The Company
adopted SFAS No. 144 effective January 1, 2002, and
the adoption of this statement had no impact on the
financial condition, results of operations, or cash flows of
the Company.

SYKES

Item 7a. Quantitative and Qualitative

Disclosures About Market Risk

Q u a n t i t a t i v e a n d Q u a l i t a t i v e
D i s c l o s u r e s

The Company’s earnings and cash flows are subject to
fluctuations due to changes in non-U.S. currency
exchange rates. The Company is exposed to non-U.S.
exchange rate fluctuations as the financial results of non-
U.S. subsidiaries are translated into U.S. dollars in con-
solidation. As exchange rates vary, those results, when
translated, may vary from expectations and adversely
impact overall expected profitability. The cumulative
translation effects for subsidiaries using functional cur-
rencies other than the U.S. dollar are included in accu-
mulated other comprehensive income in shareholders’
equity. Movements in non-U.S. currency exchange rates
may affect the Company’s competitive position, as
exchange rate changes may affect business practices
and/or pricing strategies of non-U.S. based competitors.
Under its current policy, the Company does not use non-
U.S. exchange derivative instruments to manage its expo-
sure to changes in non-U.S. currency exchange rates.

At December 31, 2001, the Company had no debt
outstanding at variable interest rates. Based on the
Company’s level of variable rate debt outstanding during
2001, a one-point increase in the weighted average inter-
est rate would increase the Company’s annual interest
expense by approximately $14.0 thousand. (The variable
interest rates are generally equal to the Eurodollar rate
plus an applicable margin.) The Company has not histor-
ically used derivative instruments to manage its exposure
to changes in interest rates.

Item 8. Financial Statements and

Supplementary Data

The financial statements and supplementary data
required by this item are located beginning on page 37
and page 27 of this report, respectively.

Item 9. Changes in and Disagreements

with Accountants on Accounting
and Financial Disclosures

None

P A R T I I I

Items 10. through 13.

All information required by Items 10 through 13, with
the exception of information on Executive Officers which
appears in the report under the caption “Executive
Officers of the Registrant,” is incorporated by reference to
the Company’s Proxy Statement for its Year 2002 Annual
Meeting of Shareholders.

P A R T I V

Item 14. Exhibits, Financial Statement

Schedule, and Reports on
Form 8-K

( a ) T h e f o l l o w i n g d o c u m e n t s a r e
f i l e d a s p a r t o f t h i s r e p o r t :

(1) Consolidated Financial Statements

The Index to Consolidated Financial Statements is set

forth on page 37 of this report.

(2) Financial Statement Schedule

Schedule II—Valuation and Qualifying Accounts is set

forth on page 58 of this report.

(3) Exhibits

Exhibit
No.

2.1

2.2

2.3

2.4

Exhibit Description

Articles of Merger between Sykes Enterprises,
Incorporated, a North Carolina Corporation, and
Sykes Enterprises,
Incorporated, a Florida
Corporation, dated March 1, 1996.(1)
Articles of Merger between Sykes Enterprises,
Incorporated and Sykes Realty, Inc.(1)
Stock Purchase Agreement dated July 1, 1996
among Sykes Enterprises, Incorporated and Johan
Holm, Arne Weinz and Norhold Invest AB.(2)
Stock Purchase Agreement dated August 30,
1996 among Sykes Enterprises, Incorporated and
Gordon H. Kraft.(3)

SYKES

2.7

2.6

2.5 Merger Agreement dated as of January 10, 1997
among Sykes Enterprises, Incorporated, Info
Systems of North Carolina, Inc. and ISNC
Acquisition Co.(4)
Stock Purchase Agreement dated March 28, 1997
among Sykes Enterprises, Incorporated, Sykes
Holdings of Belgium, B.V.B.A., Cycle B.V.B.A.
and Michael McMahon.(5)
Joint Integration, Marketing and Distribution
Agreement dated April 30, 1997 by and
between Sykes Enterprises, Incorporated and
SystemSoft Corporation.(8)
Stock Purchase Agreement dated May 6, 1997
by and between Sykes Enterprises, Incorporated
and SystemSoft Corporation.(9)
Acquisition Agreement, dated May 30, 1997,
by and among the holders of all of the
capital interests of Telcare Gesellschaft fur
Telekommunikations-Mehrwertdienste mbH,
Sykes Enterprises GmbH, and Sykes Enterprises,
Incorporated.(6)

2.8

2.9

2.10 Acquisition Agreement, dated September 19,
1997, by and among the holders of all of
the capital interests of TAS Telemarketing
Gesellschaft fur Kommunikation und Dialog
mbH, Sykes Enterprises, GmbH, and Sykes
Enterprises, Incorporated.(7)

2.11 Acquisition Agreement, dated September 25,
1997, by and among the holders of all of the
capital interests of TAS Hedi Fabinyi GmbH,
Sykes Enterprises, GmbH, and Sykes Enterprises,
Incorporated.(10)

2.12 Shareholder Agreement dated December 11,
1997, by and among Sykes Enterprises, Incor-
porated and HealthPlan Services Corporation.(12)
2.13 Acquisition Agreement, dated December 31,
1997, by and among the holders of all of the
capital interests of McQueen International
Limited and Sykes Enterprises, Incorporated.(11)

2.14 Stock Purchase Agreement, dated September 1,
1998, between HealthPlan Services Corporation
and Sykes Enterprises, Incorporated.(16)

2.15 Acquisition Agreement, dated November 23,
1998, by and among the holders of all of
the capital interests of TAS GmbH Nord
Telemarketing und Vertriebsberatung, Sykes
Enterprises, GmbH, and Sykes Enterprises,
Incorporated.(18)

2.16 Combination Agreement, dated December 29,
1998, by and among the holders of all
of the capital interests of Oracle Service
Networks Corporation and Sykes Enterprises,
Incorporated.(17)

3.2

3.3

3.1

4.1

Sykes

Enterprises,

2.17 Merger Agreement, dated as of June 9, 2000,
among
Incorporated,
SHPS, Incorporated, Welsh Carson Anderson
and Stowe, VIII, LP (“WCAS”) and Slugger
Acquisition Corp.(35)
Articles of Incorporation of Sykes Enterprises,
Incorporated, as amended.(19)
Articles of Amendment to Articles of Incor-
poration of Sykes Enterprises, Incorporated,
as amended.(20)
Bylaws of Sykes Enterprises, Incorporated, as
amended.(21)
Specimen certificate for the Common Stock of
Sykes Enterprises, Incorporated.(1)
Credit Agreement between NationsBank N.A.
and Sykes Enterprises, Incorporated dated as of
February 17, 1998.(14)
Amendment No. 1 to Credit Agreement between
NationsBank N.A. and Sykes Enterprises, Incor-
porated dated as of March 20, 1998.(15)
Amended and Restated Credit Agreement
among Sykes Enterprises, Incorporated and Bank
of America, NA, dated May 2, 2000.(21)
Amendment No. 1 to Amended and Restated
Credit Agreement among Sykes Enterprises,
Incorporated and Bank of America, N.A., dated
June 22, 2001.(38)

10.1

10.2

10.3

10.4

SYKES

10.5

10.6

10.7

10.8

10.9

Amendment No. 2 to Amended and Restated
Credit Agreement among Sykes Enterprises,
Incorporated and Bank of America, N.A., dated
December 21, 2001.
Credit Agreement among Sykes Enterprises,
Incorporated and Bank of America, N.A. (for-
merly NationsBank, N.A.) dated February 27,
1998, as amended October 1998, January 18,
2000, May 2, 2000 and June 22, 2001.(39)
Amendment No. 5 to Credit Agreement among
Sykes Enterprises, Incorporated and Bank of
America, N.A., dated December 21, 2001.
Employment Agreement dated as of March 6,
2000 between James E. Lamar and Sykes
Enterprises, Incorporated.(23)*
Amended and Restated Employment Agreement
dated as of February 18, 2002, between Charles
E. Sykes and Sykes Enterprises, Incorporated.*

10.10 Stock Option Agreement between Sykes
Enterprises, Incorporated and David E. Garner
dated as of December 31, 1995.(41)*

10.11 Amended and Restated 1996 Employee Stock

Option Plan.(36)*

10.12 Amended and Restated 1996 Non-Employee

Director Stock Option Plan.(36)*

10.13 1996 Non-Employee Directors’ Fee Plan.(1)*
10.14 Form of Split Dollar Plan Documents.(1)*
10.15 Form of Split Dollar Agreement.(1)*
10.16 Form of Indemnity Agreement between directors
and executive officers and Sykes Enterprises,
Incorporated.(1)

10.17 Aircraft Lease Agreement between JHS Leasing
of Tampa, Inc. as lessor and Sykes Enterprises,
Incorporated as lessee, dated December 1, 1995.(1)
10.18 Single Tenant Property Lease Agreement
between Sykes Investments as landlord and
Sykes Enterprises, Incorporated as tenant dated
October 31, 1989, for building in Charlotte,
North Carolina.(1)

10.19 Tax Indemnification Agreement between Sykes

Enterprises, Incorporated and John H. Sykes.(1)*

10.20 Consultant Agreement between Sykes Enterprises,
Incorporated and E.J. Milani Consulting Corp.
dated April 1, 1996.(1)*

10.21 1997 Management Stock Incentive Plan.(13)*
10.22 1999 Employees’ Stock Purchase Plan.(22)*
10.23 2000 Stock Option Plan.(24)*
10.24 Employment Agreement dated as of March 6,
2000 between David L. Grimes and Sykes
Enterprises, Incorporated.(25)*

10.25 Termination of aircraft Lease Agreement
between JHS Leasing of Tampa, Inc., as lessor
and Sykes Enterprises, Incorporated as lessee
dated June 30, 2000.(29)

10.26 Employment Agreement dated July 31, 2000
between James E. Lamar and Sykes Enterprises,
Incorporated.(30)*

10.27 Employment Separation Agreement dated as of
September 20, 2000 between Dale W. Saville
and Sykes Enterprises, Incorporated.(31)*
10.28 Employment Separation Agreement dated as of
September 22, 2000 between Scott J. Bendert
and Sykes Enterprises, Incorporated.(32)*
10.29 Employment Separation Agreement dated
November 10, 2000 between David L. Grimes
and Sykes Enterprises, Incorporated.(33)*
10.30 Employment Agreement dated July 31, 2000
between Mitchell I. Nelson and Sykes Enterprises,
Incorporated.(34)*

10.31 Amended and Restated Employment Agree-
ment dated as of October 1, 2001, between
W. Michael Kipphut and Sykes Enterprises,
Incorporated.*

10.32 2001 Equity Incentive Plan.(37)*
10.33 Employment Agreement dated as of March 6,
2000 between Scott J. Bendert and Sykes
Enterprises, Incorporated.(26)*

10.34 Employment Agreement dated as of March 6,
2000 between Dale W. Saville and Sykes
Enterprises, Incorporated.(27)*

SYKES

10.35 Employment Separation Agreement dated July 5,
2001 between James E. Lamar and Sykes
Enterprises, Incorporated.(40)*

10.36 Amended and Restated Employment Agreement
dated as of February 18, 2002, between Jenna R.
Nelson and Sykes Enterprises, Incorporated.*

10.37 Amended and Restated Employment Agreement
dated as of February 18, 2002, between Gerry L.
Rogers and Sykes Enterprises, Incorporated.*

10.38 Amended and Restated Executive Employment
Agreement dated as of October 1, 2001
between John H. Sykes and Sykes Enterprises,
Incorporated.*

10.39 Employment Agreement dated as of October 1,
2001, between James T. Holder and Sykes
Enterprises, Incorporated.*

10.40 Stock Option Agreement dated as of October 1,
2001, between Sykes Enterprises, Incorporated
and James T. Holder.*

10.41 Stock Option Agreement dated as of October 1,
2001, between Sykes Enterprises, Incorporated
and W. Michael Kipphut.*

10.42 Stock Option Agreement dated as of January 8,
2002, between Sykes Enterprises, Incorporated
and John H. Sykes.*

10.43 Amended and Restated Employment Agreement
dated as of March 6, 2002, between Sykes Enter-
prises, Incorporated and Harry A. Jackson, Jr.*

10.44 Employment Agreement dated as of October 1,
2001, between Sykes Enterprises, Incorporated
and William N. Rocktoff.*

21.1

10.45 Employment Separation Agreement dated as of
November 5, 2001, between Mitchell Nelson
and Sykes Enterprises, Incorporated.*
List of subsidiaries of Sykes Enterprises,
Incorporated.
Consent of Deloitte & Touche LLP.
Consent of Ernst & Young LLP.
Power of Attorney relating to subsequent
amendments (included on the signature page of
this report).

23.1
23.2
24.1

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

Indicates management contract or compensatory plan or
arrangement
Filed as an Exhibit to the Registrant’s Registration Statement
on Form S-1 (Registration No. 333-2324) and incorporated
herein by reference.
Filed as Exhibit 2.1 to the Registrant’s Form 8-K dated July
31, 1996, and incorporated herein by reference.
Filed as Exhibit 2.1 to the Registrant’s Form 8-K dated
September 16, 1996, and incorporated herein by reference.
Included as Appendix A to the Proxy Statement/Prospectus
contained in the Registrant’s Registration Statement on
Form S-4 (Registration No. 333-20465) filed with the
Commission on January 27, 1997, and incorporated herein
by reference.
Filed as Exhibit 2.6 to the Registrant’s Form 10-Q filed with
the Commission on May 8, 1997, and incorporated herein
by reference.
Filed as Exhibit 2.2 to the Registrant’s Current Report on
Form 8-K filed with the Commission on October 21, 1997,
and incorporated herein by reference.
Filed as Exhibit 2.1 to the Registrant’s Current Report on
Form 8-K filed with the Commission on February 13, 1998,
and incorporated herein by reference.
Filed as Exhibit 2.8 to the Registrant’s Form 10-Q filed with
the Commission on August 18, 1997, and incorporated
herein by reference.
Filed as Exhibit 2.7 to the Registrant’s Form 10-Q filed with
the Commission on August 18, 1997, and incorporated
herein by reference.

(10) Filed as Exhibit 2.2 to the Registrant’s Current Report on
Form 8-K filed with the Commission on February 13, 1998,
and incorporated herein by reference.

(11) Filed as Exhibit 2.1 to the Registrant’s Current Report on
Form 8-K filed with the Commission on dated January 15,
1998, and incorporated herein by reference.

(12) Filed as Exhibit 2.12 to the Registrant’s Form 10-K filed with
the Commission on March 16, 1998, and incorporated
herein by reference.

(13) Filed as Exhibit 10 to the Registrant’s Form 10-Q filed with
the Commission on July 28, 1998, and incorporated herein
by reference.

(14) Filed as Exhibit 10.1 to the Registrant’s Form 10-Q filed
with the Commission on April 28, 1998, and incorporated
herein by reference.

SYKES

(15) Filed as Exhibit 10.2 to the Registrant’s Form 10-Q filed
with the Commission on April 28, 1998, and incorporated
herein by reference.

(16) Filed as Exhibit 2.1 to the Registrant’s Current Report on
Form 8-K filed with the Commission on September 25,
1998, and incorporated herein by reference.

(17) Filed as an Exhibit to the Registrant’s Current Report on
Form 8-K dated December 29, 1998, and incorporated
herein by reference.

(18) Filed as Exhibit 2.15 to the Registrant’s Form 10-K filed with
the Commission on March 29, 1999, and incorporated
herein by reference.

(19) Filed as Exhibit 3.1 to the Registrant’s Registration State-
ment on Form S-3 filed with the Commission on October
23, 1997, and incorporated herein by reference.

(20) Filed as Exhibit 3.2 to the Registrant’s Form 10-K filed with
the Commission on March 29, 1999, and incorporated
herein by reference.

(21) Filed as Exhibit 3.2 to the Registrant’s Registration State-
ment on Form S-3 filed with the Commission on October
23, 1997, and incorporated herein by reference.

(22) Filed as Exhibit 10.19 to the Registrant’s Form 10-K filed
with the Commission on March 29, 1999, and incorporated
herein by reference.

(23) Filed as Exhibit 10.8 to the Registrant’s Form 10-K filed with
the Commission on March 29, 2000, and incorporated
herein by reference.

(24) Filed as Exhibit 10.23 to the Registrant’s Form 10-K filed
with the Commission on March 29, 2000, and incorporated
herein by reference.

(25) Filed as Exhibit 10.3 to the Registrant’s Form 10-K filed with
the Commission on March 29, 2000, and incorporated
herein by reference.

(26) Filed as Exhibit 10.4 to the Registrant’s Form 10-K filed with
the Commission on March 29, 2000, and incorporated
herein by reference.

(27) Filed as Exhibit 10.6 to the Registrant’s Form 10-K filed with
the Commission on March 29, 2000, and incorporated
herein by reference.

(28) Filed as Exhibit 10.24 to the Registrant’s Form 10-Q filed
with the Commission on August 14, 2000, and incorpo-
rated herein by reference.

(29) Filed as Exhibit 10.25 to the Registrant’s Form 10-Q filed
with the Commission on August 14, 2000, and incorpo-
rated herein by reference.

(30) Filed as Exhibit 10.26 to the Registrant’s Form 10-Q filed
with the Commission on November 20, 2000, and incorpo-
rated herein by reference.

(31) Filed as Exhibit 10.27 to the Registrant’s Form 10-Q filed
with the Commission on November 20, 2000, and incorpo-
rated herein by reference.

(32) Filed as Exhibit 10.28 to the Registrant’s Form 10-Q filed
with the Commission on November 20, 2000, and incorpo-
rated herein by reference.

(33) Filed as Exhibit 10.29 to the Registrant’s Form 10-K filed
with the Commission on March 27, 2001, and incorporated
herein by reference.

(34) Filed as Exhibit 10.30 to the Registrant’s Form 10-K filed
with the Commission on March 27, 2001, and incorporated
herein by reference.

(35) Filed as Exhibit 2.1 to the Registrant’s Current Report on
Form 8-K filed with the Commission on July 17, 2000, and
incorporated herein by reference.

(36) Filed as Exhibit 10.12 to Registrant’s Form 10-Q filed with
the Commission on May 7, 2001, and incorporated herein
by reference.

(37) Filed as Exhibit 10.32 to Registrant’s Form 10-Q filed with
the Commission on May 7, 2001, and incorporated herein
by reference.

(38) Filed as Exhibit 10.33 to Registrant’s Form 10-Q filed with
the Commission on August 14, 2001, and incorporated
herein by reference.

(39) Filed as Exhibit 10.34 to Registrant’s Form 10-Q filed with
the Commission on August 14, 2001, and incorporated
herein by reference.

(40) Filed as Exhibit 10.35 to Registrant’s Form 10-Q filed with
the Commission on August 14, 2001, and incorporated
herein by reference.

(41) Filed as Exhibit 10.9 to the Registrant’s Form 10-K filed with
the Commission on March 29, 2000, and incorporated
herein by reference.

( b ) R e p o r t s o n Fo r m 8 - K

The Company filed no reports on Form 8-K during the

quarter ended December 31, 2001.

Signatures

SYKES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, and
State of Florida, on this 15th day of March 2002.

SYKES ENTERPRISES, INCORPORATED
(Registrant)

By: /s/

W. Michael Kipphut

W. Michael Kipphut,
Group Executive, Senior Vice President—Finance

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the follow-
ing persons in the capacities and on the dates indicated. Each person whose signature appears below constitutes and
appoints W. Michael Kipphut his true and lawful attorney-in-fact and agent, with full power of substitution and revoca-
tion, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or should do in person, thereby ratifying and confirming all that said attorneys-in-fact
and agents, or either of them, may lawfully do or cause to be done by virtue hereof.

Signature

/s/ John H. Sykes

John H. Sykes

/s/ Gordon H. Loetz

Gordon H. Loetz

Title

Date

Chairman of the Board, President, and Chief

March 15, 2002

Executive Officer (Principal Executive Officer)

Vice Chairman of the Board and Director

March 15, 2002

/s/ Furman P. Bodenheimer, Jr.

Director

Furman P. Bodenheimer, Jr.

/s/ H. Parks Helms

H. Parks Helms

Director

/s/ Linda F. McClintock-Greco

Director

Linda F. McClintock-Greco

/s/ Hugh L. McColl, Jr.

Hugh L. McColl, Jr.

/s/ William J. Meurer

William J.Meurer

/s/ Ernest J. Milani

Ernest J. Milani

/s/ Thomas F. Skelly

Thomas F. Skelly

Director

March 15, 2002

SYKES

Table of Contents

Page No.

Report of Independent Auditors as of December 31, 2001 and the year then ended ......................................

Report of Independent Certified Public Accountants as of December 31, 2000 and for the two years

in the period ended December 31, 2000 ....................................................................................................

Consolidated Balance Sheets as of December 31, 2001 and 2000 .................................................................

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 .................

Consolidated Statements of Changes in Shareholders’ Equity for the years ended

December 31, 2001, 2000 and 1999..........................................................................................................

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.................

Notes to Consolidated Financial Statements....................................................................................................

SYKES

Independent Auditors’ Report

To the Board of Directors and Stockholders of
Sykes Enterprises, Incorporated:

We have audited the accompanying consolidated balance
sheet of Sykes Enterprises, Incorporated and subsidiaries,
(the “Company”) as of December 31, 2001, and the
related consolidated statements of operations, changes in
shareholders’ equity, and cash flows for the year then
ended. Our audit also included the financial statement
schedule as of and for the year ended December 31,
2001, listed in the Index at Item 14. These financial state-
ments and financial statement schedule are the responsi-
bility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and
financial statement schedule based on our audit.

We conducted our audit in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and per-
form the audit to obtain reasonable assurance about
whether the financial statements are free of material mis-
statement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall

financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements
present fairly, in all material aspects, the financial posi-
tion of Sykes Enterprises, Incorporated and subsidiaries at
December 31, 2001 and the results of their operations
and their cash flows for the year then ended, in conform-
ity with accounting principles generally accepted in the
United States of America. Also in our opinion, such
financial statement schedule as of and for the year ended
December 31, 2001, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.

Certified Public Accountants

Tampa, Florida
February 14, 2002

SYKES

Report of Independent Certified
Public Accountants

To the Board of Directors and Stockholders of
Sykes Enterprises, Incorporated:

We have audited the accompanying consolidated bal-
ance sheets of Sykes Enterprises, Incorporated as of
December 31, 2000, and the related consolidated state-
ments of operations, shareholders’ equity, and cash flows
for each of the two years in the period ended December
31, 2000. Our audits also included the financial state-
ment schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting princi-
ples used and significant estimates made by manage-
ment, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a rea-
sonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Sykes Enterprises,
Incorporated at December 31, 2000, and the consoli-
dated results of its operations and its cash flows for each
of the two years in the period ended December 31, 2000,
in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the
related financial statement schedule when considered in
relation to the basic financial statements taken as a
whole, presents fairly in all material respects the informa-
tion set forth therein.

As discussed in Note 1, the Company changed its
method of accounting for certain revenues.

Tampa, Florida
February 15, 2001, except for Note 1,
as to which the date is July 26, 2001

SYKES

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets

(In thousands, except per share data)

ASSETS
Current assets:

Cash and cash equivalents ...........................................................................................
Receivables ..................................................................................................................
Prepaid expenses and other current assets....................................................................

Total current assets ...............................................................................................
Property and equipment, net ............................................................................................
Intangible assets, net ........................................................................................................
Deferred charges and other assets ....................................................................................

December 31,

2001

2000

$ 50,002
93,522
11,750

155,274
140,551
4,816
9,139

$ 30,141
135,609
17,679

183,429
151,842
8,861
13,822

$309,780

$357,954

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:

Current installments of long-term debt .........................................................................
Accounts payable .........................................................................................................
Accrued employee compensation and benefits ............................................................
Other accrued expenses and current liabilities.............................................................

Total current liabilities ..........................................................................................
Long-term debt.................................................................................................................
Deferred grants.................................................................................................................
Deferred revenue .............................................................................................................
Other long-term liabilities ................................................................................................

94
15,678
29,100
13,855

58,727
—
39,543
20,298
—

100
34,636
32,746
22,983

90,465
8,759
31,758
31,072
8

Total liabilities ......................................................................................................

118,568

162,062

Commitments and contingencies (Note 15)
Shareholders’ equity:

Preferred stock, $0.01 par value, 10,000 shares authorized;

no shares issued and outstanding .............................................................................

—

Common stock, $0.01 par value; 200,000 shares authorized;

43,300 and 43,084 issued........................................................................................
Additional paid-in capital.............................................................................................
Retained earnings.........................................................................................................
Accumulated other comprehensive loss .......................................................................

Treasury stock at cost; 3,000 shares and 2,981 shares ..................................................

433
160,907
90,839
(20,212)

231,967
(40,755)

Total shareholders’ equity.....................................................................................

191,212

431
159,696
90,430
(14,082)

236,475
(40,583)

195,892

$309,780

$357,954

See accompanying notes to consolidated financial statements.

SYKES

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations

(In thousands, except per share data)

Years Ended December 31,
2000

2001

1999

Revenues ........................................................................................................

$496,722

$603,606

$572,742

Operating expenses:

Direct salaries and related costs .................................................................
General and administrative.........................................................................
Compensation expense associated with exercise of options .......................
Restructuring and other charges .................................................................
Impairment of long-lived assets ..................................................................

315,118
165,389
—
14,600
1,480

382,236
195,374
7,836
30,468
—

369,850
159,876
—
—
5,979

Total operating expenses ........................................................................

496,587

615,914

535,705

Income (loss) from operations.........................................................................

135

(12,308)

37,037

Other income (expense):

Interest, net.................................................................................................
Gain on sale of equity interest in SHPS ......................................................
Other..........................................................................................................

Total other income (expense)..................................................................

408
—
(357)

(2,942)
84,036
111

81,205

(3,669)
—
152

(3,517)

Income before provision (benefit) for income taxes and

cumulative effect of change in accounting principle ..................................

186

68,897

33,520

Provision (benefit) for income taxes:

Current .......................................................................................................
Deferred .....................................................................................................

Total provision (benefit) for income taxes ...............................................

Income before cumulative effect of change in accounting principle...............
Cumulative effect of change in accounting principle,

net of income taxes of $580 .......................................................................

Net income ....................................................................................................

Net income per basic share:

Income before cumulative effect of change in accounting principle...........
Cumulative effect of change in accounting principle..................................

Net income per basic share ........................................................................

Total weighted average basic shares ...........................................................

Net income per diluted share:

Income before cumulative effect of change in accounting principle...........
Cumulative effect of change in accounting principle..................................

Net income per diluted share .....................................................................

(4,873)
4,650

(223)

409

24,794
(3,603)

21,191

47,706

20,387
(7,401)

12,986

20,534

—

409

0.01
—

0.01

40,183

0.01
—

0.01

(919)

—

$ 46,787

$ 20,534

1.15
(0.02)

1.13

41,518

1.15
(0.02)

1.13

0.49
—

0.49

42,045

0.48
—

0.48

Total weighted average diluted shares ........................................................

40,468

41,645

42,995

Pro forma amounts assuming accounting change is applied retroactively:

Net income ................................................................................................
Net income per basic share ........................................................................
Net income per diluted share .....................................................................

$ 47,706
1.15
$
1.15
$

$ 19,615
0.47
$
0.46
$

See accompanying notes to consolidated financial statements.

SYKES

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)

Balance at January 1, 1999...............
Issuance of common stock................
Tax benefit of exercise of

non-qualified stock options ..........

Comprehensive income:

Net income ..................................
Foreign currency translation

adjustment................................

Total .....................................

Balance at December 31, 1999 ........
Issuance of common stock................
Tax benefit of exercise of

non-qualified stock options ..........
Purchase of treasury stock ................
Comprehensive income:

Net income ..................................
Foreign currency translation

adjustment................................

Total .....................................

Balance at December 31, 2000 ........
Issuance of common stock................
Tax benefit of exercise of

non-qualified stock options ..........
Purchase of treasury stock ................
Comprehensive loss:

Net income ..................................
Foreign currency translation

adjustment................................

Total .....................................

Common Stock

Amount

Additional
Paid-In
Capital

Accumulated
Other

Retained Comprehensive
Earnings

Loss

Treasury
Stock

Total

41,452
1,282

$414
13

$136,200
11,371

$23,109
—

$ (1,407)
—

— $158,316
11,384
—

—

7,452

—

— 20,534

—

(4,453)

42,734
350

427
4

155,023
3,208

43,643
—

(5,860)
—

—
—

—

—
—

—

1,465
—

—
—

— 46,787

—
—

—

(8,222)

—

—
—

7,452

20,534

(4,453)

16,081

193,233
3,212

—
(40,583)

1,465
(40,583)

—

46,787

(8,222)

38,565

43,084
216

431
2

159,696
973

90,430
—

(14,082)
—

(40,583)
—

195,892
975

—
—

—

—
—

—

238
—

—

—
—

409

—
—

—

(6,130)

—
(172)

—

238
(172)

409

(6,130)

(5,721)

Balance at December 31, 2001........

43,300

$433

$160,907

$90,839

$(20,212)

$(40,755)

$191,212

See accompanying notes to consolidated financial statements.

SYKES

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................................................................................
Depreciation and amortization .......................................................................
Impairment of long-lived assets ......................................................................
Cumulative effect of accounting change, net of tax ........................................
Gain on sale of equity interest in SHPS ..........................................................
Restructuring and other charges .....................................................................
Deferred income tax provision (benefit)..........................................................
Tax benefit from stock options ........................................................................
Loss on disposal of property and equipment ..................................................
Changes in assets and liabilities:

Receivables ................................................................................................
Prepaid expenses and other current assets..................................................
Intangible assets .........................................................................................
Deferred charges and other assets ..............................................................
Accounts payable .......................................................................................
Income taxes payable .................................................................................
Accrued employee compensation and benefits...........................................
Customer deposits, net of restricted cash....................................................
Other accrued expenses and current liabilities ...........................................
Deferred revenue........................................................................................
Other long-term liabilities ..........................................................................

Years Ended December 31,
2000

1999

2001

409
34,937
1,480
—
—
14,600
4,650
238
495

46,708
1,759
—
5,520
(18,155)
(14,328)
(2,728)
—
(7,777)
(6,750)
(358)

$ 46,787
36,829
—
919
(84,036)
30,468
(3,603)
1,465
—

(30,515)
3,761
926
3,154
(12,320)
6,015
9,384
10,921
1,250
3,314
(1,392)

$ 20,534
37,570
5,979
—
—
—
(7,401)
7,452
15

(16,762)
1,599
(1,113)
(1,638)
5,246
(9,618)
4,508
(3,176)
(36)
9,386
(1,268)

Net cash provided by operating activities ...............................................

60,700

23,327

51,277

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.......................................................................................
Acquisition of businesses (less cash purchased) ..............................................
Proceeds from sale of equity interest in SHPS (less cash sold) ........................
Proceeds from sale of property and equipment ..............................................

Net cash (used for) provided by investing activities ................................

CASH FLOWS FROM FINANCING ACTIVITIES
Paydowns under revolving line of credit agreements ......................................
Borrowings under revolving line of credit agreements ....................................
Payments of long-term debt ............................................................................
Borrowings under long-term debt ...................................................................
Proceeds from issuance of stock .....................................................................
Proceeds from grants ......................................................................................
Purchase of treasury stock ..............................................................................

(39,058)
—
—
682

(38,376)

(13,363)
13,336
(8,430)
106
975
9,156
(172)

(72,334)
—
159,776
—

(66,657)
(8,346)
—
191

87,442

(74,812)

(198,301)
124,607
(1,103)
367
3,212
8,394
(40,583)

(84,540)
88,398
—
—
11,084
7,698
—

Net cash (used for) provided by financing activities................................

1,608

(103,407)

22,640

Effects of exchange rates on cash...................................................................

(4,071)

(8,222)

(4,453)

Net increase (decrease) in cash and cash equivalents.....................................
CASH AND CASH EQUIVALENTS—BEGINNING .........................................

19,861
30,141

(860)
31,001

(5,348)
36,349

CASH AND CASH EQUIVALENTS—ENDING................................................

$ 50,002

$ 30,141

$ 31,001

Supplemental disclosures of cash flow information

Cash paid during the year for:

Interest ...................................................................................................
Income taxes ..........................................................................................

$
337
$ 9,558

$
4,254
$ 17,130

$ 6,809
$ 22,426

See accompanying notes to consolidated financial statements.

SYKES

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Sykes Enterprises, Incorporated and consolidated sub-
sidiaries (the “Company” or “Sykes”) provides outsourced
customer management solutions and services. Sykes’
Business Solutions group provides consultative profes-
sional services and technical staffing in customer rela-
tionship management (CRM) with a focus on business
strategy, project management, business process redesign,
change management, knowledge management, educa-
tion, training and web development. Sykes’ Business
Services group provides customer support outsourcing
services with an emphasis on technical support and cus-
tomer service. These services are delivered through multi-
ple communication channels encompassing phone,
e-mail, web and chat. The Company’s services are pro-
vided to customers on a worldwide basis primarily within
the technology/consumer, communications and financial
services markets.

N o t e 1 . S u m m a r y o f A c c o u n t i n g

Po l i c i e s

Principles of Consolidation—The consolidated
financial statements include the accounts of Sykes
and its wholly-owned subsidiaries and controlled
majority-owned subsidiaries. All significant intercom-
pany transactions and balances have been eliminated in
consolidation.

Use of Estimates—The preparation of consolidated
financial statements in conformity with accounting prin-
ciples generally accepted in the United States 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.

Recognition of Revenue—The Company primarily
recognizes its revenue from services as those services are
performed under a fully executed contractual agreement.
Royalty revenue is recognized at the time royalties are
earned and the remaining revenue is recognized on fixed
price contracts using the percentage-of-completion
method of accounting. Adjustments to fixed price con-
tracts and estimated losses, if any, are recorded in the
period when such adjustments or losses are known.
Product sales are recognized upon shipment to the cus-
tomer and satisfaction of all obligations.

The Company recognizes revenue from software and
contractually provided rights in accordance with the
American Institute of Certified Public Accountants
(“AICPA”) Statement of Position 97-2, “Software Revenue

Recognition” (“SOP 97-2”), as amended by Statement
of Position 98-4, “Deferral of the Effective Date of a
Provision of SOP 97-2” (“SOP 98-4”), Statement of
Position 98-9, “Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Trans-
actions” (“SOP 98-9”), and Staff Accounting Bulletin
No. 101, “Revenue Recognition in Financial Statements”
(“SAB 101”). Revenue is recognized from licenses of
the Company’s software products and rights when the
agreement has been executed, the product or right has
been delivered or provided, collectibility is probable and
the software license fees or rights are fixed and deter-
minable. Contracts that provide for multiple elements are
accounted for pursuant to the above standards. If any
portion of the license fees or rights is subject to forfeiture,
refund or other contractual contingencies, the Company
will postpone revenue recognition until these contingen-
cies have been removed. Sykes generally accounts for
consulting services separate from software license fees for
those multi-element arrangements where consulting serv-
ices are a separate element and are not essential to the
customer’s functionality requirements and there is ven-
dor-specific objective evidence of fair value for these
services. Revenue from support and maintenance activi-
ties is recognized ratably over the term of the mainte-
nance period and the unrecognized portion is recorded
as deferred revenue.

Accounting Change for Revenue Recognition—
During the fourth quarter of 2000, the Company adopted
SAB 101, which provides guidance on the recognition,
presentation and disclosure of revenue in financial state-
ments filed with the Securities and Exchange Commission
(“SEC”). Based on criteria established by SAB 101,
adopted retroactive to January 1, 2000, the Company
modified its accounting treatment for the recognition
of revenue as it related to contract services. As a result of
the adoption of SAB 101, revenues in certain limited situ-
ations, that were recognized as services were performed
and as the related fees became collectible under agree-
ments between the Company and its customers were
deferred until either a final contract or purchase order
was fully executed.

The cumulative effect of the change on prior years
resulted in a charge to income of $0.9 million (net of
income taxes of $0.6 million) or $0.02 per diluted share,
which was deducted in the determination of income dur-
ing the three month period ended March 31, 2000. The
effect of this change for the year ended December 31,
2000 was to increase income before cumulative effect of
the change in accounting principle by $0.9 million or
$0.02 per diluted share. The pro forma amounts pre-
sented in the statements of operations were presented as
if the change in accounting principle had been made
retroactively to prior periods.

SYKES

Cash and Cash Equivalents—Cash and cash equiv-
alents consist of highly liquid short-term investments
classified as available for sale as defined under Statement
of Financial Accounting Standards No. 115, “Accounting
for Certain Investments in Debt and Equity Securities.”
Cash in the amount of approximately $27.5 million and
$9.8 million was held in taxable interest bearing invest-
ments, which are classified as available for sale and
have an average maturity of approximately 30 days, at
December 31, 2001 and 2000, respectively.

Property and Equipment—Property and equipment
is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective
assets. Improvements to leased premises are amortized
over the shorter of the related lease term or the useful
lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed
from the accounts and any gains or losses resulting there-
from are credited or charged to income. Depreciation
expense was approximately $36.0 million, $35.4 million
and $32.8 million, for the years ended December 31,
2001, 2000 and 1999, respectively. Property and equip-
ment includes approximately $0.5 million and $0.04
million of additions included in accounts payable at
December 31, 2001 and 2000, respectively. Accord-
ingly, these non-cash transactions have been excluded
from the accompanying consolidated statements of
cash flows for the years ended December 31, 2001 and
2000, respectively.

During 1999, the Company capitalized certain costs
incurred to internally develop software upon the establish-
ment of technological feasibility. Costs incurred prior
to the establishment of technological feasibility were
expensed as incurred. Capitalized internally developed
software costs, net of accumulated amortization, were
approximately $0.5 million and $1.6 million at December
31, 2001 and 2000, respectively.

Land received from various local and state governmen-
tal agencies under grants is recorded at fair value at date
of grant. During the years ended December 31, 2001,
2000 and 1999, the Company recorded approximately
$1.0 million, $1.3 million and $1.1 million, respectively,
in land acquisitions as a result of such grants.
Accordingly, these non-cash transactions have been
excluded from the accompanying Consolidated State-
ments of Cash Flows for the years ended December 31,
2001, 2000 and 1999.

Investment in SHPS—The Company has a 6.5%
remaining ownership interest in SHPS, Incorporated
(“SHPS”) that is accounted for at cost. At December 31,
2001 and 2000, the carrying value of this investment
of $2.1 million, which approximates the Company’s
pro rata share of the underlying value, is included in
“Deferred charges and other assets” in the accompanying
Consolidated Balance Sheets. (See Note 7.)

Intangible Assets—Intangible assets primarily
consist of the excess of costs over fair market value of the
net assets of the acquired businesses of $4.8 million and
$8.7 million at December 31, 2001 and 2000, respec-
tively, net of accumulated amortization of $3.2 million
and $5.5 million, respectively. Also included in intangi-
ble assets at December 31, 2000, are existing technolo-
gies and covenants not to compete arising from business
acquisitions of $0.2 million, net of accumulated amorti-
zation of $0.7 million. The intangible assets are stated at
cost and are being amortized on a straight-line basis over
periods ranging from 10 to 20 years for the excess of
costs over fair value of the net assets of the acquired
business, and two to five years for the existing technolo-
gies and covenants not to compete. Amortization
expense was $1.2 million, $4.0 million and $6.0 million
for the years ended December 31, 2001, 2000 and 1999,
respectively.

Impairment of Long-lived Assets—The Company
reviews long-lived assets and certain identifiable intangi-
bles for impairment whenever events or changes in cir-
cumstances indicate that the carrying value of an asset
may not be recoverable. Recoverability of property and
equipment is measured by comparison of its carrying
amount to undiscounted future net cash flows the prop-
erty and equipment are expected to generate. If such
assets are considered to be impaired, the impairment to
be recognized is measured by the amount that the carry-
ing amount of the property and equipment exceeds its
fair market value, as determined by discounted cash
flows. Sykes assesses the recoverability of goodwill by
determining whether the unamortized goodwill balance
can be recovered through undiscounted future results of
the acquired operation. The amount of goodwill impair-
ment, if any, is measured based on projected discounted
future results using a discount rate reflecting the
Company’s average cost of funds. During 2001 and 1999,
the Company recorded an impairment loss of approxi-
mately $1.5 million and $6.0 million, respectively,
related to software and computer equipment.

Income Taxes—Sykes uses the asset and liability
method of accounting for income taxes. Deferred income
taxes are recorded to reflect the tax consequences on
future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory
tax rates applicable to the periods in which the differ-
ences are expected to affect taxable income.

Self-Insurance Programs—The Company self-insures
levels of workers’ compensation and
for certain
employee health insurance. Estimated costs of these self-
insurance programs are accrued at the projected settle-
ments for known and anticipated claims. Self-insurance
liabilities of the Company amounted to $2.3 million and
$3.5 million at December 31, 2001 and 2000, respectively.

SYKES

Recent Accounting Pronouncements—Statement
of Financial Accounting Standards (“SFAS”) No. 133,
“Accounting for Derivative Instruments and Hedging
Activities,” is effective for all fiscal years beginning after
June 15, 2000. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instru-
ments, including certain derivative instruments embed-
ded in other contracts, and for hedging activities. Under
SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a
derivative. The Company adopted SFAS No. 133 effective
January 1, 2001, and the adoption of SFAS No. 133 had
no impact on the financial position, results of operations,
or cash flows of the Company.

In July 2001, the FASB issued SFAS No. 141, “Business
Combinations,” and SFAS No. 142, “Goodwill and Other
Intangible Assets.” SFAS No. 141 requires that the pur-
chase method of accounting be used for all business com-
binations initiated after June 30, 2001. It also specifies the
types of acquired intangible assets that are required to be
recognized and reported separate from goodwill. SFAS
No. 142 requires that goodwill and certain intangibles
with indefinite lives no longer be amortized, but instead
tested for impairment at least annually. Upon adoption of
SFAS 142 effective January 1, 2002, there was no impair-
ment of goodwill and the application of the non-amortiza-
tion provisions of SFAS No. 142 for goodwill is expected
to result in an increase in income from operations of $0.7
million in 2002.

Deferred Grants—Recognition of income associated
with grants of land and the acquisition of property, build-
ings and equipment is deferred until after the completion
and occupancy of the building and title has passed to the
Company and the funds have been released from escrow.
The deferred amounts for both land and building are
amortized and recognized as a reduction of depreciation
expense included within general and administrative costs
over the corresponding useful lives of the related assets.
Amounts received in excess of the cost of the building
are allocated to the cost of equipment and, only after the
grants are released from escrow, recognized as a reduc-
tion of depreciation expense over the weighted average
useful life of the related equipment, which approximates
five years. Amortization of the deferred grants that is
included in income was approximately $2.3 million,
$2.6 million and $1.2 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

Deferred Revenue—The Company invoices certain
contracts in advance. The deferred revenue is earned over
the life of the respective contract, which range from six
months to three years.

Fair Value of Financial Instruments—The follow-
ing 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, Accounts Receivable and Accounts Payable.
The carrying amount reported in the balance sheet for
cash, accounts receivable and accounts payable
approximates their fair value.

• Long-Term Debt. The fair value of the Company’s
long-term debt, including the current portion thereof,
is estimated based on the quoted market price for the
same or similar types of borrowing arrangements. The
carrying value of the Company’s long-term debt
approximates fair value because the debt bears
variable interest rates.
Foreign Currency Translation—The assets and lia-
bilities of the Company’s foreign subsidiaries, whose
functional currency is other than the U.S. Dollar, are
translated at the exchange rates in effect on the reporting
date, and income and expenses are translated at the
weighted average exchange rate during the period. The
net effect of translation gains and losses is not included in
determining net income, but is included in accumulated
other comprehensive income, which is reflected as a sep-
arate component of shareholders’ equity. Foreign cur-
rency transactional gains and losses are included in
determining net income. Such gains and losses are not
material for any period presented.

SYKES

In October 2001, the FASB issued SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-
Lived Assets.” SFAS No. 144 addresses the accounting
and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of” and APB Opinion No. 30,
“Reporting the Results of Operations—Reporting the
Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring
Events and Transactions.” The objective of SFAS No. 144
is to establish one accounting model for long-lived assets
to be disposed of by sale as well as resolve implementa-
tion issues related to SFAS No. 121. The Company
adopted SFAS No. 144 effective January 1, 2002, and
the adoption of this statement had no impact on the
financial position, results of operations, or cash flows of
the Company.

Reclassifications—Certain amounts from prior years
have been reclassified to conform to the current year’s
presentation.

N o t e 2 . A c q u i s i t i o n s a n d

D i s p o s i t i o n s

On August 20, 1999, the Company acquired all
of the common stock of CompuHelpline, Inc., (d/b/a
PC Answer) for approximately $340 thousand consisting
of $40 thousand of cash and approximately 12 thousand
shares of the Company’s common stock. PC Answer was
engaged in developing, marketing and selling prepaid
technical computer support cards and services under the
trademark names of PC Answer and MAC Answer. The
transaction was accounted for under the purchase
method of accounting with resulting goodwill being
amortized over a ten-year life. Pro forma information is
not presented, as the operating results of PC Answer are
not material to the Company’s consolidated operations.
During the first quarter of 2001, the Company deter-
mined the remaining investment in CompuHelpline, Inc.
of $0.2 million was not recoverable, so the balance was
written off and charged to income.

Effective August 31, 1999, the Company acquired all
of the common stock of Acer Servicios de Informacion
Sociedad Anonima (“AIS”) of Heredia, Costa Rica for
$6.0 million in cash. AIS operated an information tech-
nology call center that provided technical support and
services to customers in North America and Central
America. The transaction was accounted for under the
purchase method of accounting with resulting goodwill
being amortized over a ten-year life. Pro forma informa-
tion is not presented, as the operating results of AIS are
not material to the Company’s consolidated operations.

Effective October 12, 1999, the Company acquired
the AnswerExpress Support Suite for $2.5 million in
cash. The transaction was accounted for under the pur-
chase method of accounting with resulting goodwill
being amortized over a ten-year life. Pro forma infor-
mation is not presented as the operating results of
AnswerExpress are not material to the Company’s consol-
idated operations. During the fourth quarter of 2001, the
Company wrote-off property, equipment and intangible
assets of AnswerExpress Support Suite totalling $1.9
million, which is included in the restructuring charge for
2001 as discussed in Note 13.

On June 30, 2000, the Company sold 93.5% of its
ownership interest in SHPS for approximately $165.5
million cash. The cash proceeds reflected in the State-
ment of Cash Flows for 2000 is net of approximately $0.7
million used to retire other debt and approximately $5.0
million of cash recorded on SHPS’ balance sheet as of
the date of the sale. The sale of SHPS resulted in a gain
for financial reporting purposes of approximately $84.0
million ($59.9 million net of taxes). The Consolidated
Statement of Income for 2000 includes the results of
SHPS through June 30, 2000, its disposition date. SHPS
generated revenue and income from operations during
2000 of $35.7 million and $1.7 million, respectively, for
the year ended December 31, 2000 compared to $73.0
million and $5.9 million for the year ended 1999, exclu-
sive of compensation expense associated with the exer-
cise of options.

N o t e 3 . C o n c e n t r a t i o n s o f
C r e d i t R i s k

Financial instruments that potentially subject the
Company to concentrations of credit risk consist princi-
pally of trade receivables. The Company’s credit concen-
trations are limited due to the wide variety of customers
and markets in which the Company’s services are sold,
with the exception of one major customer as discussed in
Note 18.

N o t e 4 . R e c e i v a b l e s

Receivables consist of the following (in thousands):

December 31,

2001

2000

Trade accounts receivable ...................
Income taxes receivable ......................
Note from officer .................................
Other...................................................

$85,233
9,634
—
2,838

$136,363
—
412
6,094

Less allowance for

doubtful accounts ............................

4,183

7,260

97,705

142,869

$93,522

$135,609

SYKES

N o t e 5 . P r o p e r t y a n d E q u i p m e n t

N o t e 8 . A c c r u e d E m p l o y e e

Property and equipment consist of the following (in

thousands):

Land .................................................
Buildings and leasehold

improvements ...............................
Equipment, furniture and fixtures......
Capitalized software

development costs ........................
Transportation equipment .................
Construction in progress ...................

Less accumulated depreciation .........

December 31,

2001

2000

$ 7,296

$ 6,365

60,435
188,378

54,132
178,630

2,191
171
4,796

263,267
122,716

2,896
135
12,188

254,346
102,504

C o m p e n s a t i o n a n d B e n e f i t s

Accrued employee compensation and benefits consist

of the following (in thousands):

Accrued compensation .........................
Accrued employment taxes ...................
Accrued vacation ..................................
Other ....................................................

December 31,

2001

2000

$15,252
4,991
5,939
2,918

$22,650
2,762
4,012
3,322

$29,100

$32,746

N o t e 9 . O t h e r A c c r u e d E x p e n s e s

a n d C u r r e n t L i a b i l i t i e s

$140,551

$151,842

Other accrued expenses and current liabilities consist

of the following (in thousands):

N o t e 6 . M a r k e t a b l e S e c u r i t i e s

During 1997, the Company purchased SystemSoft
Corp. common stock in conjunction with a strategic tech-
nology exchange agreement between the parties that had
an original cost basis of $8.0 million. During 1998, the
Company wrote down its investment in SystemSoft Corp.,
which was classified as available-for-sale securities in
accordance with Statement of Financial Accounting
Standards No. 115, “Accounting for Certain Investments
in Debt and Equity Securities,” by approximately $7.3 mil-
lion due to a significant reduction in its market value,
which was determined to be other than temporary. The
remaining investment was written off in 2000.

N o t e 7 . D e f e r r e d C h a r g e s a n d
O t h e r A s s e t s

Deferred charges and other assets consist of the

following (in thousands):

Convertible preferred stock ...................
Non-current deferred tax

December 31,

2001

2000

$ —

$ 5,500

asset, net ...........................................

5,424

4,911

Investment in SHPS, Incorporated,

at cost ...............................................
Other ....................................................

2,089
1,626

2,089
1,322

$9,139

$13,822

During 2001, the Company returned the convertible pre-
ferred stock to its issuer to settle a lawsuit. (See Note 15.)

Income taxes payable............................
Deferred revenue, current .....................
Accrued roadside assistance

claim costs ........................................
Accrued telephone charges ...................
Accrued legal and professional fees ......
Accrued interest ....................................
Other ....................................................

December 31,

2001

2000

— $ 5,502
2,655

3,214

911
646
1,168
89
7,827

1,289
2,093
1,490
56
9,898

$13,855

$22,983

N o t e 1 0 . L o n g - Te r m D e b t

Long-term debt consists of the following (in thousands):

December 31,
2000
2001

Syndicated multi-currency credit facility,
$15.0 million maximum, expiring
February 2002, interest payable in
accordance with the terms of the
individual promissory notes
outstanding; the facility is guaranteed
by a pledge of common stock of
certain subsidiaries....................................

Notes payable and capital leases,

principal and interest payable in
monthly installments through
December 2002, interest at varying
rates up to prime plus 1 percent,
collateralized by certain equipment ..........

Total debt ......................................................
Less current portion ......................................

$ — $ 8,759

94
94

100

8,859
100

Long-term debt..............................................

$ — $ 8,759

SYKES

Principal maturities of total debt as of December 31,

2001 are as follows (in thousands):

Year

2002 .............................................................................
2003 .............................................................................

Total
Amount

$94
—

$94

On December 21, 2001, the Company amended and
restated its existing credit facilities with a syndicate of
lenders (the “Amended Credit Facilities”). Pursuant to the
terms of the Amended Credit Facilities, the amount of
the Company’s revolving credit facility is $100.0 million.
The $100.0 million revolving credit facility includes a
$10.0 million swingline loan to be used for working cap-
ital purposes. In addition, the Company has a $15.0 mil-
lion multi-currency credit facility that provides for
multi-currency lending. Borrowings under the revolving
credit facility bear interest, at the Company’s option, at
(a) the lender’s base rate plus an applicable margin of up
to 0.50% or (b) a Euro rate plus an applicable margin of
up to 2.25%. Borrowings under the $10.0 million swing-
line loan bear interest, at the Company’s option, at
(a) the lender’s base rate plus an applicable margin of
up to 0.50% or (b) a Quoted Rate for swingline loans.
Borrowings under the $15.0 million multi-currency facil-
ity bear interest, at the Company’s option, at (a) the
lender’s base rate plus an applicable margin of up to
0.50% or (b) a quoted Euro rate for swingline loans. The
Company paid aggregate financing fees of approximately
$0.3 million, which have been deferred and are being
amortized over the terms of the Amended Credit
Facilities. In addition, a commitment fee up to 0.40% will
be charged on the unused portion of the Amended Credit
Facilities on a quarterly basis. The revolving credit facility
expires on February 28, 2003, and the multi-currency
facility expired on February 28, 2002. Borrowings under
the Amended Credit Facilities are guaranteed by all of the
Company’s material subsidiaries as evidenced by a
pledge of between 65% and 100% of the respective
subsidiary’s common stock. Under the terms of the
Amended Credit Facilities, the Company is required to
maintain certain financial ratios and other financial and
non-financial conditions. The Amended Credit Facilities
prohibit, without the consent of the syndicated lenders,

the Company from incurring additional indebtedness,
limits certain investments, advances or loans and restricts
substantial asset sales, capital expenditures, stock repur-
chases and cash dividends.

N o t e 1 1 . A c c u m u l a t e d O t h e r

C o m p r e h e n s i v e L o s s

The Company presents data in the Consolidated
Statements of Changes in Shareholders’ Equity in accor-
dance with SFAS No. 130, “Reporting Comprehensive
Income.” SFAS No. 130 establishes rules for the reporting
of comprehensive income (loss) and its components. The
components of other accumulated comprehensive loss
include foreign currency translation adjustments as
follows (in thousands):

Accumulated
Other
Comprehensive
Loss

Balance at January 1, 1999.................................
Foreign currency translation adjustment .............

$ (1,407)
(4,453)

Balance at December 31, 1999 ..........................
Foreign currency translation adjustment .............

Balance at December 31, 2000 ..........................
Foreign currency translation adjustment .............

(5,860)
(8,222)

(14,082)
(6,130)

Balance at December 31, 2001..........................

$(20,212)

Earnings associated with the Company’s investments in
its foreign subsidiaries are considered to be permanently
invested and no provision for United States federal and
state income taxes on those earnings or translation
adjustments has been provided.

N o t e 1 2 . I n c o m e Ta x e s

The components of income (loss) before provision

(benefit) for income taxes are as follows (in thousands):

Years Ended December 31,
2000
2001

1999

Domestic...........................
Foreign ..............................

$(21,553)
21,739

$43,797
25,100

$14,816
18,704

Total income before

income taxes.............

186

$68,897

$33,520

SYKES

Provision (benefit) for income taxes consists of the

following (in thousands):

December 31,

2001

2000

Years Ended December 31,
1999
2000
2001

Domestic non-current:
Deferred tax asset:

Current:

Federal .............................
State .................................
Foreign.............................

$(5,775)
(960)
1,862

$14,507
2,412
7,875

$ 6,856
1,225
12,306

Total current provision
(benefit) for income
taxes ............................

Deferred:

(4,873)

24,794

20,387

Federal .............................
State .................................
Foreign.............................

(678)
395
4,933

(4,306)
(716)
1,419

(1,088)
(420)
(5,893)

Unrealized loss on security ..............
Intangible assets ...............................
Deferred revenue..............................
Foreign tax credit carryforward.........
Net operating loss carryforward........
Valuation allowance .........................
Other................................................

Total non-current deferred

$ — $ 1,736
920
864
—
83
(348)
265

689
3,228
3,052
3,912
(3,912)
—

tax asset....................................

6,969

3,520

Deferred tax liability:

Property and equipment ...................
Other................................................

(1,214)
—

(2,477)
(734)

Total non-current deferred

tax liability ...............................

(1,214)

(3,211)

Net domestic non-current

deferred tax asset......................

5,755

309

Total deferred provision
(benefit) for income
taxes ............................

Total provision
(benefit) for
income taxes........

4,650

(3,603)

(7,401)

$ (223)

$21,191

$12,986

Foreign non-current:
Deferred tax asset:

The components of the net deferred tax asset (liability)

are as follows (in thousands):

December 31,

2001

2000

Domestic current:
Deferred tax asset:

Accrued expenses.............................
Bad debt reserve...............................
Valuation allowance .........................
Other................................................

$ 3,891
848
—
13

$10,225
1,543
(1,819)
11

Total current deferred

tax asset....................................

4,752

9,960

Deferred tax liability:

Prepaid expenses..............................
Other................................................

(1,120)
—

(240)
(925)

Total current deferred

tax liability ...............................

(1,120)

(1,165)

Net domestic current

deferred tax asset......................

3,632

8,795

Foreign current:
Deferred tax asset:

Net operating loss carryforward........
Valuation allowance .........................

Total foreign current

deferred tax asset......................

Net current deferred tax asset,

included in prepaid expenses
and other current assets....................

—
—

—

1,815
(1,815)

—

$ 3,632

$8,795

Intangible assets ...............................
Net operating loss carryforward........
Deferred revenue..............................
Valuation allowance .........................

7,591
3,799
3,253
(11,390)

1,312
—
5,628
—

Total non-current deferred

tax asset....................................

3,253

6,940

Deferred tax liability:

Property and equipment ...................
Deferred commissions ......................
Untaxed reserve ...............................

(1,141)
(1,348)
(1,095)

(1,342)
—
(996)

Total non-current deferred

tax liability ...............................

(3,584)

(2,338)

Net foreign non-current

deferred tax asset (liability) .......

(331)

4,602

Net non-current deferred tax asset,
included in deferred charges and
other assets.......................................

$ 5,424

$ 4,911

The Company has established a valuation allowance
against those deferred tax assets for which it cannot
be established that it is more likely than not that the
Company will realize the benefit of those assets.

The Company has not recorded deferred income taxes
applicable to undistributed earnings of foreign sub-
sidiaries that are indefinitely reinvested in foreign opera-
tions. Undistributed earnings amounted to approximately
$70.0 million at December 31, 2001, excluding
amounts, which, if remitted, generally would result in
minimal additional U.S. income taxes because of avail-
able foreign tax credits. It is not practical to estimate the
amount of unrecognized deferred U.S. income taxes on
these undistributed earnings.

SYKES

At December 31, 2001, the Company had federal net
operating loss carryforwards of $10.1 million that can
only be offset against the future earnings of an acquired
subsidiary and expire through the year 2021. The Company
also has foreign tax credit carryforwards of $3.1 million
that expire through the year 2006. In addition, the
Company has net operating loss carryforwards of $7.3
million, $0.6 million, $0.9 million and $0.8 million for
France, the Netherlands, Turkey and Italy, respectively. The
net operating loss carryforwards for France and Turkey
expire through the year 2007 and 2006, respectively. The
net operating loss carryforwards for the Netherlands and
Italy have unlimited carryforward periods.

The following summarizes the principal differences
between income taxes at the federal statutory rate and
the effective income tax amounts reflected in the finan-
cial statements (in thousands):

Statutory tax......................... $
State income taxes, net of

Years Ended December 31,
1999
2000

2001

$24,113

$11,732

federal tax benefit ............

(448)

877

521

Effect of foreign income
not subject to federal
and state income tax........

Effect of foreign income
subject to federal and
state income tax net of
foreign tax credits ............

Effect of basis step up in

foreign assets ...................
Effect of loss on disposition
of domestic investment ....

Effect of disposition of

(2,708)

(3,017)

340

(5,043)

(3,307)

—

foreign subsidiary.............

(917)

Valuation on unrealized
loss on marketable
security ............................

Valuation on foreign and
domestic net operating
loss carryforwards and
foreign asset basis
step up.............................

Non-deductible

—

(2,546)

10,598

3,412

amortization ....................

262

410

—

430

514

Years Ended December 31,
1999
2000

2001

774

$ 5,647

$ (1,468)

—
161
—

(7,280)
296
(721)

—
440
808

Foreign taxes, net of foreign
income not taxed in the
United States.................... $

Tax basis difference on sale

of equity interest in
SHPS, Incorporated..........
Permanent differences..........
Other ...................................

Total provision (benefit)

for income taxes .......... $ (223)

$21,191

$12,986

N o t e 1 3 . R e s t r u c t u r i n g a n d

O t h e r C h a r g e s

2001 Charges

In December 2001, in response to the economic slow-
down and increasing demand for the Company’s offshore
capabilities, the Company approved a cost reduction
plan designed to improve efficiencies in its core busi-
nesses. As a result of the Company’s cost reduction plan,
the Company recorded $16.1 million in restructuring,
other and impairment charges during the fourth quarter
of 2001. This included $14.6 million in charges related to
the closure and consolidation of two U.S. Business
Services customer support centers, two U.S. Business
Solutions offices, one European fulfillment center, the
elimination of redundant property leasehold improve-
ments and equipment, lease termination costs associated
with vacated properties and equipment, and severance
and related costs. In addition, the Company plans to
reduce the number of employees by 230 by the end of
March 2002. The restructuring charge also includes $1.4
million for future lease obligations related to the closed
facilities. The Company also recorded a $1.5 million
impairment charge related to the write-off of certain non-
performing assets, including software and equipment no
longer used by the Company.

The following table summarizes the 2001 restructuring and other charges and related activity (in thousands):

Balance at
December 31, 2000

Severance and related costs...............................
Lease termination costs......................................
Write-down of property, equipment,

and capitalized costs .....................................
Write-down of intangible assets.........................
Other restructuring costs....................................

Impairment of software and equipment .............

$—
—

—
—
—

—
—

2001
Charges

$ 1,456
1,426

8,826
2,600
292

14,600
1,480

Cash

Other Non-

Balance at

Outlays Cash Changes December 31, 2001(1)

$ (33)
(71)

$ —
—

—
—
—

(104)
—

(5,606)
(2,600)
—

(8,206)
(1,480)

$1,423
1,355

3,220
—
292

6,290
—

Total ..........................................................

$—

$16,080

$(104)

$(9,686)

$6,290

(1) Included in “Accounts Payable” in the accompanying Consolidated Balance Sheet.

SYKES

2000 Charges

The Company recorded restructuring and other
charges during the second and fourth quarters of 2000
approximating $30.5 million. The second quarter restruc-
turing and other charges approximating $9.6 million
resulted from the Company’s consolidation of several
European and one U.S. fulfillment center and the closing
or consolidation of six professional services offices.
Included in the second quarter 2000 restructuring and
other charges was a $3.5 million lease termination pay-
ment related to the corporate aircraft. As a result of the
second quarter 2000 restructuring, the Company reduced
the number of employees by 157 during 2000 and satis-
fied the remaining lease obligations related to the closed
facilities during 2001.

The Company also announced, after a comprehensive
review of operations, its decision to exit certain non-core,

lower margin businesses to reduce costs, improve operat-
ing efficiencies and focus on its core competencies of
technical support, customer service and consulting solu-
tions. As a result, the Company recorded $20.9 million in
restructuring and other charges during the fourth quarter
of 2000 related to the closure of its U.S. fulfillment opera-
tions, the consolidation of its Tampa, Florida technical
support center and the exit of its worldwide localization
operations. Included in the fourth quarter 2000 restruc-
turing and other charges is a $2.4 million severance pay-
ment related to the employment contract of the Company’s
former President. In connection with the fourth quarter
2000 restructuring, the Company reduced the number of
employees by 245 during the first half of 2001 and satis-
fied a significant portion of the remaining lease obliga-
tions related to the closed facilities during 2001.

The following table summarizes the 2000 accrual for restructuring and other charges and related activity in 2001

(in thousands):

Other
Non-Cash
Changes

Balance at
December 31,
2001(1)

Severance and related costs .....................................
Lease termination costs ............................................
Write-down of property and equipment ...................
Write-down of intangible assets ...............................
Other restructuring costs ..........................................

Balance at
January 1,
2001

$3,062
1,288
—
—
718

Total .....................................................................

$5,068

Balance at
January 1,
2000

$ —
—
—
—
—

2001
Charges

—
—
—
—
—

—

2000
Charges

$ 3,974
5,404
14,191
6,086
813

Cash
Outlays

$(1,288)
(1,145)
—
—
(718)

(289)
—
—
—
—

$(3,151)

(289)

Cash
Outlays

$ (912)
(4,116)
—
—
(95)

Other
Non-Cash
Changes

—
—
(14,191)
(6,086)
—

Total .....................................................................

$ —

$30,468

$(5,123)

$(20,277)

$1,485
143
—
—
—

$1,628

Balance at
December 31,
2000(1)

$3,062
1,288
—
—
718

$5,068

(1) Severance and related costs are included in “Accrued employee compensation and benefits” and lease termination costs are included in “Other accrued

expenses and current liabilities” in the accompanying Consolidated Balance Sheets.

N o t e 1 4 . E a r n i n g s Pe r S h a r e

Basic earnings per share are based on the weighted average number of common shares outstanding during the periods.
Diluted earnings per share includes the weighted average number of common shares outstanding during the respective
periods and the further dilutive effect, if any, from stock options using the treasury stock method.

The number of shares used in the earnings per share computation are as follows (in thousands):

Years Ended December 31,
1999
2000
2001

Basic:

Weighted average common shares outstanding .................................................................................

40,183

41,518

42,045

Diluted:

Dilutive effect of stock options ..........................................................................................................

285

127

950

Total weighted average diluted shares outstanding ........................................................................

40,468

41,645

42,995

SYKES

N o t e 1 5 . C o m m i t m e n t s a n d

C o n t i n g e n c i e s

The Company leases certain equipment and buildings
under operating leases having original terms ranging from
one to twenty-two years. The building leases contain up
to two five-year renewal options. Rental expense under
operating leases for the years ended December 31, 2001,
2000 and 1999 was approximately $12.1 million, $17.4
million, and $16.7 million, respectively.

The following is a schedule of future minimum rental
payments under operating leases having a remaining
non-cancelable term in excess of one year subsequent to
December 31, 2001 (in thousands):

Year

2002........................................................................
2003........................................................................
2004........................................................................
2005........................................................................
2006........................................................................
Thereafter ................................................................

Total
Amount

$11,225
7,752
5,318
3,377
3,078
18,873

Total minimum payments required ......................

$49,623

A lease agreement, relating to the Company’s customer
support center in Ireland, contains a cancellation clause
which requires the Company, in the event of cancella-
tion, to restore the facility to its original state at an esti-
mated cost of $0.3 million as of December 31, 2001 and
pay a cancellation fee of $0.4 million, which approxi-
mates the annual rental payments under the lease agree-
ment. In addition, under certain circumstances (including
cancellation of the lease and cessation of the support
center’s operations in the facility), the Company is contin-
gently liable until June 16, 2005 to repay any proceeds
received in association with the facility’s grant agree-
ment. As of December 31, 2001, the grant proceeds
subject to repayment approximated $1.2 million. As
of December 31, 2001, the Company had no plans to
cancel this lease agreement.

In 2001, the Company entered into an agreement with
a third party vendor whereby the Company committed to
purchase goods and services used in its normal operations
during a two-year period. Future annual minimum pur-
chases remaining under the agreement are $2.4 million
and $2.3 million in 2002 and 2003, respectively. During
2001, the Company’s total purchases under the agreement
were $2.3 million.

Securities Exchange Act of 1934 and Rule 10b-5 promul-
gated thereunder. Among other things, the consolidated
action alleges that during 2000, 1999, and 1998, the
Company and certain of its officers made materially false
statements concerning the Company’s financial condition
and its future prospects. The consolidated complaint also
claims that certain of the Company’s quarterly financial
statements during 1999 and 1998 were not prepared in
accordance with generally accepted accounting princi-
ples. The consolidated action seeks compensatory and
other damages, and costs and expenses associated with
the litigation. Although the Company denies the plaintiff’s
allegations and intends to defend the actions vigorously,
it cannot predict the outcome or the impact this action
may have on the Company. The outcome of this lawsuit
or any future lawsuits, claims, or investigations relating to
the same subject matter may have a material adverse
impact on the Company’s financial condition and results
of operations.

During the third quarter of 2001, the Company suc-
cessfully settled the lawsuit filed by Kyrus Corporation
that asserted functionality issues associated with software
that Kyrus had licensed from the Company in 1998. In
settlement of the lawsuit, the Company returned 1.0 mil-
lion shares of Kyrus convertible preferred stock valued at
$5.5 million, originally received in exchange for the
license. Upon return of the stock, the Company received
a $5.0 million cash payment from its insurance carrier.
The remaining $0.5 million investment in the Kyrus pre-
ferred stock was written off against previously established
reserves, and accordingly, there was no impact from this
settlement on the results of operations.

The Company from time to time is involved in other
legal actions arising in the ordinary course of business.
With respect to these matters, management believes that
it has adequate legal defenses and/or provided adequate
accruals for related costs such that the ultimate outcome
will not have a material adverse effect on the Company’s
financial position or results of operations.

N o t e 1 6 . E m p l o y e e B e n e f i t P l a n

The Company maintains a 401(k) plan covering
defined employees who meet established eligibility
requirements. Under the original plan provisions, the
Company matched 25% of participant contributions to a
maximum matching amount of 1% of participant com-
pensation. During 1997, the Company increased the
401(k) matching provision to 50% of participating con-
tributions to a maximum matching amount of 2% of par-
ticipant compensation. The Company contribution was
$1.0 million, $0.9 million and $0.8 million for the years
ended December 31, 2001, 2000 and 1999, respec-
tively. In addition, two of the Company’s subsidiaries
maintained separate defined contribution plans, one of

SYKES

which was merged into the Company’s 401(k) plan
effective January 1, 1998 and the second one was termi-
nated with the Company’s sale of SHPS, Incorporated.
The combined contributions made to these plans were
approximately $0.2 million and $0.1 million for the years
ended December 31, 2000 and 1999, respectively (none
in 2001).

N o t e 1 7 . S t o c k O p t i o n s

The Company maintains various stock option plans
for its employees. Options to employees are granted at
not less than fair market value on the date of the grant
and generally vest over one to four years except for
0.36 million outstanding options converted pursuant to
the 1997 acquisition of McQueen International Limited
(“McQueen”), which were immediately exercisable. All
options granted to employees under the Company’s stock
option plans expire if not exercised by the tenth anniver-
sary of their grant date with the exception of the
McQueen outstanding options, which expire five years
from their grant date.

The Company also maintains a stock option plan that
permits the granting of non-qualified stock options to
members of the Board of Directors who are not employ-
ees of the Company. Each outside director receives
options to purchase 7.5 thousand shares of common stock
(effective January 1, 2002, 10.0 thousand shares of com-
mon stock) on the day following the Annual Shareholders’
Meeting. Also, on the date on which a new outside direc-
tor is first elected or appointed, he or she is granted
options to purchase 7.5 thousand shares of common stock
(effective January 1, 2002, 25.0 thousand shares of com-
mon stock). All options are granted at not less than fair

market value on the date of grant and generally vest over
one to four years. All options granted to non-employees
expire if not exercised by the tenth anniversary of their
grant date.

At December 31, 2001, there were 7.4 million shares
of common stock reserved for issuance under all of the
Company’s stock option plans. For all plans, options of
1.6 million, 0.4 million, and 0.4 million were exercisable
at December 31, 2001, 2000 and 1999 with a weighted
average exercise price of $14.70, $22.54 and $20.65,
respectively. There were 6.6 million, 6.3 million and 3.9
million shares available for grant under the plans at
December 31, 2001, 2000, and 1999, respectively.

The following table summarizes stock option activity

for each of the three years ended December 31:

Weighted
Average
Exercise
Price

Shares
(In thousands)

Outstanding at January 1, 1999 ............
Granted.............................................
Exercised...........................................
Expired or terminated........................

Outstanding at December 31, 1999......
Granted.............................................
Exercised...........................................
Expired or terminated........................

Outstanding at December 31, 2000......
Granted.............................................
Exercised...........................................
Expired or terminated........................

2,290
1,050
(685)
(725)

1,930
3,115
(91)
(1,480)

3,474
496
(116)
(1,114)

$20.36
$24.46
$17.59
$21.19

$23.23
$14.32
$20.81
$21.00

$16.25
$ 7.67
$ 4.05
$18.38

Outstanding at December 31, 2001 .....

2,740

$14.35

The following table further summarizes significant ranges of outstanding and exercisable options at December 31, 2001:

Range Of
Exercise Prices

Number
Outstanding at
Dec. 31, 2001
(In thousands)

Weighted Weighted
Average
Average
Exercise
Remaining
Price
Life

Number
Exercisable at
Dec. 31, 2001
(In thousands)

Weighted
Average
Exercise
Price

under $4.00 ........................................................................
$ 4.01 to $ 6.00 ................................................................
$ 6.01 to $ 9.00 ................................................................
$ 9.01 to $13.00 ................................................................
$13.01 to $19.00 ................................................................
$19.01 to $28.00 ................................................................
over $28.00 ........................................................................

Total................................................................................

7
692
178
130
1,348
300
85

2,740

7.6
9.0
9.1
9.6
8.2
6.4
7.1

8.3

$ 3.25
$ 4.53
$ 7.92
$11.16
$17.53
$23.48
$30.76

$14.35

1
509
21
2
725
280
57

1,595

$ 0.91
$ 4.24
$ 8.00
$11.28
$17.57
$23.64
$30.76

$14.70

SYKES

The pro forma amounts were determined using the
Black-Scholes valuation model with the following key
assumptions: (i) a discount rate of 6.0% for 2001, a dis-
count rate of 6.2% for 2000, and a discount rate of 6.1%
for 1999; (ii) a volatility factor of 85.1% based upon the
average trading price of the Company’s common stock
since it began trading on the Nasdaq National Market;
(iii) no dividend yield; and (iv) an average expected
option life of five years (three years for the ESPP) for 2001
and 2000 and an average expected option life of four
years (two years for the ESPP) for 1999. In addition, the
pro forma amount for 2001, 2000 and 1999 includes
approximately $0.2 million, $0.2 million and $0.1 mil-
lion, respectively, related to purchase discounts offered
under the ESPP.

N o t e 1 8 . S e g m e n t s a n d G e o g r a p h i c

I n f o r m a t i o n

The Company has two reportable segments comprised
of regional operating segments aggregated into reportable
segments entitled Business Services and Business
Solutions. These segments are consistent with the
Company’s management of these businesses and gener-
ally reflect its financial reporting structure and operating
focus. The Business Services group represents approxi-
mately 93% of the Company’s consolidated revenues for
2001 and is comprised of the Company’s customer sup-
port outsourcing with emphasis on technical support and
customer service and fulfillment businesses. These serv-
ices are delivered through multiple communication chan-
nels encompassing phone, e-mail, web, and chat. The
Business Solutions group, which represents approxi-
mately 7% of the Company’s consolidated revenues for
2001, provides consultative professional services and
technical staffing in customer relationship manage-
ment (CRM) with a focus on business strategy, project
management, business process redesign, change man-
agement, knowledge management, education, training
and web development.

Employee Stock Purchase Plan—The Company’s
Employee Stock Purchase Plan (the “ESPP”) allows eligi-
ble employee participants to purchase shares of the
Company’s common stock at a discount through payroll
deductions. The ESPP, which qualifies under Code
Section 423 of the Internal Revenue Code of 1986, was
adopted by the Company’s Board of Directors on April 1,
1999 and approved by the shareholders. Pursuant to the
ESPP, Sykes reserved 1.0 million shares of its common
stock for issuance.

Under the ESPP, eligible employees may purchase the
Company common stock at 87.5% of the market price on
the last day of the offering period. The maximum each
employee may purchase within an offering period shall
not exceed $6.25 thousand in market value of Company
common stock. The Company will typically have four
three-month offering periods each year.

The weighted average fair value share price of the pur-
chase rights granted under the ESPP during the year ended
December 31, 2001 was $6.34. For the years ended
December 31, 2001 and 2000, 0.06 million and 0.09 mil-
lion, respectively, of such shares were purchased and 0.84
million shares remain available for future issuance.

The Company has adopted the disclosure only provi-
sions of Statement of Financial Accounting Standards
No. 123, “Accounting for Stock Based Compensation”
but applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its plans.
Therefore, no compensation expense has been recog-
nized for stock options granted at fair market value under
its plans.

If the Company had elected to recognize compensa-
tion expense for stock options based on the fair value at
grant date, consistent with the method prescribed by
SFAS No. 123, net income and earnings per share would
have been reduced to the pro forma amounts as follows
(in thousands except per share amounts):

Years Ended December 31,
1999
2000

2001

409

$46,787

$20,534

(2,633)

41,729

13,091

Net income as reported ......
Pro forma net income
(loss) as prescribed
by SFAS 123 ...................

Net income per diluted

share as reported ............

0.01

1.13

0.48

Pro forma net income
(loss) per diluted
share as prescribed
by SFAS 123 ...................

(0.07)

1.00

0.30

SYKES

Information about the Company’s reportable segments for the years ended December 31, 2001, 2000 and 1999 is as

follows (in thousands):

For the Year Ended December 31, 2001:
Revenues ..........................................................................................................
Depreciation and amortization .........................................................................
Income (loss) from operations before restructuring and

other charges and impairment of long-lived assets .......................................
Restructuring and other charges .......................................................................
Impairment of long-lived assets ........................................................................
Other income ...................................................................................................
Benefit for income taxes ...................................................................................

Net income ......................................................................................................

For the Year Ended December 31, 2000:
Revenues ..........................................................................................................
Depreciation and amortization .........................................................................
Income (loss) from operations before compensation
expense associated with exercise of options and
restructuring and other charges ....................................................................
Compensation expense associated with exercise of options .............................
Restructuring and other charges .......................................................................
Other income ...................................................................................................
Provision for income taxes ...............................................................................
Cumulative effect of change in accounting principle........................................

Net income ......................................................................................................

For the Year Ended December 31, 1999:
Revenues ..........................................................................................................
Depreciation and amortization .........................................................................
Income (loss) from operations before impairment

of long-lived assets .......................................................................................
Impairment of long-lived assets ........................................................................
Other expense ..................................................................................................
Provision for income taxes ...............................................................................

Net income ......................................................................................................

Business
Services

Business
Solutions

Other (1)

Consolidated
Total

$460,142(2)
34,491

$36,580
446

—
—

$496,722
34,937

$ 18,769(2)

$ (2,554)

—
(14,600)
(1,480)
51
223

$ 16,215
(14,600)
(1,480)
51
223

409

$550,920 (2)
35,828

$52,686(3) $

1,001

—
—

$603,606
36,829

$ 26,522 (2)

$ (526)(3) $

—
(7,836)
(30,468)
81,205
(21,191)
(919)

$ 25,996
(7,836)
(30,468)
81,205
(21,191)
(919)

$ 46,787

$521,967 (2)
36,841

$50,775(3) $
729

—
—

$572,742
37,570

$ 44,386 (2)

$ (1,370)(3) $

—
(5,979)
(3,517)
(12,986)

$ 43,016
(5,979)
(3,517)
(12,986)

$ 20,534

(1) Other items are shown for purposes of reconciling to the Company’s consolidated totals as shown in the table above for the three years ended
December 31, 2001. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies.
Inter-segment revenues are not material to the Business Services and Business Solutions segment results. Total assets are not disclosed since they are not
identified and reported by segment to the Company’s management.

(2) Business Services revenue includes $0.7 million, $59.7 million and $119.4 million for the years ended December 31, 2001, 2000 and 1999, respec-
tively, from SHPS, Incorporated, a previously wholly-owned subsidiary of the Company, which was sold in June 2000 and U.S. fulfillment, a business in
which the Company exited in connection with the fourth quarter 2000 restructuring. The Company continues to operate its European fulfillment
business. Additionally, income (loss) from operations includes income of $0.1 million, a loss of $1.4 million and income of $5.2 million for the years
ended December 2001, 2000 and 1999, respectively, from SHPS and U.S. fulfillment.

(3) Business Solutions revenue includes $8.6 million and $9.3 million for the years ended December 31, 2000 and 1999, respectively, from the Company’s
localization operations, a business in which the Company exited in connection with the fourth quarter 2000 restructuring. Additionally, income (loss)
from operations includes a loss of $0.8 million and $2.3 million for the years ended December 31, 2000 and 1999, respectively, from localization.

SYKES

Total revenues, primarily Business Services’ revenues,
includes $58.5 million, or 11.8% of consolidated rev-
enues, and $35.6 million, or 6.3% of consolidated
revenues, for the years ended December 31, 2001 and
2000, respectively, from a major provider of communica-
tions services (none in 1999).

Information about the Company’s operations by geo-

graphic location is as follows (in thousands):

Years Ended December 31,
2000

1999

2001

Revenues:

United States ................
Canada .........................
Costa Rica ....................

$250,285
51,229
11,131

$335,166
46,792
8,310

$352,626
36,521
2,194

Total Americas ..........

312,645

390,268

391,341

Germany.......................
United Kingdom
(including
the Philippines).........
Other ............................

68,856

70,024

43,355

72,295
42,926

91,898
51,416

93,012
45,034

Total International.....

184,077

213,338

181,401

Total .....................

$496,722

$603,606

$572,742

Long-lived assets:

United States ................
Canada .........................
Costa Rica ....................

$100,125
9,791
3,361

$110,660
8,948
1,665

$158,154
8,646
1,642

Total Americas ..........

113,277

121,273

168,442

7,572

7,533

3,283

Germany.......................
United Kingdom
(including
the Philippines).........
Other ............................

Total International.....

32,090

39,430

17,528
6,990

23,125
8,772

28,776
11,086

43,145

Total .....................

$145,367

$160,703

$211,587

N o t e 1 9 . R e l a t e d Pa r t y Tr a n s a c t i o n s

During 2000, the Company terminated its ten-year
operating lease agreement with the Company’s Chairman
(and majority shareholder) for its corporate aircraft and
paid a lease termination fee of $3.5 million. This lease
termination payment is included in restructuring and
other charges in the accompanying Consolidated
Statement of Operations for the year ended December
31, 2000. Since the lease termination, the Company paid
the Chairman (and majority shareholder) $0.8 million
and $0.2 million for the use of the corporate aircraft in
2001 and 2000, respectively. The lease expense for each
of the years ended December 31, 2000 and 1999, exclu-
sive of lease termination payments, was $0.3 million and
$0.6 million, respectively.

During the years ended December 31, 2001 and 2000,
the Company also paid a company, in which the
Chairman (and majority shareholder) has an 80% equity
interest, $0.5 million and $0.2 million, respectively, for
management and site development services. This arrange-
ment was terminated in July 2001.

A member of the board of directors of the Company
received broker commissions from the Company’s 401(k)
investment firm of $0.03 million for each of the years
ended December 31, 2001, 2000, and 1999, respec-
tively, and insurance commissions for the placement of
the Company’s various corporate insurance programs of
$0.08 million for each of the years ended December 31,
2001, 2000 and 1999, respectively.

SYKES

Schedule II—Valuation and Qualifying Accounts
Years ended December 31, 2001, 2000 and 1999

(In thousands)

Allowance for doubtful accounts:

Additions
Balance at Charged to
Costs and
Beginning
Expenses
of Period

Reclassifications (1) Deductions (2)

Balance at
End of
Period

Year ended December 31, 2001......................
Year ended December 31, 2000 ......................
Year ended December 31, 1999 ......................

$7,260
2,440
796

$2,575
7,621
2,202

$ —
—
—

$5,652
2,801
558

$ 4,183
7,260
2,440

Domestic current deferred tax asset

valuation allowance:

Year ended December 31, 2001......................
Year ended December 31, 2000 ......................
Year ended December 31, 1999 ......................

$1,819
—
—

$ —
1,819
—

Foreign current deferred tax asset

valuation allowance:

Year ended December 31, 2001......................
Year ended December 31, 2000 ......................
Year ended December 31, 1999 ......................

$1,815
1,240
—

$ —
1,593
626

Domestic non-current deferred tax asset

valuation allowance:

$(1,819)
—
—

$(1,815)
—
704

$ —
—
—

$ —
1,018
90

—
1,819
—

—
1,815
1,240

Year ended December 31, 2001......................
Year ended December 31, 2000 ......................
Year ended December 31, 1999 ......................

$ 348
2,894
3,000

$3,564
—
—

$ —
—
—

$ —
2,546
106

$ 3,912
348
2,894

Foreign non-current deferred tax

valuation allowance:

Year ended December 31, 2001......................
Year ended December 31, 2000 ......................
Year ended December 31, 1999 ......................

$ —
—
704

$7,034
—
—

$ 4,363
—
(704)

7
—
—

$11,390
—
—

(1) Amounts have been reclassified for reporting purposes.
(2) Write-offs and recoveries.

C o r p o r a t e I n f o r m a t i o n

Board of Directors

Principal Officers

Corporate Information

John H. Sykes
Chairman of the Board
President and Chief Executive Officer
Sykes Enterprises, Incorporated

Furman P. Bodenheimer, Jr.
President and Chief Executive Officer
Nantahala Lumber Company and
Zickgraf Enterprises, Inc.

H. Parks Helms, Esq.
Managing Partner for Helms, Cannon,
Henderson & Porter, P.A.

Gordon H. Loetz
Vice Chairman of the Board
Sykes Enterprises, Incorporated

Linda F. McClintock-Greco M.D.
President and Chief Executive Officer
Greco & Associates Consulting
(Healthcare)

Hugh L. McColl, Jr.
Chairman and
Chief Executive Officer (retired)
Bank of America
Director of Ruddick Corporation;
Sonoco Products Company;
and Cousins Properties, Inc.

John H. Sykes
Chairman of the Board
President and Chief Executive Officer

W. Michael Kipphut
Group Executive,
Senior Vice President and
Chief Financial Officer

Charles E. Sykes
General Manager,
Senior Vice President–Americas

Harry A. Jackson, Jr.
General Manager,
Senior Vice President–EMEA

Gerry L. Rogers
Group Executive and
Senior Vice President,
Chief Information Officer

Jenna R. Nelson
Group Executive and
Senior Vice President,
Human Resources and Administration

James T. Holder
General Counsel and
Corporate Secretary

Corporate Headquarters:
100 North Tampa Street
Suite 3900
Tampa, FL USA 33602
(813) 274-1000
Fax (813) 273-0148
www.sykes.com

Corporate Counsel:
Foley & Lardner
100 North Tampa Street
Suite 2700
Tampa, FL USA 33602

Independent Auditors:
Deloitte & Touche LLP
201 E. Kennedy Boulevard
Suite 1200
Tampa, FL USA 33602

Registrar and Transfer Agent:
U.S. Bank, N.A.
1555 North River Center Drive
Suite 301
Milwaukee, WI USA 53212
(800) 637-7549

William J. Meurer
Managing Partner (retired) for Arthur
Andersen’s Central Florida operations

William N. Rocktoff
Vice President and Controller

Sykes’ shares trade on
The Nasdaq Stock Market(cid:2)
under the symbol “SYKE”

Conway W. Jensen
Vice President, Public Relations and
Corporate Administration

Ernest J. Milani
President (retired) of
CDI Corporation Northeast and
CDI Technical Services, Ltd.

Thomas F. Skelly
Senior Vice President of Finance and
Chief Financial Officer (retired)
The Gillette Company
Director of Signal Technology

Annual Meeting:
Sykes’ annual meeting of shareholders
will be held at 10:00 a.m. (EST) Friday,
April 26, 2002. The meeting will
be held at:
Tampa Marriott Waterside
700 South Florida Avenue
Tampa, FL USA 33602

Investor Information:
Quarterly reports on Form 10-Q and
the Form 10-K Annual Report filed
with the Securities and Exchange
Commission are available upon writ-
ten request to Sykes’ Investor Relations
department in Tampa, Florida or by
contacting:

Kristin L. Wiemer
Director, Investor Relations
(813) 274-1000

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Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602