Sykes Enterprises, Incorporated Annual Report 2006

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FY2006 Annual Report · Sykes Enterprises, Incorporated

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I am SYKES

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Sykes Enterprises, Incorporated

400 North Ashley Drive

Suite 2800

Tampa, Florida 33602-5089

USA 1.800.867.9537

Intl. +1.813.274.1000

www.sykes.com

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SYKES is a global leader in providing customer contact management solutions and

services in the business process outsourcing (BPO) arena. SYKES provides an array of

sophisticated customer contact management solutions to Fortune 1000 companies

around the world, primarily in the communications, financial services, healthcare,

technology and transportation and leisure industries. SYKES specializes in providing

flexible, high-quality customer support outsourcing solutions with an emphasis on

inbound technical support and customer service. Headquartered in Tampa, Florida,

with customer contact management centers throughout the world, SYKES provides its

PAUL L. WHITING

Chairman of the Board

Chief Executive Officer (retired)

Spalding and Evenflo

CHARLES E. SYKES

Director (Principal Executive Officer)

President and Chief Executive Officer

Sykes Enterprises, Incorporated

MARK C. BOZEK

Director

Chief Executive Officer

Halo Entertainment

services through multiple communication channels encompassing phone, e-mail, web

FURMAN P. BODENHEIMER, JR.

Director

Chairman

Murray Corporation

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CHARLES E. SYKES

President and Chief Executive Officer

W. MICHAEL KIPPHUT

Senior Vice President and

Chief Financial Officer

DAVID P. REULE

President, Sykes Realty Inc.

(a real estate subsidiary)

BBOOAARRDD OOFF DDIIRREECCTTOORRSS

JAMES (JACK) K. MURRAY, JR.

and chat. Utilizing its integrated onshore/offshore global delivery model, SYKES serves

its clients through two geographic operating segments: the Americas (United States,

Canada, Latin America and Asia Pacific) and EMEA (Europe, Middle East and

Africa). SYKES also provides various enterprise support services in the Americas and

fulfillment services in EMEA, which include multilingual sales order processing,

payment processing, inventory control, product delivery and product returns handling.

For additional information, please visit www.sykes.com.

I am global

Director

JAMES C. HOBBY

President and Chief Executive Officer

Senior Vice President,

Nantahala Lumber Company and

Global Operations

Zickgraf Enterprises, Inc.

LT. GEN. MICHAEL P. DELONG
(retired)

Director

Corporate Vice President of Strategic

Planning and Operations

The Shaw Group

H. PARKS HELMS, ESQ.

Director

Managing Partner for

Helms, Henderson & Fulton, P.A.

IAIN A. MACDONALD

Director

Chairman of Yakara, plc

JAMES S. MACLEOD

Director

Managing Director

CoastalStates Bank

LINDA F. MCCLINTOCK-GRECO M.D.

Director

President and Chief Executive Officer

Greco & Associates Consulting

(Healthcare)

WILLIAM J. MEURER

Director

Managing Partner (retired) for Arthur
Andersen’s Central Florida operations

Director of Heritage Family of Funds

JENNA R. NELSON

Senior Vice President,

Human Resources

DANIEL L. HERNANDEZ

Senior Vice President,

Global Strategy

LAWRENCE (LANCE) R. ZINGALE

Senior Vice President,

Global Sales and Client Management

DAVID L. PEARSON

Senior Vice President and

Chief Information Officer

JAMES T. HOLDER

Senior Vice President, General Counsel

and Corporate Secretary

WILLIAM N. ROCKTOFF

Vice President and

Corporate Controller

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Corporate Headquarters:
400 North Ashley Drive,
Suite 2800
Tampa, FL USA 33602
(813) 274-1000
Fax (813) 273-0148
www.sykes.com

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

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Computershare
P.O. Box 43078
Providence, RI 02940-3078
(800) 568-3476
Sykes’ shares trade on The Nasdaq
Stock Market under the symbol
“SYKE”

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Sykes’ annual meeting of shareholders
will be held at 9 a.m. (ET)
Wednesday, May 23, 2007.
The meeting will be held at:

Tampa Mariott Waterside
700 South Florida Avenue
Tampa, FL 33602

IINNVVEESSTTOORR IINNFFOORRMMAATTIIOONN
Quarterly Reports on Form 10-Q
and the Form 10-K Annual Report
filed with the Securities and Exchange
Commission are available on the
Company’s website at
www.sykes.com/investors.asp under
the heading “Financial Reports -
SEC Filings,” or upon written
request to Sykes’ Investor Relations
department in Tampa, Florida or
by contacting:

SUBHAASH KUMAR
Senior Director, Investor Relations
(813) 274-1000
Corporate Information

2006

SYKESWorldwidePresence

D EAR S HA REHO L DERS :

It is our philosophy to communicate with you in a manner consistent with how we operate
our business: setting out clear objectives and our best projections and executing against them. Toward
that pursuit, we present our achievements and challenges in equal measure with the hope of equipping
you, the investor, with insights on how we think about our business and empowering you to make
informed investment decisions. This is the foundation of our shareholder letter this year, just as it
was last year, as we laid out specific initiatives for 2006 for sustaining the growth engine. These
initiatives were supported with insights on how we were competitively positioned in the customer
contact management industry. Concurrent with those initiatives were explicit financial projections.

So how did 2006 shape up? The short answer is: We delivered all that and much more.

By targeting existing and new clients, by being leveraged to growing verticals and business lines,

by aligning capacity growth with client demand and by driving penetration in the right emerging
markets, we made solid progress toward sustaining the growth engine in 2006. And the financial
results speak for themselves:

•• In 2006, we projected organic revenue growth between $515 million and $540 million, we
delivered organic revenues of $559.1, up 13% year over year, and more than double the
percentage growth rate of 2005 over 2004;

•• We projected a long-term sustainable operating margin range of 6% to 8%, and we took the

first step in that direction by delivering operating margins
of 5.9%, a significant progress toward that goal, and 90
basis points above 2005 levels; and

•• We projected earnings per share between $0.52 and $0.60
excluding one-time gains, and we delivered earnings per
share of $0.77. This was up 37.5% year-over-year and
exceeded the top-end of the range by 28.3%.

Looking to 2007, we plan to invest in our top-line
growth as part of a central effort to sustain the growth engine
long-term. This will be accomplished through a rebalancing
of our growth levers by slightly accelerating investments in
capacity together with continued optimization. We will con-
tinue to build on increasing capacity utilization rates, vertical
diversification, new product introduction and expanding
emerging market beachheads. Before we expand on the
growth agenda for 2007, we would like to touch on the health
of the contact management industry across our markets by
looking at various key indicators.

Charles E. Sykes, President and Chief Executive Officer (right)
W. Michael Kipphut, Senior Vice President and Chief Financial Officer (left)

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Just as the 2001-2002 economic downturn exposed some of the imbalances in the customer

contact management industry, the current economic upturn has the potential to unwind some of
the progress made toward correcting those imbalances. To keep ourselves apprised of potential
imbalances, we keep a close eye on various key indicators relative to the key markets and key

delivery geographies in which we operate. Capacity additions, demand growth, pricing on new
contracts and renewals, vendor consolidation, captive competition, employee turnover, wage
inflation and currency exchange rates, in addition to disruptive technologies that have the potential
of impacting our growth, are just some of the indicators we gauge. While the trends SYKES is
experiencing will not always exactly mirror the rest of the customer contact management space
and vice-versa, given the highly fragmented nature of the space itself, these overall indicators do
serve as a reasonable proxy for the overall health of the industry. As we look at the key markets –
the Americas (the U.S., Canada and offshore) and EMEA (Europe, Middle East and Africa) – and
the key delivery geographies, these indicators range from neutral to increasingly favorable.

On the favorable side in the U.S., we have seen reductions in excess capacity among competitors.
Industrywide, demand seems to be firming and pricing is reaching some levels of stabilization, with
minimal vendor consolidation and manageable captive competition. Slightly negative are
employee turnover, wage inflation and a weakening U.S. dollar, which are being fueled by mostly
global economic growth and excess liquidity. Canada, on the other hand, is experiencing labor
supply challenges with respect to nurses for the telemedicine program. We are addressing this
through an aggressive recruiting strategy, along with employing other delivery channels to administer
the telemedicine program.

We enter 2007
with a plan that is
focused yet adaptive
to market changes . . .

Similarly, the offshore region continues to exhibit positive trends overall. Capacity, demand,
pricing and employee turnover, thus far, remain positive, in that they are at a healthy equilibrium.
However, wage inflation has crept up. With the recent weakness in the U.S. dollar versus some off-
shore currencies, particularly the Philippines Peso, the exchange
rates are starting to have an impact on margins and could linger
in 2007. However, we have put into work hedging strategies that
should help mitigate the impact of an appreciating Peso.

Meanwhile, in the EMEA (Europe, Middle East and Africa)
region, indicators such as employee turnover, wage inflation and
currency are gradually moving toward neutral from negative.
Excess capacity, however, continues to be a challenge. There
continues to be excess capacity among large global players and
local players. And even though the demand environment is flashing
positive signals, it is still largely mixed. Consequently, as pricing trends have remained soft, it is
leading to vendor consolidation.

Finally, on the technology front, there continue to be advancements in voice-recognition software,

as well as self-provisioning and self-help software, along with call avoidance technologies, that
have the potential of adversely impacting call volume growth and, therefore, revenues. While these
technologies have been around since the late ‘90s, they have seen minimal traction because they
have been cumbersome for end-users. However, as more gains are made in artificial intelligence
technology and as user behavior changes, these technologies are more apt to gain traction, and we
stand ready to exploit them.

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With the strong results and success achieved in 2006, coupled with a largely favorable industry

backdrop, we enter 2007 with a plan that is focused yet adaptive to market changes and that we
expect will enable us to achieve a sustainable revenue growth rate that exceeds the industry average
and operating margins over time of 8%. It will focus on:

Capacity Growth & Utilization Increase In 2006, we increased capacity organically by approximately
10%, led by 17% seat growth offshore. The growth was driven by both new and existing clients. It
was broad-based versus our peer group, encompassing the Philippines, El Salvador, Costa Rica,
Canada and China, in addition to the Argentina acquisition, ending the year with a total seat count
approaching approximately 22,600 seats. More noteworthy,
capacity utilization rates remained essentially steady on a
consolidated basis at 83% year-over-year, highlighting rapid
time-to-revenue production for our capacity. In 2007, we
expect our net seat capacity to increase by approximately
15%, coupled with a focus on raising capacity utilization
rates in the U.S., which stood at 65% at year-end.

Advancing Horizontal Service Offerings & Add-On Enhancements
The strategy behind these offerings and enhancements is to
aid both revenue and margin expansion. Just as we ramp up
our bilingual customer support offering and move our data
analytics and process improvement products from pilots to
phased roll outs with our financial services and telecom
clients, we are also poised to leverage our offshore infra-
structure during the daytime to drive discrete back office services in 2007. Our back-office strategy
differs from those of our competitors in that it is call-center-led rather than a purely stand-alone
offering, thereby mitigating sales and operational execution risks. We are currently working with
select technology and retail clients and remain confident about the potential to put several hundred
seats into production by 2007. In addition to back-office, we plan to use our daytime capacity off-
shore to launch service offerings for English-speaking markets that have complimentary time zones.

Vertical Diversification & Service Line Expansion Our vertical diversification and service line expansion
strategy is based on the objective of creating a business model that is marked by cyclically defensive
growth characteristics by being leveraged to growing verticals and service lines. We made significant
headway toward that goal in 2006. Of the three key verticals, both communications and financial
services revenues grew double-digit year over year, while healthcare grew around mid-single digits.
With the exception of healthcare, both communications and financial services also grew as a per-
centage of revenues. This growth was partly driven by new business lines such as cable broadband
(we doubled our roster of cable clients in 2006), credit cards and telemedicine. In 2007, the new
seat additions are aimed at growing the aforementioned verticals with a particular focus on growing
such service lines as cable broadband, wireless services, retail banking and credit card/consumer
fraud protection, to name just a few. Within the healthcare vertical,
we are focusing on waysof leveraging our Canadian telemedicine and
employee assistance programs within the United States market.

2006

Continued Focus on Growing Emerging Markets We took another significant step in growing emerging
markets in 2006. We increased capacity almost three-fold in China, and we are continuing to ramp
up headcount to service that market. The growth in seat count will begin to contribute to revenues
in 2007, as we ramp up new programs (we added six new clients in 2006 on a base of 13) and optimize
the operations given the growth in capacity. Given the validation of our emerging markets strategy
in China, and the recent acquisition in Argentina, which serves as both a delivery platform and a
market itself, we are well-positioned to transfer that success to at least four new emerging countries
over time and continue to penetrate existing emerging markets.

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In closing, 2006 was a year of outstanding financial performance for SYKES. We were successful

in executing our key initiatives with a focus toward sustaining the growth engine. We delivered
strong revenue and earnings growth. We enhanced our management team with the appointment of
Lance Zingale to head global sales. We have realigned our sales function in EMEA, and the early
results are positive. We established a beachhead in the Argentina market and enhanced our wireless
and European delivery model capabilities through the acquisition of Apex. It is already producing
results, with our first client acquisition in Europe for an Argentine delivery model. We monetized
some underutilized assets with the sale of four U.S. facilities, which had been leased to others. A
portion of the proceeds from the sale went back to the community in the form of a $2 million
charitable contribution. Ours is a sufficiently differentiated business model from our peer group
marked by critical mass and tenure offshore, the breadth of our global delivery capability, low
client concentration, operational focus and broad-based growth.

As we enter 2007, we will continue to build on our success, with a particular focus on continued

investment in our top-line growth. The plan for 2007 stays true to our guiding philosophy of
preserving the balance between growth and long-term value creation through a relentless focus on
execution. With a positive industry backdrop in terms of a growing outsourcing market, fewer
publicly traded global entrants and consolidation among competitors outweighing the complexity
of operating a global business in terms of infrastructure costs, currency volatility, labor turnover
and wage inflation, we believe we are well-positioned to sustain the growth engine.

We would like to thank our shareholders, employees, clients and Board of Directors for their

continued confidence and support. It is something we do not take lightly.

Charles E. Sykes
President and Chief Executive Officer

W. Michael Kipphut
Senior Vice President and Chief Financial Officer

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, 2006
Or

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

For The Transition Period From To

Commission File Number 0-28274

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

Florida
(State or other jurisdiction of
incorporation or organization)

400 N. Ashley Drive, Tampa, Florida
(Address of principal executive offices)

56-1383460
(IRS Employer
Identification No.)

33602
(Zip Code)

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

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

Title of Each Class
Common Stock $.01 Par Value

Name of each exchange on which registered
NASDAQ Stock Market, LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes [ ] No [X]

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act (Check one):

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The aggregate market value of the shares of voting common stock held by non-affiliates of the Registrant computed by reference
to the closing sales price of such shares on the NASDAQ Global Select Market on June 30, 2006, the last business day of the
Registrant’s most recently completed second fiscal quarter, was $644,605,270.

As of February 23, 2007, there were 40,609,450 outstanding shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Documents ...........................................................................................................
Portions of the Proxy Statement for the year 2007
Annual Meeting of Shareholders ......................................................................

Form 10-K Reference

Part III Items 10–14

TABLE OF CONTENTS

Page No.

PART I
Item 1 Business .............................................................................................................................................
Item 1A Risk Factors........................................................................................................................................
Item 1B Unresolved Staff Comments...............................................................................................................
Item 2 Properties ..........................................................................................................................................
Item 3 Legal Proceedings .............................................................................................................................
Item 4 Submission of Matters to a Vote of Security Holders .......................................................................

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

PART III
Item 10 Directors Executive Officers and Corporate Governance ..................................................................
Item 11 Executive Compensation ...................................................................................................................
Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters .........................................................................................................
Item 13 Certain Relationships and Related Transactions, and Director Independence ..................................
Item 14 Principal Accounting Fees and Services ...........................................................................................

PART IV
Item 15 Exhibits and Financial Statement Schedules......................................................................................

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PART I

Item 1. Business

General

Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES,” “our,” “us” or “we”) is a global leader
in providing outsourced customer contact management solutions and services in the business process outsourcing
(“BPO”) arena. We provide an array of sophisticated customer contact management solutions to a wide range of
clients including Fortune 1000 companies, medium sized businesses, and public institutions around the world,
primarily in the communications, technology/consumer, financial services, healthcare, and transportation and leisure
industries. We serve our clients through two geographic operating regions: the Americas (United States, Canada,
Latin America, India and the Asia Pacific Rim) and EMEA (Europe, Middle East and Africa). Our Americas and
EMEA groups primarily provide customer contact management services (with an emphasis on inbound technical
support and customer service), which includes customer assistance, healthcare and roadside assistance, technical
support and product sales to our client’s customers. These services are delivered through multiple communications
channels including phone, e-mail, Web and chat. We also provide various enterprise support services in the United
States that include services for our client’s internal support operations, from technical staffing services to outsourced
corporate help desk services. In Europe, we also provide fulfillment services including multilingual sales order
processing via the Internet and phone, inventory control, product delivery and product returns handling. (See Note
21 to the accompanying Consolidated Financial Statements for information on our segments.) Our complete service
offering helps our clients acquire, retain and increase the value of their customer relationships. We have developed
an extensive global reach with customer contact management centers throughout the United States, Canada, Europe,
Latin America, Asia and Africa. SYKES delivers cost-effective solutions that enhance the customer service
experience, promote stronger brand loyalty, and bring about high levels of performance and profitability.

SYKES was founded in 1977 in North Carolina and moved its headquarters to Florida in 1993. In March 1996,
we changed our state of incorporation from North Carolina to Florida. Our headquarters are located at 400 North
Ashley Drive, 28th Floor, Tampa, Florida 33602, and our telephone number is (813) 274-1000.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports, as well as our proxy statements and other materials which are filed with or furnished to the
Securities and Exchange Commission (“SEC”) are made available, free of charge, on or through our Internet website
at www.sykes.com/investors.asp under the heading “Financial Reports — SEC Filings,” as soon as reasonably
practicable after they are filed with, or furnished to, the SEC.

Industry Overview

According to industry analysts at Datamonitor, the outsourced customer contact management solutions market
was estimated for the United States, Western Europe and the rest of the world to be approximately $13.8 billion,
$6.0 billion and $4.0 billion in 2006, respectively. Also, the five primary verticals in which we participate —
communications, technology/consumer, financial services, healthcare and transportation and leisure — constitute
approximately 80% of the total worldwide market. We believe that growth for outsourced customer contact
management solutions and services will be fueled by the trend of global Fortune 1000 companies and medium sized
businesses turning to outsourcers to provide high quality, cost-effective, value added customer contact management
solutions. Increasingly they are moving toward integrated solutions that consist of a combination of support from
our onshore markets in the United States, Canada and Europe and offshore markets in the Asia Pacific Rim and
Latin America.

In today’s ever-changing marketplace, companies require innovative customer contact management solutions that
allow them to enhance the end user’s experience with their products and services, strengthen and enhance their
company brands, maximize the lifetime value of their customers, turn cost centers into profit centers, efficiently and
effectively deliver human interaction when customers value it most, and deploy best in-class customer management
strategies, processes and technologies.

Global competition, pricing pressures, softness in the global economy and rapid changes in technology are
making it increasingly difficult for companies to cost effectively maintain the in-house personnel necessary to
handle all their customer contact management needs. As a result, companies are increasingly turning to outsourcers

to perform specialized functions and services in the customer contact management arena. By working in a
partnership with outsourcers, companies can ensure that the crucial task of retaining and growing their customer
base is addressed.

Companies outsource customer contact management solutions for various reasons, including the need to focus on
core competencies, to drive service excellence and execution, to achieve cost savings, to scale and grow geographies
and niche markets and to efficiently allocate capital within their organizations.

To address these needs, SYKES offers full, global customer contact management solutions that focus on
proactively identifying and solving our clients’ business challenges. We provide consistent high-value support for
our clients’ customers across the globe in a multitude of languages, leveraging our dynamic, secure communications
infrastructure and our global footprint that reaches across 18 countries. This global footprint includes established
operations in both onshore and offshore geographic markets where companies have access to high quality customer
contact management solutions at lower costs compared to other markets.

Business Strategy

Our goal is to provide enhanced customer contact management solutions and services in a proactive and
responsive manner, acting as a partner in our client’s business. We anticipate trends and deliver new ways of
growing our clients’ customer satisfaction and retention rates, thus profit, through timely, insightful and proven
solutions.

Our business strategy encompasses building long-term client relationships, capitalizing on our expert worldwide
response team, leveraging our depth of relevant experience and expanding both organically and through
acquisitions. The principles of this strategy include the following:

Build Long-term Client Relationships Through Service Excellence. We believe that providing high-value, high-
quality service is critical in our clients’ decisions to outsource and in building long-term relationships with our
clients. To ensure service excellence and consistency across each of our centers globally, we implemented an
internally developed quality program titled the SYKES Standard of Excellence (“SSE”). This quality certification
standard is a compilation of more than 25 years of experience and best practices from industry standards such as the
Malcolm Baldrige National Quality Award and COPC (Customer Operations Performance Center Inc.) along with
our standard operating procedures. Every customer contact management center strives to meet or exceed the criteria
set forth by SSE, which address leadership, hiring and training, performance management down to the agent level,
forecasting and scheduling, and the client relationship including continuous improvement, disaster recovery plans
and feedback.

Capitalize on an Expert Worldwide Response Team. Companies are demanding a customer contact management
solution that is global in nature — one of our key strengths. In addition to our network of customer contact
management centers throughout North America and Europe, we continue to develop our global delivery model with
operations in the Philippines, The Peoples Republic of China, Costa Rica, El Salvador and Argentina, offering our
clients a secure, high quality solution tailored to the needs of their diverse and global markets. We continue to
expand our global footprint, adding centers in Argentina in 2006.

Maintain a Competitive Advantage Through Our Depth of Relevant Experience in Technology Solutions. For
more than 25 years, SYKES has been an innovative pioneer in delivering customer contact management solutions.
We seek to maintain a competitive advantage and differentiation by utilizing technology in new and creative ways to
consistently deliver innovative service solutions, ultimately enhancing the client’s relationship with its customers
and generating revenue growth. This includes knowledge solutions for agents and end customers, automatic call
distributors, intelligent call routing and workforce management capabilities based on agent skill and availability, call
tracking software, quality management systems and computer-telephony integration (“CTI”). CTI enables our
customer contact management centers to serve as transparent extensions for our clients, receive telephone calls and
data directly from our clients’ systems, and report detailed information concerning the status and results of our
services on a daily basis.

Through strategic technology relationships, we are able to provide fully integrated communication services
encompassing e-mail, chat and Web self-service platforms. In addition, the European deployment of Global Direct,
our customer relationship management (“CRM”)/ e-commerce application utilized within the fulfillment operations,

establishes a platform whereby our clients can manage all customer profile and contact information from every
communication channel, making it a viable customer-facing infrastructure solution to support their CRM initiatives.

We are also continuing to capitalize on sophisticated and specialized technological capabilities, including our
current private ATM network that provides us the ability to manage call volumes more efficiently by load balancing
calls and data between customer contact management centers over the same network. Our converged voice and data
ATM communications network provides a high-quality, fault tolerant global network for the transport of Voice Over
Internet Protocol communications and fully integrates with emergent Internet Protocol telephony systems as well as
traditional Time Domain Multiplexing telephony systems. Our flexible, secure and scalable network infrastructure
allows us to rapidly respond to changes in client voice and data traffic and quickly establish support operations for
new and existing clients.

Continue to Grow Our Business Organically and through Acquisitions. We have grown our customer contact
management outsourcing operations utilizing a strategy of both internal organic growth and external acquisitions.
This strategy has resulted in an increase from three U.S. customer contact management centers in 1994 to 41
customer contact management centers worldwide as of the end of 2006. Given the fragmented nature of the
customer contact management industry, there may be other companies that could bring us certain complementary
competencies. Acquisition candidates that can, among other competencies, expand our service offerings, broaden
our geographic footprint, allow us access to new technology and are synergistic in nature will be given
consideration. We have and will continue to explore these options upon identification of strategic opportunities.

Growth Strategy

Applying the key principles of our business strategy, we execute our growth strategy by focusing on increasing
seat capacity and utilization rates, increasing share of seats within existing clients, advancing horizontal service
offerings and add-on enhancements, diversifying verticals and expanding service lines and continuing to focus on
emerging markets.

Increasing Seat Capacity Growth and Utilization. As our business model employs seat capacity to deliver
customer contact management support, seat capacity growth is one of the keys drivers of our revenues.
Accompanying this growth in seat capacity is the utilization of those seats.

Increasing Share of Seats within Existing Clients. We provide customer contact management support to over
100 multinational companies. With this client list, we have the opportunity to grow our share of SYKES’ client base.
We strive to achieve this by winning a greater share of our clients’ in-house seats as well as gain share from our
competitors by providing consistently high quality of service.

Advancing Horizontal Service Offerings and Add-On Enhancements. To improve both revenue and margin
expansion, we will continue to introduce new service offerings and add-on enhancements. Bi-lingual customer
support offering and back office services are examples of horizontal service offerings, while data analytics and
process improvement products are examples of add-on enhancements. In 2007, we expect to leverage our offshore
infrastructure to drive discrete back office services.

Diversifying Verticals and Expanding Service Lines. To mitigate the impact of economic and product cycles on
our growth rate, we continue to seek ways to diversify into verticals and service lines that have countercyclical
features and healthy growth rates. We are currently targeting three verticals for growth: communications, financial
services and healthcare. Our focus in 2007 is on service lines within those verticals such as cable broadband,
wireless services, retail banking and credit card/consumer fraud protection. Within the healthcare vertical we are
focusing on ways of leveraging our Canadian telemedicine and employee assistance programs within the United
States market.

Continuing to Focus on Emerging Markets. As part of our growth strategy, we use SYKES’ delivery model to
service core markets in the United States, Canada and Europe. The United States, for instance, is a core market
which is partly served by offshore customer contact management centers across the Asia Pacific Rim and Latin
America regions. As countries in these regions experience rising living standards due to globalization, we are poised
to leverage our centers to serve the emerging markets in these regions. Given the validation of our emerging markets
strategy in China and the recent acquisition in Argentina, which serves as both a delivery platform and a market
itself, we expect to transfer that success to four new emerging countries over time and continue to penetrate existing
emerging markets.

Services

We specialize in providing inbound outsourced customer contact management solutions in the BPO arena on a
global basis. Our customer contact management services are provided through two operating segments — the
Americas and EMEA. The Americas region, representing 67.4% of consolidated revenues in 2006, includes the
United States, Canada, Latin America and the Asia Pacific Rim. The sites within Latin America and the Asia Pacific
Rim are included in the Americas region as they provide a significant service delivery vehicle for U.S. based
companies that are utilizing our customer contact management solutions in these locations to support their customer
care needs. The EMEA region, representing 32.6 % of consolidated revenues in 2006, includes Europe, the Middle
East and Africa. For further information about segments, see Note 21, Segments and Geographic Information, to the
Consolidated Financial Statements. The following is a description of our customer contact management solutions:

Outsourced Customer Contact Management Services. Our outsourced customer contact management services
represented approximately 95% of total 2006 consolidated revenues. Every year, we handle over 100 million
customer contacts including phone, e-mail, Web and chat throughout the Americas and EMEA regions. We provide
these services utilizing our advanced technology infrastructure, human resource management skills and industry
experience. These services include:

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Customer care — Customer care contacts primarily include product information requests, describing product
features, activating customer accounts, resolving complaints, handling billing inquiries, changing addresses,
claims handling, ordering/reservations, prequalification and warranty management, providing health
information and roadside assistance;
Technical support — Technical support contacts primarily include handling inquiries regarding hardware,
software, communications services, communications equipment, Internet access technology and Internet portal
usage; and

(cid:131) Acquisition — Our acquisition services are primarily focused on inbound up-selling/cross-selling of our client’s

products and services.

We provide these services, primarily inbound customer calls, through our extensive global network of customer
contact management centers, where our customer contact agents provide support in a multitude of languages. Our
technology infrastructure and managed service solutions allow for effective distribution of calls to one or more
centers. These technology offerings provide our clients and us with the leading edge tools needed to maximize
quality and customer satisfaction while controlling and minimizing costs.

Fulfillment Services. In Europe, we offer fulfillment services that are fully integrated with our customer care and
technical support services. Our fulfillment solutions include multilingual sales order processing via the Internet and
phone, payment processing, inventory control, product delivery and product returns handling.

Enterprise Support Services. In the United States, we provide a range of enterprise support services including

technical staffing services and outsourced corporate help desk solutions.

Operations

Customer Contact Management Centers. We operate across 18 countries and 41 stand-alone customer contact
management centers, which breakdown as follows: 18 centers across Europe and South Africa, eight centers in the
United States, one center in Canada and 14 centers offshore, including The Peoples Republic of China, the
Philippines, Costa Rica, El Salvador and Argentina.

In an effort to stay ahead of industry off-shoring trends, we opened our first customer contact management centers
in the Philippines and Costa Rica over eight years ago. By 2006, we expanded to seven centers in the Philippines,
two in Costa Rica, two in The People’s Republic of China, one in El Salvador and two in Argentina.

We utilize a sophisticated workforce management system to provide efficient scheduling of personnel. Our
internally developed digital private communications network complements our workforce by allowing for effective
call volume management and disaster recovery backup. Through this network and our dynamic intelligent call
routing capabilities, we can rapidly respond to changes in client call volumes and move call volume traffic based on
agent availability and skill throughout our network of centers, improving the responsiveness and productivity of our
agents. We also can offer cost competitive solutions for taking calls to our offshore locations.

Our sophisticated data warehouse captures and downloads customer contact information for reporting on a daily,
real time and historical basis. This data provides our clients with direct visibility into the services that we are
providing for them. The data warehouse supplies information for our performance management systems such as our
agent scorecarding application, which provides management with the information required for effective management
of our operations.

Our customer contact management centers are protected by a fire extinguishing system, backup generators with
significant capacity and 24 hour refueling contracts and short-term battery backups in the event of a power outage,
reduced voltage or a power surge. Rerouting of call volumes to other customer contact management centers is also
available in the event of a telecommunications failure, natural disaster or other emergency. Security measures are
imposed to prevent unauthorized physical access. Software and related data files are backed up daily and stored off
site at multiple locations. We carry business interruption insurance covering interruptions that might occur as a
result of certain types of damage to our business.

Fulfillment Centers. We currently have three fulfillment centers located in Europe. We provide our fulfillment
services primarily to certain clients operating in Europe who desire this complementary service in connection with
outsourced customer contact management services.

Enterprise Support Services Offices. Our two enterprise support services offices are located in metropolitan areas
in the United States to provide a recruiting platform for high-end knowledge workers and to establish a local
presence to service major accounts.

Quality Assurance

We believe that providing consistent high quality service is critical in our clients’ decisions to outsource and in
building long-term relationships with our clients. It is also our belief and commitment that quality is the
responsibility of each individual at every level of the organization. To ensure service excellence and continuity
across our organization, we have developed an integrated Quality Assurance program consisting of three major
components:

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(cid:131)

(cid:131)

The certification of client accounts and customer contact management centers to the SSE program;
The application of continuous improvement through application of our Data Analytics and Six Sigma
techniques; and
The application of process audits to all work procedures.

The SSE program is a quality certification standard that was developed based on our more than 25 years of
experience, and best practices from industry standards such as the Malcolm Baldridge National Quality Award and
COPC. It specifies the requirements that must be met in each of our customer contact management centers including
measured performance against our standard operating procedures. It has a well-defined auditing process that ensures
compliance with the SSE standards. Our focus is on quality, predictability and consistency over time, not just point
in time certification.

The application of continuous improvement is established by SSE and is based upon the five-step Six Sigma
cycle, which we have tuned to apply specifically to our service industry. All managers are responsible for
continuous improvement in their operations.

Process audits are used to verify that processes and procedures are consistently executed as required by
established documentation. Process audits are applicable to services being provided for the client and internal
procedures.

Sales and Marketing

Our sales and marketing objective is to leverage our expertise and global presence to develop long-term
relationships with existing and future clients. Our customer contact management solutions have been developed to
help our clients acquire, retain and increase the value of their customer relationships. Our plans for increasing our
visibility include market focused advertising, consultative personal visits with existing and potential clients,
participation in market specific trade shows and seminars, speaking engagements, articles and white papers, and our
website.

Our sales force is composed of business development managers who pursue new business opportunities and
strategic account managers who manage and grow relationships with existing accounts. We emphasize account
development to strengthen relationships with existing clients. Business development management and strategic
account managers are assigned to markets in their area of expertise in order to develop a complete understanding of
each client’s particular needs, to form strong client relationships and encourage cross-selling of our other service
offerings. We have inside customer sales representatives who receive customer inquiries and who provide outbound
lead generation for the business development managers. We also have relationships with channel partners including
systems integrators, software and hardware vendors and value-added resellers, where we pair our solutions and
services with their product offering or focus. We plan to maintain and expand these relationships as part of our sales
and marketing strategy.

As part of our marketing efforts, we invite existing and potential clients to visit our customer contact management
centers, where we can demonstrate the expertise of our skilled staff in partnering to deliver new ways of growing
clients’ customer satisfaction and retention rates, thus profit, through timely, insightful and proven solutions. During
these visits, we demonstrate our ability to quickly and effectively support a new client or scale business from an
existing client by emphasizing our systematic approach to implementing customer contact solutions throughout the
world.

Clients

In 2006, we provided service to hundreds of clients from our locations in the United States, Canada, Latin
America, Europe, the Philippines, The Peoples Republic of China, India and South Africa. These clients are Fortune
1000 corporations, medium sized businesses and public
the communications,
technology/consumer, financial services, healthcare, and transportation and leisure industries. Revenue by vertical
market for 2006, as a percentage of our consolidated revenues, was 36% for communications, 30% for
technology/consumer, 11% for financial services, 7% for healthcare, 6% for transportation and leisure, and 10% for
all other vertical markets, including government-related and utilities. We believe our globally recognized client base
presents opportunities for further cross marketing of our services.

institutions, which span

Although no client represented 10% or more of 2006 consolidated revenues, our top ten clients accounted for
approximately 42% of our consolidated revenues in 2006, a decrease from 44% in 2005. The loss of (or the failure
to retain a significant amount of business with) any of our key clients could have a material adverse effect on our
performance. Many of our contracts contain penalty provisions for failure to meet minimum service levels and are
cancelable by the client at any time or on short notice. Also, clients may unilaterally reduce their use of our services
under our contracts without penalty.

Competition

The industry in which we operate is global, therefore highly fragmented and extremely competitive. While many
companies provide customer contact management solutions and services, we believe no one company is dominant in
the industry.

In most cases, our principal competition stems from our existing and potential clients’ in-house customer contact
management operations. When it is not the in-house operations of a client, our public and private direct competition
includes TeleTech, Sitel (which was acquired by Client Logic in 2007), APAC Customer Services, ICT Group,
Client Logic, Convergys, West Corporation, Stream, PeopleSupport, 24/7 Customer, vCustomer, eTelecare, Atento,
SR Teleperformance, and NCO Group as well as the customer care arm of such companies as Accenture, Wipro,
Infosys EDS and IBM. There are other numerous and varied providers of such services, including firms specializing
in various CRM consulting, other customer management solutions providers — niche or large market companies, as
well as product distribution companies that provide fulfillment services. Some of these companies possess
substantially greater resources, greater name recognition and a more established customer base than SYKES.

We believe that the most significant competitive factors in the sale of outsourced customer contact management
services include service quality, tailored value added service offerings, industry experience, advanced technological
capabilities, global coverage, reliability, scalability, security and price. As a result of intense competition,
outsourced customer contact management solutions and services frequently are subject to pricing pressure. Clients
also require outsourcers to be able to provide services in multiple locations. Competition for contracts for many of
our services takes the form of competitive bidding in response to requests for proposals.

Intellectual Property

We rely upon a combination of contract provisions and trade secret laws to protect the proprietary technology we
use at our customer contact management centers and facilities. We also rely on a combination of copyright,
trademark and trade secret laws to protect our proprietary software. We attempt to further protect our trade secrets
and other proprietary information through agreements with employees and consultants. We do not hold any patents
and do not have any patent applications pending. There can be no assurance that the steps we have taken to protect
our proprietary technology will be adequate to deter misappropriation of our proprietary rights or third-party
development of similar proprietary software. Sykes®, REAL PEOPLE. REAL SOLUTIONS.® and Sykes
Answerteam ® are our registered service marks. We hold a number of registered trademarks, including ETSC ®, FS
PRO ® and FS PRO MARKETPLACE ®.

Employees

At January 31, 2007, we had approximately 26,210 employees worldwide, consisting of 24,270 customer contact
agents handling technical and customer support inquiries at our centers, 1,720 in management, administration,
finance and sales and marketing, 90 in enterprise support services, and 130 in fulfillment services. Our employees,
with the exception of approximately 640 employees in Argentina and various European countries, are not
represented by a labor union and we have never suffered an interruption of business as a result of a labor dispute.
We consider our relations with our employees to be good.

We employ personnel through a continually updated recruiting network. This network includes a seasoned team
of recruiters, competency-based selection standards and a global sourcing library to access qualified candidates
through proven recruiting techniques. However, demand for qualified professionals with the required language and
technical skills may exceed supply, as new skills are needed to keep pace with the requirements of customer
engagements. Competition for such personnel is intense and employee turnover in this industry is high.

Executive Officers

The following table provides the names and ages of our executive officers, and the positions and offices currently
held by each of them:

Name
Charles E. Sykes
W. Michael Kipphut
James C. Hobby
Jenna R. Nelson
Daniel L. Hernandez
David L. Pearson
Lawrence R. Zingale
James T. Holder
William N. Rocktoff

Age
43
53
56
43
40
48
51
48
44

Principal Position
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, Global Operations
Senior Vice President, Human Resources
Senior Vice President, Global Strategy
Senior Vice President and Chief Information Officer
Senior Vice President, Global Sales and Client Management
Senior Vice President, General Counsel and Corporate Secretary
Vice President and Corporate Controller

Charles E. Sykes joined SYKES in 1986 and was named President and Chief Executive Officer in August 2004.
From July 2003 to August 2004, Mr. Sykes was the Chief Operating Officer. From March 2000 to June 2001,
Mr. Sykes was Senior Vice President, Marketing and in June 2001 he was appointed to the position of General
Manager, Senior Vice President — the Americas. From December 1996 to March 2000, he served as Vice President,
Sales and held the position of Regional Manager of the Midwest Region for Professional Services from 1992 until
1996.

W. Michael Kipphut, C.P.A., joined SYKES in March 2000 as Vice President and Chief Financial Officer and
was named Senior Vice President and Chief Financial officer 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 manufacturer 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.

James C. Hobby joined SYKES in August 2003 as Senior Vice President, the Americas, overseeing the daily
operations, administration and development of SYKES’ customer care and enterprise support operations throughout
North America, Latin America, the Asia Pacific Rim and India and was named Senior Vice President, Global
Operations in January 2005. Prior to joining SYKES, Mr. Hobby held several positions at Gateway, Inc., most
recently serving as President of Consumer Customer Care since August 1999. From January 1999 to August 1999,
Mr. Hobby served as Vice President of European Customer Care for Gateway, Inc. From January 1996 to
January 1999, Mr. Hobby served as the Vice President of European Customer Service Centers at American Express.
Prior to January 1996, Mr. Hobby held various senior management positions in customer care at FedEx Corporation
since 1983, mostly recently serving as Managing Director, European Customer Service Operations.

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

Daniel L. Hernandez joined SYKES in October 2003 as Senior Vice President, Global Strategy overseeing
marketing, public relations, operational strategy and corporate development efforts worldwide. Prior to joining
SYKES, Mr. Hernandez served as President and CEO of SBC Internet Services, a division of SBC Communications
Inc., since March 2000. From February 1998 to March 2000, Mr. Hernandez held the position of Vice
President/General Manager, Internet and System Operations at Ameritech Interactive Media Services. Prior to
February 1998, Mr. Hernandez held various management positions at U S West Communications since joining the
telecommunications provider in 1990.

David L. Pearson joined SYKES in February 1997 as Vice President, Engineering and was named Vice
President, Technology Systems Management in 2000 and Senior Vice President and Chief Information Officer in
August 2004. Prior to SYKES, Mr. Pearson held various engineering and technical management roles over a fifteen
year period, including eight years at Compaq Computer Corporation and five years at Texas Instruments.

Lawrence R. Zingale joined SYKES in January 2006 as Senior Vice President, Global Sales and Client
Management. Prior to joining SYKES, Mr. Zingale served as Executive Vice President and Chief Operating Officer
of Startek, Inc. since 2002. From December 1999 until November 2001, Mr. Zingale served as President of the
Americas at Stonehenge Telecom, Inc. From May 1997 until November 1999, Mr. Zingale served as President and
COO of International Community Marketing. From February 1980 until May 1997, Mr. Zingale held various senior
level positions at AT&T.

James T. Holder, J.D., C.P.A joined SYKES in December 2000 as General Counsel and was named Corporate
Secretary in January 2001, Vice President in January 2004 and Senior Vice President in December 2006. From
November 1999 until November 2000, Mr. Holder served in a consulting capacity as Special Counsel to Checkers
Drive-In Restaurants, Inc., a publicly held restaurant operator and franchisor. From November 1993 until November
1999, Mr. Holder served in various capacities at Checkers including Corporate Secretary, Chief Financial Officer
and Senior Vice President and General Counsel.

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

Item 1A. Risk Factors

Factors Influencing Future Results and Accuracy of Forward - Looking Statements

This report contains forward-looking statements (within the meaning of the Private Securities Litigation Reform
Act of 1995) that are based on current expectations, estimates, forecasts, and projections about us, our beliefs, and
assumptions made by us. In addition, we may make other written or oral statements, which constitute forward-
looking statements, from time to time. Words such as “may,” “expects,” “projects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify
such forward-looking statements. Similarly, statements that describe our future plans, objectives or goals also are
forward-looking statements. These statements are not guarantees of future performance and are subject to a number
of risks and uncertainties, including those discussed below and elsewhere in this report. Our actual results may differ
materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not
be placed on such statements. All forward-looking statements are made as of the date hereof, and we undertake no
obligation to update any forward-looking statements, whether as a result of new information, future events or
otherwise.

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

Dependence on Key Clients

We derive a substantial portion of our revenues from a few key clients. Although no client represented 10% or
more of 2006 consolidated revenues, our top ten clients accounted for approximately 42% of our consolidated
revenues in 2006. The loss of (or the failure to retain a significant amount of business with) any of our key clients
could have a material adverse effect on our business, financial condition and results of operations. Many of our
contracts contain penalty provisions for failure to meet minimum service levels and are cancelable by the client at
any time or on short-term notice. Also, clients may unilaterally reduce their use of our services under these contracts
without penalty. Thus, our contracts with our clients do not ensure that we will generate a minimum level of
revenues.

Risks Associated With International Operations and Expansion

We intend to continue to pursue growth opportunities in markets outside the United States. At December 31,
2006, our international operations in EMEA and the Asia Pacific Rim were conducted from 27 customer contact
management centers located in Sweden, the Netherlands, Finland, Germany, South Africa, Scotland, Ireland, Italy,
Hungary, Slovakia, Spain, The Peoples Republic of China and the Philippines. Revenues from these operations for
the years ended December 31, 2006, 2005, and 2004, were 52%, 57%, and 59% of consolidated revenues,
respectively. We also conduct business from six customer contact management centers located in Argentina,
Canada, Costa Rica and El Salvador. International operations are subject to certain risks common to international
activities, such as changes in foreign governmental regulations, tariffs and taxes, import/export license requirements,
the imposition of trade barriers, difficulties in staffing and managing international operations, political uncertainties,
longer payment cycles, foreign exchange restrictions that could limit the repatriation of earnings, possible greater
difficulties in accounts receivable collection, economic instability as well as political and country-specific risks.
Additionally, we have been granted tax holidays in the Philippines, El Salvador, India and Costa Rica, which expire
at varying dates from 2007 through 2018. In some cases, the tax holidays expire without possibility of renewal. In
other cases, we expect to renew these tax holidays, but there are no assurances from the respective foreign
governments that they will renew them. This could potentially result in adverse tax consequences. In 2006, Costa

Rican tax holiday benefits were extended through the year 2018. Any one or more of these factors could have an
adverse effect on our international operations and, consequently, on our business, financial condition and results of
operations.

As of December 31, 2006, we had cash balances of approximately $121.9 million held in international operations,
which may be subject to additional taxes if repatriated to the United States.

We conduct business in various foreign currencies and are therefore exposed to market risk from changes in
foreign currency exchange rates and interest rates, which could impact our results of operations and financial
condition. We are also subject to certain exposures arising from the translation and consolidation of the financial
results of our foreign subsidiaries. We have, from time to time, taken limited actions, such as using foreign currency
forward contracts, to attempt to mitigate our currency exchange exposure. However, there can be no assurance that
we will take any actions to mitigate such exposure in the future, and if taken, that such actions will be successful or
that future changes in currency exchange rates will not have a material impact on our future operating results. A
significant change in the value of the dollar against the currency of one or more countries where we operate may
have a material adverse effect on our results.

Fundamental Shift Toward Global Service Delivery Markets

Clients are increasingly requiring blended delivery models using a combination of onshore and offshore support.
Our offshore delivery locations include The Peoples Republic of China, the Philippines, Costa Rica, El Salvador and
Argentina, and while we have operated in global delivery markets since 1996, there can be no assurance that we will
be able to successfully conduct and expand such operations, and a failure to do so could have a material adverse
effect on our business, financial condition, and results of operations. The success of our offshore operations will be
subject to numerous contingencies, some of which are beyond our control, including general and regional economic
conditions, prices for our services, competition, changes in regulation and other risks. In addition, as with all of our
operations outside of the United States, we are subject to various additional political, economic, and market
uncertainties (See “Risks Associated with International Operations and Expansion.”). Additionally, a change in the
political environment in the United States or the adoption and enforcement of legislation and regulations curbing the
use of offshore customer contact management solutions and services could effectively have a material adverse effect
on our business, financial condition and results of operations.

Improper Disclosure or Control of Personal Information Could Result in Liability and Harm our Reputation

Our business involves the use, storage and transmission of information about our employees, our clients and
customers of our clients. While we take measures to protect the security and privacy of this information and to
prevent unauthorized access, it is possible that our security controls over personal data and other practices we follow
may not prevent the improper access to or disclosure of personally identifiable information. Such disclosure could
harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in
increased costs or loss of revenue. Further, data privacy is subject to frequently changing rules and regulations,
which sometimes conflict among the various jurisdictions and countries in which we provide services. Our failure to
adhere to or successfully implement processes in response to changing regulatory requirements in this area could
result in legal liability or impairment to our reputation in the marketplace.

Existence of Substantial Competition

The markets for many of our services operate on a commoditized basis and are highly competitive and subject to
rapid change. While many companies provide outsourced customer contact management services, we believe no one
company is dominant in the industry. There are numerous and varied providers of our services, including firms
specializing in call center operations, temporary staffing and personnel placement, consulting and integration firms,
and niche providers of outsourced customer contact management services, many of whom compete in only certain
markets. Our competitors include both companies who possess greater resources and name recognition than we do,
as well as small niche providers that have few assets and regionalized (local) name recognition instead of global
name recognition. In addition to our competitors, many companies who might utilize our services or the services of
one of our competitors may utilize in-house personnel to perform such services. Increased competition, our failure to
compete successfully, pricing pressures, loss of market share and loss of clients could have a material adverse effect
on our business, financial condition and results of operations.

Many of our large clients purchase outsourced customer contact management services from multiple preferred

vendors. We have experienced and continue to anticipate significant pricing pressure from these clients in order to
remain a preferred vendor. These companies also require vendors to be able to provide services in multiple
locations. Although we believe we can effectively meet our clients’ demands, there can be no assurance that we will
be able to compete effectively with other outsourced customer contact management services companies on price.
We believe that the most significant competitive factors in the sale of our core services include the standard
requirements of service quality, tailored value added service offerings, industry experience, advanced technological
capabilities, global coverage, reliability, scalability, security and price.

Inability to Attract and Retain Experienced Personnel May Adversely Impact Our Business

Our business is labor intensive and places significant importance on our ability to recruit, train, and retain
qualified technical and consultative professional personnel. We generally experience high turnover of our personnel
and are continuously required to recruit and train replacement personnel as a result of a changing and expanding
work force. Additionally, demand for qualified technical professionals conversant in multiple languages, including
English, and/or certain technologies may exceed supply, as new and additional skills are required to keep pace with
evolving computer technology. Our ability to locate and train employees is critical to achieving our growth
objective. Our inability to attract and retain qualified personnel or an increase in wages or other costs of attracting,
training, or retaining qualified personnel could have a material adverse effect on our business, financial condition
and results of operations.

Dependence on Senior Management

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

Dependence on Trend Toward Outsourcing

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

Our Strategy of Growing Through Selective Acquisitions and Mergers Involves Potential Risks

We evaluate opportunities to expand the scope of our services through acquisitions and mergers. We may be
unable to identify companies that complement our strategies, and even if we identify a company that complements
our strategies, we may be unable to acquire or merge with the company. In addition, a decrease in the price of our
common stock could hinder our growth strategy by limiting growth through acquisitions funded with SYKES’ stock.

Our acquisition strategy involves other potential risks. These risks include:

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(cid:131)
(cid:131)

The inability to obtain the capital required to finance potential acquisitions on satisfactory terms;
The diversion of our attention to the integration of the businesses to be acquired;
The risk that the acquired businesses will fail to maintain the quality of services that we have historically
provided;
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The need to implement financial and other systems and add management resources;
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The risk that key employees of the acquired business will leave after the acquisition;
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Potential liabilities of the acquired business;
(cid:131) Unforeseen difficulties in the acquired operations;
(cid:131) Adverse short-term effects on our operating results;
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(cid:131)

Lack of success in assimilating or integrating the operations of acquired businesses within our business;
The dilutive effect of the issuance of additional equity securities;

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The impairment of goodwill and other intangible assets involved in any acquisitions;
The businesses we acquire not proving profitable; and
Potentially incurring additional indebtedness.

Uncertainties Relating to Future Litigation

We cannot predict whether any material suits, claims, or investigations may arise in the future. Regardless of the
outcome of any future actions, claims, or investigations, we may incur substantial defense costs and such actions
may cause a diversion of management time and attention. Also, it is possible that we may be required to pay
substantial damages or settlement costs which could have a material adverse effect on our financial condition and
results of operations.

Rapid Technological Change

Rapid technological advances, frequent new product introductions and enhancements, and changes in client
requirements characterize the market for outsourced customer contact management services. Technological
advancements in voice recognition software, as well as self-provisioning and self-help software, along with call
avoidance technologies, have the potential to adversely impact call volume growth and, therefore, revenues. Our
future success will depend in large part on our ability to service new products, platforms and rapidly changing
technology. These factors will require us to provide adequately trained personnel to address the increasingly
sophisticated, complex and evolving needs of our clients. In addition, our ability to capitalize on our acquisitions
will depend on our ability to continually enhance software and services and adapt such software to new hardware
and operating system requirements. Any failure by us to anticipate or respond rapidly to technological advances,
new products and enhancements, or changes in client requirements could have a material adverse effect on our
business, financial condition and results of operations.

Reliance on Technology and Computer Systems

We have invested significantly in sophisticated and specialized communications and computer technology and
have focused on the application of this technology to meet our clients’ needs. We anticipate that it will be necessary
to continue to invest in and develop new and enhanced technology on a timely basis to maintain our
competitiveness. Significant capital expenditures may be required to keep our technology up-to-date. There can be
no assurance that any of our information systems will be adequate to meet our future needs or that we will be able to
incorporate new technology to enhance and develop our existing services. Moreover, investments in technology,
including future investments in upgrades and enhancements to software, may not necessarily maintain our
competitiveness. Our future success will also depend in part on our ability to anticipate and develop information
technology solutions that keep pace with evolving industry standards and changing client demands.

Risk of Emergency Interruption of Customer Contact Management Center Operations

Our operations are dependent upon our ability to protect our customer contact management centers and our
information databases against damage that may be caused by fire, earthquakes, inclement weather and other
disasters, power failure, telecommunications failures, unauthorized intrusion, computer viruses and other
emergencies. The temporary or permanent loss of such systems could have a material adverse effect on our business,
financial condition and results of operations. Notwithstanding precautions taken to protect us and our clients from
events that could interrupt delivery of services, there can be no assurance that a fire, natural disaster, human error,
equipment malfunction or inadequacy, or other event would not result in a prolonged interruption in our ability to
provide services to our clients. Such an event could have a material adverse effect on our business, financial
condition and results of operations.

Control By Principal Shareholder and Anti-Takeover Considerations

As of February 23, 2007, John H. Sykes, our founder and former Chairman of the Board and Chief Executive
Officer, beneficially owned approximately 19.1% of our outstanding common stock, a decrease from 28.3% a year
ago. As a result, Mr. Sykes will have substantial influence in the election of our directors and in determining the
outcome of other matters requiring shareholder approval.

Our Board of Directors is divided into three classes serving staggered three-year terms. The staggered Board of
Directors and the anti-takeover effects of certain provisions contained in the Florida Business Corporation Act and

in our Articles of Incorporation and Bylaws, including the ability of the Board of Directors to issue shares of
preferred stock and to fix the rights and preferences of those shares without shareholder approval, may have the
effect of delaying, deferring or preventing an unsolicited change in control. This may adversely affect the market
price of our common stock or the ability of shareholders to participate in a transaction in which they might otherwise
receive a premium for their shares.

Volatility of Stock Price May Result in Loss of Investment

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

Item 1B. Unresolved Staff Comments

There are no material unresolved written comments that were received from the SEC staff 180 days or more
before the year ended December 31, 2006 relating to our periodic or current reports under the Securities Exchange
Act of 1934.

Item 2. Properties

Our principal executive offices are located in Tampa, Florida. This facility currently serves as the headquarters for
senior management and the financial, information technology and administrative departments. We believe our
existing facilities are adequate to meet current requirements, and that suitable additional or substitute space will be
available as needed to accommodate any physical expansion. We operate from time to time in temporary facilities to
accommodate growth before new customer contact management centers are available. During 2006, our customer
contact management centers, taken as a whole, were utilized at average capacities of approximately 84% and were
capable of supporting a higher level of market demand. The following table sets forth additional information
concerning our facilities:

General Usage

Square
Feet

Lease Expiration

Properties
AMERICAS LOCATIONS

Tampa, Florida
Bismarck, North Dakota
Wise, Virginia
Milton-Freewater, Oregon
Morganfield, Kentucky
Perry County, Kentucky
Minot, North Dakota
Ponca City, Oklahoma
Sterling, Colorado
London, Ontario, Canada

Corporate headquarters
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center (1)
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center/

Headquarters
Headquarters

Customer contact management center
Customer contact management center

Cordoba, Argentina
Cordoba, Argentina
Rosario, Argentina
LaAurora, Heredia,
Customer contact management centers
Costa Rica (two)
Customer contact management center
San Salvador, El Salvador
Customer contact management center
Toronto, Ontario, Canada
Customer contact management center (2)
North Bay, Ontario, Canada
Customer contact management center (2)
Sudbury, Ontario, Canada
Moncton, New Brunswick, Canada Customer contact management center (2)
Customer contact management center (2)
Bathurst, New Brunswick, Canada
Stephenville, New Foundland,
Canada
Corner Brook, New Foundland,
Canada
St. Anthony’s, New Foundland,
Canada
Barrie, Ontario, Canada
Makati City, The Philippines

Customer contact management center (2)
Customer contact management center (2)
Customer contact management center

Customer contact management center (2)

June 2010

67,600
42,000 Company owned
42,000 Company owned
42,000 Company owned
42,000 Company owned
42,000 Company owned
42,000 Company owned
42,000 Company owned
34,000 Company owned
50,000 Company owned

7,900
89,000
18,200 September 2009

January 2009
July 2007

131,900 September 2023
59,400 November 2024
14,600
5,600
3,900 December 2007
12,700
1,900 December 2007

June 2011
June 2007

January 2009

2,300 September 2026

2,900 October 2026

4,000 November 2026
1,000
78,800 September 2008

July 2008

136,900 March 2023
149,200 December 2027
183,900 December 2027
127,400 December 2023
112,300 December 2027
84,100 May 2024

Mandaue City, The Philippines
Paranaque City, The Philippines
Pasig City, The Philippines
Quezon City, The Philippines
Quezon City, The Philippines
Guangzhou, The Peoples Republic
of China
Shanghai, The Peoples Republic
of China
Bangalore, India
Cary, North Carolina
Chesterfield, Missouri
Calgary, Alberta, Canada

Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center

Customer contact management center

13,000 March 2009

Customer contact management center
Technology development services
Office
Office
Office

103,000 February 2011
1,500
January 2014
1,200 March 2008
January 2016
3,600
July 2007
6,300

Properties
EMEA LOCATIONS

Amsterdam, The Netherlands
Budapest, Hungary
Budapest, Hungary
Miskolc, Hungary
Miskolc, Hungary
Edinburgh, Scotland

Turku, Finland
Bochum, Germany
Pasewalk, Germany
Wilhelmshaven, Germany (two)
Johannesburg, South Africa
Ed, Sweden
Sveg, Sweden
Prato, Italy
Shannon, Ireland
Lugo, Spain
La Coruña, Spain
Kosice, Slovakia
Galashiels, Scotland
Galashiels, Scotland
Upplands Vasby, Sweden
Turku, Finland
Frankfurt, Germany
Madrid, Spain

General Usage

Square
Feet

Lease Expiration

Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center/

Office /Headquarters

Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management centers
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Customer contact management center
Fulfillment center
Fulfillment center
Fulfillment center and Sales office
Fulfillment center
Sales office
Office

33,000 September 2009
23,000
15,700

July 2023
July 2027

7,000 August 2016
2,800 No expiration

July 2007

September 2019
March 2008

35,900
17,800
12,500 February 2008
45,700
46,100 March 2009
76,000 March 2009
33,000 March 2025
44,000 October 2009
35,000 May 2007
10,000 October 2022
66,000 March 2013
21,400
32,300 December 2023
11,400 December 2024
126,700 Company owned

June 2007

6,400
23,500 October 2007
26,000 March 2008
1,700 September 2007
800 December 2011

Idle facility.

(1)
(2) Considered part of the Toronto, Ontario, Canada customer contact management center.

Item 3. Legal Proceedings

From time to time we are involved in legal actions arising in the ordinary course of business. With respect to these
matters, we believe we have adequate legal defenses and/or provided adequate accruals for related costs such that
the ultimate outcome will not have a material adverse effect on our future financial position or results of operations.

One of our European subsidiaries has received several inquiries from a regulatory agency related to privacy
claims associated with the alleged inappropriate acquisition of personal bank account information. Several of the
inquiries have resulted in sanctions against us approximating $0.8 million. In order to appeal the sanctions through
the court system, we issued a bank guarantee. We believe that the sanctions made in connection with this matter are
without merit, and intend to vigorously pursue the reversal of the proposed sanctions. We have recorded these
amounts in “Deferred Charges and Other Assets” in the accompanying Consolidated Balance Sheets as of December
31, 2006. We have not accrued any amounts related to these claims under SFAS No. 5, “Accounting for
Contingencies” because we do not believe that a loss is probable, and it is not currently possible to reasonably
estimate the amount of any loss related to these claims.

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.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Securities

Our common stock is quoted on the NASDAQ Global Select Market under the symbol SYKE. The following
table sets forth, for the periods indicated, certain information as to the high and low sale prices per share of our
common stock as quoted on the NASDAQ Global Select Market.

High

Low

Year ended December 31, 2006:
Fourth Quarter ................................................. $ 21.56 $ 16.10
Third Quarter ...................................................
14.70
Second Quarter ................................................
14.01
First Quarter .....................................................
11.80

20.67
18.16
14.75

Year ended December 31, 2005:
Fourth Quarter ................................................. $ 15.41 $ 11.95
9.32
Third Quarter ...................................................
6.57
Second Quarter ................................................
6.38
First Quarter .....................................................

12.07
9.60
8.50

Holders of our common stock are entitled to receive dividends out of the funds legally available when and if
declared by the Board of Directors. We have not declared or paid any cash dividends on our common stock in the
past and do not anticipate paying any cash dividends in the foreseeable future.

As of February 23, 2006, there were 1,207 holders of record of the common stock. We estimate there were
approximately 7,668 beneficial owners of our common stock.

Below is a summary of stock repurchases for the quarter ended December 31, 2006 (in thousands, except average
price per share.) See Note 17, Earnings Per Share, to the Consolidated Financial Statements for information
regarding our stock repurchase program.

Period

Total Number
of Shares
Purchased (1)

October 1, 2006 – October 31, 2006.....................
November 1, 2006 – November 30, 2006.............
December 1, 2006 – December 31, 2006..............

—
—
—

Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs (1)

Maximum
Number Of
Shares That May
Yet Be
Purchased
Under Plans or
Programs

1,644
1,644
1,644

1,356
1,356
1,356

Average
Price
Paid Per
Share

—
—
—

(1) All shares purchased as part of a repurchase plan publicly announced on August 5, 2002. Total number of shares approved for

repurchase under the plan was 3 million with no expiration date.

Five-Year Stock Performance Graph

total return on

the Nasdaq Computer and Data Processing Services Index,

The following graph presents a comparison of the cumulative shareholder return on the common stock with the
cumulative
the Nasdaq
Telecommunications Index, the Russell 2000 Index, the S&P Small Cap 600 and the SYKES Peer Group (as defined
below). The SYKES Peer Group is comprised of publicly traded companies that derive a substantial portion of their
revenues from call center, customer care business, have similar business models to SYKES, and are those most
commonly compared to SYKES by industry analysts following SYKES. This graph assumes that $100 was invested
on December 31, 2001 in SYKES common stock, the Nasdaq Computer and Data Processing Services Index, the
Nasdaq Telecommunications Index, the Russell 2000 Index, the S&P Small Cap 600 and SYKES Peer Group,
including reinvestment of dividends.

Comparison of Five-Year Cumulative Total Return

SYKES
NASDAQ Computer & Data Processing Services Stocks

NASDAQ Telecommunications Stocks
Russell 2000® Index
S&P Small Cap 600 Index

SYKES Peer Group

$200

$150

$100

$50

SYKES

NASDAQ Computer & Data Processing Services Stocks

NASDAQ Telecommunications Stocks

Russell 2000® Index

S&P Small Cap 600 Index

SYKES Peer Group

SYKES PEER GROUP

2001

$100

2002

$35

$63

$46

$78

$85

$68

2003

$92

$95

$78

$114

$116

$90

2004

$74

$98

$84

$133

$142

$72

2005

$143

$101

$78

$138

$151

$73

2006

$189

$107

$99

$161

$172

$109

Name
APAC Customer Service, Inc.
Convergys Corp.
ICT Group, Inc.
Sitel Corp.
Startek, Inc.
TeleTech Holdings, Inc.

Ticker Symbol
APAC
CVG
ICTG
SWW
SRT
TTEC

We removed West Corporation (Ticker: WSTC) from the “SYKES Peer Group” in order to make the price
performance comparables relevant, given the completion of WSTC’s recapitalization in October 2006. As a result
of the recapitalization, WSTC no longer has publicly-traded shares on the NASDAQ Stock Market. Similarly, given
Sitel’s (Ticker: SWW) sale to ClientLogic in a going-private transaction approved on January 12, 2007, it will be
removed from the “SYKES Peer Group” next year. Conversely, we added S&P Small Cap 600 Index to the
performance graph due to SYKES’ inclusion in the Index on August 2, 2006.

There can be no assurance that SYKES’ stock performance will continue into the future with the same or similar
trends depicted in the graph above. SYKES does not make or endorse any predictions as to the future stock
performance.

The information contained in the Stock Performance Graph section shall not be deemed to be “soliciting
material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by
reference into a document filed under the Securities Exchange Act of 1934.

Item 6. Selected Financial Data

Selected Financial Data

The following selected financial data has been derived from our 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 our Consolidated Financial Statements and related notes.

(In thousands, except per share data)
INCOME STATEMENT DATA (1) :

2006

Years Ended December 31,
2004

2005

2003

2002

Revenues ............................................................. $ 574,223
Income (loss) from operations (1,2,3,4,5,6) ...............
45,158
Net income (loss) (1,2,3,4,5,6) ...................................
42,323
Net income (loss) per basic share (1,2,3,4,5,6) ..........
1.06
Net income (loss) per diluted share (1,2,3,4,5,6) .......
1.05

$ 494,918
26,331
23,408
0.60
0.59

$ 466,713 $ 480,359 $ 452,737

12,597
10,814
0.27
0.27

11,368
9,305
0.23
0.23

(11,295 )
(18,631 )
(0.46 )
(0.46 )

BALANCE SHEET DATA (1,7) :

Total assets ..........................................................$
Shareholders’ equity ...........................................

415,573 $
291,473

331,185 $ 312,526 $ 318,175 $
226,090 210,035 200,832

296,841
182,345

(1)
(2)

(3)

(4)

(5)

(6)

(7)
(8)

The amounts for 2006 include the Argentine acquisition on July 3, 2006
The amounts for 2006 include a $13.9 million net gain on the sale of facilities and $0.4 million of charges
associated with the impairment of long-lived assets.
The amounts for 2005 include a $1.8 million net gain on the sale of facilities, a $0.3 million reversal of
restructuring and other charges and $0.6 million of charges associated with the impairment of long-lived
assets.
The amounts for 2004 include a $7.1 million net gain on the sale of facilities, a $5.4 million net gain on
insurance settlement, a $0.1 million reversal of restructuring and other charges and $0.7 million of
charges associated with the impairment of long-lived assets.
The amounts for 2003 include a $2.1 million net gain on the sale of facilities and a $0.6 million reversal of
restructuring and other charges.
The amounts for 2002 include $20.8 million of restructuring and other charges, $1.5 million of charges
associated with the impairment of long-lived assets and a $1.6 million net gain on the sale of facilities.
The amounts for 2002 include $13.8 million of charges associated with the litigation settlement.
SYKES has not declared cash dividends per common share for any of the five years presented.

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, 2006 (“2006”) to the year ended December 31, 2005 (“2005”), and 2005 to the year ended
December 31, 2004 (“2004”).

The following discussion and analysis and other sections of this document contain forward-looking statements
that involve risks and uncertainties. Words such as “may,” “expects,” “projects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to
identify such forward-looking statements. Similarly, statements that describe our future plans, objectives, or goals
also are forward-looking statements. Future events and actual results could differ materially from the results
reflected in these forward-looking statements, as a result of certain of the factors set forth below and elsewhere in
this analysis and in this Form 10-K for the year ended December 31, 2006 in Item 1.A.-Risk Factors.

Overview

We provide outsourced customer contact management services with an emphasis on inbound technical support
and customer service, which represented 95.2% of consolidated revenues in 2006, delivered through multiple
communication channels encompassing phone, e-mail, Web and chat. Revenue from technical support and customer
service, provided through our customer contact management centers, is recognized 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.

We also provide a range of enterprise support services for our client’s internal support operations, from technical
staffing services to outsourced corporate help desk services. Revenues usually are billed on a time and material
basis, generally by the minute or hour, and revenues generally are recognized 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. We have not experienced material losses due to fixed price contracts, which do not represent a
significant majority of our revenue, and do not anticipate a significant increase in revenue derived from such
contracts in the future.

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

Recognition of income associated with grants from local or state governments of land and the acquisition of
property, buildings and equipment is deferred 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 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 amortization, totaled $10.8 million
and $18.1 million at December 31, 2006 and 2005, respectively, a decrease of $7.3 million. This decrease resulted
from the sale of four third party leased U.S. customer contact management centers located in Palatka, Florida,
Pikeville, Kentucky, Ada, Oklahoma, and Manhattan, Kansas.

The net (gain) loss on disposal of property and equipment includes the net gain on the sale of the four
aforementioned centers in 2006 and various other centers in 2005 in addition to the net (gain) loss on the disposal of
property and equipment.

The net gain on insurance settlement includes the insurance proceeds received for damage to our Marianna,
Florida customer contact management center in September 2004.

Restructuring and other charges (reversals) consist of reversals of certain accruals related to the 2002, 2001 and
2000 restructuring plans.

Impairment of long-lived assets charges of $0.4 million in 2006 related to $0.3 million asset impairment charge in
one of our underutilized European customer contact management centers and a $0.1 million charge for property and

equipment no longer used in one of our Philippine facilities. Impairment of long-lived assets charges of $0.6 million
in 2005 relate to an asset impairment charge of $0.1 million in India related to the plan of migration of call volumes
to other facilities and a $0.5 million asset impairment charge related to the impairment and subsequent sale of
property and equipment located in the United States. Impairment of long-lived assets charges of $0.7 million in 2004
relate to certain property and equipment in Bangalore, India as a result of the previously mentioned plan of
migration.

Interest income primarily relates to interest earned on cash and cash equivalents and interest on foreign tax
refunds.

Interest expense primarily includes commitment fees charged on the unused portion of our credit facility and
interest costs related to a foreign income tax settlement.

Income from rental operations, net is generated from the leasing of several U.S. facilities.

Foreign currency transaction gains and losses generally result from exchange rate fluctuations on intercompany
transactions and the revaluation of cash and other current assets that are settled in a currency other than functional
currency.

Our effective tax rate for the periods presented reflects the effects of state income taxes, net of federal tax benefit,
tax holidays, valuation allowance changes, foreign rate differentials, foreign withholding and other taxes, and
permanent differences.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items
reflected in our Statements of Operations:

PERCENTAGES OF REVENUES:
Revenues .............................................................................
Direct salaries and related costs ..........................................
General and administrative .................................................
Net gain on disposal of property and equipment .................
Net gain on insurance settlement .........................................
Reversals of restructuring and other charges ......................
Impairment of long-lived assets ..........................................
Income from operations ......................................................
Interest income.....................................................................
Interest expense....................................................................
Income from rental operations, net ......................................
Other income (expense) .......................................................
Income before provision for income taxes...........................
Provision for income taxes ..................................................
Net income ...........................................................................

Years Ended December 31,
2005

2004

2006

100.0%
63.7
30.8
(2.4)
—
—
—
7.9
1.2
(0.1)
0.2
(0.2)
9.0
1.6
7.4%

100.0%
62.6
32.4
(0.3)
—
(0.1 )
0.1
5.3
0.5
(0.1)
0.2
—
5.9
1.2
4.7%

100.0%
64.4
35.4
(1.5)
(1.2)
—
0.2
2.7
0.5
(0.1)
—
0.3
3.4
1.1
2.3%

The following table sets forth, for the periods indicated, certain data derived from our Consolidated Statements of
Operations (in thousands):

Revenues ............................................................
Direct salaries and related costs .........................
General and administrative ................................
Net gain on disposal of property and
equipment .......................................................
Net gain on insurance settlement ........................
Reversals of restructuring and other charges ......
Impairment of long-lived assets .........................
Income from operations .....................................
Interest income....................................................
Interest expense...................................................
Income from rental operations, net .....................
Other income (expense) ......................................
Income before provision for income taxes..........
Provision for income taxes .................................
Net income ..........................................................

2006
$ 574,223
365,602
176,701

Years Ended December 31,
2005
$ 494,918
309,604
160,470

(13,683)

—
—

445
45,158
6,785
(674)
1,200
(1,010)
51,459
9,136
42,323

(1,778)
—
(314)
605
26,331
2,559
(667)
940
(60)
29,103
5,695
23,408

2004
$ 466,713
300,600
165,232

(6,915)
(5,378)
(113)
690
12,597
2,445
(773)
151
1,441
15,861
5,047
$ 10,814

The following table summarizes our revenues for the periods indicated, by geographic region (in thousands):

2006

Years Ended December 31,
2005

2004

Revenues:
Americas ....................................
EMEA ........................................
Consolidated ............................

$ 387,305
186,918

318,173 64.3% $ 283,253 60.7%
183,460 39.3%
176,745
$ 574,223 100.0% $ 494,918 100.0% $ 466,713 100.0%

67.4% $
32.6%

35.7%

The following table summarizes the amounts and percentage of revenue for direct salaries and related costs and
general and administrative costs for the periods indicated, by geographic region (in thousands):

Direct salaries and related costs:
Americas ....................................
EMEA ........................................
Consolidated ............................

General and administrative:
Americas ....................................
EMEA ........................................
Corporate.....................................
Consolidated ............................

2006

Years Ended December 31,
2005

2004

$ 238,290
127,312
$ 365,602

61.5% $
68.1%

189,598
120,006
$ 309,604

59.6% $ 178,720 63.1%
121,880 66.4%
67.9%

$ 300,600

91,231
49,429
36,041
$ 176,701

23.6% $
26.4%

80,155
49,223
31,092
$ 160,470

25.2% $ 85,923 30.3%
51,045 27.8%
27.8%
28,264
$ 165,232

2006 Compared to 2005

Revenues

During 2006, we recognized consolidated revenues of $574.2 million, an increase of $79.3 million or 16.0% from
$494.9 million of consolidated revenues for 2005.

On a geographic segmentation, revenues from the Americas region, including the United States, Canada, Latin
America, India and the Asia Pacific Rim, represented 67.4%, or $387.3 million for 2006 compared to 64.3%, or
$318.2 million, for 2005. Revenues from the EMEA region, including Europe, the Middle East and Africa,
represented 32.6%, or $186.9 million for 2006 compared to 35.7% or $176.7 million for 2005.

The increase in Americas’ revenue of $69.1 million, or 21.7%, for 2006, compared to 2005, reflects a broad-based
growth in client call volumes including new and existing client programs, within our offshore operations, Canada
and the United States, as well as $15.1 million of revenue generated from our Argentine acquisition on July 3, 2006,
and a $2.5 million revenue contribution from the KLA acquisition in Canada on March 1, 2005. Revenues from new
and existing client programs in our offshore operations represented 36.9% of consolidated revenues for 2006
compared to 31.7% in 2005. The trend of generating more of our revenues from new and existing client programs in
our offshore operations is likely to continue in 2007. While operating margins generated offshore are generally
comparable or higher than those in the United States, our ability to maintain these offshore operating margins longer
term is difficult to predict due to potential increased competition for the available workforce and costs of functional
currency fluctuations in offshore markets.

The increase in EMEA’s revenue of $10.2 million, or 5.7%, for 2006 reflects an increase in call volumes,
including new and existing client programs partially offset by certain program expirations. Excluding a foreign
currency benefit of $1.8 million, EMEA’s revenues would have increased $8.4 million compared to last year.

Direct Salaries and Related Costs

Direct salaries and related costs increased $56.0 million or 18.1% to $365.6 million for 2006, from $309.6 million
in 2005.

On a geographic segmentation, direct salaries and related costs from the Americas region increased $48.7 million
or 25.7% to $238.3 million for 2006 from $189.6 million in 2005. This increase included $10.2 million of direct
salaries and related costs from our newly acquired Argentina operations primarily consisting of compensation costs.
Direct salaries and related costs from the EMEA region increased $7.3 million or 6.1% to $127.3 million for 2006
from $120.0 million in 2005. While changes in foreign currency exchange rates positively impacted revenues in
EMEA, they negatively impacted direct salaries and related costs in 2006 compared to 2005 by approximately $1.2
million.

In the Americas’ region, as a percentage of revenues, direct salaries and related costs increased to 61.5% in 2006

from 59.6% in 2005. This increase was primarily attributable to higher compensation costs, including training costs
associated with the ramp up of business in our offshore and U.S. operations, and higher auto tow claims costs in
Canada, partially offset by lower telephone costs.

In the EMEA region, as a percentage of revenues, direct salaries and related costs increased to 68.1% in 2006
from 67.9% in 2005. This increase was primarily attributable to higher compensation costs and other billable direct
costs.

General and Administrative

General and administrative expenses increased $16.2 million or 10.1% to $176.7 million for 2006, from $160.5
million in 2005.

On a geographic segmentation, general and administrative expenses from the Americas region increased $11.1
million or 13.8% to $91.2 million for 2006 from $80.1 million in 2005. This increase included $4.1 million of
general and administrative expenses from our newly acquired Argentina operations primarily consisting of
depreciation and amortization and compensation costs. General and administrative expenses from the EMEA region
increased $0.2 million or 0.4% to $49.5 million for 2006 from $49.3 million in 2005. While changes in foreign
currency exchange rates positively impacted revenues in EMEA, they negatively impacted general and
administrative expenses in 2006 compared to 2005 by approximately $0.5 million. Corporate general and
administrative expenses increased $4.9 million or 15.9% to $36.0 for 2006 from $31.1 million. This increase was
primarily attributable to higher compensation costs, including $2.5 million associated with our stock-based
compensation plans, and a $2.0 million charitable contribution partially offset by lower depreciation expense, lease
and equipment maintenance and telephone costs.

In the Americas’ region, as a percentage of revenues, general and administrative expenses decreased to 23.6% in
2006 from 25.2% in 2005. This decrease was primarily attributable to lower depreciation expense, legal and
professional fees, and lease and equipment maintenance partially offset by higher compensation and telephone costs.

In the EMEA region, as a percentage of revenues, general and administrative expenses decreased to 26.4% in
2006 from 27.8% in 2005. This decrease was primarily attributable to lower depreciation expense, telephone costs
and a recovery of bad debts partially offset by higher compensation costs, lease and equipment maintenance, legal
and professional fees and software maintenance.

Net Gain on Disposal of Property and Equipment

The net gain on disposal of property and equipment of $13.7 million for 2006 was primarily a result of sale of
four third party leased U.S. customer contact management centers located in Palatka, Florida, Pikeville, Kentucky,
Ada, Oklahoma, and Manhattan, Kansas. This compares to a net gain on disposal of property and equipment of
$1.8 million for 2005 which includes a $1.7 million net gain on the sale of our Greeley, Colorado facility and a
$0.1 million net gain on the sale of a parcel of land in Klamath Falls, Oregon.

Reversal of Restructuring and Other Charges

Restructuring and other charges included a reversal of certain charges totaling $0.3 million in 2005 related to the
remaining lease termination and closure costs for two European customer contact management centers and one
European fulfillment center. There were no restructuring charges in 2006.

Impairment of Long-Lived Assets

Impairment of long-lived assets charges of $0.4 million in 2006 related to a $0.3 million asset impairment charge
in one of our underutilized European customer contact management centers and a $0.1 million charge for property
and equipment no longer used in one of our Philippine facilities. Impairment of long-lived assets charges of
$0.6 million in 2005 relate to an asset impairment charge of $0.1 million in India related to the plan of migration of
call volumes to other facilities and a $0.5 million asset impairment charge related to the impairment and subsequent
sale of property and equipment located in the United States.

Interest Income

Interest income increased to $6.8 million in 2006 from $2.6 million in 2005 reflecting interest income of $1.7
million on a foreign tax settlement as well as higher average levels of interest-bearing investments in cash and cash
equivalents earning higher rates of interest income.

Interest Expense

Interest expense was unchanged at $0.7 million in 2006 as compared to 2005.

Income from Rental Operations, Net

Income from rental operations, net was $1.2 million in 2006 compared to $0.9 million in 2005. The increase of
$0.3 million was primarily related to lower depreciation and maintenance costs of $0.6 million partially offset by
lower rental income of $0.3 million as a result of the September 2006 sale of the four third party leased facilities.

Other Income and Expense

Other expense, net increased to $1.0 million in 2006 from $0.1 million in 2005. This increase was primarily
attributable to an increase in foreign currency transaction losses, net of gains. Other income excludes the effects of
cumulative translation effects included in Accumulated Other Comprehensive Income (Loss) in shareholders’ equity
in the accompanying Consolidated Balance Sheets.

Provision (Benefit) for Income Taxes

The provision for income taxes of $9.1 million for 2006 was based upon pre-tax book income of $51.5 million,
compared to the provision for income taxes of $5.7 million for the comparable 2005 period based upon pre-tax book
income of $29.1 million. The effective tax rate was 17.8% for 2006 and 19.6% for the comparable 2005 period.
This decrease in the effective tax rate resulted from a shift in our mix of earnings and the effects of permanent
differences, valuation allowances, foreign withholding taxes, state income taxes, and foreign income tax rate
differentials (including tax holiday jurisdictions). The effective tax rate of 19.6% for 2005 included the reversal of a
$0.6 million beginning of the year valuation allowance. This reversal resulted from a favorable change in forecasted
2005 and 2006 book income for one EMEA legal entity, which provided sufficient evidence for current and future
sources of taxable income.

Net Income

As a result of the foregoing, we reported income from operations for 2006 of $45.2 million, an increase of
$18.8 million from 2005. This increase was principally attributable to a $79.3 million increase in revenues, a $11.9
million increase in net gain on disposal of property and equipment, $0.1 million decrease in asset impairment
charges partially offset by a $56.0 million increase in direct salaries and related costs, a $16.2 million increase in
general and administrative costs, and a $0.3 million decrease in reversals of restructuring and other charges. The
$18.8 million increase in income from operations combined with a net increase in interest income, income from
rental operations, net and other income of approximately $3.5 million was partially offset by a $3.4 million higher
tax provision, resulting in net income of $42.3 million for 2006, an increase of $18.9 million compared to 2005.

2005 Compared to 2004

Revenues

During 2005, we recognized consolidated revenues of $494.9 million, an increase of $28.2 million or 6.0% from
$466.7 million of consolidated revenues for 2004.

On a geographic segmentation, revenues from the Americas region, including the United States, Canada, Latin
America, India and the Asia Pacific Rim, represented 64.3%, or $318.2 million for 2005 compared to 60.7%, or
$283.3 million, for 2004. Revenues from the EMEA region, including Europe, the Middle East and Africa,
represented 35.7%, or $176.7 million for 2005 compared to 39.3% or $183.4 million for 2004.

The increase in Americas’ revenue of $34.9 million, or 12.3%, for 2005, compared to 2004, reflects a broad-based

growth in client call volumes within our offshore operations and Canada, including new and existing client
programs, a $3.5 million revenue contribution from the KLA acquisition on March 1, 2005 in Canada and a $1.5
million increase relating to a client contract pricing re-negotiation. The increase in the America’s revenues was
negatively impacted by the client-driven migration of call volumes from the United States to comparable or higher
margin offshore operations, including Latin America and the Asia Pacific Rim, and the resulting mix-shift in
revenues from the United States to offshore (each offshore seat generates roughly half the revenue dollar
equivalence of a U.S. seat). Revenues from our offshore operations represented 31.7% of consolidated revenues in
2005 compared to 27.6% in 2004.

The decrease in EMEA’s revenue of $6.7 million, or 3.7%, for 2005 reflects a decrease in call volumes and
certain program expirations, partially offset by the benefit of a strengthened Euro of approximately $0.1 million
compared to 2004. Excluding this foreign currency benefit, EMEA’s revenues would have decreased $6.8 million
compared with last year.

Direct Salaries and Related Costs

Direct salaries and related costs increased 9.0 million or 3.0% to $309.6 million for 2005, from $300.6 million in
2004.

On a geographic segmentation, direct salaries and related costs from the Americas region increased $10.9 million
or 6.1% to $189.6 million for 2005 from $178.7 million in 2004. Direct salaries and related costs from the EMEA
region decreased $1.9 million or 1.5% to $120.0 million for 2005 from $121.9 million in 2004. With the slight
strengthening of the Euro in 2005 compared to 2004, there was no significant impact on direct salaries and related
costs.

In the Americas’ region, as a percentage of revenues, direct salaries and related costs decreased to 59.6% in 2005
from 63.1% in 2004. This decrease was primarily attributable to lower compensation costs due to an overall
reduction in U.S. customer call volumes from the client-driven migration of call volumes offshore and lower labor
costs in offshore operations, as well as lower telephone costs. This decrease was partially offset by higher auto tow
claims costs due to a higher membership base in our roadside assistance programs in Canada.

In the EMEA region, as a percentage of revenues, direct salaries and related costs increased to 67.9% in 2005
from 66.4% in 2004. This increase was primarily attributable to higher compensation costs.

General and Administrative

General and administrative expenses decreased $4.7 million or 2.9% to $160.5 million for 2005, from $165.2
million in 2004.

On a geographic segmentation, general and administrative expenses from the Americas region increased $5.8
million or 6.7% to $80.1 million for 2005 from $85.9 million in 2004. General and administrative expenses from the
EMEA region decreased $1.8 million or 3.6% to $49.3 million for 2005 from $51.0 million in 2004. With the slight
strengthening of the Euro in 2005 compared to 2004, there was no significant impact on general and administrative
expenses. Corporate general and administrative expenses increased $2.8 million or 10.0% to $31.1 for 2005 from
$28.3 million. This increase was primarily attributable to higher legal and professional fees primarily due to
compliance costs related to the Sarbanes-Oxley Act, higher telephone and lease and equipment maintenance costs
partially offset by lower compensation costs due to salary costs related to the former chairman’s retirement as
compared to 2004.

In the Americas’ region, as a percentage of revenues, general and administrative expenses decreased to 25.2% in
2005 from 30.3% in 2004. This decrease was primarily attributable to lower depreciation and amortization expense,
lower compensation costs, lower lease costs and equipment maintenance partially offset by higher legal and
professional fees primarily related to settlement of a contract dispute as compared 2004.

In the EMEA region, as a percentage of revenues, general and administrative expenses were unchanged at 27.8%
in 2005 from 2004. Higher compensation costs were offset by lower depreciation expense and lease and equipment
maintenance.

Net Gain on Disposal of Property and Equipment

The net gain on disposal of property and equipment of $1.8 million for 2005 includes a $1.7 million net gain on
the sale of our Greeley, Colorado facility and a $0.1 million net gain on the sale of a parcel of land in Klamath Falls,
Oregon. This compares to a $6.9 million net gain on disposal of property and equipment in 2004, which includes a
$2.8 million net gain on the sale of our Hays, Kansas facility, a $2.7 million net gain on the sale of our Klamath
Falls, Oregon facility, a $0.1 million net gain on the sale of a parcel of land at our Pikeville, Kentucky facility and a
$1.5 million net gain on the sale of our Eveleth, Minnesota facility, partially offset by a $0.2 million loss on disposal
of property and equipment.

Net Gain on Insurance Settlement

In September 2004, the building and contents of our customer contact management center located in Marianna,
Florida was severely damaged by Hurricane Ivan. Upon settlement with the insurer in December 2004, we
recognized a net gain of $5.4 million after write-off of the property and equipment, which had a net book value of
$3.4 million, net of the related deferred grants of $2.2 million. In December 2004, we donated the underlying land to
the city with $0.1 million to assist with the site demolition and clean up of the property.

Reversal of Restructuring and Other Charges

Restructuring and other charges included a reversal of certain charges totaling $0.3 million and $0.1 in 2005 and
2004, respectively, related to the remaining lease termination and closure costs for two European customer contact
management centers and one European fulfillment center.

Impairment of Long-Lived Assets

Impairment of long-lived assets charges of $0.6 million in 2005 relate to (1) an asset impairment charge of $0.1
million in India related to the plan of migration of call volumes of the customer contact management services and
related operations in India to other more strategically-aligned facilities in the Asia Pacific region and (2) a $0.5
million asset impairment charge related to the impairment and subsequent sale of property and equipment located in
the United States. Impairment of long-lived assets charges of $0.7 million in 2004 relate to certain property and
equipment in Bangalore, India as a result of the previously mentioned plan of migration.

Interest Income

Interest income increased to $2.5 million in 2005 from $2.4 million in 2004 reflecting higher levels of average
interest-bearing balances in cash and cash equivalents. The 2004 interest income included $0.8 million of interest
received on a foreign income tax refund.

Interest Expense

Interest expense decreased slightly by $0.1 million to $0.7 million in 2005 as compared to 2004.

Income from Rental Operations, Net

Income from rental operations, net increased to $0.9 million in 2005 from $0.2 million in 2004 as a result of
leasing of four customer contact management facilities during 2005 compared to leasing of one facility during 2004.

Other Income and Expense

Other income, net decreased to zero in 2005 from $1.4 million in 2004. This decrease was primarily attributable
to a $1.3 million decrease in foreign currency translation gains, net of losses including $0.4 million related to the
liquidation of a foreign entity and a $0.1 million decrease in other miscellaneous income. Other income excludes the
effects of cumulative translation effects included in Accumulated Other Comprehensive Income (Loss) in
shareholders’ equity in the accompanying Consolidated Balance Sheets.

Provision (Benefit) for Income Taxes

The provision for income taxes of $5.7 million for 2005 was based upon pre-tax book income of $29.1 million,
compared to the provision for income taxes of $5.1 million for the comparable 2004 period based upon pre-tax book
income of $15.9 million. The effective tax rate was 19.6% for 2005 and 31.8% for the comparable 2004 period.
This decrease in the effective tax rate resulted from a shift in our mix of earnings and the effects of permanent
differences, valuation allowances, foreign withholding taxes, state income taxes, and foreign income tax rate
differentials (including tax holiday jurisdictions). The effective tax rate of 19.6% for 2005 included the reversal of a
$0.6 million beginning of the year valuation allowance. This reversal resulted from a favorable change in forecasted
2005 and 2006 book income for one EMEA legal entity, which provided sufficient evidence for current and future
sources of taxable income.

Net Income

As a result of the foregoing, we reported income from operations for 2005 of $26.3 million, an increase of
$13.7 million from 2004. This increase was principally attributable to a $28.2 million increase in revenues, a $4.7
million decrease in general and administrative costs and a $0.2 million increase in reversals of restructuring and
other charges partially offset by a $9.0 million increase in direct salaries and related costs, a $5.1 million decrease in
net gain on disposal of property and equipment, a $5.4 million decrease in net gain on insurance settlement and a
$0.1 million increase in asset impairment charges. The $13.7 million increase in income from operations was
partially offset by a net decrease in interest income, interest expense, income from rental operations, net and other
income of $0.5 million and a $0.6 million higher tax provision, resulting in net income of $23.4 million for 2005, an
increase of $12.6 million compared to 2004.

Quarterly Results

The following information presents our unaudited quarterly operating results for 2006 and 2005. The data has
been prepared 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 we consider necessary for a fair
presentation thereof.

(In thousands, except per share data)

12/31/06 9/30/06

6/30/06

3/31/06

12/31/05

9/30/05 6/30/05

3/31/05

(69)

—

(35 )

(56 )

—

(47 )

(1,627 )

80,902
38,824

83,016
40,995

173 (13,870 )

75,247 76,026
40,387 41,369

102,192 94,016
46,092 47,281

63
10,171 21,797
1,399
1,610
(187 )
(211 )

Revenues...................................... $ 158,628 $ 149,287 $ 135,221 $ 131,087 $ 128,756 $ 122,596 $ 122,194 $ 121,372
Direct salaries and related costs(2)
77,429
86,378
General and administrative(3) .......
39,890
42,333
Net (gain) loss on disposal of
property and equipment(4) ........
Restructuring and other charges
(reversals) (5).............................
Impairment of long-lived
assets(6) .....................................
Income from operations ...............
Interest income.............................
Interest expense............................
Income from rental
operations, net .........................
Other income (expense) ...............
Income before provision
(benefit) for income taxes ........
Provision (benefit) for income
taxes .........................................
Net income (1)............................... $
Net income per basic share(1,7) ..... $
Total weighted average basic
shares ......................................
Net income per diluted share(1,7)... $
Total weighted average diluted
shares ......................................

2,756
8,139 $ 16,514 $
0.41 $

605
6,404
719
(113 )

(1,996 )
11,771 $
0.30 $

812
6,870 $
0.17 $

—
6,505
2,855
(183 )

—
6,482
496
(385 )

382
6,685
921
(93 )

—
9,065
894
(95 )

1,762
5,899 $
0.15 $

2,434
4,977 $
0.13 $

1,080
8,596 $
0.22 $

1,369
2,965
0.08

39,291 39,289

39,566 39,445

10,895 23,128

40,282 40,181

40,559 40,497

(20 )
(655 )

337
335

39,195
0.08

266
(147 )

510
(362 )

593
(781 )

7,682

0.17 $

114
704

444
154

0.20 $

0.15 $

0.41 $

0.13 $

0.29 $

0.22 $

39,900

40,251

39,282

39,723

39,451

39,819

39,339

9,775

7,411

9,676

6,614

7,661

4,334

—
4,380
450
(74)

(104)
(318)

(258)

(1)

(2)

(3)

(4)

(5)

(6)

(7)

The quarters ended September 30, 2006 and December 31, 2006 include the operating results of the
Argentina acquisition since July 3, 2006. See Note 2.
The quarters ended March 31, 2006 and December 31, 2005 include a $0.8 million and a $0.5 million
charge for termination costs associated with exit activities in Germany, respectively. The quarter ended
December 31, 2005 includes a $0.6 million year-end bonus accrual.
The quarters ended December 31, 2006 and 2005 include a $0.9 million and a $0.5 million reversal of bad
debt expense. The quarter ended December 31, 2005 includes a $0.4 million reversal of certain bonus
accruals.
The quarters ended September 30, 2006, June 30, 2005 and December 31, 2005 include a net gain of $13.9
million related to the sale of four U.S. third party leased facilities, $1.7 million related to the sale of the
Greeley, Colorado facility, and $0.1 million related to the sale of a parcel of land in Klamath Falls,
Oregon, respectively.
The quarters ended June 30, 2005 and March 31, 2005 include a reversal of restructuring and other
charges of $0.1 million and $0.2 million, respectively.
The quarters ended March 31, 2006 and September 30, 2005 include a $0.4 million and $0.6 million,
charge associated with the impairment of long-lived assets, respectively.
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.

Liquidity and Capital Resources

Our primary sources of liquidity are generally cash flows generated by operating activities and from available
borrowings under our revolving credit facilities. We utilize these capital resources to make capital expenditures
associated primarily with our customer contact management services, invest in technology applications and tools to
further develop our service offerings and for working capital and other general corporate purposes, including
repurchase of our common stock in the open market and to fund possible acquisitions. In future periods, we intend
similar uses of these funds.

On August 5, 2002, the Board of Directors authorized the purchase of up to three million shares of our
outstanding common stock. A total of 1.6 million shares have been repurchased under this program since inception.
The shares are purchased, from time to time, through open market purchases or in negotiated private transactions,
and the purchases are based on factors, including but not limited to, the stock price and general market conditions.
During 2006, we did not repurchase common shares under the 2002 repurchase program.

During 2006, we generated $44.8 million in cash from operating activities, received $15.4 million from the sale of
four third party leased U.S. customer contact management centers, $4.3 million in cash from issuance of stock, $2.4
million from excess tax benefit from stock-based compensation, $0.5 million from an employment grant and
$0.1 million in cash from the sale of property and equipment. Further, we used $19.4 million in funds for capital
expenditures, $17.4 million in funds for the purchase of Apex, $4.7 million to purchase investments (primarily
restricted cash relating to the Apex acquisition) and $0.4 million to repay long-term debt assumed with the Apex
acquisition resulting in a $31.0 million increase in available cash (including the favorable effects of international
currency exchange rates on cash of $5.4 million).

Net cash flows provided by operating activities for 2006 were $44.8 million, compared to net cash flows provided
by operating activities of $48.2 million for 2005. The $3.4 million decrease in net cash flows from operating
activities was due to a $13.3 million net change in assets and liabilities and a $9.0 million decrease in non-cash
reconciling items such as deferred income taxes and a net gain on disposal of property and equipment offset by an
increase in net income of $18.9 million. This $13.3 million net change in assets and liabilities was principally a
result of a $20.0 million increase in receivables, a $1.6 million increase in other assets partially offset by a $5.1
million increase in taxes payable, a $3.0 million increase in deferred revenue, and a $0.2 million increase in other
liabilities.

Capital expenditures, which are generally funded by cash generated from operating activities and borrowings
available under our credit facilities, were $19.4 million for 2006, compared to $9.9 million for 2005, an increase of
$9.5 million. During 2006, approximately 35% of the capital expenditures were the result of investing in new and
existing customer contact management centers, primarily offshore, and 65% was expended primarily for
maintenance and systems infrastructure. In 2007, we anticipate capital expenditures in the range of $25.0 million to
$30.0 million.

An available source of future cash flows from financing activities is from borrowings under our $50.0 million
revolving credit facility (the “Credit Facility”), which amount is subject to certain borrowing limitations. Pursuant to
the terms of the Credit Facility, the amount of $50.0 million may be increased up to a maximum of $100.0 million
with the prior written consent of the lenders. The $50.0 million Credit Facility includes a $10.0 million swingline
subfacility, a $15.0 million letter of credit subfacility and a $40.0 million multi-currency subfacility.

The Credit Facility, which includes certain financial covenants, may be used for general corporate purposes
including acquisitions, share repurchases, working capital support, and letters of credit, subject to certain limitations.
The Credit Facility, including the multi-currency subfacility, accrues interest, at our option, at (a) the Base Rate
(defined as the higher of the lender’s prime rate or the Federal Funds rate plus 0.50%) plus an applicable margin up
to 0.50%, or (b) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin up to 2.25%. Borrowings
under the swingline subfacility accrue interest at the prime rate plus an applicable margin up to 0.50% and
borrowings under the letter of credit subfacility accrue interest at the LIBOR plus an applicable margin up to 2.25%.
In addition, a commitment fee of up to 0.50% is charged on the unused portion of the Credit Facility on a quarterly
basis. The borrowings under the Credit Facility, which will terminate on March 14, 2008, are secured by a pledge of
65% of the stock of each of our active direct foreign subsidiaries. The Credit Facility prohibits us from incurring
additional indebtedness, subject to certain specific exclusions. There were no borrowings in 2006 and 2005 and no
outstanding balances as of December 31, 2006 and 2005 with $50.0 million availability under the Credit Facility. At
December 31, 2006, we were in compliance with all loan requirements of the Credit Facility.

At December 31, 2006, we had $158.6 million in cash, of which approximately $121.9 million was held in
international operations and may be subject to additional taxes if repatriated to the United States.

We believe that our current cash levels, accessible funds under our credit facilities and cash flows from future
operations will be adequate to meet anticipated working capital needs, future debt repayment requirements (if any),
continued expansion objectives, anticipated levels of capital expenditures and contractual obligations for the
foreseeable future and stock repurchases.

Off-Balance Sheet Arrangements and Other

At December 31, 2006, we did not have any material commercial commitments, including guarantees or standby
repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities
often referred to as structured finance or special purpose entities or variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes.

From time to time, during the normal course of business, we may make certain indemnities, commitments and
guarantees under which we may be required to make payments in relation to certain transactions. These include, but
are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence
or willful misconduct and (ii) indemnities involving breach of contract, the accuracy of representations and
warranties, or other liabilities assumed by us in certain contracts. In addition, we have agreements whereby we will
indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was,
serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences
during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required
to make under these indemnification agreements is unlimited; however, we have director and officer insurance
coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the
applicable insurance coverage is generally adequate to cover any estimated potential liability under these
indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any
liability for these indemnities, commitments and other guarantees in the accompanying Consolidated Balance
Sheets. In addition, we have some client contracts that do not contain contractual provisions for the limitation of
liability, and other client contracts that contain agreed upon exceptions to limitation of liability. We have not
recorded any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under
which we have or may have unlimited liability.

Contractual Obligations

The following table summarizes our contractual cash obligations at December 31, 2006, and the effect these
obligations are expected to have on liquidity and cash flow in future periods (in thousands):

Payments Due By Period
1 – 3
Years

Less Than
1 Year

3 – 5
Years

After 5
Years

Total

Operating leases (1) .................................
Purchase obligations (2) ...........................
Other long-term liabilities (3) ..................
Total contractual cash obligations .....

38,636
8,715
3,463
50,814

11,475
6,747
—
18,222

$ 10,803
1,968

—

$ 12,771

5,144
—
8

5,152

$ 11,214
—
3,455
$ 14,669

(1)
(2)

(3)

Amounts represent the expected cash payments of our operating leases as discussed in Note 18 to the Consolidated Financial Statements.

Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all
significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty.

Other long-term liabilities, which exclude deferred income taxes, represent the expected cash payments due under pension obligations and
minority shareholders of certain subsidiaries.

Critical Accounting Policies and Estimates

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

We believe the following accounting policies are the most critical since these policies require significant
judgment or involve complex estimations that are important to the portrayal of our financial condition and operating
results:

(cid:131) We recognize revenue pursuant to applicable accounting standards, including SEC Staff Accounting Bulletin
(“SAB”) No. 101 (SAB 101), “Revenue Recognition in Financial Statements,” SAB 104, “Revenue
Recognition” and the Emerging Issues Task force (“EITF”) No. 00-21, (EITF 00-21)“Revenue Arrangements
with Multiple Deliverables.” SAB 101, as amended, and SAB 104 summarize certain of the SEC staff’s views
in applying generally accepted accounting principles to revenue recognition in financial statements and provide
guidance on revenue recognition issues in the absence of authoritative literature addressing a specific
arrangement or a specific industry. EITF 00-21 provides further guidance on how to account for multiple
element contracts.

We recognize revenue from services as the services are performed under a fully executed contractual agreement
and record reductions to revenue for contractual penalties and holdbacks for failure to meet specified minimum
service levels and other performance based contingencies. Up-front fees received in connection with certain
contracts are deferred and recognized over the service period of the respective contracts. Royalty revenue is
recognized when a contract has been fully executed, the product has been delivered or provided, the license fees
or rights are fixed and determinable, the collection of the resulting receivable is probable and there are no other
contingencies. Revisions to these estimates, which could result in adjustments to fixed price contracts and
estimated losses, are recorded in the period when such adjustments or losses are known or can be reasonably
estimated. Product sales are recognized upon shipment to the customer and satisfaction of all obligations.

We recognize revenue from licenses of our 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 determinable. If any portion of the license fees or rights is subject to forfeiture, refund or
other contractual contingencies, we defer revenue recognition until these contingencies have been resolved.
Revenue from support and maintenance activities is recognized ratably over the term of the maintenance period

and the unrecognized portion is recorded as deferred revenue.

Revenue from contracts with multiple-deliverables to include hardware, software, consulting and other services,
or related contracts with the same client, are allocated to separate units of accounting based on their relative fair
value, if the deliverables in the contract(s) meet the criteria for such treatment. Such criteria include whether a
delivered item has value to the customer on a stand-alone basis, whether there is objective and reliable evidence
of the fair value of the undelivered items and, if the arrangement includes a general right of return related to a
delivered item, whether delivery of the undelivered item is considered probable and in our control. Fair value is
the price of a deliverable when it is regularly sold on a stand-alone basis, which generally consists of vendor-
specific objective evidence of fair value. If there is no evidence of the fair value for a delivered product or
service, revenue is allocated first to the fair value of the undelivered product or service and then the residual
revenue is allocated to the delivered product or service. If there is no evidence of the fair value for an
undelivered product or service, the contract(s) is accounted for as a single unit of accounting, resulting in delay
of revenue recognition for the delivered product or service until the undelivered product or service portion of
the contract is complete. We recognize revenue for delivered elements only when the fair values of undelivered
elements are known, uncertainties regarding client acceptance are resolved, and there are no client-negotiated
refund or return rights affecting the revenue recognized for delivered elements. Once we determine the
allocation of revenue between deliverable elements, there are no further changes in the revenue allocation. In
some cases, revenue may be recognized over the contract period in proportion to the level of service provided
on a systematic and rational basis, using the proportional performance method. Revenue recognition is limited
to the amount that is not contingent upon delivery of any future product or service or meeting other specified
performance conditions.

(cid:131) We maintain allowances for doubtful accounts of $2.5 million as of December 31, 2006, or 2.2% of receivables,
for estimated losses arising from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in a reduced ability to make payments, additional
allowances may be required which would reduce income from operations.

(cid:131) We reduce deferred tax assets by a valuation allowance if, based on the weight of available evidence for each
respective tax jurisdiction, it is more likely than not that some portion or all of such deferred tax assets will not
be realized. The valuation allowance for a particular tax jurisdiction is allocated between current and noncurrent
deferred tax assets for that jurisdiction on a pro rata basis. Available evidence which is considered in
determining the amount of valuation allowance required includes, but is not limited to, our estimate of future
taxable income and any applicable tax-planning strategies. At December 31, 2006, management determined that
a valuation allowance of approximately $35.3 million was necessary to reduce U.S. deferred tax assets by $10.4
million and foreign deferred tax assets by $24.9 million, where it was more likely than not that some portion or
all of such deferred tax assets will not be realized. The recoverability of the remaining net deferred tax asset of
$17.5 million at December 31, 2006 is dependent upon future profitability within each tax jurisdiction. As of
December 31, 2006, based on our estimates of future taxable income and any applicable tax-planning strategies
within various tax jurisdictions, we believe that it is more likely than not that the remaining net deferred tax
asset will be realized.

We have a contingent income tax liability of $4.2 million consisting of amounts for subsidiaries located in both
the Americas and EMEA segments that is accounted for in "Income taxes payable" in the accompanying
Consolidated Balance Sheets. The amount of the contingent liability is based on an estimate of the probable
liability in accordance with SFAS No. 5 (SFAS 5) “Accounting for Contingencies”, using available evidence,
including detailed analyses of the potential income tax issues, income tax assessments and notices of
disallowance, consultation with independent outside tax and legal advisors and our historical experience in
settling similar issues without additional income tax liability. Changes in our assumptions, estimates and
judgments could impact our estimate of the probable contingent income tax liability, thus materially impacting
our financial position and results of operations.

(cid:131) We review long-lived assets, which had a carrying value of $96.7 million as of December 31, 2006, including
goodwill, intangibles, property and equipment, and investment in SHPS, Incorporated for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable and at
least annually for impairment testing of goodwill. An asset is considered to be impaired when the carrying
amount exceeds the fair value. Upon determination that the carrying value of the asset is impaired, we would
record an impairment charge or loss to reduce the asset to its fair value. Future adverse changes in market
conditions or poor operating results of the underlying investment could result in losses or an inability to recover
the carrying value of the investment and, therefore, might require an impairment charge in the future.

Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155 (SFAS 155), “Accounting for Certain Hybrid Financial
Instruments,” which amends SFAS No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging
Activities” and SFAS No. 140 (SFAS 140), “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.” SFAS 155 simplifies the accounting for certain derivatives embedded in other
financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole
instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and
SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event
occurring in fiscal years beginning after September 15, 2006. The adoption of SFAS 155 on January 1, 2007 did not
have a material impact on our financial condition, results of operations or cash flows.

In July 2006, the FASB issued FASB Interpretation 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”,
which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance
with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance on the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures,
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating
the impact of this standard on our financial condition, results of operations and cash flows.

In September 2006, the FASB issued SFAS No. 157 (SFAS 157), “Fair Value Measurements", which defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years ending on
or after November 15, 2007. We are currently evaluating the impact of this standard on our financial condition,
results of operations and cash flows.

In September 2006, the FASB issued SFAS No. 158 (SFAS 158), “Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans -- an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS
158 requires a company to (a) recognize in its statement of financial position an asset for a plan’s overfunded status
or a liability for a plan’s underfunded status (b) measure a plan’s assets and its obligations that determine its funded
status as of the end of the employer’s fiscal year, and (c) recognize changes in the funded status of a defined
postretirement plan in the year in which the changes occur (reported in accumulated other comprehensive income).
The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective for
fiscal years ending after December 15, 2006. The requirement to measure the plan assets and benefit obligations as
of a company’s year-end balance sheet date is effective for fiscal years ending after December 15, 2008. We
adopted the recognition provisions of SFAS 158, which were effective on December 31, 2006, resulting in a $1.0
million non-cash charge to equity, net of deferred taxes and a $1.6 million non-cash increase in total liabilities. See
Note 19 – Pension and Other Post-Retirement Benefits, for further information.

In September 2006, the SEC issued Staff Accounting Bulletin No, 108 (SAB 108), “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108
provides interpretive guidance on how the effects of the carryover or a reversal of prior year misstatements should
be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify
errors using both a balance sheet and income statement approach and evaluate whether either approach results in
quantifying a misstatement that, when all relevant quantitative and qualitative factors considered, is material. The
adoption of SAB 108 on December 31, 2006 did not have a material impact on our financial condition, results of
operations or cash flows.

In November 2006, the EITF reached a tentative conclusion on Issue No. 06-10 (EITF 06-10), “Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance
Arrangements.” EITF 06-10 provides guidance on the employers’ recognition of a liability and related compensation
costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an employee that
extends into postretirement periods and the asset in collateral assignment split-dollar life insurance arrangements.
The effective date of EITF 06-10 is for fiscal years beginning after December 15, 2007. We are currently
evaluating the impact of EITF 06-10 on our financial condition, results of operations and cash flows.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency and Interest Rate Risk

Our earnings and cash flows are subject to fluctuations due to changes in non-U.S. currency exchange rates. We
are exposed to non-U.S. exchange rate fluctuations as the financial results of non-U.S. subsidiaries are translated
into U.S. dollars in consolidation. 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 currencies other than the U.S. dollar are included in Accumulated Other Comprehensive Income
(Loss) in shareholders’ equity. Movements in non-U.S. currency exchange rates may affect our competitive position,
as exchange rate changes may affect business practices and/or pricing strategies of non-U.S. based competitors.
Periodically, we use foreign currency contracts to hedge intercompany receivables and payables, and transactions
initiated in the United States that are denominated in foreign currency. The principal foreign currency hedged has
been the Euro using foreign currency contracts ranging in periods from one to three months. However, due to the
strengthening Philippine peso against the U.S. dollar, in February 2007 the Company entered into a foreign currency
contract to purchase Philippine pesos at a fixed price of $8.0 million to settle on March 30, 2007. Foreign currency
contracts are accounted for on a mark-to-market basis, with realized and unrealized gains or losses recognized in the
current period, as we have not historically designated our foreign currency contracts as accounting hedges.
Unrealized and realized gains or losses related to these contracts for the three years ended December 31, 2006 were
immaterial.

Our exposure to interest rate risk results from variable debt outstanding under our revolving credit facility. Based
on our level of variable rate debt outstanding during the year ended December 31, 2006, a one-point increase in the
weighted average interest rate, which generally equals the LIBOR rate plus an applicable margin, would not have
had a material impact on our annual interest expense.

At December 31, 2006, we had no debt outstanding at variable interest rates. We have not historically used
derivative instruments to manage exposure to changes in interest rates.

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary data required by this item are located beginning on page 48 and page
31 of this report, respectively.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

As of December 31, 2006, under the direction of our Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in
Rule 13a – 15(e) under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures
are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports is
recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, and is
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. We concluded that, as of December 31, 2006,
our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report On Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making
this assessment, we used the criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. We excluded Centro Interaccion Multimedia, S.A.
(“Apex”) from our report on Internal Control over financial reporting as it was acquired on July 3, 2006. In relation
to the consolidated financial results and position of the Company, Apex represented two percent of total assets, three
percent of revenues and one percent of net income of the consolidated financial statements as of the year ended
December 31, 2006.

Based on our assessment, management believes that, as of December 31, 2006, our internal control over financial
reporting was effective.

Our independent auditors, an independent registered public accounting firm, have issued their attestation report on
our assessment of our internal control over financial reporting. This report appears on page 39.

Changes to Internal Control Over Financial Reporting

There were no significant changes in our internal control over financial reporting during the quarter ended
December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Sykes Enterprises, Incorporated
Tampa, Florida

We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control over Financial Reporting, as included in Item 9A, Controls and Procedures, that Sykes Enterprises,
Incorporated and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on
Internal Control over Financial Reporting, management excluded from its assessment the internal control over
financial reporting at Centro Interacción Multimedia, S.A. (“Apex”), which was acquired on July 3, 2006 and whose
financial statements constitute two percent of total assets, three percent of revenues, and one percent of net income
of the consolidated financial statement amounts as of and for the year ended December 31, 2006. Accordingly, our
audit did not include the internal control over financial reporting at Apex. The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on
management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management’s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial
reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended

December 31, 2006 of the Company and our report dated March 13, 2007 expressed an unqualified opinion on those
financial statements and financial statement schedule.

Certified Public Accountants

Tampa, Florida
March 13, 2007

Item 9B. Other Information

None.

Items 10. through 14.

PART III

All information required by Items 10 through 14, with the exception of information on Executive Officers which
appears in this report in Item 1 under the caption “Executive Officers”, is incorporated by reference to SYKES’
Proxy Statement for the 2007 Annual Meeting of Shareholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

(1) Consolidated Financial Statements

The Index to Consolidated Financial Statements is set forth on page 48 of this report.

(2) Financial Statements Schedule

Schedule II — Valuation and Qualifying Accounts is set forth on page 85 of this report.

(3) Exhibits:

Exhibit
Number

Exhibit Description

2.1

2.2

2.3

2.4

2.5

2.6

3.1

3.2

3.3

4.1

10.1

10.2

10.3

10.4

10.5

10.6

10.7

Articles of Merger between Sykes Enterprises, Incorporated, a North Carolina Corporation, and Sykes
Enterprises, Incorporated, a Florida Corporation, dated March 1, 1996. (1)

Articles of Merger between Sykes Enterprises, Incorporated and Sykes Realty, Inc. (1)

Shareholder Agreement dated December 11, 1997, by and among Sykes Enterprises, Incorporated and
HealthPlan Services Corporation. (2)

Stock Purchase Agreement, dated September 1, 1998, between Sykes Enterprises, Incorporated and
HealthPlan Services Corporation. (4)

Merger Agreement, dated as of June 9, 2000, among Sykes Enterprises, Incorporated, SHPS,
Incorporated, Welsh Carson Anderson and Stowe, VIII, LP (“WCAS”) and Slugger Acquisition
Corp. (9)

Stock Purchase Agreement, dated as of July 3, 2006, between SEI International Services, S.a.r.l., a
Luxembourg corporation, and Sykes Enterprises, Incorporated Holdings B.V., a Netherlands
corporation (collectively the “Purchasers”) and Antonio Marcelo Cid, an individual, Humberto Daniel
Sahade, an individual, and AM Transport, LLC, a Delaware limited liability company (collectively the
“Sellers”). (29)

Articles of Incorporation of Sykes Enterprises, Incorporated, as amended. (5)

Articles of Amendment to Articles of Incorporation of Sykes Enterprises, Incorporated, as amended. (6)

Bylaws of Sykes Enterprises, Incorporated, as amended. (21)

Specimen certificate for the Common Stock of Sykes Enterprises, Incorporated. (1)

1996 Employee Stock Option Plan. (1)*

Amended and Restated 1996 Non-Employee Director Stock Option Plan. (10)*

1996 Non-Employee Directors’ Fee Plan. (1)*
2004 Non-Employee Directors’ Fee Plan. (18)*

Form of Split Dollar Plan Documents. (1)*

Form of Split Dollar Agreement. (1)*

Form of Indemnity Agreement between Sykes Enterprises, Incorporated and directors & executive
officers. (1)

Exhibit
Number

Exhibit Description

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

Tax Indemnification Agreement between Sykes Enterprises, Incorporated and John H. Sykes. (1)*

1997 Management Stock Incentive Plan. (3)*

1999 Employees’ Stock Purchase Plan. (7)*

2000 Stock Option Plan. (8)*

2001 Equity Incentive Plan. (11)*

Deferred Compensation Plan (21)*

2004 Non-Employee Director Stock Option Plan (17)*

Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of March 29, 2006
(26)*

Form of Restricted Share And Bonus Award Agreement dated as of March 29, 2006 (26)*

Form of Restricted Share Award Agreement dated as of May 24, 2006 (28)*

Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of January 2, 2007
(31)*

Form of Restricted Share Award Agreement dated as of January 2, 2007 (31)*

Amended and Restated Executive Employment Agreement dated as of October 1, 2001 between Sykes
Enterprises, Incorporated and John H. Sykes. (13)*

Founder’s Retirement and Consulting Agreement dated December 10, 2004 between Sykes Enterprises,
Incorporated and John H. Sykes. (19)*

Stock Option Agreement dated as of January 8, 2002, between Sykes Enterprises, Incorporated and
John H. Sykes. (13)*

Employment Agreement dated as of August 1, 2004 between Sykes Enterprises, Incorporated and
Charles E. Sykes. (21)*

First Amendment to Employment Agreement dated as of July 28, 2005 between Sykes Enterprises,
Incorporated and Charles E. Sykes. (25)*

Second Amendment to Employment Agreement dated as of January 3, 2006, between Sykes
Enterprises, Incorporated and Charles E. Sykes. (24)*

Stock Option Agreement dated as of March 15, 2002 between Sykes Enterprises, Incorporated and
Charles E. Sykes. (14)*

Stock Option Agreement (Performance Accelerated Option) dated as of March 15, 2002 between Sykes
Enterprises, Incorporated and Charles E. Sykes. (14)*

Employment Agreement dated as of March 6, 2005, between Sykes Enterprises, Incorporated and W.
Michael Kipphut. (20)*

Stock Option Agreement dated as of October 1, 2001, between Sykes Enterprises, Incorporated and W.
Michael Kipphut. (13)*

Employment Agreement dated as of April 4, 2006, between Sykes Enterprises, Incorporated and Jenna
R. Nelson. (27)*

Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises, Incorporated and
Jenna R. Nelson. (14)*

Exhibit
Number

10.32

10.33

10. 34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

10.47

14.1

21.1

23.1

24.1

31.1

31.2

Exhibit Description

Independent Subcontractor Agreement dated as of July 27, 2004 between Sykes Enterprises,
Incorporated and Gerry L. Rogers. (21)*

First Amendment to Independent Subcontractor Agreement dated as of July 27, 2004 between Sykes
Enterprises, Incorporated and Gerry L. Rogers. (21)*

Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises, Incorporated and
Gerry Rogers. (14)*

Stock Option Agreement dated as of October 1, 2001, between Sykes Enterprises, Incorporated and
James T. Holder. (13)*

Amendment to Employment Agreement dated as of January 2, 2007, between Sykes Enterprises,
Incorporated and James T. Holder. (32)*

Employment Agreement dated as of January 3, 2006, between Sykes Enterprises, Incorporated and
William N. Rocktoff. (24)*

Stock Option Agreement dated as of March 18, 2002 between Sykes Enterprises, Incorporated and
William Rocktoff. (14)*

Stock Option Agreement dated as of March 18, 2002 between Sykes Enterprises, Incorporated and
William Rocktoff. (15)*

Employment Agreement dated as of January 2, 2007 between Sykes Enterprises, Incorporated and
James Hobby, Jr. (32)*

Employment Agreement dated as of January 3, 2006, between Sykes Enterprises, Incorporated and
Daniel L. Hernandez. (24)*

Employment Agreement dated as of September 13, 2005 between Sykes Enterprises, Incorporated and
David L. Pearson. (23)*

Employment Agreement dated as of January 3, 2006 between Sykes Enterprises, Incorporated and
Lawrence R. Zingale. (24)*

Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National Association and BNP
Paribas dated March 15, 2004. (17)

Amendment No. 1 to Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National
Association and BNP Paribas dated October 18, 2004. (21)

Amendment No. 2 to Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National
Association and BNP Paribas dated May 25, 2005. (22)

Real Estate Purchase and Sale Agreement Between Sykes Realty, Inc.(as Seller) and Sage Aggregation,
LLC (as Purchaser) Concerning Certain Properties Known as The Sykes Portfolio dated as of
September 13, 2006 (30)

Code of Ethics (16)

List of subsidiaries of Sykes Enterprises, Incorporated.

Consent of Independent Registered Public Accounting Firm.

Power of Attorney relating to subsequent amendments (included on the signature page of this report).

Certification of Chief Executive Officer, pursuant to Rule 13a-14(a).

Certification of Chief Financial Officer, pursuant to Rule 13a-14(a).

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of
Tampa, and State of Florida, on this 13th day of March 2007.

SYKES ENTERPRISES, INCORPORATED
(Registrant)

By:

/s/ W. Michael Kipphut
W. Michael Kipphut,
Senior Vice President and Chief Financial Officer

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

Signature

Title

Date

Chairman of the Board

March 13, 2007

President and Chief Executive Officer and
Director (Principal Executive Officer)

/s/ Paul L. Whiting
Paul L. Whiting

/s/ Charles E. Sykes
Charles E. Sykes

/s/ Furman P. Bodenheimer, Jr.
Furman P. Bodenheimer, Jr.

Director

/s/ Mark C. Bozek
Mark C. Bozek

Director

/s/ Lt. Gen. Michael P. Delong (Ret.) Director
Lt. Gen. Michael P. Delong (Ret.)

/s/ H. Parks Helms
H. Parks Helms

/s/ Iain A. Macdonald
Iain A. Macdonald

/s/ James S. MacLeod
James S. MacLeod

Director

/s/ Linda F. McClintock-Greco M.D. Director
Linda F. McClintock-Greco M.D.

/s/ William J. Meurer
William J. Meurer

/s/ James K. Murray, Jr.
James K. Murray, Jr.

Director

March 13, 2007

Table of Contents

Report of Independent Registered Public Accounting Firm .............................................................................

Consolidated Balance Sheets as of December 31, 2006 and 2005 ...................................................................

Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 ...................

Consolidated Statements of Changes in Shareholders’ Equity for the years ended
December 31, 2006, 2005 and 2004.............................................................................................................

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 .................

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

Page No.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
Tampa, Florida

We have audited the accompanying consolidated balance sheets of Sykes Enterprises, Incorporated and subsidiaries
(the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes
in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. Our
audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Sykes Enterprises, Incorporated and subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based
on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 13, 2007 expressed an unqualified opinion
on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Certified Public Accountants

Tampa, Florida
March 13, 2007

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets

(In thousands, except per share data)
ASSETS

December 31,

2006

2005

Current assets:
Cash and cash equivalents ................................................................................ $
Receivables, net ................................................................................................
Prepaid expenses and other current assets ........................................................
Assets held for sale............................................................................................

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

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable ............................................................................................. $
Accrued employee compensation and benefits ................................................
Deferred grants related to assets held for sale ...................................................
Income taxes payable ........................................................................................
Deferred revenue ...............................................................................................
Other accrued expenses and current liabilities .................................................

158,580
115,016
14,666
509

288,771
66,205
20,422
8,004
32,171
415,573

19,270
39,549
332
5,445
30,724
9,555

Total current liabilities ................................................................................
Deferred grants ....................................................................................................
Other long-term liabilities ...................................................................................

104,875
10,811
8,414

127,612
88,213
10,601
—

226,426
72,261
5,918
2,112
24,468
331,185

12,990
31,777
—
2,220
25,172
10,274

82,433
18,107
4,555

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

124,100

105,095

Commitments and contingencies (Note 18)

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;
45,254 and 44,009 shares issued ....................................................................
Additional paid-in capital .................................................................................
Retained earnings .............................................................................................
Accumulated other comprehensive income (loss) ............................................

Deferred stock compensation ............................................................................
Treasury stock at cost: 4,703 shares and 4,712 shares .....................................

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

—

453
179,021
158,058
5,869
343,401
—
(51,928)

440
165,674
115,735

(3,435)

278,414
(355)
(51,969)

291,473
415,573

226,090
331,185

See accompanying notes to Consolidated Financial Statements.

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations

(In thousands, except per share data)
Revenues .................................................................................. $ 574,223

2006

Years Ended December 31,
2005

$ 494,918

2004
$ 466,713

Operating expenses:
Direct salaries and related costs ............................................
General and administrative ....................................................
Net gain on disposal of property and equipment ...................
Net gain on insurance settlement ...........................................
Reversal of restructuring and other charges ..........................
Impairment of long-lived assets ............................................

365,602
176,701
(13,683)
—
—

445

309,604
160,470

(1,778)
—
(314)
605

300,600
165,232
(6,915)
(5,378)
(113)
690

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

529,065

468,587

454,116

Income from operations ...........................................................

45,158

26,331

12,597

Other income (expense):
Interest income .....................................................................
Interest expense......................................................................
Income from rental operations, net.........................................
Other .....................................................................................

6,785
(674)
1,200
(1,010)

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

6,301

2,559
(667)
940
(60)

2,772

2,445
(773)
151
1,441

3,264

Income before provision (benefit) for income taxes ................

51,459

29,103

15,861

Provision (benefit) for income taxes:
Current ..................................................................................
Deferred ................................................................................

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

8,938
198

9,136

7,098
(1,403)

5,695

4,399
648

5,047

Net income ............................................................................... $

42,323

23,408 $

10,814

Net income per share:
Basic ...................................................................................... $
Diluted ................................................................................... $

1.06
1.05

$
$

0.60
0.59

$
$

0.27
0.27

Weighted average shares:
Basic ......................................................................................
Diluted ...................................................................................

39,829
40,219

39,204
39,536

39,607
39,722

See accompanying notes to Consolidated Financial Statements.

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

Common Stock
Shares
Issued Amount
(In thousands)
Balance at January 1, 2004 ............ 43,771 $ 438

Additional
Paid-in
Capital
$ 163,511

Accumulated
Other

Deferred
Stock

Retained Comprehensive
Earnings
$ 81,513

(208) $

Income (Loss) Compensation

Treasury
Stock

Total
— $ (44,422 ) $ 200,832

Issuance of common stock.............
Tax benefit of exercise of
stock options ............................... —
Purchase of treasury stock ............. —
Comprehensive income ................. —

—

—
—
—

342

32
—
—

—

—
—
10,814

Balance at December 31, 2004 ...... 43,832

438

163,885

92,327

166

Issuance of common stock.............
Deferred stock compensation
for the issuance of restricted
common stock units .................... —
Amortization of deferred
stock compensation..................... —
Shares issued under executive
deferred compensation plan
and held in the rabbi trust ...........
11
Comprehensive income (loss) ....... —

—

—
—

836

854

—

99
—

—

—
—
5,079

4,871

—

—
—
—

—

(854 )

499

—

342

—
(7,064 )
—

32
(7,064 )
15,893

(51,486 )

210,035

—

838

—

499

—
23,408

—
(8,306 )

—
—

(483 )
—

(384 )

15,102

Balance at December 31, 2005

44,009 440

165,674

115,735

(3,435 )

(355 )

(51,969 )

226,090

Reclassification of deferred
stock compensation balance
upon adoption of SFAS 123R...
Issuance of common stock...........
Stock-based compensation
expense.......................................
Excess tax benefit from stock-
based compensation ..................
Issuance of common stock
under Deferred Comp-
ensation Plan and held in
rabbi trust, net of settlements ..
Issuance of restricted common
stock ...........................................
Issuance of common stock to
Board of Directors previously
deferred under the 1996 Non-
Employee Director Fee Plan ....
Modification of Deferred
Compensation Plan...................
Issuance of common stock for
business acquisition ..................
Comprehensive income ...............
Adjustment upon adoption of
SFAS 158, net of tax..................

—
660

—

—
8

—

300

—

270

—

2
—

—

(355 )
4,334

2,460

2,355

(3)

4,399
—

—

—
—

—

—
—

—

—
42,323

—
10,348

—

(1,044 )

355
—

—

—
—

—

—
—

—

—
—

—

—
4,342

2,460

2,355

111

—

4,401
52,671

(1,044 )

Balance at December 31, 2006 .... 45,254

$ 453

$ 179,021

$ 158,058

5,869

— $ (51,928 ) $ 291,473

See accompanying notes to Consolidated Financial Statements.

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows

(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................................................................... $
Depreciation and amortization, net .....................................................................................
Impairment of long-lived assets .........................................................................................
Reversal of restructuring and other charges .......................................................................
Stock compensation expense ...............................................................................................
Deferred income tax (benefit) provision .............................................................................
Tax benefit from stock options............................................................................................
Net gain on disposal of property and equipment ................................................................
Net gain on insurance settlement.........................................................................................
Termination costs associated with exit activities.................................................................
Bad debt expense (reversals) ...............................................................................................
Foreign exchange gain on liquidation of foreign entity .......................................................
Unrealized gain on marketable securities ............................................................................
Changes in assets and liabilities:
Receivables .....................................................................................................................
Prepaid expenses and other current assets ......................................................................
Deferred charges and other assets ...................................................................................
Accounts payable ...........................................................................................................
Income taxes receivable/payable ....................................................................................
Accrued employee compensation and benefits ...............................................................
Other accrued expenses and current liabilities ................................................................
Deferred revenue ............................................................................................................
Other long-term liabilities ..............................................................................................
Net cash provided by operating activities ...................................................................

Years Ended December 31,
2004
2005
2006

42,323 $ 23,408 $ 10,814
30,237
24,747
690
445
(113)
—
—
2,460
648
198
32
—
(6,915)
(13,683 )
(5,378)
—
1,684
721
267
(600 )
(680)
(48 )
—
(105 )

25,943
605
(314 )
441
(1,403 )
—
(1,778 )
—
697
(649 )
(366 )
(59 )

(20,816 )
(533 )
(4,603 )
2,481
4,685
2,758
(1,182 )
5,153
371
44,772

(795 )
(507 )
(2,991 )
(946 )
(470 )
2,277
1,424
2,167
1,485
48,169

(8,699)
357
491
(4,797)
1,446
(1,698)
(1,372)
(2,931)
(348)
13,735

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ...........................................................................................................
Cash paid for business acquisitions, net of cash acquired ...................................................
Proceeds from sale of facilities ...........................................................................................
Proceeds from sale of property and equipment ...................................................................
Proceeds from insurance settlement ....................................................................................
Investment in restricted cash, primarily related to the Apex acquisition (see Note 2).........
Other....................................................................................................................................
Net cash used for investing activities .........................................................................

(19,420 )
(17,417 )
15,375
183
—
(4,723 )
(132 )
(26,134 )

(9,910 )
(3,246 )
2,480
184
—
—
(357 )
(10,849 )

(25,665)
—
9,663
99
6,940
—
—
(8,963)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt ................................................................................................
Borrowings under long-term debt .......................................................................................
Proceeds from issuance of stock .........................................................................................
Purchase of treasury stock ..................................................................................................
Excess tax benefit from stock-based compensation.............................................................
Proceeds from grants ...........................................................................................................
Net cash provided by (used for) financing activities ..................................................

(381 )
—
4,342
—
2,355
531
6,847

(78 )
—
838
—
—
—
760

(86)
—
342
(7,064)
—
—
(6,808)

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

5,483

(4,336 )

3,819

1,783
Net increase in cash and cash equivalents ..........................................................................
30,968
CASH AND CASH EQUIVALENTS — BEGINNING ................................................... 127,612
92,085
CASH AND CASH EQUIVALENTS — ENDING .......................................................... $ 158,580 $ 127,612 $ 93,868

33,744
93,868

Supplemental disclosures of cash flow information:
Cash paid during the year for interest ......................................................................... $
Cash paid during the year for income taxes................................................................. $
See accompanying notes to Consolidated Financial Statements.

420 $
10,007 $

510 $

430
10,006 $ 11,216

SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides outsourced
customer contact management solutions and services in the business process outsourcing (“BPO”) arena to
companies, primarily within the communications, technology/consumer, financial services, healthcare, and
transportation and leisure industries. SYKES provides flexible, high quality outsourced customer contact
management services (with an emphasis on inbound technical support and customer service), which includes
customer assistance, healthcare and roadside assistance, technical support and product sales to its client’s customers.
Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple
communications channels encompassing phone, e-mail, Web and chat. SYKES complements its outsourced
customer contact management services with various enterprise support services in the United States that encompass
services for a company’s internal support operations, from technical staffing services to outsourced corporate help
desk services. In Europe, SYKES also provides fulfillment services including multilingual sales order processing via
the Internet and phone, inventory control, product delivery and product returns handling. The Company has
operations in two geographic regions entitled (1) the Americas, which includes the United States, Canada, Latin
America, India and the Asia Pacific Rim, in which the client base is primarily companies in the United States that
are using the Company’s services to support their customer management needs; and (2) EMEA, which includes
Europe, the Middle East and Africa.

Note 1. Summary of Accounting Policies

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

Use of Estimates — The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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 — Revenue is recognized pursuant to applicable accounting standards, including
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101 (SAB 101), “Revenue
Recognition in Financial Statements”, SAB 104, “Revenue Recognition”, and the Emerging Issues Task Force
(“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables”. SAB 101, as amended, and SAB 104
summarize certain of the SEC staff’s views in applying generally accepted accounting principles to revenue
recognition in financial statements and provide guidance on revenue recognition issues in the absence of
authoritative literature addressing a specific arrangement or a specific industry. EITF 00-21 provides further
guidance on how to account for multiple element contracts.

The Company primarily recognizes its revenue from services as those services are performed under a fully
executed contractual agreement and records reductions to revenue for contractual penalties and holdbacks for failure
to meet specified minimum service levels and other performance based contingencies. Royalty revenue is
recognized when a contract has been fully executed, the product has been delivered or provided, the license fees or
rights are fixed and determinable, the collection of the resulting receivable is probable and there are no other
contingencies. Adjustments to fixed price contracts and estimated losses, if any, are recorded in the period when
such adjustments or losses are known or can be reasonably estimated. Product sales are recognized upon shipment to
the customer 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 Transactions” (SOP 98-9), SAB 101, SAB 104 and EITF 00-21. 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
determinable. If any portion of the license fees or rights is subject to forfeiture, refund or other contractual
contingencies, the Company defers revenue recognition until these contingencies have been resolved. SYKES

generally accounts for consulting services separate from software license fees for those multi-element arrangements
where consulting services are a separate element and are not essential to the customer’s functionality requirements
and there is vendor-specific objective evidence of the fair value of the undelivered elements. Revenue from support
and maintenance activities is recognized ratably over the term of the maintenance period and the unrecognized
portion is recorded as deferred revenue.

Revenue from contracts with multiple-deliverables to include hardware, software, consulting and other services,
or related contracts with the same client, are allocated to separate units of accounting based on their relative fair
value, if the deliverables in the contract(s) meet the criteria for such treatment. Such criteria include whether a
delivered item has value to the customer on a standalone basis, whether there is objective and reliable evidence of
the fair value of the undelivered items and, if the arrangement includes a general right of return related to a delivered
item, whether delivery of the undelivered item is considered probable and in the Company’s control. Fair value is
the price of a deliverable when it is regularly sold on a standalone basis, which generally consists of vendor-specific
objective evidence of fair value. If there is no evidence of the fair value for a delivered product or service, revenue is
allocated first to the fair value of the undelivered product or service and then the residual revenue is allocated to the
delivered product or service. If there is no evidence of the fair value for an undelivered product or service, the
contract(s) is accounted for as a single unit of accounting, resulting in delay of revenue recognition for the delivered
product or service until the undelivered product or service portion of the contract is complete. The Company
recognizes revenue for delivered elements only when the fair values of undelivered elements are known,
uncertainties regarding client acceptance are resolved, and there are no client-negotiated refund or return rights
affecting the revenue recognized for delivered elements. Once the Company determines the allocation of revenue
between deliverable elements, there are no further changes in the revenue allocation. In some cases, revenue may be
recognized over the contract period in proportion to the level of service provided on a systematic and rational basis,
using the proportional performance method. Revenue recognition is limited to the amount that is not contingent
upon delivery of any future product or service or meeting other specified performance conditions.

Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term
investments. Cash in the amount of $158.6 million and $127.6 million at December 31, 2006 and 2005, respectively,
was primarily held in interest bearing investments, which have an average maturity of less than 60 days. Cash and
cash equivalents of $121.9 million and $86.3 million at December 31, 2006 and 2005, respectively, were held in
international operations and may be subject to additional taxes if repatriated to the United States.

Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts of $2.5 million
and $3.1 million as of December 31, 2006 and 2005, or 2.2% and 3.5% of receivables, respectively, 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 from operations. Based on a review of the accounts receivables
balances and activity, the Company reversed $0.6 million of the allowance for doubtful accounts during each of the
years 2006 and 2005.

Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are
credited or charged to income. Depreciation expense was $25.0 million, $27.7 million and $32.3 million for 2006,
2005 and 2004, respectively. Property and equipment includes $2.0 million, $0.7 million and $0.1 million of
additions included in accounts payable at December 31, 2006, 2005 and 2004, respectively. Accordingly, non-cash
transactions have been excluded from the accompanying Consolidated Statements of Cash Flows for 2006, 2005 and
2004, respectively.

The Company capitalizes certain costs incurred to internally develop software upon the establishment 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 $0.6 million and
$1.1 million at December 31, 2006 and 2005, respectively.

The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets”. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to

result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the
impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair
value, which is generally determined based on appraisals or sales prices of comparable assets. Occasionally, the
Company redeploys property and equipment from under-utilized centers to other locations to improve capacity
utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not
be sufficient to recover the carrying amount of these assets. During 2006, based on the Company’s evaluation for
impairment, the Company recorded a $0.3 million impairment charge for property and equipment in one of its
underutilized European customer contact management centers. This impairment charge represented the amount by
which the carrying value of the assets exceeded the estimated fair value of those assets which cannot be redeployed
to other locations. Additionally, in 2006, the Company recorded an impairment charge of $0.1 million for property
and equipment no longer used in one of its Philippine facilities. Except as noted above, as of December 31, 2006,
the Company determined that its property and equipment was not impaired, including the idle facility in Perry
County, Kentucky (as discussed below) which is being held and used for future use in the Company’s operations and
increased demand for services.

In September 2005, the Company withdrew its plans to sell the Perry, Kentucky facility due to increased demand
for customer care management services from new and existing clients in the United States. As a result, the net
carrying value of $4.5 million of land, building and equipment related to this site was reclassified from “Assets held
for sale” to “Property and Equipment”. The net carrying value of $4.5 million was offset by a related deferred grant
in the amount of $1.9 million. The Company also recaptured the related depreciation, net of grant amortization of
$0.7 million in 2005. In connection with the decision to reopen the Perry, Kentucky facility, certain assets held for
sale at this facility, which were not redeployed to other locations, were deemed impaired, written down to fair value
and subsequently sold for a nominal fee resulting in an impairment charge of $0.5 million in 2005. The Perry facility
remains idle as of December 31, 2006.

In 2005, in connection with the plan of migration of the call volumes of the customer contact management
services and related operations from the Company’s Bangalore, India facility, a component of the Americas
segment, to other facilities as discussed in Note 15, the Company redeployed property and equipment located in
India totaling approximately $1.8 million and recorded an asset impairment charge of $0.7 million for certain
property and equipment in India as of December 31, 2004. Upon completion of the redeployment of the property
and equipment from the India facility, the Company recorded an additional asset impairment charge of $0.1 million
in September 2005.

Rent Expense —The Company has entered into several operating lease agreements, some of which contain
provisions for future rent increases, rent free periods, or periods in which rent payments are reduced. The total
amount of the rental payments due over the lease term is being charged to rent expense on the straight-line method
over the term of the lease in accordance with SFAS No. 13 “Accounting for Leases,” FASB Technical Bulletin 88-1
“Issues Relating to Accounting for Leases,” and FASB Technical Bulletin 85-3 “Accounting for Operating Leases
with Scheduled Rent Increases.”

Investment in SHPS — The Company holds a 4.6% ownership interest in SHPS, Incorporated, which is
accounted for at cost of approximately $2.1 million as of December 31, 2006 and 2005 and is included in “Deferred
charges and other assets” in the accompanying Consolidated Balance Sheets. (See Note 8.) The Company will
record an impairment charge or loss if it believes the investment has experienced a decline in value that is other than
temporary. Future adverse changes in market conditions or poor operating results of the underlying investment could
result in losses or an inability to recover the carrying value of the investment and, therefore, might require an
impairment charge in the future.

Investments Held in Rabbi Trust —Securities held in a rabbi trust for a supplemental nonqualified executive
retirement program, as more fully described in Note 20, Stock-Based Compensation, include the fair market value of
investments in various mutual funds and shares of the Company’s common stock. The fair market value of these
investments is determined by quoted market prices and is adjusted to the current market price at the end of each
reporting period. The investments held in mutual funds, classified as trading securities, had a fair market value of
approximately $1.0 million and $0.7 million at December 31, 2006 and 2005, respectively, and are included in
“Prepaid expenses and other current assets” and “Deferred charges and other assets”, respectively in the
accompanying Consolidated Balance Sheets. These investments were comprised of 79% equity securities and 21%
debt securities at December 31, 2006. As of December 31, 2006 and 2005, “Accumulated other comprehensive
income (loss)” in the accompanying Consolidated Balance Sheets included approximately $0.1 million and $0.2
million in unrealized gains, respectively, from holding these investments. During 2006 and 2005, the Company

recorded approximately $0.2 million and $0.2 million, respectively in compensation expense associated with these
investments, which is included in “General and administrative” in the accompanying Consolidated Statements of
Operations.

The investments held in the Company’s common stock had a carrying value of approximately $0.4 million and
$0.5 million at December 31, 2006 and 2005 and are included in “Treasury Stock” in the accompanying
Consolidated Balance Sheets.

Goodwill — On January 1, 2002, the Company adopted SFAS No. 142 (SFAS 142), “Goodwill and Other
Intangible Assets.” According to this statement, goodwill and other intangible assets with indefinite lives are no
longer subject to amortization, but instead must be reviewed at least annually, and more frequently in the presence
of certain circumstances, for impairment by applying a fair value based test. Fair value for goodwill is based on
discounted cash flows, market multiples and/or appraised values as appropriate. Under SFAS 142, the carrying value
of assets is calculated at the lowest levels for which there are identifiable cash flows (the “reporting unit”). If the fair
value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair
value of the goodwill within the reporting unit is less than its carrying value. Based on the results of the Company’s
annual impairment reviews in the third quarter of each year in accordance with SFAS 142, the Company determined
that there has been no impairment of goodwill. The Company expects to receive future benefits from previously
acquired goodwill over an indefinite period of time.

Intangible Assets — Intangible assets, primarily customer relationships, existing technologies and covenants not
to compete, are amortized using the straight-line method over their estimated period of benefit, generally ranging
from two to fifteen years. The Company periodically evaluates the recoverability of intangible assets and takes into
account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that
impairment exists. In connection with a 2006 acquisition in Argentina and a 2005 acquisition in Canada, as
discussed in Note 2 Acquisitions and Dispositions, the Company recorded intangible assets of $6.9 million and $2.4
million, respectively. The related amortization expense in 2006 and 2005 was $1.0 million and $0.3 million,
respectively. There was no amortization expense in 2004.

Income Taxes — The Company accounts for income taxes under SFAS No. 109 (SFAS 109), “Accounting for
Income Taxes.” Deferred income tax assets and liabilities are provided to reflect tax consequences of differences
between the tax bases of assets and liabilities and their reported amounts in the accompanying Consolidated
Financial Statements.

Self-Insurance Programs — The Company self-insures for certain levels of workers’ compensation. Estimated
costs of this self-insurance program are accrued at the projected settlements for known and anticipated claims. Self-
insurance liabilities of the Company amounted to $1.2 million and $1.5 million at December 31, 2006 and 2005,
respectively.

Deferred Grants — Recognition of income associated with grants of land and the acquisition of property,
buildings 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 reduction 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 as a reduction to “General and administrative” costs in the
accompanying Consolidated Statements of Operations was approximately $1.3 million, $2.0 million and
$2.1 million for the years ended December 31, 2006, 2005 and 2004, respectively. Upon sale of the related facilities,
any deferred grant balance is recognized in full and is included in the gain on sale of property and equipment.

In April 2006, the Company executed an agreement with a government entity in Ireland, which agreed to pay $0.8
million to the Company to provide 100 new permanent jobs (on or before December 31, 2008) in excess of the
existing base employment as of December 31, 2004, subject to certain terms and conditions. These grants were
awarded by the government for creating and maintaining permanent employment positions in Ireland for a period of
at least five years. During December 2006, the Company received employment grants totaling $0.5 million for jobs
created under this agreement. This amount was deferred as of December 31, 2006, and will be amortized and
recorded in “Other Income” in the Consolidated Statement of Operations using the proportionate performance model

over the five-year employment period. At December 31, 2006, the Company’s relevant employment levels met or
exceeded the base employment levels set by the government.

Deferred Revenue — The Company receives up-front fees in connection with certain contracts. The deferred
revenue is earned over the service periods of the respective contracts, which range from six months to seven years.
Deferred revenue included in current liabilities in the accompanying Consolidated Balance Sheets includes the up-
front fees associated with services to be provided over the next ensuing twelve month period and the up-front fees
associated with services to be provided over multiple years in connection with contracts that contain cancellation
and refund provisions, whereby the manufacturers or customers can terminate the contracts and demand pro-rata
refunds of the up-front fees with short notice. Deferred revenue included in current liabilities in the accompanying
Consolidated Balance Sheets also includes estimated penalties and holdbacks for failure to meet specified minimum
service levels in certain contracts and other performance based contingencies.

Stock-Based Compensation — The Company has three stock-based compensation plans: the 2001 Equity
Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-
employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible
employees), which are discussed more fully in Note 20. Stock-based awards under these plans may consist of
common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted
stock and other stock-based awards. The Company issues common stock to satisfy stock option exercises or vesting
of stock awards.

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R, (SFAS 123R), “Share-Based
Payment”, for its stock-based compensation plans. In conjunction with the adoption of SFAS 123R on January 1,
2006 the Company also adopted the following: Staff Accounting Bulletin (SAB) 107, “Share-Based Payments”,
which provides guidance on valuation methods available and other matters; Financial Accounting Standards Board
(FASB) Staff Position No. 123 R-2 (SFAS 123R-2), “Practical Accommodation to the Application of Grant Date as
Defined in SFAS 123R,” which provides guidance on the application of grant date; and FASB Staff Position SFAS
No. 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share Based Payment Awards,”
which provides for an elective alternative transition method that establishes a computational component to arrive at
the beginning balance of the accumulated paid-in capital pool related to employee compensation and a simplified
method to determine the subsequent impact on the accumulated paid-in capital pool of employee awards that are
fully vested and outstanding upon the adoption of SFAS 123R. The Company elected to use the alternative transition
method in conjunction with the adoption of SFAS 123R. The adoption of SFAS 123R did not have a material effect
on the Company’s income before provision for income taxes, net income, cash flows and basic and diluted earnings
per share for the year ended December 31, 2006.

SFAS 123R requires companies to recognize in their income statement the grant-date fair value of stock options
and other equity-based compensation issued to employees and directors. The standard requires that compensation
expense for most equity-based awards be recognized over the requisite service period, usually the vesting period,
while compensation expense for liability-based awards (those usually settled in cash rather than stock) be measured
to fair-value at each balance sheet date until the award is settled. Under SFAS 123R, the pro forma disclosures
previously permitted are no longer an alternative to financial statement recognition. The Company elected to use the
modified prospective method which requires the Company to record compensation expense for the non-vested
portion of previously issued awards that remain outstanding at the initial date of adoption of SFAS 123R and to
record compensation expense for any awards issued or modified after January 1, 2006. Results for prior periods have
not been restated. Upon adoption of SFAS 123R, the deferred stock compensation balance of $0.4 million as of
January 1, 2006 was reclassified to additional paid-in capital in the accompanying Consolidated Statement of
Changes in Shareholders’ Equity. SFAS 123R also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow and a corresponding reduction in operating cash flows,
rather than as an operating cash flow as previously required. Accordingly, the excess tax benefit of $2.4 million for
the year ended December 31, 2006 was classified as a financing cash flow and a corresponding reduction in
operating cash flows in the accompanying Consolidated Statement of Cash Flows.

On February 1, 2005, the Compensation Committee of the Board of Directors approved accelerating the vesting
of most out-of-the-money, unvested stock options held by current employees, including executive officers and
certain employee directors. An option was considered out-of-the-money if the stated option exercise price was
greater than the closing price, $7.23, of the Company’s common stock on the day the Compensation Committee
approved the acceleration. The aggregate number of shares issuable under the accelerated stock options was 125,550
at a weighted average exercise price of $9.416 as of February 1, 2005.

The Compensation Committee also approved accelerating the vesting of out-of the-money, unvested stock options
held by non-employee directors, subject to shareholder approval at the May 2005 Annual Shareholders’ Meeting.
Options held by non-employee directors were considered out-of-the-money if the stated option exercise price was
greater than the closing price, $8.39, of the Company’s common stock on May 24, 2005. Upon shareholder approval
in May 2005, the Company accelerated the vesting of 8,332 unvested stock options at an exercise price of $8.732 on
May 24, 2005. There was no additional compensation expense recognized in 2005, or in the amounts in the pro
forma stock-based compensation table presented within this Note 1, as a result of accelerating the vesting of the
stock options on February 1, 2005 and May 24, 2005.

The decision to accelerate vesting of these options and eliminate future compensation expense was based on a
review of the Company’s long-term incentive programs in light of current market conditions and changing
accounting rules regarding stock option expensing under SFAS 123R. Excluding holders of foreign stock options
that elected to decline the accelerated vesting, it is estimated that the maximum future compensation expense that
would have been charged to earnings, absent the acceleration of these options, based on adoption date for SFAS
123R as of January 1, 2006, was less than $0.1 million.

Prior to January 1, 2006, the Company accounted for its stock-based compensation plans under the recognition
and measurement principles of Accounting Principles Board Opinion (“APB”) No. 25 (APB 25), “Accounting for
Stock Issued to Employees” and related interpretations and disclosure requirements established by SFAS No. 123
(SFAS 123), “Accounting for Stock-Based Compensation”. The Company had the option under SFAS 123 to
measure compensation costs for stock options using the intrinsic value method prescribed by APB 25. Under APB
25, compensation expense was generally not recognized for stock option grants if the exercise price was the same as
the market price and the number of shares to be issued was set on the date the employee stock options were granted.
Since the Company granted employee stock options on this basis and the Company elected to use the intrinsic value
method, no compensation expense was recognized for stock option grants. For grants of common stock units
awarded to non-employee directors, under the 2004 Non-Employee Director Fee Plan, compensation expense was
recognized over the requisite service periods based on the fair value of the Company’s stock on the date of grant,
which is the same under APB 25 and SFAS 123R.

The following table presents the impact on net income and net income per share as if the Company had elected to
recognize compensation expense for the issuance of options to employees of the Company based on the fair value
method of accounting prescribed by SFAS 123 prior to the adoption of SFAS 123R (in thousands except per share
amounts):

Net Income:
Net income as reported .................................................

Years Ended December 31,

2005

2004

$ 23,408

$ 10,814

Add: Stock-based compensation included in reported
net income, net of tax..............................................

441

—

Deduct: Stock-based compensation under the
fair value method, net of tax ...................................
Pro forma net income ...................................................

(1,090)

$ 22,759

(404)
$ 10,410

Net Income Per Share:
Basic, as reported .........................................................
Basic, pro forma ...........................................................
Diluted, as reported ......................................................
Diluted, pro forma ........................................................

$
$
$
$

0.60
0.58
0.59
0.58

$
$
$
$

0.27
0.26
0.27
0.26

The Company has not issued any stock options since January 1, 2004. For options issued before this date, the
Company used the Black-Scholes option pricing model to estimate the fair value of each stock option at the date of
grant using various assumptions.

Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair

value of each class of financial instruments for which it is practicable to estimate that value:

(cid:120)

Cash, Accounts Receivable, Marketable Securities and Accounts Payable. The carrying amounts reported
in the balance sheet for cash, accounts receivable, marketable securities and accounts payable approximates
their fair values.
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. As of December 31, 2006 and
2005, the Company had no outstanding long-term debt.

Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose
functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date,
and income and expenses are translated at the weighted average exchange rate during the period. The net effect of
translation gains and losses is not included in determining net income, but is included in Accumulated Other
Comprehensive Income (Loss), which is reflected as a separate component of shareholders’ equity until the sale or
until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign
currency transactional gains and losses are included in determining net income. Such gains and losses are included
in other income (expense) in the accompanying Consolidated Statements of Operations.

Foreign Currency and Derivative Instruments — Periodically, the Company enters into foreign currency
contracts with financial institutions to protect against currency exchange risks associated with existing assets and
liabilities denominated in a foreign currency. These contracts require the Company to exchange currencies in the
future at rates agreed upon at the contract’s inception. Historically, the contracts entered into by the Company have
been primarily related to the Euro. In February 2007, the Company entered into a foreign currency contract to buy
Philippine pesos at a fixed price of $8.0 million to settle on March 30, 2007. A foreign currency contract acts as an
economic hedge as the gains and losses on these contracts typically offset or partially offset gains and losses on the
assets, liabilities, and transactions being hedged. The Company has not historically designated its foreign currency
contracts as accounting hedges and has not held or issued financial instruments for speculative or trading purposes.
Foreign currency contracts are accounted for on a mark-to-market basis, with unrealized gains or losses recognized
as a component of income in the current period.

Unrealized and realized gains or losses related to these contracts for the three years ended December 31, 2006
were immaterial.

Recent Accounting Pronouncements — In February 2006, the FASB issued SFAS No. 155 (SFAS 155),
“Accounting for Certain Hybrid Financial Instruments,” which amends SFAS No. 133 (SFAS 133), “Accounting for
Derivative Instruments and Hedging Activities” and SFAS No. 140 (SFAS 140), “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 simplifies the accounting for certain
derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder
elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other
provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or
subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. The adoption of
SFAS 155 on January 1, 2007 did not have a material impact on the financial condition, results of operations or cash
flows of the Company.

In July 2006, the FASB issued FASB Interpretation 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”,
which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance
with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance on the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures,
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently
evaluating the impact of this standard on its financial condition, results of operations and cash flows.

In September 2006, the FASB issued SFAS No. 157 (SFAS 157), “Fair Value Measurements", which defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years ending on
or after November 15, 2007. The Company is currently evaluating the impact of this standard on its financial
condition, results of operations and cash flows.

158 requires a company to (a) recognize in its statement of financial position an asset for a plan’s overfunded status
or a liability for a plan’s underfunded status (b) measure a plan’s assets and its obligations that determine its funded
status as of the end of the employer’s fiscal year, and (c) recognize changes in the funded status of a defined
postretirement plan in the year in which the changes occur (reported in accumulated other comprehensive income).
The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective for
fiscal years ending after December 15, 2006. The requirement to measure the plan assets and benefit obligations as
of a company’s year-end balance sheet date is effective for fiscal years ending after December 15, 2008. The
Company adopted the recognition provisions of SFAS 158, which were effective on December 31, 2006, resulting in
a $1.0 million non-cash charge to equity, net of deferred taxes and a $1.6 million non-cash increase in total
liabilities. See Note 19 – Pension and Other Post-Retirement Benefits, for further information.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108
provides interpretive guidance on how the effects of the carryover or a reversal of prior year misstatements should
be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify
errors using both a balance sheet and income statement approach and evaluate whether either approach results in
quantifying a misstatement that, when all relevant quantitative and qualitative factors considered, is material. The
adoption of SAB 108 on December 31, 2006 did not have a material impact on the financial condition, results of
operations or cash flows of the Company.

In November 2006, the EITF reached a tentative conclusion on Issue No. 06-10 (EITF 06-10), “Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance
Arrangements.” EITF 06-10 provides guidance on the employers’ recognition of a liability and related compensation
costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an employee that
extends into postretirement periods and the asset in collateral assignment split-dollar life insurance arrangements.
The effective date of EITF 06-10 is for fiscal years beginning after December 15, 2007. The Company is currently
evaluating the impact of EITF 06-10 on its financial condition, results of operations and cash flows.

Note 2. Acquisitions and Dispositions

In April 2004, related to the Company’s efforts to realign the EMEA cost structure with current business levels,
the Company proposed a liquidation plan to close its operations in Turkey. Accordingly, the Company transferred
one remaining contract to other SYKES’ subsidiaries and shutdown the operations. In May 2004, the Company
substantially completed the liquidation of its net investment in Turkey. As a result, the net effect of the translation
gains and losses of $0.7 million was recognized as a gain on liquidation of a foreign entity and included in “Other
income” in the accompanying 2004 Consolidated Statement of Operations. Due to the immaterial amounts, the
financial data related to the Company’s net investment in Turkey has not been classified as discontinued operations.

The Company reported a net loss from Turkey’s operations, excluding the $0.7 million previously mentioned
foreign translation gain, of $0.3 million for 2004.

On March 1, 2005, the Company purchased the shares of Kelly, Luttmer & Associates Limited (“KLA”) located
in Calgary, Alberta, Canada, which included net assets of approximately $0.2 million. KLA specializes in providing
call center services for organizational health, employee assistance, occupational health, and disability management.
The Company acquired these operations in an effort to broaden its operations in the healthcare sector. Total cash
consideration paid was approximately $3.2 million based on foreign currency rates in effect at the date of the
acquisition. Based on a third-party valuation, the purchase price resulted in a purchase price allocation to net assets
of $0.2 million, to purchased intangible assets of $2.4 million (primarily customer relationships) and to goodwill of
$0.6 million.

Pro-forma results of operations, in respect to this acquisition, have not been presented because the effect of this
acquisition was not material.

On July 3, 2006, the Company completed the acquisition of all the outstanding shares of capital stock Centro
Interacción Multimedia, S.A. ("Apex”), an established customer contact management solutions and services
provider headquartered in the City of Cordoba, Argentina. Apex serves clients in Argentina, Mexico and the United
States. The results of operations of Apex have been included in the Company’s results of operations for its
America’s segment beginning in the third quarter of 2006. Client programs range from in-bound customer care and
help-desk/technical support to out-bound sales and cross selling within the business-to-consumer and certain

business-to-business segments for Internet Service Providers, wireless carriers and credit card companies. The
Company acquired these operations in an effort to broaden its operations in a growing market in the communications
and financial services verticals. The purchase price for the shares was $27.4 million less $0.4 million, representing
APEX’s obligations on certain of its capital leases as of the closing date, for a net purchase price of $27.0 million,
eighty percent of which ($21.6 million) was paid in cash from offshore operations and twenty percent of which ($5.4
million) was paid by the delivery of 330,992 shares of the common stock of the Company, valued at $16.324 per
share. Of the net purchase price of $27.0 million, $5.0 million was paid to an escrow account (eighty percent in cash
and twenty percent in common stock) to secure the sellers’ indemnification obligations and to provide for a
holdback of the purchase price until amounts billed by Apex to a major client reach established targets. At the end of
a two-year escrow period, any portion of the cash and stock not retained to satisfy the holdback provisions of the
purchase price will be returned to the sellers. Based on a third-party valuation, the net purchase price of $27.0
million less the $5.0 million contingent purchase price held in escrow plus direct acquisition costs of $0.5 million, or
$22.5 million, resulted in a purchase price allocation to net assets of $4.2 million, to purchased intangible assets of
$6.9 million (primarily customer relationships, existing technologies and covenants not to compete) and to goodwill
of $14.3 million less a deferred tax liability of $2.9 million.

On July 3, 2006, after the acquisition of Apex was completed, the Company contributed additional capital of $1.3
million to Apex for working capital support and general corporate purposes.

The following unaudited pro forma data summarizes the combined results of operations of Sykes and Apex for all
periods presented as if the combination had been consummated on January 1, 2005.

Years Ended
December 31,

2006

2005

Revenues ............................................................................ $ 588,280

$ 514,934

Income before provision for income taxes.................... $ 54,144

$ 30,379

Net income ......................................................................... $ 44,064

$ 24,165

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

1.10

0.61

The purchased intangible assets resulting from these acquisitions (other than goodwill) are amortized over a range
of one to fifteen years, resulting in amortization expense of $1.0 million and $0.3 million for 2006 and 2005,
respectively, which is included in “General and administrative” costs in the accompanying Consolidated Statements
of Operations. The following table presents the purchased intangible assets (in thousands):

Gross carrying amount ..................................................... $
Less: accumulated amortization .......................................
Net carrying amount ..................................................... $

December 31,

2006

9,348
1,344
8,004

2005

2,432
320
2,112

Estimated future amortization expense for the five succeeding years excluding the effects of the contingent
purchase price held in escrow is as follows (in thousands):

Year Ending December 31,

2007 ....................................................................... $
2008 ........................................................................ $
2009 ........................................................................ $
2010 ........................................................................ $
2011 ........................................................................ $

Amount
1,475
1,361
1,279
1,251
1,150

Note 3. Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets
in which the Company’s services are sold.

Note 4. Receivables

Receivables consist of the following (in thousands):

Trade accounts receivable ................................................ $ 115,848
266
Income taxes receivable ...................................................
1,436
Other .................................................................................
117,550

2006

2005
$ 86,638
2,849
1,777
91,264

December 31,

Less allowance for doubtful accounts ..............................

2,534
$ 115,016

3,051
$ 88,213

Note 5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

December 31,

2006

Deferred tax asset (Note 14).............................................. $
Prepaid maintenance..........................................................
Inventory, at cost ...............................................................
Prepaid rent .......................................................................
Prepaid insurance ..............................................................
Restricted cash and short-term investments ......................
Prepaid other......................................................................

5,385
1,435
1,229
1,395
485
1,316
3,421
$ 14,666

2005

3,263
1,527
1,093
1,178
1,487
369
1,684
10,601

Note 6. Assets Held for Sale

As of December 31, 2006, assets held for sale with a carrying value of $0.5 million consisted of vacant land
neighboring third party leased U.S. customer contact management centers sold in September 2006. (See Note 7,
Property and Equipment). Related to these assets are deferred grants of $0.3 million as of December 31, 2006, which
are included in “Deferred grants related to assets held for sale” in the accompanying Consolidated Balance Sheets.

Note 7. Property and Equipment

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,

2006

3,589
45,208
174,084
5,081
690
1,583
230,235
164,030
66,205

2005
3,795
50,119
162,673
4,778
392
773
222,530
150,269
$ 72,261

On December 31, 2003, the Company sold the land and building related to its Eveleth, Minnesota facility for $2.3

million, for which the Company received $0.3 million cash and a $2.0 million note receivable, resulting in a net gain
of $1.7 million recognized over the term of the note using the installment sales method of accounting. The net book
value of the facilities of $3.5 million was offset by the related deferred grants of $2.9 million. The Company
recognized $0.2 million of the $1.7 million net gain on the sale of the Eveleth facility in 2003. The remaining $1.5
million net gain was recognized in 2004 when the note receivable balance was paid in full and is included in “Net
gain on disposal of property and equipment” in the accompanying 2004 Consolidated Statement of Operations.

On January 15, 2004, the Company sold the land, building and its contents related to its Klamath Falls, Oregon
facility for $4.0 million in cash, resulting in a net gain of $2.7 million. The net book value of the facilities of $2.3
million was offset by the related deferred grants of $1.0 million. On March 31, 2004, the Company sold a parcel of
land at its Pikeville, Kentucky facility for $0.2 million in cash, resulting in a net gain of $0.1 million. On July 9,
2004, the Company sold the land, building and its contents related to its Hays, Kansas facility for $3.0 million cash,
resulting in a net gain of $2.8 million. The net book value of the facilities of $1.5 million was offset by the related
deferred grants of $1.3 million.

Accordingly, the net gains on the sale of these facilities of $7.1 million related to the Eveleth, Klamath Falls,
Pikeville and Hays facilities are included in “Net gain on disposal of property and equipment” in the accompanying
2004 Consolidated Statement of Operations.

In September 2004, the building and contents of the customer contact management center located in Marianna,
Florida was severely damaged by Hurricane Ivan. After settlement with the insurer in December 2004, the Company
recognized a net gain of $5.4 million after write-off of the property and equipment, which had a net book value of
$3.4 million, net of the related deferred grants of $2.2 million. The Company also received an insurance recovery for
business interruption during 2004 and recognized $0.1 million and $0.2 million, respectively, as a reduction to
“Direct salaries and related costs” and “General and administrative” costs in the accompanying 2004 Consolidated
Statement of Operations. In December 2004, the Company reached an agreement with the City of Marianna to
donate the underlying land to the city with $0.1 million in cash to assist with the site demolition and clean up of the
property with no further obligation to the Company.

In April 2005, the Company sold the land and building related to its Greeley, Colorado facility for $2.4 million
cash, resulting in a net gain of $1.7 million. The net book value of the facilities of $1.4 million was offset by the
related deferred grants of $0.7 million.

As of December 31, 2005, the Company leased four of its customer contact management centers in Ada,
Oklahoma, Manhattan, Kansas, Pikeville, Kentucky and Palatka, Florida to unrelated third parties consisting of the
following, which are included in property and equipment (in thousands):

Amount

Land, building and improvements............................................................ $ 10,460
6,875
Equipment, furniture and fixtures ............................................................

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

17,335

9,678
7,657

Deferred grants, net.................................................................................. $

(6,766 )

In September 2006, the Company sold these customer contact management centers to an unrelated third party for
cash totaling $14.6 million, net of selling costs, resulting in a net gain of $13.9 million. The net book value of the
facilities of $6.3 million and other related assets of $0.5 million were offset by the related deferred grants of $6.1
million.

Note 8. Deferred Charges and Other Assets

Deferred charges and other assets consist of the following (in thousands):

Non-current deferred tax asset (see Note 14) ................. $ 16,910
2,089
Investment in SHPS, Incorporated, at cost .....................
5,750
Non-current value added tax receivable ..........................
7,422
Other ...............................................................................
$ 32,171

2006

2005
$ 16,624
2,089
2,167
3,588
$ 24,468

December 31,

Note 9. Accrued Employee Compensation and Benefits

Accrued employee compensation and benefits consist of the following (in thousands):

December 31,

Accrued compensation ..................................................... $ 11,212
7,762
Accrued bonus and commissions......................................
8,930
Accrued vacation .............................................................
7,372
Accrued employment taxes ..............................................
4,273
Other ................................................................................
$ 39,549

2006

2005

9,964
6,454
6,249
5,810
3,300
$ 31,777

Note 10. Deferred Revenue

The components of deferred revenue consist of the following (in thousands):

Future service ..............................................................
Penalties and holdbacks ...............................................

December 31,

2006

2005

25,403
5,321
30,724

24,247
925
25,172

Note 11. Other Accrued Expenses and Current Liabilities

Other accrued expenses and current liabilities consist of the following (in thousands):

Accrued legal and professional fees ................................. $
Accrued roadside assistance claim costs ..........................
Accrued telephone charges ..............................................
Accrued rent .....................................................................
Accrued value added tax payable .....................................
Other ................................................................................

December 31,

2006

2,739
1,801
441
564
—
4,010
9,555

2005

3,077
1,582
371
623
754
3,867
$ 10,274

Note 12. Borrowings

On March 15, 2004, the Company entered into a $50.0 million revolving credit facility with a group of lenders
(the “Credit Facility”), which amount is subject to certain borrowing limitations. Pursuant to the terms of the Credit
Facility, the amount of $50.0 million may be increased up to a maximum of $100.0 million with the prior written

consent of the lenders. The $50.0 million Credit Facility includes a $10.0 million swingline subfacility, a $15.0
million letter of credit subfacility and a $40.0 million multi-currency subfacility.

The Credit Facility, which includes certain financial covenants, may be used for general corporate purposes
including acquisitions, share repurchases, working capital support, and letters of credit, subject to certain limitations.
The Credit Facility, including the multi-currency subfacility, accrues interest, at the Company’s option, at (a) the
Base Rate (defined as the higher of the lender’s prime rate or the Federal Funds rate plus 0.50%) plus an applicable
margin up to 0.50%, or (b) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin up to 2.25%.
Borrowings under the swingline subfacility accrue interest at the prime rate plus an applicable margin up to 0.50%
and borrowings under the letter of credit subfacility accrue interest at the LIBOR plus an applicable margin up to
2.25%. In addition, a commitment fee of up to 0.50% is charged on the unused portion of the Credit Facility on a
quarterly basis. The borrowings under the Credit Facility, which will terminate on March 14, 2008, are secured by a
pledge of 65% of the stock of each of the Company’s active direct foreign subsidiaries. The Credit Facility prohibits
the Company from incurring additional indebtedness, subject to certain specific exclusions. There were no
borrowings in 2006 and no outstanding balances as of December 31, 2006 with $50.0 million availability under the
Credit Facility.

Note 13. Accumulated Other Comprehensive Income (Loss)

The Company presents data in the Consolidated Statements of Changes in Shareholders’ Equity in accordance
with SFAS No. 130 (SFAS 130), “Reporting Comprehensive Income.” SFAS 130 establishes rules for the reporting
of comprehensive income (loss) and its components. The components of other accumulated comprehensive income
(loss) consist of the following (in thousands):

Balance at January 1, 2004 .......................................................
Foreign currency translation adjustment ..................................
Less: foreign currency translation gain included in net
income (no tax effect) ..........................................................
Balance at December 31, 2004 .................................................
Foreign currency translation adjustment ..................................
Add: foreign currency translation loss included in net
income (no tax effect) ..........................................................
Balance at December 31, 2005 .................................................
Foreign currency translation adjustment ............................
Less: foreign currency translation gain included in net
income (no tax effect) .........................................................
Unrealized actuarial losses related to pension liability,
net of a tax benefit of $563...................................................
Balance at December 31, 2006 ...............................................

Accumulated
Other
Comprehensive
Income (Loss)
(208 )
$
5,713

(634 )
4,871
(8,540 )

234
(3,435 )
10,396

(48 )

(1,044 )
5,869

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

Note 14. Income Taxes

The income (loss) before provision (benefit) for income taxes includes the following components (in thousands):

United States ....................................................
Foreign .............................................................
Total income before provision for
income taxes ...............................................

Years Ended December 31,
2005
(1,864)
30,967

2006

555
50,904

2004
(14,585)
30,446

51,459

$ 29,103

15,861

Significant components of the income tax provision (benefit) are as follows (in thousands):

2006

Years Ended December 31,
2005

2004

Current:
Federal .............................................................................. $
State ..................................................................................
Foreign .............................................................................
Total current (benefit) provision for income taxes .......
Deferred:
Federal ..............................................................................
State ..................................................................................
Foreign .............................................................................
Total deferred (benefit) provision for income taxes ....

107

—

8,831
8,938

977
(94)
(685)
198

—
—
7,098
7,098

—
—
(1,403)
(1,403)

(1,777)
(295)
6,471
4,399

1,093
280
(725)
648

Total provision for income taxes ................................. $

9,136

5,695

5,047

The $1.4 million deferred income tax benefit for 2005 includes $0.6 million related to an adjustment of the
beginning of the year valuation allowance balance. This adjustment was due to a change in circumstances that
caused a change in judgment about the Company’s ability to realize the related deferred income tax asset in future
years for an EMEA entity. The 2005 deferred income tax benefit is $0.8 million excluding such adjustment.

The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are
as follows (in thousands):

Accrued expenses............................................................... $
Net operating loss and tax credit carryforwards.................
Depreciation and amortization ...........................................
Deferred revenue................................................................
Deferred statutory income ..................................................
Valuation allowance...........................................................
Other...................................................................................
Total deferred (benefit) provision for income taxes ....... $

Years Ended December 31,

2006
(3,118)
(3,315)
478
(333)
163
6,460
(137)
198

2005

380
759
(427)
(310)
(576)
(1,584)
355
(1,403)

2004

3,110
(8,337)
5,302
(832)
237
(191)
1,359
648

The reconciliation of income tax provision (benefit) computed at the U.S. federal statutory tax rate to the
Company’s effective income tax provision (benefit) is as follows (in thousands):

2006

Tax at U.S. statutory rate ........................................................ $ 18,011
(173)
State income taxes, net of federal tax benefit .........................
Tax holidays ...........................................................................
(7,544)
Change in valuation allowance, net of related adjustments ....
2,659
Foreign rate differential ..........................................................
(3,859)
Permanent differences ............................................................
(670)
Foreign withholding and other taxes ......................................
849
Other .......................................................................................
(137)
9,136
Total provision for income taxes ........................................ $

Years Ended December 31,
2005
$ 10,186
(36)
(2,265)
1,487
(4,019)
(337)
631
48
5,695

2004

5,551
(350)
(1,918)
1,189
(1,654)
1,789
879
(439)
5,047

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the amounts used for income taxes. A provision for income taxes
has not been made for the undistributed earnings of foreign subsidiaries of approximately $288.3 million at
December 31, 2006, that are permanently reinvested in foreign business operations. Determination of any
unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are
essentially permanent in nature is not practicable.

The Company has been granted tax holidays in the Philippines, El Salvador, India and Costa Rica. The tax

holidays have various expiration dates primarily from 2007 through 2018. Upon expiration, the Company intends to
seek renewals of these tax holidays, where possible.

The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of
December 31, 2006 and 2005, respectively, are presented below (in thousands):

Deferred tax assets:
Accrued expenses ................................................................
Net operating loss and tax credit carryforwards ..................
Depreciation and amortization .............................................
Deferred revenue .................................................................
Valuation allowance ............................................................

Deferred tax liabilities:
Accrued liabilities ................................................................
Depreciation and amortization .............................................
Deferred statutory income ....................................................

Net deferred tax assets ....................................................

Classified as follows:
Current assets (Prepaid expenses and other) (Note 5) .......... $
Non-current assets (Deferred charges and other) (Note 8) ..
Current liabilities (Other accrued expenses) ........................
Non-current liabilities (Other long-term liabilities) .............
Net deferred tax assets .................................................... $

December 31,

2006

2005

5,146
46,586
11,016
3,036
(35,267)
30,517

(1,259)
(9,642)
(2,089)
(12,990)
17,527

2,450
43,270
10,018
2,703
(28,807)
29,634

(1,680)
(8,167)
(1,924)
(11,771)
17,863

December 31,

2006

2005

5,385
16,910
(75)
(4,693)
17,527

3,263
16,624
(60)
(1,964)
17,863

SFAS 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the
available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. At December 31, 2006, management has
determined that a valuation allowance of approximately $35.3 million is necessary to reduce U.S. deferred tax assets
by $10.4 million and foreign deferred tax assets by $24.9 million.

There is approximately $132.3 million of the income tax loss carryforwards at December 31, 2006, of which
$86.7 million relates to foreign entities and $45.6 million relates to the U.S., with various expiration dates. For U.S.
purposes, a net operating loss carryforward of approximately $45.6 million and $3.9 million of tax credits are
available at December 31, 2006 for carryforward, with the latest expiration date ending December 31, 2025. Of this
$45.6 million carryforward, $10.1 million is limited as it relates to net operating loss carryforwards of a domestic
subsidiary acquired in prior years.

The Company is currently under examination in the U.S. by several states for sales and use taxes for periods
covering 1999 through 2000. The U.S. Internal Revenue Service completed audits of the Company’s U.S. tax returns
through July 31, 1999 and is currently auditing the tax year ended July 31, 2002 and will also be examining the tax
years ended July 31, 2003, December 31, 2003 and December 31, 2004. Certain German subsidiaries of the
Company are under examination by the German tax authorities for periods covering 1996 through 2004.
Additionally, certain Canadian subsidiaries are under examination by Canadian tax authorities for the periods
covering 2002 through 2003 and an Asian subsidiary is being audited by the Asian tax authorities for tax year 2004.
The Indian tax authorities have issued an assessment for the tax year ended March 31, 2004 and are also examining
the tax year ended March 31, 2005.

As of December 31, 2006 and 2005, the Company had a contingent income tax liability of $4.2 million and $3.2
million, respectively, consisting of amounts for subsidiaries located in both the Americas and EMEA segments that
is accounted for in "Income taxes payable" in the accompanying Consolidated Balance Sheets. The amount of the
contingent liability is based on an estimate of the probable liability in accordance with SFAS No. 5 (SFAS 5)

“Accounting for Contingencies”, using available evidence, including detailed analyses of the potential income tax
issues, income tax assessments and notices of disallowance, consultation with independent outside tax and legal
advisors and the Company’s historical experience in settling similar issues without additional income tax liability.
Management believes that the $4.2 million contingent income tax liability, a net increase of $1.0 million from
December 31, 2005, is the probable amount that will be paid upon settlement of the related tax audits based on
current available evidence and issues and does not believe there would be a material impact on liquidity beyond
what has been provided for in "Income taxes payable."

As of December 31, 2006, the Company determined that there is a reasonable possibility, in accordance with
SFAS 5, that a $1.3 million loss contingency may have been incurred. This contingency relates to transfer pricing
penalties that may be applicable in connection with an income tax audit assessment issued in December 2006 to our
Indian subsidiary relating to the 2004 tax year. The income tax assessment is currently under appeal. The loss
contingency includes additional years subsequent to the year assessed as a result of similar facts. However, the $1.3
million loss contingency is not probable in accordance with SFAS 5, therefore, an accrual has not been recorded in
the accompanying consolidated financial statements as of December 31, 2006. Upon adoption of FIN 48 on January
1, 2007, as discussed more fully in Note 1, the $1.3 million loss contingency will be recorded as a cumulative effect
adjustment to the beginning balance of retained earnings.

Note 15. Termination Costs Associated With Exit Activities

On November 3, 2005, the Company committed to a plan (the “Plan”) to reduce its workforce by approximately 200
people in one of its European customer contact management centers in Germany in response to the October 2005
contractual expiration of a technology client program, which generated annual revenues of approximately $12.0 million.
The Company expects to complete the Plan by the end of the second quarter of 2007. The Company estimates that it will
incur total charges related to the Plan of approximately $1.6 million to $1.9 million. These charges include
approximately $1.3 million to $1.5 million for severance and related costs and $0.1 million to $0.2 million for other
exit costs. Additionally, the Company ceased using certain property and equipment estimated at $0.2 million, and
depreciated these assets over the shortened useful life, which approximated eight months. As a result, the Company
recorded additional depreciation of approximately $0.2 million during 2006. Termination costs of $0.7 million and
$0.5 million are included in “Direct salaries and related costs” in the accompanying 2006 and 2005 Consolidated
Statements of Operations, respectively. Cash payments related to these termination costs totaled $0.6 million and
less than $0.1 million for 2006 and 2005, respectively. Termination costs to date approximate $1.3 million as of
December 31, 2006 with cash payments to date of $0.7 million.

On January 19, 2005, the Company announced to its workforce that, as part of its continued efforts to optimize
assets and improve operating performance, it would migrate the call volumes of the customer contact management
services and related operations from its Bangalore, India facility, a component of the Company’s Americas segment,
to other offshore facilities. Before the plan of migration, the Company’s Bangalore facility generated approximately
$0.9 million in revenue in the first quarter of 2005, the last full quarter of operations. The Company substantially
completed the plan of migration, including the redeployment of site infrastructure and the recruiting, training and
ramping-up of agents associated with the migration of Bangalore call volumes to other offshore facilities, in the
second quarter of 2005. In connection with this migration, the Company terminated 413 employees and accrued
over their remaining service period an estimated liability for termination costs of $0.2 million based on the fair value
as of the termination date, in accordance SFAS No. 146 (SFAS 146), “Accounting for Costs associated with Exit or
Disposal Activities.” These termination costs are included in “Direct salaries and related costs” in the accompanying
Consolidated Statement of Operations for 2005. Cash payments related to these termination costs totaled $0.2
million during 2005.

During the first quarter of 2004, the Company determined to reduce costs by consolidating and closing two
European customer contact management centers in Germany. The plan was substantially completed by the end of
the second quarter of 2004. In connection with these closures, the Company terminated 240 employees and accrued
over their remaining service period an estimated liability for termination costs of $1.7 million based on the fair value
as of the termination date, in accordance with SFAS 146. Termination costs of $1.7 million are included in “Direct
salaries and related costs” in the accompanying 2004 Consolidated Statement of Operations. Cash payments totaled
$1.7 million during 2004.

Note 16. Restructuring and Other Charges

2002 Charges

In October 2002, the Company approved a restructuring plan to close and consolidate two U.S. and three
European customer contact management centers, to reduce capacity within the European fulfillment operations and
to write-off certain specialized e-commerce assets primarily in response to the October 2002 notification of the
contractual expiration of two technology client programs in March 2003 with approximate annual revenues of $25.0
million. The restructuring plan was designed to reduce costs and bring the Company’s infrastructure in-line with the
current business environment. Related to these actions, the Company recorded restructuring and other charges in the
fourth quarter of 2002 of $20.8 million primarily for the write-off of certain assets, lease termination and severance
costs. In connection with the 2002 restructuring, the Company reduced the number of employees by 470 during
2002 and 330 during 2003. The plan was substantially completed by the end of 2003.

In connection with the contractual expiration of the two technology client contracts previously mentioned, the
Company also recorded additional depreciation expense of $1.2 million in the fourth quarter of 2002 and $1.3
million in the first quarter of 2003 primarily related to a specialized technology platform, which was no longer
utilized upon the expiration of the contracts in March 2003.

The following tables summarize the 2002 plan accrued liability for restructuring and other charges and related
activity in 2005, 2004, 2003 and 2002 (in thousands) (no activity in 2006):

Balance at
January 1,
2005

Severance and related costs .......... $
Other restructuring costs ...............

106
285
391

Cash
Outlays
$

(34 )
(43 )
(77 )

Balance at
January 1,
2004

Severance and related costs ......... $
Lease termination costs ...............
Other restructuring costs..............

106
342
545
993

Balance at
January 1,
2003

Severance and related costs......... $
Lease termination costs...............
Other restructuring costs .............

4,696
1,827
1,852
8,375

Cash
Outlays
—
$
(301 )
(188 )
(489 )

Cash
Outlays

(3,816)
(1,585)
(1,512)
(6,913)

Severance and related costs ............... $
Lease termination costs .....................
Write-down of property, equipment
and capitalized costs......................
Other restructuring costs ...................

Balance at
January 1,
2002

2002
Charges
5,012
1,827

— $
—

12,017
—
—
1,958
— $ 20,814

Other
Non-Cash
Changes(1)
(72)
$
(242)
$ (314)

Other
Non-Cash
Changes(2)
$ —

(41)
(72)
$ (113)

Other
Non-Cash
Changes
$ (774) (3)
100 (4)
205 (5)

$ (469)

Cash
Outlays
(316)
$
—

—
(106)
(422)

Other
Non-Cash
Changes
—
$
—

(12,017)

—

$ (12,017)

Balance at
December 31,
2005
$ —
—
$ —

Balance at
December 31,
2004
106
—
285
391

Balance at
December 31,

2003
106
342
545
993

Balance at
December 31,

2002
$ 4,696
1,827

—
1,852
$ 8,375

Year
2007 ........................................................................ $
2008 ........................................................................
Total minimum payments required .................... $

Total
Amount
6,747
1,968
8,715

From time to time, during the normal course of business, the Company may make certain indemnities,
commitments and guarantees under which it may be required to make payments in relation to certain transactions.
These include, but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims
based on negligence or willful misconduct of the Company and (ii) indemnities involving breach of contract, the
accuracy of representations and warranties of the Company, or other liabilities assumed by the Company in certain
contracts. In addition, the Company has agreements whereby it will indemnify certain officers and directors for
certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such
capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s
lifetime. The maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that
limits its exposure and enables it to recover a portion of any future amounts paid. The Company believes the
applicable insurance coverage is generally adequate to cover any estimated potential liability under these
indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential for future payments the Company could be obligated to make. The Company
has not recorded any liability for these indemnities, commitments and other guarantees in the accompanying
Consolidated Balance Sheets. In addition, the Company has some client contracts that do not contain contractual
provisions for the limitation of liability, and other client contracts that contain agreed upon exceptions to limitation
of liability. The Company has not recorded any liability in the accompanying Consolidated Balance Sheets with
respect to any client contracts under which the Company has or may have unlimited liability.

One of the Company’s European subsidiaries has received several inquiries from a regulatory agency related to
privacy claims associated with the alleged inappropriate acquisition of personal bank account information. Several
of the inquiries have resulted in sanctions against the Company approximating $0.8 million. In order to appeal the
sanctions through the court system, the Company issued a bank guarantee. Management believes that the sanctions
made in connection with this matter are without merit, and intends to vigorously pursue the reversal of the proposed
sanctions. The Company has recorded these amounts in “Deferred Charges and Other Assets” in the accompanying
Consolidated Balance Sheets as of December 31, 2006. The Company has not accrued any amounts related to these
claims under SFAS 5, because it does not believe that a loss is probable, and it is not currently possible to
reasonably estimate the amount of any loss related to these claims.

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.

Note 19. Pension and Other Post-Retirement Benefits

Defined Benefit Pension Plan

The Company sponsors a non-contributory defined benefit pension plan (the “Pension Plan”) for its employees in
the Philippines. The Pension Plan provides defined benefits based on years of service and final salary. All permanent
employees meeting the minimum service requirement are eligible to participate in the Pension Plan. As of December
31, 2006, the Pension Plan is unfunded.

The following tables provide a reconciliation of the change in the benefit obligation for the Pension Plan and the
net amount recognized in the accompanying Consolidated Balance Sheets (in thousands):

Beginning benefit obligation ................................... $
Service cost..............................................................
Interest cost..............................................................
Actuarial loss ...........................................................
Effect of foreign currency translation ......................
Ending benefit obligation ........................................ $

For the Years Ended
December 31,

2006

2005

1,548 $
348
188
1,170
201
3,455 $

830
320
101
224
73
1, 548

Funded status ........................................................... $
Unrecognized net actuarial loss ...............................
Net amount recognized ............................................ $

(3,455 ) $
—
(3,455 ) $

(1,548 )
233
(1,315 )

The net amount recognized consists of accrued benefit costs of $3.5 million and $1.3 million as of December 31,
2006 and 2005, respectively, and is included in “Other long-term liabilities” in the accompanying Consolidated
Balance Sheets.

Weighted-average actuarial assumptions used to determine the benefit obligations and net periodic benefit cost for
the Pension Plan were as follows:

Discount rate ................................................................
Rate of compensation increase.....................................

For the Years Ended
December 31,

2006

8.3%
8.0%

2005

12.0%
8.0%

The Company evaluates these assumptions on a periodic basis taking into consideration current market
conditions and historical market data. The discount rate is used to state expected future cash flows at a present value
on the measurement date, which is December 31. This rate represents the market rate for high-quality fixed income
investments. A lower discount rate would increase the present value of benefit obligations. Other assumptions
include demographic factors such as retirement, mortality and turnover.

The following table provides information about net periodic benefit cost and other accumulated comprehensive
income for the Pension Plan (in thousands):

Years Ended
December 31,

Service cost................................................................. $
Interest cost .................................................................
Recognized actuarial losses.........................................
Net periodic benefit cost .............................................
Unrealized net actuarial loss, net of tax ......................
Total recognized in net periodic benefit cost and
other accumulated comprehensive income ................. $ 1,587

2006
348
188
7
543
1,044

2005
320
101
—
421
—

421

The Company does not expect to make cash contributions to its Pension Plan during 2007.

The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):

2007
2008
2009
2010
2011
2012 through 2016

Total
Amount

—
—
—
—
8
61

$
$
$
$
$
$

In December 2006, the Company adopted the recognition provisions of SFAS 158 resulting in a $1.0 million non-
cash charge to equity related to unrealized actuarial losses, net of tax of $0.6 million, and a $1.6 million non-cash
increase in other long-term liabilities, which represents the Pension Plan’s underfunded status. The Company
expects to charge earnings less than $0.1 million of net actuarial losses as a component of net periodic benefit cost in
2007.

Employee Retirement Savings Plan

The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements.
Under the plan provisions, the Company matched 50% of participant contributions to a maximum matching amount
of 2% of participant compensation. The Company contribution was $0.7 million, $0.6 million and $0.5 million for
the years ended December 31, 2006, 2005 and 2004, respectively.

Post-Retirement Defined Contribution Healthcare Plan

On January 1, 2005, the Company established a Post-Retirement Defined Contribution Healthcare Plan for
eligible employees meeting certain service and age requirements. The plan is fully funded by the participants and
accordingly, the Company does not recognize expense relating to the plan.

Note 20. Stock-Based Compensation

A detailed description of each of the Company’s stock-based compensation plans is provided below, including the
2001 Equity Incentive Plan, the 2004 Non-Employee Director Fee Plan and the Deferred Compensation Plan. Stock-
based compensation expense related to these plans, which is included in “General and administrative” costs
primarily in the Americas in the accompanying Consolidated Statements of Operations, was $2.5 million and $0.4
million for the years ended December 31, 2006 and 2005, respectively (none in 2004). There were no related income
tax benefits recognized in the accompanying Consolidated Statements of Operations for years ended December 31,
2006, 2005 and 2004. In addition, the Company realized the benefit of tax deductions in excess of recognized tax
benefits of $2.4 million, $30 thousand and $0.2 million from the exercise of stock options in the years ended
December 31, 2006, 2005 and 2004, respectively. There were no capitalized stock-based compensation costs at
December 31, 2006 and 2005.

2001 Equity Incentive Plan — The Company’s 2001 Equity Incentive Plan (the “Plan”), which is shareholder-
approved, permits the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards
to certain employees of the Company, and certain non-employees who provide services to the Company, for up to
7.0 million shares of common stock in order to encourage them to remain in the employment of or to diligently
provide services to the Company and to increase their interest in the Company’s success.

Stock Options -- Options are granted at fair market value on the date of the grant and generally vest over one to
four years. All options granted under the Plan expire if not exercised by the tenth anniversary of their grant date.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model
that uses various assumptions. The fair value of the stock option awards is expensed on a straight-line basis over the
vesting period of the award. Expected volatility is based on historical volatility of the Company’s stock. The risk-
free rate for periods within the contractual life of the award is based on the yield curve of a zero-coupon U.S.
Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Exercises
and forfeitures are estimated within the valuation model using employee termination and other historical data. The

expected term of the stock option awards granted is derived from historical exercise experience under the Plan and
represents the period of time that stock option awards granted are expected to be outstanding. No stock options were
granted during the years ended December 31, 2006, 2005 and 2004.

The following table summarizes stock option activity under the Plan as of December 31, 2006 and for the year
then ended:

Stock Options
Outstanding at January 1, 2006 ............................
Granted ..................................................................
Exercised ...............................................................
Forfeited or expired ...............................................
Outstanding at December 31, 2006 ....................
Vested or expected to vest at December 31,
2006 .......................................................................
Exercisable at December 31, 2006 ......................

Weighted-
Average
Exercise
Price

Shares
(000s)

1,213
—
(615 )
(15 )
583

583
583

$
$

10.03
—
7.06
11.32
13.13

13.13
13.13

Weighted
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
Value
(000s)

3.88

3.88
3.88

$
$

3,201

There is no intrinsic value for options exercised in the three years ended December 31, 2006, 2005 and 2004 since
the exercise price of the options is the same as the market price of the underlying stock on the date of grant.

The following table summarizes the status of nonvested stock options under the Plan as of December 31, 2006
and for the year then ended:

Nonvested Stock Options
Nonvested at January 1, 2006 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2006 ............................

Shares
(000s)

93
—
(93)
—
—

Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$

7.63
—
7.63
—
—

Since there was no nonvested stock as of December 31, 2006, all compensation cost related to the nonvested stock
options granted under the Plan has been recognized (the effect of estimated forfeitures is not material.) The total fair
value of stock options vested during the years ended December 31, 2006, 2005 and 2004 was $0.8 million, $0.6
million and $2.5 million, respectively.

Cash received from stock options exercised under all stock-based compensation plans for the year ended
December 31, 2006, 2005 and 2004 was $4.3 million, $0.8 million and $0.3 million, respectively. The actual tax
benefit realized for the tax deductions from these stock option exercises totaled $2.4 million for the year ended
December 31, 2006 (not material for 2005 and 2004.)

Stock Appreciation Rights -- The Company’s Board of Directors, at the recommendation of the Compensation
and Human Resource Development Committee (the “Committee”), approves awards of stock-settled stock
appreciation rights (“SARs”) for eligible participants. SARs represent the right to receive, without payment to the
Company, a certain number of shares of common stock, as determined by the Committee, equal to the amount by
which the fair market value of a share of common stock exceeds the grant price at the time of exercise.

The SARs are granted at fair market value of the Company’s common stock on the date of the grant and vest one-
third on each of the anniversaries of the date of grant, provided the participant is employed by the Company on such
date. The SARs have a term of 10 years from the date of grant. In the event of a change in control, the SARs will
vest on the date of the change in control, provided that the participant is employed by the Company on the date of
the change in control.

The SARs are exercisable within three months after the death, disability, retirement or termination of the
participant’s employment with the Company, if and to the extent the SARs were exercisable immediately prior to
such termination. If the participant’s employment is terminated for cause, or the participant terminates his or her
own employment with the Company, any portion of the SARs not yet exercised (whether or not vested) terminates
immediately on the date of termination of employment.

The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses
various assumptions. The fair value of the SARs is expensed on a straight-line basis over the requisite service
period. Expected volatility is based on historical volatility of the Company’s stock. The risk-free rate for periods
within the contractual life of the award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date
the award is granted with a maturity equal to the expected term of the award. Exercises and forfeitures are estimated
within the valuation model using employee termination and other historical data. The expected term of the SARs
granted represents the period of time the SARs are expected to be outstanding.

The following table summarizes the assumptions used to estimate the fair value of SARs granted during the year
ended December 31, 2006 (no SARs were granted in 2005 and 2004):

Year Ended
December 31,
2006

Expected volatility ...................................................
Weighted-average volatility .....................................
Expected dividends ..................................................
Expected term (in years) ..........................................
Risk-free rate............................................................

61%
61%
—
3.8
4.8%

The following table summarizes SARs activity under the Plan as of December 31, 2006 and for the year then ended:

Weighted
Average
Remaining
Contractual

Term
(in years)

Aggregate
Intrinsic
Value
(000s)

Stock Appreciation Rights
Outstanding at January 1, 2006 ...........................
Granted .................................................................
Exercised ..............................................................
Forfeited or expired ..............................................
Outstanding at December 31, 2006 ...................
Vested or expected to vest at December 31,
2006 ......................................................................
Exercisable at December 31, 2006 .....................

Shares
(000s)

—

126
—
—
126

126

—

Weighted-
Average
Exercise
Price
—
—
—
—

$
$

—

—
—

9.2

9.2
—

$
$

389

—

The weighted-average grant-date fair value of the SARs granted during the year ended December 31, 2006 was
$7.28 (no SARs were granted in 2005 and 2004.) No SARs were exercised during the years ended December 31,
2006, 2005 and 2004.

The following table summarizes the status of nonvested SARs under the Plan as of December 31, 2006 and for the
year then ended:

Nonvested Stock Appreciation Rights
Nonvested at January 1, 2006 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2006 ............................

Shares
(000s)

—
126
—
—
126

Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$

—
7.28
—
—
7.28

As of December 31, 2006, there was $0.7 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested stock appreciation rights granted under the Plan. This cost is expected to be
recognized over a weighted-average period of 2.2 years. None of the SARs vested during the years ended December
31, 2006, 2005 and 2004.

Restricted Shares -- The Company’s Board of Directors, at the recommendation of the Committee, approves
awards of performance-based restricted shares for eligible participants. In some instances, where the issuance of
Restricted Shares has adverse tax consequences to the recipient, the Board will instead issue restricted stock units
(“RSUs”). The Restricted Shares are shares of the Company’s common stock (or in the case of RSUs, represent an
equivalent number of shares of the Company’s common stock) which are issued to the participant subject to (a)
restrictions on transfer for a period of time and (b) forfeiture under certain conditions. The performance goals,
including revenue growth and income from operations targets, provide a range of vesting possibilities from 0% to
100% and will be measured as of December 31, 2007 for the 2006-2007 performance period, as of December 31,
2008 for the 2006-2008 performance period and as of December 31, 2009 for the 2007-2009 performance period. If
the performance conditions are met for the 2006-2007 performance period, for the 2006-2008 performance period
and for the 2007-2009 performance period, the shares will vest and all restrictions on the transfer of the Restricted
Shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common stock will be
issued to the recipient) on March 29, 2008, March 29, 2009 and March 16, 2010, respectively. The Company
recognizes compensation cost, net of estimated forfeitures, based on the fair value (which approximates the current
market price) of the Restricted Shares (and RSUs) on the date of grant ratably over the requisite service period based
on the probability of achieving the performance goals. Changes in the probability of achieving the performance
goals from period to period will result in corresponding changes in compensation expense.

In the event of a change in control (as defined in the Plan) prior to the date the Restricted Shares (or RSUs) vest,
all of the Restricted Shares (and RSUs) will vest and the restrictions on transfer will lapse with respect to such
vested shares on the date of the change in control, provided that participant is employed by the Company on the date
of the change in control.

If the participant’s employment with the Company is terminated for any reason, either by the Company or
participant, prior to the date on which the Restricted Shares (or RSUs) have vested and the restrictions have lapsed
with respect to such vested shares, any Restricted Shares (or RSUs) remaining subject to the restrictions (together
with any dividends paid thereon) will be forfeited, unless there has been a change in control prior to such date.

The weighted-average grant-date fair value of the Restricted Shares/Units granted during the year ended December
31, 2006 was $14.92 (no Restricted Shares/Units were granted in 2005 and 2004.)

The following table summarizes the status of nonvested Restricted Shares/Units under the Plan as of December
31, 2006 and for the year then ended:

Nonvested Restricted Shares/Units
Nonvested at January 1, 2006 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2006 ............................

Shares
(000s)

—
308
—
—
308

Weighted
Average
Grant-Date
Fair Value
—
$
$ 14.92
—
$
—
$
14.92
$

As of December 31, 2006, based on the probability of achieving the performance goals, there was $3.5 million of
total unrecognized compensation cost, net of estimated forfeitures, related to nonvested Restricted Shares/Units
granted under the Plan. This cost is expected to be recognized over a weighted-average period of 2.1 years. None of
the Restricted Shares/Units vested during the years ended December 31, 2006, 2005 and 2004.

2004 Non-Employee Director Fee Plan — The Company’s 2004 Non-Employee Director Fee Plan (the “2004
Fee Plan”), which is shareholder-approved, replaced and superseded the 1996 Non-Employee Director Fee Plan (the
“1996 Fee Plan”) and was used in lieu of the 2004 Nonemployee Director Stock Option Plan (the “2004 Stock
Option Plan”). The 2004 Fee Plan provides that all new non-employee Directors joining the Board receive an initial
grant of common stock units (“CSUs”) on the date the new Director is appointed or elected, the number of which

will be determined by dividing a dollar amount to be determined from time to time by the Board (currently set at
$30,000) by an amount equal to 110% of the average closing prices of the Company’s common stock for the five
trading days prior to the date the new Director is appointed or elected. The initial grant of CSUs will vest in three
equal installments, one-third on the date of each of the following three annual shareholders’ meetings. A CSU is a
bookkeeping entry on the Company’s books that records the equivalent of one share of common stock. On the date
each CSU vests, the Director will become entitled to receive a share of the Company’s common stock and the CSU
will be canceled. For federal income tax purposes, the Director will not be deemed to have received income with
respect to the CSUs until the CSUs vest. No options were awarded under the 2004 Stock Option Plan and none will
be awarded. The number of shares remaining available for issuance under the 2004 Fee Plan cannot exceed 378
thousand.

Additionally, the 2004 Fee Plan provides that each non-employee Director receives on the day after the annual
shareholders’ meeting, an annual retainer for service as a non-employee Director, the amount of which shall be
determined from time to time by the Board (currently set at $50,000) to be paid 75% in CSUs and 25% in cash. The
number of CSUs to be granted under the 2004 Fee Plan will be determined by dividing the amount of the annual
retainer by an amount equal to 105% of the average of the closing prices for the Company’s common stock on the
five trading days preceding the award date (the day after the annual meeting). The annual grant of CSUs will vest in
two equal installments, one-half on the date of each of the following two annual shareholders’ meetings. There were
grants of 30 thousand, 47.8 thousand and 55.6 thousand CSUs issued under the 2004 Fee Plan during the years
ended December 31, 2006, 2005 and 2004, respectively. The weighted-average grant-date fair value of CSUs
granted during the years ended December 31, 2006, 2005 and 2004 was $16.94, $8.27 and $8.25, respectively.

The following table summarizes the status of the nonvested CSUs under the 2004 Fee Plan as of December 31,
2006 and for the year then ended:

Nonvested Common Stock Units
Nonvested at January 1, 2006 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2006 ............................

Shares
(000s)

72
22
(46)
—
48

Weighted
Average
Grant-Date
Fair Value
8.26
$
$ 16.94
8.25
$
$
—
12.20
$

As of December 31, 2006, there was $0.4 million of total unrecognized compensation costs, net of estimated
forfeitures, related to nonvested CSUs granted under the 2004 Fee Plan. This cost is expected to be recognized over
a weighted-average period of 1.3 years. During the years ended December 31, 2006 and 2005, a total of 46
thousand and 31 thousand CSUs vested, respectively (no CSUs vested in 2004) with a total fair value of $0.4 million
and $0.3 million, respectively.

Before January 1, 2006, the Company accounted for grants of CSUs issued under the 2004 Fee Plan in accordance
with APB 25 and recognized compensation cost over the requisite service period. The fair value of the CSUs, which
is the same under APB 25 and SFAS 123R, was based on the fair value of the Company’s stock on the date of grant.
Under SFAS 123R, the Company will continue to recognize compensation cost over the remaining service period.
Until a CSU vests, the Director has none of the rights of a shareholder with respect to the CSU or the common stock
underlying the CSU. CSUs are not transferable.

Deferred Compensation Plan — The Company’s non-qualified Deferred Compensation Plan (the “Deferred
Compensation Plan”), which is not shareholder-approved, was adopted by the Board of Directors effective
December 17, 1998 and amended on March 29, 2006 and May 23, 2006. It provides certain eligible employees the
ability to defer any portion of their compensation until the participant’s retirement, termination, disability or death,
or a change in control of the Company. Using the Company’s common stock, the Company matches 50% of the
amounts deferred by certain senior management participants on a quarterly basis up to a total of $12,000 per year for
the president and senior vice presidents and $7,500 per year for vice presidents (participants below the level of vice
president are not eligible to receive matching contributions from the Company). Matching contributions and the
associated earnings vest over a seven year service period. Deferred compensation amounts used to pay benefits,
which are held in a rabbi trust, include investments in various mutual funds and shares of the Company’s common
stock (See Note 1, Summary of Accounting Policies, under Investments Held in Rabbi Trust.) The Deferred
Compensation Plan’s assets totaled $1.0 million and $0.7 million at December 31, 2006 and 2005, respectively,

excluding the Company’s common stock match, while liabilities totaled $1.0 million and $1.0 million, respectively.
As of December 31, 2006 and 2005, the liabilities of the Deferred Compensation Plan were recorded in treasury
stock and additional paid-in capital, as appropriate, and accrued employee compensation and benefits as of
December 31, 2006 and other long-term liabilities as of December 31, 2005 in the accompanying Consolidated
Balance Sheets.

The weighted-average grant-date fair value of common stock awarded during the years ended December 31, 2006,
2005 and 2004 was $15.72, $8.56 and $6.13, respectively.

The following table summarizes the status of the nonvested common stock issued under the Deferred
Compensation Plan as of December 31, 2006 and for the year then ended:

Nonvested Common Stock
Nonvested at January 1, 2006 ....................................
Awarded .................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2006 ............................

Shares
(000s)

21
7
(19)
—
9

Weighted
Average
Grant-Date
Fair Value
$
6.41
$ 15.72
$ 10.60
—
$
9.15
$

As of December 31, 2006, there was $0.1 million of total unrecognized compensation cost, net of estimated
forfeitures, related to nonvested common stock awarded under the Deferred Compensation Plan. This cost is
expected to be recognized over a weighted-average period of 3.0 years. The total fair value of the common stock
vested during the years ended December 31, 2006, 2005 and 2004 was $0.3 million, $0.1 million and $0.1 million,
respectively.

Cash used to settle the Company’s obligation under the Deferred Compensation Plan was less than $0.1 million
for the year ended December 31, 2006. There were no cash settlements during 2005 and 2004.

Note 21. Segments and Geographic Information

The Company operates within two regions, the “Americas” and “EMEA” which represented 67.4% and 32.6%,
respectively, of consolidated revenues for 2006. The Americas and EMEA regions represented 64.3% and 35.7%,
respectively, of consolidated revenues for 2005, and 60.7% and 39.3%, respectively, of consolidated revenues for
2004. Each region represents a reportable segment comprised of aggregated regional operating segments, which
portray similar economic characteristics. The Company aligns its business into two segments to effectively manage
the business and support the customer care needs of every client and to respond to the demands of the Company’s
global customers.

The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America,
India and the Asia Pacific Rim, and provides outsourced customer contact management solutions (with an emphasis
on technical support and customer service) and enterprise support services and (2) EMEA, which includes Europe,
the Middle East and Africa, and provides outsourced customer contact management solutions (with an emphasis on
technical support and customer service) and fulfillment services. The sites within Latin America, India and the Asia
Pacific Rim are included in the Americas region given the nature of the business and client profile, which is
primarily made up of U.S. based companies that are using the Company’s services in these locations to support their
customer contact management needs.

Information about the Company’s reportable segments for the years ended December 31, 2006, 2005 and 2004 is
as follows:

For the Year Ended December 31, 2006:

Americas

EMEA

Other (1)

Consolidated
Total

Revenues
Depreciation and amortization

387,305
20,137

$ 186,918
4,610

574,223
24,747

Income (loss) from operations before
impairment of long-lived assets
Impairment of long-lived assets
Income from operations
Other income
Provision for income taxes
Net income

For the Year Ended December 31, 2005:

71,491

$ 10,153

(36,041 ) $
(445 )

6,301
(9,136 )

45,603
(445)
45,158
6,301
(9,136)
42,323

Revenues .......................................................... $
Depreciation and amortization .........................

318,173
20,422

$ 176,745
5,521

494,918
25,943

Income (loss) from operations before
reversal of restructuring and other charges
and impairment of long-lived assets .............. $
Reversal of restructuring and other charges .....
Impairment of long-lived assets ........................
Income from operations ....................................
Other income ....................................................
Provision for income taxes ...............................
Net income .......................................................

For the Year Ended December 31, 2004:

50,224

7,490

$ (31,092 )
314
(605 )

2,772
(5,695 )

26,622
314
(605)

26,331
2,772
(5,695)
23,408

Revenues .......................................................... $ 283,253
22,042
Depreciation and amortization .........................

$ 183,460
8,195

466,713
30,237

30,960

$ 10,478

$ (28,264 ) $
113
(690 )

3,264
(5,047 )

13,174
113
(690)
12,597
3,264
(5,047)
10,814

(1) Other items (including corporate costs, restructuring and impairment costs, other income and expense, and income
taxes) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the table above for the
three years in the period ended December 31, 2006. The accounting policies of the reportable segments are the same as
those described in Note 1, Summary of Accounting Policies, to the accompanying consolidated financial statements.
Inter-segment revenues are not material to the Americas and EMEA segment results. The Company evaluates the
performance of its geographic segments based on revenue and income (loss) from operations, and does not include
segment assets or other income and expense items for management reporting purposes.

During 2006, 2005 and 2004 the Company had no clients that exceeded ten percent of consolidated revenues.

Information about the Company’s operations by geographic location is as follows (in thousands):

2006

Years Ended December 31,
2005

2004

Revenues (1) :
United States ............................................... $
Argentina......................................................
Canada .........................................................
Costa Rica ...................................................
Philippines ...................................................
Other ............................................................
Total Americas ........................................
Germany ......................................................
United Kingdom ..........................................
Sweden ........................................................
Spain.............................................................
The Netherlands ..........................................
Hungary .......................................................
Other ............................................................
Total EMEA ............................................
Total ....................................................

Long-lived assets (2) :
United States ............................................... $
Argentina......................................................
Canada .........................................................
Costa Rica ...................................................
Philippines ...................................................
Other ............................................................
Total Americas ........................................

Germany ......................................................
United Kingdom ..........................................
Sweden ........................................................
Spain.............................................................
The Netherlands ..........................................
Hungary .......................................................
Other ............................................................
Total EMEA .............................................
Total ........................................................

82,441
15,117
92,876
53,147
126,418
17,306
387,305
56,007
52,214
20,735
12,950
14,829
13,921
16,262
186,918
574,223

17,655
11,558
8,742
3,165
13,812
5,689
60,621

3,113
5,441
238
338
597
2,459
1,402
13,588
74,209

78,997
—
82,084
45,435
98,766
12,891
318,173
54,298
50,246
20,758
12,030
11,511
13,269
14,633
176,745
494,918

28,735
—
9,009
3,836
15,324
3,363
60,267

3,494
5,527
376
971
215
2,071
1,452
14,106
74,373

85,556
—
69,045
36,595
79,060
12,997
283,253
59,941
52,073
24,704
11,912
9,406
10,722
14,702
183,460
466,713

26,271
—
8,363
4,816
18,102
5,734
63,286

5,043
7,137
639
1,775
353
2,741
1,917
19,605
82,891

(1) Revenues are attributed to countries based on location of customer, except for revenues for Costa
Rica, Philippines, China and India which is primarily comprised of customers located in the
U.S., but serviced by centers in those respective geographic locations.
(2) Long-lived assets include property and equipment, net and intangibles, net.

Goodwill :
Americas
EMEA
Total

20,422
—
20,422

5,918
—
5,918

5,224
—
5,224

Revenues for the Company’s products and services are as follows (in thousands):

Outsourced customer contact management services ..................
Fulfillment services....................................................................
Enterprise support services ........................................................
Total ......................................................................................

2006
$ 546,488
18,312
9,423
$ 574,223

Years Ended December 31,
2005
$ 468,141
18,096
8,681
$ 494,918

$ 438,363
17,105
11,245
$ 466,713

2004

Note 22. Related Party Transactions

The Company paid John H. Sykes, the founder and former Chairman of the Company and the father of Charles
Sykes, President and Chief Executive Officer of the Company, $0.3 million, $0.6 million and $0.6 million, for the
use of his private jet in the years 2006, 2005 and 2004, respectively, which is based on two times fuel costs and
other actual costs incurred for each trip.

Note 23. Retirement of Founder and Chairman

On August 2, 2004, John H. Sykes publicly announced his resignation and retirement as Chairman and Chief
Executive Officer of the Company. Mr. Sykes was employed by the Company pursuant to the Amended and
Restated Executive Employment Agreement (the “Employment Agreement”) dated as of October 1, 2001. The
Employment Agreement had an initial term of five years, expiring on October 1, 2006, and included automatic one-
year extensions unless there was appropriate notice of termination.

As a result of Mr. Sykes’ resignation prior to the end of the initial term of the Employment Agreement, the
Company and Mr. Sykes terminated the Employment Agreement and entered into a retirement and consulting
agreement (the “Retirement and Consulting Agreement”) dated December 10, 2004. Under the terms of the
Retirement and Consulting Agreement, Mr. Sykes employment with the Company was terminated effective as of
December 31, 2004, and the Company paid all compensation and benefits due under the Employment Agreement
through December 31, 2004. In addition, the Company paid Mr. Sykes $1.7 million in base severance pay and
unused vacation benefits, including a lump sum of $0.3 million related to the relinquishment of any rights to an
office and a secretary and the right to continue to be covered as an employee under the Company’s group health
insurance policy. The $1.7 million payment to Mr. Sykes is included in “General and administrative” costs in the
accompanying Consolidated Statement of Operations for the year ended December 31, 2004.

Additionally, the Company paid Hyde Park Equity, LLC, a limited liability company owned by Mr. Sykes, fees
of $150,000, which paid in seven equal quarterly installments of $21,428, for consulting services to be provided by
Mr. Sykes through Hyde Park Equity during the period from December 31, 2004, through October 1, 2006. For
such amount, Hyde Park Equity caused Mr. Sykes to provide up to 37.5 days of consulting services per year at the
request of the Board of Directors or its Chairman. Such services included advice dealing with significant business
issues and an orderly management transition. Additional days of service were billed at the rate of $2,000 per day.
The Company also agreed to reimburse Hyde Park Equity for out of pocket business expenses incurred in
connection with providing services to the Company. During 2006 and 2005, the Company paid $0.1 million and
$0.1 million, respectively to Hyde Park Equity under this agreement.

Schedule II — Valuation and Qualifying Accounts

Years ended December 31, 2006, 2005 and 2004

Additions
(Reversals)
Charged to
(Credited) to
Costs and
Expenses

Balance at
Beginning
of Period

Beginning
Balance

(Additions) Of Acquired
Deductions Company

Balance at
End of
Period

Allowance for doubtful accounts:

Year ended December 31, 2006 .....................
Year ended December 31, 2005 ........................
Year ended December 31, 2004 ........................

$ 3,051
4,293
4,242

(600) $
(649)
267

(11)(1) $
593 (1)
216 (1)

72
—
—

$ 2,534
3,051
4,293

Valuation allowance for net deferred tax assets:

Year ended December 31, 2006 ....................
Year ended December 31, 2005 .......................
Year ended December 31, 2004 .......................

$ 28,807
30,391
30,582

$ 6,460
—
—

$ —
1,584
191

$ —
—
—

$ 35,267
28,807
30,391

(1)Net write-offs and recoveries