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
A n n u a
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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 services through multiple communication channels encompassing
phone, e-mail, web 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.
FINANCIAL HIGHLIGHTS
Revenues (in Millions)
Operating Margins
Seat Capacity
Capacity Utilization Rate
$800.0
24%
8.0%
16%
$600.0
6%
6.0%
5.0%
7.4%
5.9%
$400.0
$200.0
$0.0
2005
*
2006 2007
Revenues
(in Millions)
4.0%
2.0%
0.0%
^
^^
^^^
2005 2006 2007
Operating Margins
2005
$494.9
5.3%
18,500
83%
2006
$574.2
7.9%
22,600
83%
2007
$710.1
7.2%
26,400
80%
30
25
20
15
10
84%
81%
78%
75%
72%
69%
66%
2005 2006 2007
#
Seat Capacity and
Capacity Utilization Rate
(in Thousands)
Seat Capacity
Capacity Utilization Rates
* In July 2006, the Company purchased Apex, a customer contact management company in Argentina.
Revenue contribution from the Argentina acquisition was $15.1 million for the six-months of 2006 and $36.7 for full-year 2007.
^ Excludes gain from sale of a customer contact management center in 2005, 0.3% of revenues.
^^ Excludes gain from sale of customer contact management centers as well as a charitable contribution reversal of approximately 2.4% and 0.3% of
revenues, respectively.
^^^ Excludes provision related to regulatory penalties in 2007, 0.2% of revenues.
– Differences due to rounding.
# In July 2006, the Company purchased Apex, a customer contact management company in Argentina with approximately 2,200 seats.
BOARD OF DIRECTORS
PRINCIPAL OFFICERS
CORPORATE INFORMATION
CHARLES E. SYKES
President and Chief Executive Officer
W. MICHAEL KIPPHUT
Senior Vice President and
Chief Financial Officer
JAMES C. HOBBY
Senior Vice President,
Global Operations
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
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
FURMAN P. BODENHEIMER, JR.
Director
President and Chief Executive Officer
Zickgraf Enterprises, Inc.
LT. GEN. MICHAEL P. DELONG
(retired)
Director
Corporate Vice President of Strategic
Planning and Operations
Shaw Environmental and
Infrastructure
H. PARKS HELMS, ESQ.
Director
Managing Partner for
Helms, Henderson & Fulton, P.A.
IAIN A. MACDONALD
Director
Chairman of Yakara, plc
Director of the Northern AIM VCT plc
Member of the Scottish Industrial
Development Advisory Board
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
Private Financial Consultant
Director of Heritage Family of Funds
Managing Partner (retired) for Arthur
Andersen’s Central Florida operations
Corporate Headquarters
400 North Ashley Drive,
Suite 2800
Tampa, FL USA 33602
(813) 274-1000
Fax (813) 273-0148
www.sykes.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP
201 E. Kennedy Boulevard,
Suite 1200
Tampa, FL USA 33602
REGISTRAR AND TRANSFER AGENT
Computershare
P.O. Box 43078
Providence, RI 02940-3078
(800) 568-3476
SYKES’ shares trade on
The NasdaqGS Stock Market under
the symbol “SYKE”
ANNUAL MEETING
SYKES’ annual meeting of
shareholders will be held at 9 a.m.
(ET) Wednesday, May 21, 2008 .
The meeting will be held at:
Tampa Mariott Waterside
700 South Florida Avenue
Tampa, FL 33602
INVESTOR INFORMATION
Quarterly Reports on Form 10-Q
and the Form 10-K Annual Report
filed with the Securities and Exchange
Commission are available on the
Company’s website at
http://www.sykes.com/ourcompany/
investorrelations/secfilings.aspx under
the heading “Financial Reports -
SEC Filings,” or upon written
request to Sykes’ Investor Relations
department in Tampa, Florida orby
contacting:
SUBHAASH KUMAR
Vice President, Investor Relations
(813) 274-1000
Corporate Information
JAMES (JACK) K. MURRAY, JR.
Director
Chairman
Murray Corporation
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Dear ShareholDerS,
Charles E. Sykes
President and Chief Executive Officer
W. Michael Kipphut
Senior Vice President and Chief Financial Officer
We are grateful for this opportunity to discuss our 2007 achievements with you. To put 2007
results into perspective for those who are new investors to SYKES: It was just over three
years ago, around the third quarter of 2004, when we completed the major repositioning
of our delivery model within the Americas region. As part of that repositioning, we almost
tripled our offshore delivery footprint to approximately 10,000 seats from the year prior,
while concurrently right-sizing our U.S. delivery footprint to better align with market
demand. The resulting impact on our profitability was significant. Excluding one-time
items, we exited 2004 with only 0.8% operating margins, largely due to the duplicative
expenses imposed by our Americas repositioning. The EMEA (Europe, Middle East &
Africa) region, meanwhile, albeit profitable because of our strong operational focus,
remained sluggish. The culprit was a weak European economic environment. We were
a “show me” story to investors. Fast forward to 2007, we generated a record operating
margin of 7.4%.
How did we get there? We took immediate action to stabilize and optimize our Americas
footprint after the repositioning, and it proved successful. But the EMEA region remained
soft. We heard calls from some investors advocating that we explore strategic alternatives
for EMEA. But we urged these investors to remain patient and made a strong strategic
rationale for staying the course in EMEA because it gave us the benefit of a globally
diverse and large addressable customer contact management market. Since the second half
of 2006, the EMEA region has staged a recovery and is complementing the strong growth
from the Americas region. The EMEA region has also been a positive factor from a
foreign exchange perspective. Together, both regions are performing. With that historical
perspective, let us now discuss the strong financial performance we delivered in 2007, and
how we plan to sustain it.
We delivered what we promised in our 2006 shareholder letter, and more. Our strategic
focus has remained and was well placed in 2007. Backed by solid execution, it entailed
harnessing growth from our 15 markets worldwide (a market connotes a country where
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CANADA
MEXICO
SYKeS 2007
Market & delivery footprint Market only delivery footprint only
ARGENTINA
COSTA RICA
EL SALVADOR
PHILIPPINES
CHINA
FINLAND
GERMANY
HUNGARY
IRELAND
ITALY
SCOTLAND
SLOVAKIA
SOUTH AFRICA
SPAIN
SWEDEN
THE NETHERLANDS
our clients’ end customers reside) by leveraging our 18-country global delivery footprint.
Even in the face of rapidly strengthening foreign currencies, chiefly the Philippines Peso,
and creeping wage inflation, our strategy proved durable. It helped differentiate us from
the widely publicized, though disproportionately self-inflicted, execution challenges
experienced by some players in our peer group. As they grappled with challenges related
to issues of client concentration, offshore migration and overexposure to softening lines
of business, we sustained our strategic focus and delivered a strong 2007. The results:
We posted consolidated record revenues of $710.1 million, up 23.7%
over 2006, accelerating from 16% delivered in 2006 over 2005
We delivered broad-based revenue growth, a strong measure of
client satisfaction, with top-40 clients, which represent close to three
quarters of 2007 revenues, up approximately 25%, accelerating from
approximately 20% growth delivered in 2006
We boosted operating margins to a record 7.4% versus 5.9% in 2006
(see chart under “FINANCIAL HIGHLIGHTS”) through better
expense leverage
We sustained a solid balance sheet with year-end cash and cash
equivalents of $177.7 million and no debt
Finally, we got further recognition for our financial performance as
we made Forbes’ “America’s 200 Best Small Companies” list, our first
ever such in Forbes
As we enter 2008 with what seems to be a somewhat tepid macro-economic backdrop,
we are going to focus on the factors that have driven three back-to-back years of solid
results with a view toward delivering sustainable revenue growth and operating margin
performance. We will discuss those factors shortly, after we elaborate on the performance
drivers of 2007.
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CANADA
MEXICO
SYKeS 2007
ARGENTINA
COSTA RICA
EL SALVADOR
PHILIPPINES
Market & delivery footprint Market only delivery footprint only
CHINA
FINLAND
GERMANY
HUNGARY
IRELAND
ITALY
SCOTLAND
SLOVAKIA
SOUTH AFRICA
SPAIN
SWEDEN
THE NETHERLANDS
More DetaileD looK at 007 PerforMance DriverS
The strong financial performance in 2007 was a result of making the right investments
and targeting the right verticals, while leveraging our global markets and global delivery
footprint. With the investment in our sales leadership, we made further inroads into
existing lines of business such as credit cards, broadband, peripherals and telemedicine. At
the same time, we also penetrated new lines of business, including retail banking, wireless
and travel portals under the financial services, technology, communications, healthcare and
transportation verticals. In 2007, these verticals effectively grew an average of 31%, helping
to accelerate our overall revenue growth. Based on our revenue segmentation between
Americas and EMEA, the Americas region was up 24.7% in 2007, while the EMEA region
was up 21.6% year over year. Because the combined growth within the regions itself was
broad-based, our top-10 clients as a percentage of revenues also declined to an industry-
leading low of 38% in 2007 (down from 42% in 2006), with no single client greater than
5.7% of consolidated revenues.
The inroads made in further penetrating business lines and verticals, and thus broadening
the base of overall revenue growth, were inextricably tied to the breadth and depth of our
markets and the global delivery footprint. Our focus on increasing this breadth and depth
has been based on the view that players with either a single- or a dual-country or just a
mere offshore delivery footprint or those that serve just one or two markets will have
limited success in the long term, especially with globally-focused Fortune 1000 clients.
Even more so with clients with myriad delivery needs. A growing number of our clients
CANADA
are proof of this view. In 2007, for instance, we supported seven of our top-10 clients,
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close to 25% of our annual revenue base, on average from at least five different delivery
geographies worldwide. These clients are increasingly seeking a global delivery footprint
as a way to achieve optimal cost reduction in delivery of customer care, reduce time-to-
market to enter new markets and mitigate business continuity risk. And even though the
$38 billion customer contact management industry is global in nature, only a handful
COSTA RICA
EL SALVADOR
PHILIPPINES
ARGENTINA
of players have a global delivery footprint or target markets beyond the staple three:
CHINA
FINLAND
GERMANY
SYKeS 2007
HUNGARY
IRELAND
ITALY
SCOTLAND
SLOVAKIA
SOUTH AFRICA
SPAIN
SWEDEN
THE NETHERLANDS
the U.S., Canada and the U.K. We, by contrast, have gradually expanded the number of
markets we serve to 15, with a global delivery footprint that spans 18 countries worldwide.
Moreover, we have longevity across some of the markets and the global delivery footprint.
In 10 of the 15 markets, and 12 of the 18 delivery geographies, we have had a presence and
an established brand name for close to a decade. This positions us well to provide our
clients with a scalable delivery solution that meets their future needs.
008 focuS reMainS achieving SuStainable MarginS anD revenue
growth PerforMance
We enter 2008 with a solid competitive position. With the operational intensity of
the customer contact management business, there is significant scope for continuous
operational improvements to achieve sustainable margins. Some of the improvements
relate to increasing the capacity utilization rate, as well as boosting profitability on
several existing clients, while others include driving efficiencies at the human capital and
technology levels. On sustaining revenue growth performance, it involves capitalizing on
the growth opportunities furnished by the large but mostly under penetrated customer
CANADA
contact management industry. Analysts at Datamonitor estimate that between 2007 and
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2009, the customer contact management industry is expected to grow by at least 685,000
additional agent positions globally on a base of 7.9 million agent positions at the end
of 2007. Assuming if only 20% of just the growth portion of the agent positions are
outsourced and that the ratio of agent-position to seat is one-to-one, we could see close
to 137,000 seats enter the market. And if those players with a global delivery footprint are
COSTA RICA
EL SALVADOR
PHILIPPINES
ARGENTINA
the disproportionate beneficiaries, we are well positioned to win at least a modest share
of those seats. Therefore, to deliver sustainable revenue and margin performance, our
initiatives in 2008 will further build on the foundation that drove 2007 results and will
center on increasing capacity utilization rate, adding seat capacity and leveraging product
enhancements. Let’s take the specifics of each one at a time.
capacity utilization rate increase We exited 2007 with an overall capacity utilization
rate of 80%. The biggest drag on our utilization rate was the U.S., which stood at 74%,
FINLAND
GERMANY
CHINA
SYKeS 2007
Market & delivery footprint Market only delivery footprint only
HUNGARY
IRELAND
ITALY
SCOTLAND
SLOVAKIA
SOUTH AFRICA
SPAIN
SWEDEN
THE NETHERLANDS
although up from 65% the previous year. We believe that over time we can take our U.S.
utilization to between 80% and 85% by continuing to make inroads into the recently
penetrated wireless and retail banking lines of business. We believe we can also lift our
overall utilization to an optimal rate of around 85% by penetrating new and existing lines
of business and by layering on additional offerings, including bilingual customer support,
to name just one.
capacity growth As we lift our capacity utilization rates in the U.S. and worldwide, we
plan to add seat capacity judiciously to further bolster our existing markets and delivery
footprint. Additionally, we plan to bring new markets and delivery geographies on stream
that could compliment our existing presence in Latin America and EMEA. We anticipate
CANADA
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increasing our seat count by approximately 3,000 to 4,000 seats in 2008, from a base of
26,400 seats at the end of 2007.
leverage Product enhancements In 2007, we piloted data analytics and process
improvement products with our financial services, communications and technology clients.
We plan to productize them and bundle them as part of our portfolio offering in 2008.
ARGENTINA
COSTA RICA
EL SALVADOR
PHILIPPINES
In addition, we will continue to seek ways to leverage our offshore infrastructure during
the daytime with discrete back office services, that could encompass services ranging from
performing checks on warranty inquiries to doing data collection, to name just a couple.
exiting 007 on a Strong note
We have much to be proud of in 2007, and by all indications we are off to a good
start in 2008. The fundamental prospects of the customer contact management industry
FINLAND
appear to be intact. Yet we continue to monitor the macro-economic environment given
GERMANY
CHINA
the lingering uncertainty about the economy and its potential psychological impact on
consumer and client sentiment. In such an environment, call volume growth and clients’
decisions to outsource could be tested, particularly at the point of inflection as the economy
slows. That said, we believe the outsourcing of customer contact management centers
is a large addressable market and appears to have some countercyclical characteristics.
IRELAND
HUNGARY
ITALY
SCOTLAND
SLOVAKIA
SOUTH AFRICA
SYKeS 2007
SPAIN
SWEDEN
THE NETHERLANDS
During slowdown, clients are under pressure to reduce cost and, therefore, outsource.
During good times, clients look to outsourcing to support their growth needs.
As the center of gravity in the customer contact management outsourcing industry shifts,
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it is our view that investors are bound to take note by differentiating among players. We
believe investors will likely turn to companies that have focus, simplicity and consistency.
And SYKES fits that bill: for SYKES, focus has been and was pivotal again in helping
us deliver a strong 2007. A focus on global markets, a global delivery footprint, growth
verticals and broad-based growth is proving to be increasingly resilient. Simplicity is
central to our business model. We have built a business model without many moving
EL SALVADOR
PHILIPPINES
COSTA RICA
ARGENTINA
parts, which helps us sustain our focus and helps investors understand the investment
case in simple terms. Most importantly, focus and simplicity have to be reinforced by
consistency of execution, which we continue to demonstrate by our performance.
The initiatives outlined for 2008, combined with a strong balance sheet and the
disciplined approach to capital deployment, set the stage to build on the success delivered
in 2007. New challenges are sure to emerge, just as they have with strengthening foreign
currencies relative to the U.S. dollar and creeping wage inflation. But with the support
GERMANY
FINLAND
CHINA
of our shareholders, employees and clients as well as guidance from our seasoned Board
of Directors, we believe we can manage through them just as we have managed through
others in the past.
In all, we are very proud and honored to be working with a team of dedicated colleagues
worldwide who have executed passionately on our strategy. We are particularly proud
IRELAND
of the front-line associates and their support teams who have ensured the success we all
HUNGARY
ITALY
enjoy today as clients, consumers and investors. And we want to thank everyone for
their hard work and support.
SCOTLAND
Charles E. Sykes
SLOVAKIA
W. Michael Kipphut
SOUTH AFRICA
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
SYKeS 2007
SPAIN
SWEDEN
THE NETHERLANDS
Market & delivery footprint Market only delivery footprint only
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, 2007
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 [ ] Smaller reporting company [ ]
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, 2007, the last business day of the
Registrant’s most recently completed second fiscal quarter, was $634,389,587.
As of February 22, 2008, there were 41,087,674 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents ...........................................................................................................
Portions of the Proxy Statement for the year 2008
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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15
16
18
18
19
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23
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2
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 and Asia Pacific) 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 24 to the
accompanying Consolidated Financial Statements for information on our segments.) Our complete service offering
helps our clients acquire, retain and increase the lifetime value of their customer relationships. We have developed
an extensive global reach with customer 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 for
North America, EMEA, and the rest of the world was estimated at approximately $17.2 billion, $9.8 billion and
$10.7 billion in 2007, respectively. 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.
Businesses continue to move 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, 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 continue
to make it 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.
3
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 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 proactively provide enhanced and value added customer contact management solutions and
services, 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 Operational 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 leverage a portfolio of
techniques including SYKES Standard of Excellence (“SSE”). This standard is a compilation of more than 30 years
of experience and best practices. Every customer contact management center strives to meet or exceed the standard,
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 our 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.
Maintain a Competitive Advantage Through Technology Solutions. For more than 30 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 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 technological capabilities, including our current digital
private 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 digital
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.
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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 42
customer contact management centers worldwide as of the end of 2007. 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
capacity utilization rates and adding seat capacity, broadening our global delivery footprint, increasing share of
seats within existing and new clients, diversifying verticals and expanding service lines, advancing horizontal
service offerings and add-on enhancements and continuing to focus on expanding markets.
Increasing Capacity Utilization Rates and Adding Seat Capacity. The key driver of our revenues is increasing
capacity utilization rate in conjunction with seat capacity additions. We exited 2007 with a capacity utilization rate
of approximately 78% even as we increased our capacity by approximately 3,800 seats. We plan to sustain our focus
on increasing the capacity utilization rate further while adding seat capacity as deemed necessary.
Broadening Global Delivery Footprint. Just as increased capacity utilization rates and increased seat capacity are
key drivers of our revenues, where we deploy the seat capacity geographically is also important. By broadening and
continuously strengthening our global delivery footprint, we are able to meet both our existing and new clients’
customer contact management needs globally as they enter new markets.
Increasing Share of Seats within Existing Clients and Penetrating New 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. In addition as we further
leverage our knowledge of verticals and business lines, we plan to penetrate new clients as a way to broaden our
base of growth.
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 targeting the following verticals for growth: communications, financial
services, technology, healthcare and travel and transportation. These verticals cover various business lines, including
wireless services, broadband, retail banking, credit card/consumer fraud protection, content moderation,
telemedicine and travel portals.
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.
Continuing to Focus on Expanding Markets. As part of our growth strategy, we continually seek to expand the
number of markets we serve. The United States, Canada and Germany, for instance, are markets, which are served
by either in-country or from offshore regions, or a combination thereof. We currently serve 15 markets and thus
continually seek ways to broaden the addressable market for SYKES’ customer contact management services.
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 68.0% of consolidated revenues in 2007, includes the
United States, Canada, Latin America and Asia Pacific. The sites within Latin America and Asia Pacific 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
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EMEA region, representing 32.0 % of consolidated revenues in 2007, includes Europe, the Middle East and Africa.
For further information about segments, see Note 24, 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 96% of total 2007 consolidated revenues. Each year we handle over 200 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:
(cid:131) 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;
(cid:131) 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 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 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 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 42 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 15 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 nine years ago. Over the past nine years, through 2007, we have expanded
beyond centers in the Philippines, Costa Rica, and into centers in The People’s Republic of China, El Salvador and
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
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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:
(cid:131) The certification of client accounts and customer contact management centers to the SSE and Site of Excellence
programs;
(cid:131) The application of continuous improvement through application of our Data Analytics and Six Sigma
techniques; and
(cid:131) 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 30 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, 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
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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 2007, 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
the communications,
1000 corporations, medium sized businesses and public
technology/consumer, financial services, healthcare, and transportation and leisure industries. Revenue by vertical
market for 2007, as a percentage of our consolidated revenues, was 32% for communications, 31% for
technology/consumer, 13% for financial services, 8% for healthcare, 7% for transportation and leisure, and 9% 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 2007 consolidated revenues, our top ten clients accounted for
approximately 38% of our consolidated revenues in 2007, a decrease from 42% 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
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, APAC Customer Services, ICT Group, Convergys, West Corporation, Stream,
PeopleSupport, Sutherland, 24/7 Customer, vCustomer, eTelecare, Atento, 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 own and/or have applied to register numerous trademarks and service marks in the United States and in many
additional countries throughout the world. Our registered trademarks and service marks include Sykes®, REAL
PEOPLE. REAL SOLUTIONS.®, Science of Service®, ClearCall® and Sykes Answerteam®. The duration of
trademark registrations varies from country to country, but may generally be renewed indefinitely as long as they are
in use and/or their registrations are properly maintained.
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Employees
At January 31, 2008, we had approximately 29,560 employees worldwide, consisting of 27,220 customer contact
agents handling technical and customer support inquiries at our centers, 2,100 in management, administration,
information technology, finance and sales and marketing, 100 in enterprise support services, and 140 in fulfillment
services. Our employees, with the exception of approximately 700 employees in Argentina and various European
countries, are not union members and we have never suffered a material 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 global best practice sharing for advertising and sourcing
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
45
54
57
44
41
49
52
49
45
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
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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 US 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.
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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 2007 consolidated revenues, our top ten clients accounted for approximately 38% of our consolidated
revenues in 2007. 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,
2007, our international operations in EMEA and the Asia Pacific Rim were conducted from 26 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 international
operations for the years ended December 31, 2007, 2006, and 2005, were 56%, 52%, and 57% of consolidated
revenues, respectively. We also conduct business from eight 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 2008 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,
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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, 2007, we had cash balances of approximately $166.4 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 continue to require 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
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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:
(cid:131) The inability to obtain the capital required to finance potential acquisitions on satisfactory terms;
(cid:131) The diversion of our attention to the integration of the businesses to be acquired;
(cid:131) The risk that the acquired businesses will fail to maintain the quality of services that we have historically
provided;
(cid:131) The need to implement financial and other systems and add management resources;
(cid:131) The risk that key employees of the acquired business will leave after the acquisition;
(cid:131) Potential liabilities of the acquired business;
(cid:131) Unforeseen difficulties in the acquired operations;
(cid:131) Adverse short-term effects on our operating results;
(cid:131) Lack of success in assimilating or integrating the operations of acquired businesses within our business;
(cid:131) The dilutive effect of the issuance of additional equity securities;
13
(cid:131) The impairment of goodwill and other intangible assets involved in any acquisitions;
(cid:131) The businesses we acquire not proving profitable; and
(cid:131) 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 22, 2008, John H. Sykes, our founder and former Chairman of the Board and Chief Executive
Officer, beneficially owned approximately 17.7% of our outstanding common stock, a decrease from 19.1% 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
14
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, 2007 relating to our periodic or current reports under the Securities Exchange
Act of 1934.
15
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 2007, our customer
contact management centers, taken as a whole, were utilized at average capacities of approximately 78% 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
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 (1)
North Bay, Ontario, Canada
Customer contact management center (1)
Sudbury, Ontario, Canada
Moncton, New Brunswick, Canada Customer contact management center (1)
Customer contact management center (1)
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 (1)
Customer contact management center (1)
Customer contact management center
Customer contact management center (1)
Customer contact management center (1)
67,600 December 2010
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
94,100
20,100 September 2009
January 2009
July 2008
171,700 September 2023
118,900 November 2024
June 2012
14,600
5,400 May 2009
3,900 December 2010
12,700 February 2009
1,900 December 2012
2,300 September 2026
2,900 October 2026
4,000 November 2026
1,000
68,300 September 2008
July 2008
119,800 March 2023
149,200 December 2026
92,000 November 2027
127,400 November 2023
112,300 March 2027
84,100 May 2024
Cebu 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
Office
Office
Office
Office
70,500 February 2011
1,500
January 2014
1,200 March 2009
3,600
7,800
January 2016
July 2012
16
Properties
EMEA LOCATIONS
Amsterdam, The Netherlands
Budapest, Hungary
Miskolc, Hungary
Miskolc, Hungary
Edinburgh, Scotland
Turku, Finland
Bochum, Germany
Pasewalk, Germany
Wilhelmshaven, Germany (two)
Johannesburg, South Africa
Odense, Denmark
Ed, Sweden
Sveg, Sweden
Prato, Italy
Shannon, Ireland
Lugo, Spain
La Coruña, Spain
Kosice, Slovakia
Galashiels, Scotland
Rosersberg, 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/
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
Customer contact management center
Fulfillment center
Fulfillment center and Sales office
Fulfillment center
Sales office
Office
41,800 September 2009
23,000 July 2023
7,000 August 2016
2,800 No expiration
September 2019
March 2010
35,900
17,800
12,500 February 2009
56,000 May 2008
46,100 February 2009
69,400 November 2010
33,000 March 2025
13,600 January 2016
44,000 November 2008
35,000 May 2009
10,000 October 2013
66,000 March 2013
21,400 June 2009
32,300 December 2023
16,500 December 2024
126,700 Company owned
43,100 February 2012
26,000 February 2009
1,700 September 2008
800 June 2008
(1) Considered part of the Toronto, Ontario, Canada customer contact management center.
17
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.
We have previously disclosed regulatory sanctions assessed against our Spanish subsidiary relating to the alleged
inappropriate acquisition of personal information in connection with two outbound client contracts. In order to
appeal these claims, we issued a bank guarantee of $0.9 million. As of December 31, 2007, we included the bank
guarantee as restricted cash in “Deferred charges and other assets” in the accompanying Consolidated Balance
Sheets. We will continue to vigorously defend these matters. However, due to further progression of several of
these claims within the Spanish court system, and based upon opinion of legal counsel regarding the likely outcome
of several of the matters before the courts, we accrued a provision in the amount of $1.3 million as of December 31,
2007 under SFAS No. 5, “Accounting for Contingencies” because we now believe that a loss is probable and the
amount of the loss can be reasonably estimated as to three of the subject claims. There are two other related claims,
one of which is currently under appeal, and the other of which is in the early stages of investigation, but we have not
accrued any amounts related to either of those claims because we do not currently believe a loss is probable, and it is
not currently possible to reasonably estimate the amount of any loss related to those two 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.
18
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, 2007:
Fourth Quarter ................................................. $ 20.85 $ 16.31
Third Quarter ...................................................
19.46 14.96
Second Quarter ................................................
20.80 17.85
First Quarter .....................................................
19.99 14.48
Year ended December 31, 2006:
Fourth Quarter ................................................. $ 21.56 $ 16.10
Third Quarter ...................................................
20.67 14.70
Second Quarter ................................................
18.16 14.01
First Quarter .....................................................
14.75 11.80
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 22, 2008, there were 1,113 holders of record of the common stock. We estimate there were
approximately 11,116 beneficial owners of our common stock.
Below is a summary of stock repurchases for the quarter ended December 31, 2007 (in thousands, except average
price per share.) See Note 20, Earnings Per Share, to the Consolidated Financial Statements for information
regarding our stock repurchase program.
Period
Total Number
of Shares
Purchased (1)
October 1, 2007 – October 31, 2007.....................
November 1, 2007 – November 30, 2007.............
December 1, 2007 – December 31, 2007..............
—
—
—
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, 2002 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.
19
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
$600
$500
$400
$300
$200
$100
$0
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
2002
$100
$100
$100
$100
$100
$100
2003
$262
$150
$169
$145
$138
$132
2004
$212
$155
$182
$170
$167
$100
2005
$408
$159
$169
$176
$178
$99
2006
$538
$169
$216
$206
$203
$159
2007
$549
$206
$236
$200
$201
$95
Name
APAC Customer Service, Inc.
Convergys Corp.
eTelecare Global Solutions
ICT Group, Inc.
PeopleSupport
Startek, Inc.
TeleTech Holdings, Inc.
Ticker Symbol
APAC
CVG
ETEL
ICTG
PSPT
SRT
TTEC
In place of West Corporation (Ticker: WSTC) and Sitel (Ticker: SWW), whose share prices ceased trading
publicly in 2007, and, therefore, were not part of “SYKES Peer Group”, we added PeopleSupport, Inc. (Ticker:
PSPT) and eTelecare Global Solutions, Inc. (Ticker: ETEL) to “SYKES Peer Group”.
20
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.
21
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) :
2007
Years Ended December 31,
2005
2006
2004
2003
Revenues ............................................................. $ 710,120
Income from operations (2,3,4,5,6) ...........................
51,180
Net income(2,3,4,5,6) ................................................
39,859
Net income per basic share (2,3,4,5,6).......................
0.99
Net income per diluted share (2,3,4,5,6)) ..................
0.98
$ 574,223
45,158
42,323
1.06
1.05
BALANCE SHEET DATA (1,7) :
$ 494,918 $ 466,713 $ 480,359
11,368
9,305
0.23
0.23
26,331
23,408
0.60
0.59
12,597
10,814
0.27
0.27
Total assets ..........................................................$
Shareholders’ equity ...........................................
505,475
365,321
$ 415,573
291,473
$ 331,185 $ 312,526 $ 318,175
200,832
226,090 210,035
(1)
(2)
The amounts for 2007 and 2006 include the Argentine acquisition on July 3, 2006.
The amounts for 2007 include a $1.3 million provision for regulatory penalties related to privacy claims
associated with the alleged inappropriate acquisition of personal bank account information in one of our
European subsidiaries.
(3)
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.
(4)
(5)
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.
(6)
The amounts for 2003 include a $2.1 million net gain on the sale of facilities and a $0.6 million reversal of
(7)
restructuring and other charges.
SYKES has not declared cash dividends per common share for any of the five years presented.
22
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, 2007 (“2007”) to the year ended December 31, 2006 (“2006”), and 2006 to the year ended
December 31, 2005 (“2005”).
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, 2007 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 95.7% of consolidated revenues in 2007, delivered through multiple
communication channels encompassing phone, e-mail, Web and chat. We also offer fulfillment services in Europe,
including multilingual sales order processing via the Internet and phone, payment processing, inventory control,
product delivery and product returns handling, and a range of enterprise support services in the United States,
including technical staffing services and outsourced corporate help desk services.
Revenue from these services is recognized as the services are performed, which is based on either a per minute,
per call or per transaction basis, under a fully executed contractual agreement and record reductions to revenue for
contractual penalties and holdbacks for a failure to meet specified minimum service levels and other performance
based contingencies. 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. Product sales, accounted for within our
fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.
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.
Provision for regulatory penalties is related to privacy claims associated with the alleged inappropriate acquisition
of personal bank account information by one of our European subsidiaries.
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 $10.3 million
and $10.8 million at December 31, 2007 and 2006, respectively, a decrease of $0.5 million.
The net (gain) loss on disposal of property and equipment includes the net gain on the sale of four third party
leased U.S. customer contact management centers in 2006 and various other centers in 2005 in addition to the net
(gain) loss on the disposal of property and equipment.
Reversals of restructuring and other charges consist of reversals of certain accruals related to the 2002
restructuring plan.
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
23
property and equipment located in the United States.
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, interest
on outstanding short-term debt 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, which were sold in
September 2006.
Foreign currency transaction gains and losses generally result from exchange rate fluctuations on intercompany
transactions and the revaluation of cash and other assets and liabilities 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.
24
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 .................................................
Provision for regulatory penalties ........................................
Net (gain) loss on disposal of property and equipment .......
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,
2006
2005
2007
100.0%
63.6
29.0
0.2
—
—
—
7.2
0.9
(0.1)
—
(0.4)
7.6
2.0
5.6%
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%
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 ................................
Provision for regulatory penalties .......................
Net (gain) loss on disposal of property and
equipment .......................................................
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 ..........................................................
2007
$ 710,120
451,280
206,009
1,312
Years Ended December 31,
2006
$ 574,223
365,602
176,701
—
339
—
—
51,180
6,257
(803)
—
(2,583)
54,051
14,192
39,859
$
(13,683)
—
445
45,158
6,785
(674)
1,200
(1,010)
51,459
9,136
42,323
$
2005
$ 494,918
309,604
160,470
—
(1,778)
(314)
605
26,331
2,559
(667)
940
(60)
29,103
5,695
$ 23,408
The following table summarizes our revenues for the periods indicated, by reporting segment (in thousands):
2007
Years Ended December 31,
2006
2005
Revenues:
Americas ....................................
EMEA ........................................
Consolidated ............................
$ 482,823
227,297
67.4% $ 318,173 64.3%
176,745 35.7%
32.6%
$ 710,120 100.0% $ 574,223 100.0% $ 494,918 100.0%
68.0% $
32.0%
387,305
186,918
25
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 reporting segment (in thousands):
Direct salaries and related costs:
Americas ....................................
EMEA ........................................
Consolidated ............................
General and administrative:
Americas ....................................
EMEA ........................................
Corporate.....................................
Consolidated ............................
2007
Years Ended December 31,
2006
2005
$ 295,719
155,561
$ 451,280
61.2% $
68.4%
238,290
127,312
$ 365,602
61.5% $ 189,598 59.6%
120,006 67.9%
68.1%
$ 309,604
$ 108,788
58,337
38,884
$ 206,009
22.5% $
25.7%
91,231
49,429
36,041
$ 176,701
23.6% $ 80,155 25.2%
49,223 27.8%
26.4%
31,092
$ 160,470
2007 Compared to 2006
Revenues
During 2007, we recognized consolidated revenues of $710.1 million, an increase of $135.9 million or 23.7%
from $574.2 million of consolidated revenues for 2006.
On a reporting segment basis, revenues from the Americas segment, including the United States, Canada, Latin
America, India and the Asia Pacific Rim, represented 68.0%, or $482.8 million for 2007 compared to 67.4%, or
$387.3 million, for 2006. Revenues from the EMEA segment, including Europe, the Middle East and Africa,
represented 32.0%, or $227.3 million for 2007 compared to 32.6% or $186.9 million for 2006.
The increase in the Americas’ revenue of $95.5 million, or 24.7%, for 2007 compared to 2006, reflects a broad-
based growth in client demand, including new and existing client relationships, within our offshore operations and
Canada, as well as an increase in revenue generated from our Argentina operations acquired in July 2006 of $21.6
million, and an increase in revenue from a performance incentive payment of $1.4 million received by our Canadian
operations related to our telemedicine program. New client relationships represented 14.6% of the increase in the
Americas’ revenue over 2006, excluding contributions from our Argentina operations and the telemedicine
performance incentive mentioned above. Revenues from offshore operations represented 60.0% of Americas’
revenues for 2007 compared to 54.7% for 2006. The trend of generating more of our revenues from our offshore
operations is likely to continue in 2008. While operating margins generated offshore are comparable to 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, trend of higher occupancy costs and costs of functional
currency fluctuations in offshore markets. Americas’ revenues for 2007 included a $5.0 million net gain on foreign
currency hedges. Excluding this gain, the Americas’ revenue increased $90.5 million compared to last year.
The increase in EMEA revenues of $40.4 million, or 21.6%, for 2007 compared to 2006, reflects growth in client
demand, including new and existing client relationships, partially offset by certain program expirations. New client
relationships represented 23.8% of the increase in the EMEA’s revenue over 2006. EMEA revenues for 2007
experienced a $19.0 million increase as a result of the strength in the Euro compared to 2006. Excluding this foreign
currency impact, EMEA revenues increased $21.4 million compared to last year.
Direct Salaries and Related Costs
Direct salaries and related costs increased $85.7 million or 23.4% to $451.3 million for 2007, from $365.6 million
in 2006. This increase included $15.2 million of direct salaries and related costs from our Argentina operations
acquired in July 2006, primarily consisting of compensation costs.
On a reporting segment basis, direct salaries and related costs from the Americas segment increased $57.4 million
or 24.1% to $295.7 million for 2007 from $238.3 million in 2006. Direct salaries and related costs from the EMEA
26
segment increased $28.3 million or 22.2% to $155.6 million for 2007 from $127.3 million in 2006. While changes in
foreign currency exchange rates positively impacted revenues in EMEA, they negatively impacted direct salaries
and related costs in 2007 compared to 2006 by approximately $13.0 million.
In the Americas’ segment, as a percentage of revenues, direct salaries and related costs decreased to 61.2% in
2007 from 61.5% in 2006. Excluding the $1.4 million revenue contribution from Canada mentioned above, as a
percentage of revenues, direct salaries and related costs decreased to 61.4% for 2007. This decrease of 0.1%, as a
percentage of revenues, was primarily attributable to lower telephone costs of 0.7%, partially offset by higher salary
costs of 0.4%, including training costs associated with the ramp up of business in our offshore and U.S. operations
and other costs of 0.2%.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs increased to 68.4% in 2007
from 68.1% in 2006. This increase of 0.3% was primarily attributable to higher compensation costs of 1.7% partially
offset by lower billable supply costs of 0.7%, lower material costs of 0.6% and a decrease in other costs of 0.1%.
General and Administrative
General and administrative expenses increased $29.3 million or 16.6% to $206.0 million for 2007, from $176.7
million in 2006. This increase included $6.0 million of general and administrative costs from our Argentina
operations acquired in July 2006.
On a reporting segment basis, general and administrative expenses from the Americas segment increased $17.6
million or 19.3% to $108.8 million for 2007 from $91.2 million in 2006. General and administrative expenses from
the EMEA segment increased $8.8 million or 17.8% to $58.3 million for 2007 from $49.5 million in 2006. While
changes in foreign currency exchange rates positively impacted revenues in EMEA, they negatively impacted
general and administrative expenses in 2007 compared to 2006 by approximately $5.0 million. Corporate general
and administrative expenses increased $2.9 million or 7.9% to $38.9 for 2006 from $36.0 million. This increase of
$2.9 million was primarily attributable to higher compensation costs of $4.3 million, including higher employee
counts as well as $1.7 million associated with our stock-based compensation plans, higher travel costs of $0.6
million partially offset by a $2.0 million charitable contribution in 2006.
In the Americas’ segment, as a percentage of revenues, general and administrative expenses decreased to 22.5%
in 2007 from 23.6% in 2006. Excluding the $1.4 million revenue contribution from Canada mentioned above,
general and administrative expenses decreased to 22.6% for 2007. This decrease of 1.0% was primarily attributable
to lower depreciation expense of 0.9%, telephone costs of 0.3%, legal and professional fees of 0.1% and insurance
costs of 0.1% partially offset by higher compensation costs of 0.2%, lease and equipment maintenance of 0.1% and
other costs of 0.1%.
In the EMEA segment, as a percentage of revenues, general and administrative expenses decreased to 25.7% in
2007 from 26.4% in 2006. This decrease of 0.7% was primarily attributable to lower lease and equipment
maintenance of 0.8%, legal and professional fees of 0.4%, depreciation expense of 0.4%, telephone costs of 0.1%,
insurance costs of 0.1% and other costs of 0.2% partially offset by higher bad debt expense of 0.5%, recruiting costs
of 0.4%, compensation costs of 0.3% and travel costs of 0.1%.
Provision for Regulatory Penalties
Provision for regulatory penalties of $1.3 million in 2007 is related to privacy claims associated with the alleged
inappropriate acquisition of personal bank account information in one of our European subsidiaries.
Net (Gain) Loss 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. This compares to a net loss on disposal of
property and equipment of $0.3 million for 2007.
Impairment of Long-Lived Assets
There was no asset impairment charge for 2007. In 2006 we recorded impairment charges of $0.4 million
consisting of a $0.3 million asset impairment charge relating to one of our underutilized European customer contact
27
management centers and a $0.1 million charge for property and equipment no longer used in one of our Philippine
facilities.
Interest Income
Interest income was $6.3 million in 2007, compared to $6.8 million in 2006. Excluding interest income of $1.7
million on a foreign tax settlement in 2006, interest income increased $1.2 million reflecting higher levels of
interest-bearing investments in cash and cash equivalents and short-term investments.
Interest Expense
Interest expense was $0.8 million for 2007 compared to $0.7 million for 2006, an increase of $0.1 million due to
interest costs related to a foreign income tax settlement and short-term debt outstanding during 2007.
Income from Rental Operations, Net
We sold our four U.S. leased facilities in September 2006; therefore, there is no income from rental operations for
2007. For 2006 income from rental operations, net, related to these leased facilities was $1.2 million.
Other Income and Expense
Other expense, net, increased to $2.6 million in 2007 from $1.0 million in 2006. 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 and unrealized gains (losses) on financial derivatives that are included in Accumulated
Other Comprehensive Income (Loss) in shareholders’ equity in the accompanying Consolidated Balance Sheets.
Provision for Income Taxes
The provision for income taxes of $14.2 million for 2007 was based upon pre-tax income of $54.1 million,
compared to the provision for income taxes of $9.1 million for 2006 based upon pre-tax income of $51.5 million.
The effective tax rate was 26.3% for 2007 and 17.8% for 2006. This increase 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).
Net Income
As a result of the foregoing, we reported income from operations for 2007 of $51.2 million, an increase of $6.0
million from 2006. This increase was principally attributable to a $135.9 million increase in revenues and a $0.4
million decrease in asset impairment charges partially offset by a $85.7 million increase in direct salaries and related
costs, a $29.3 million increase in general and administrative costs, a $14.0 million decrease in net gain on disposal
of property and equipment and a $1.3 million increase in provision for regulatory penalties. The $6.0 million
increase in income from operations was offset by a $5.1 million higher tax provision, a $1.2 million decrease in
income from rental operations, net, an increase of $1.6 million in other expense and a decrease in interest income,
net of $0.5 million, resulting in net income of $39.9 million for 2007, a decrease of $2.4 million compared to 2006.
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 reporting segment basis, revenues from the Americas segment, 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 segment, 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
28
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 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 the prior 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 reporting segment basis, direct salaries and related costs from the Americas segment 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 segment 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’ segment, as a percentage of revenues, direct salaries and related costs increased to 61.5% in
2006 from 59.6% in 2005. This increase of 1.9% was primarily attributable to higher compensation costs of 3.4%,
including training costs associated with the ramp up of business in our offshore and U.S. operations, partially offset
by lower telephone costs of 1.3% and lower auto tow claims costs of 0.2% in Canada.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs increased to 68.1% in 2006
from 67.9% in 2005. This increase of 0.2% was primarily attributable to higher compensation costs of 0.2% and
higher billable costs of 0.2%, partially offset by a decrease in other costs of 0.2%.
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 reporting segment basis, general and administrative expenses from the Americas segment 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
segment 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 of $4.9
million was primarily attributable to higher compensation costs of $5.1 million, including $2.5 million associated
with our stock-based compensation plans, and a $2.0 million charitable contribution, higher telephone costs of $1.3
million, partially offset by lower depreciation expense of $2.0 million, lease and equipment maintenance costs of
$0.7 million and other costs of $0.8 million.
In the Americas’ segment, as a percentage of revenues, general and administrative expenses decreased to 23.6%
in 2006 from 25.2% in 2005. This decrease of 1.6% was primarily attributable to lower telephone costs of 0.7%,
legal and professional fees of 0.6%, depreciation expense of 0.3% and lease and equipment maintenance of 0.2%,
partially offset by higher compensation costs of 0.2%.
In the EMEA segment, as a percentage of revenues, general and administrative expenses decreased to 26.4% in
2006 from 27.8% in 2005. This decrease of 1.4% was primarily attributable to lower depreciation expense of 0.7%,
telephone costs of 0.4% a recovery of bad debts of 0.3%, lease and equipment maintenance of 0.2% and
compensation costs of 0.1%, partially offset by higher legal and professional fees of 0.1%, software maintenance of
0.1% and other costs of 0.1%.
29
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. Excluding interest income of $1.7
million on a foreign tax settlement in 2006, interest income increased $2.5 million reflecting 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 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.
30
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.
31
Quarterly Results
The following information presents our unaudited quarterly operating results for 2007 and 2006. 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)
12/31/07 9/30/07
6/30/07
3/31/07
12/31/06
9/30/06 6/30/06
3/31/06
3
—
—
—
—
—
—
(3)
173
(34 )
—
—
373
1,312
(13,870 )
102,192
46,092
105,871
48,552
94,016 86,378
47,281 42,333
124,171 110,774
56,606 50,466
—
15,251 14,885
1,614
1,849
(230 )
(265 )
Revenues...................................... $ 197,713 $ 176,122 $ 168,284 $ 168,001 $ 158,628 $ 149,287 $ 135,221 $ 131,087
Direct salaries and related costs(2)
83,016
110,464
General and administrative(3) .......
40,995
50,385
Provision for regulatory
penalties(4) .................................
Net (gain) loss on disposal of
property and equipment(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
6,614
8,139 $ 16,514 $ 11,771 $
0.30 $
0.41 $
5,975
9,467 $ 12,256 $
0.30 $
63
21,797
1,399
(187 )
—
13,575
1,349
(153 )
—
10,171
1,610
(211 )
2,653
11,799 $
0.29 $
—
7,469
1,445
(155 )
—
6,505
2,855
(183 )
1,784
6,337 $
0.16 $
—
(1,393 )
1,762
5,899
0.15
40,181 39,900
40,497 40,251
15,442 16,036
40,438 40,432
40,783 40,697
266
(147 )
39,451
0.15
—
(319 )
—
(233 )
—
(638 )
(20 )
(655 )
23,128
0.41 $
444
154
(1,996 )
0.23 $
0.23 $
0.29 $
0.30 $
0.29 $
0.16 $
0.20 $
0.20 $
14,452
10,895
40,652
40,359
40,282
40,299
40,559
40,550
39,819
9,775
3,780
8,121
7,661
5
9
382
6,685
921
(93)
510
(362)
(1)
All quarters subsequent to the quarter ended June 30, 2006 include the operating results of the Argentina
acquisition on July 3, 2006. See Note 2 of the accompanying Consolidated Financial Statements.
(2)
The quarter ended March 31, 2006 includes a $0.8 million charge for termination costs associated with
exit activities in Germany.
(3)
(4)
The quarter ended December 31, 2006 includes a $0.9 million reversal of bad debt expense.
The quarter ended December 31, 2007 includes a $1.3 million provision for regulatory penalties related to
privacy claims associated with the alleged inappropriate acquisition of personal bank account information
in one of our European subsidiaries.
(5)
The quarter ended September 30, 2006 includes a net gain of $13.9 million related to the sale of four U.S.
third party leased facilities.
(6)
The quarters ended September 30, 2006 and March 31, 2006 include a $0.1 million and $0.4 million
charge associated with the impairment of long-lived assets, respectively.
(7)
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.
32
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 2007, we did not repurchase common shares under the 2002 repurchase program.
During 2007, we generated $48.3 million in cash from operating activities, $1.6 million from the release of
restricted cash, $0.5 million in cash from issuance of stock, $0.2 million from an employment grant, $0.2 million
from short-term debt and $0.1 million in cash from the sale of property and equipment. Further, we used $31.5
million in funds for capital expenditures, purchased $17.5 million in short-term investments, settled contingencies of
$1.6 million related to the purchase of Apex, invested $0.4 million in restricted cash, repaid $0.2 million of short-
term debt and used $0.1 million for other investing activities resulting in a $19.1 million increase in available cash
(including the favorable effects of international currency exchange rates on cash of $19.5 million).
Net cash flows provided by operating activities for 2007 were $48.3 million, compared to net cash flows provided
by operating activities of $44.8 million for 2006. The $3.5 million increase in net cash flows from operating
activities was due to a $15.2 million increase in non-cash reconciling items such as deferred income taxes, stock-
based compensation, termination costs associated with exit activities, unrealized gains on financial instruments
partially offset by a $9.3 million net decrease in cash flows from assets and liabilities and a $2.4 million decrease in
net income. This $9.3 million net change in assets and liabilities was principally a result of a $9.4 million decrease
in deferred revenue, a $3.1 million increase in receivables and a $2.3 million decrease in taxes payable partially
offset by a $3.8 million decrease in other assets and a $1.7 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 $31.5 million for 2007, compared to $19.4 million for 2006, an increase of
$12.1 million. During 2007, approximately 48% of the capital expenditures were the result of investing in new and
existing customer contact management centers, primarily offshore, and 52% was expended primarily for
maintenance and systems infrastructure. In 2008, we anticipate capital expenditures in the range of $30.0 million to
$35.0 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 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 1.25%.
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
1.25%. In addition, a commitment fee of up to 0.25% 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, 2010, 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 2007 and no outstanding balances as of December 31, 2007, with $50.0 million availability on the
Credit Facility.
33
At December 31, 2007, we had $177.7 million in cash and cash equivalents, of which approximately 94% or
$166.4 million, was held in international operations and may be subject to additional taxes if repatriated to the
United States. Additionally, we had $17.8 million invested in short-term investments in the United States at
December 31, 2007.
We believe that our current cash levels, short-term investments, 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, funding of potential acquisitions, anticipated levels of capital
expenditures and contractual obligations for the foreseeable future and stock repurchases.
Off-Balance Sheet Arrangements and Other
At December 31, 2007, 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.
34
Contractual Obligations
The following table summarizes our contractual cash obligations at December 31, 2007, and the effect these
obligations are expected to have on liquidity and cash flow in future periods (in thousands):
Operating leases (1) .................................
Purchase obligations and other (2) ...........
Long-term tax liabilities (3) .....................
Other long-term liabilities (4) ..................
Total contractual cash obligations .....
$
$
Total
38,584
12,901
6,269
575
58,329
Payments Due By Period
1 – 3
Years
Less Than
1 Year
3 – 5
Years
$
14,892
9,047
1,587
$
25,526
—
$ 10,977
2,700
1,684
2
$ 15,363
$
$
4,416
1,154
—
3
5,573
After 5
Years
$ 8,299
—
2,998
570
$ 11,867
(1) Amounts represent the expected cash payments of our operating leases as discussed in Note 21 to the accompanying Consolidated
Financial Statements.
(2)
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 obligations due
in less than 1 year include a $1.3 million estimated liability related to the provision for regulatory penalties and $1.4 million related to the
Deferred Compensation Plan as discussed in Notes 21 and 23, respectively, to the accompanying Consolidated Financial Statements.
(3) Long-term tax liabilities include uncertain tax positions as discussed in Note 17 to the accompanying Consolidated Financial Statements.
(4) 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:
Recognition of Revenue
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 primarily recognize revenue from services as the services are performed, which is based on either on a per
minute, per call or per transaction basis, 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. 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.
Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and
satisfaction of all obligations.
Revenue from contracts with multiple-deliverables is 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. Certain fulfillment
services contracts contain multiple-deliverables. Additionally, we have a contract that contains multiple-deliverables
35
for customer contact management services and fulfillment services. Separation 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. If the separation criteria are met, revenue from these services is
recognized as the services are performed under a fully executed contractual agreement. If the separation criteria are
not met because there is insufficient evidence to determine fair value of one of the deliverables, all of the services
are accounted for as a single combined unit of accounting. For these deliverables with insufficient evidence to
determine fair value, revenue is recognized on the proportional performance method using the straight-line basis
over the contract period, or the actual number of operational seats used to serve the client, as appropriate.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts of $2.8 million as of December 31, 2007, or 1.9% of trade account
receivables, for estimated losses arising from the inability of our customers to make required payments. Our
estimate is based on factors surrounding the credit risk of certain clients, historical collection experience and a
review of the current status of trade accounts receivable. It is reasonably possible that our estimate of the allowance
for doubtful accounts will change if the financial condition of our customers were to deteriorate, resulting in a
reduced ability to make payments.
Income Taxes
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, 2007, management determined that a valuation allowance
of $34.0 million was necessary to reduce U.S. deferred tax assets by $10.4 million and foreign deferred tax assets by
$23.6 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 $13.5 million at December 31, 2007 is
dependent upon future profitability within each tax jurisdiction. As of December 31, 2007, 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 evaluate tax positions that have been taken or are expected to be taken in our tax returns, and record a liability
for uncertain tax positions in accordance with FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty
in Income Taxes – an interpretation of FASB No. 109.” The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. FIN 48 contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance with SFAS 109. First, tax positions are recognized if
the weight of available evidence indicates that it is more likely than not that the position will be sustained upon
examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon
settlement. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors
including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under
audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax
benefit or an additional charge to the tax provision.
We adopted the provisions of FIN 48 on January 1, 2007 and recognized a $2.7 million liability for unrecognized
tax benefits, including interest and penalties, which was accounted for as a reduction to the January 1, 2007 balance
of retained earnings. This adjustment to the beginning balance of retained earnings includes $1.3 million related to
36
transfer pricing penalties that may be assessed in connection with an income tax audit of our Indian subsidiary. As
of December 31, 2006, prior to adoption of FIN 48, we had a contingent income tax liability of $4.2 million,
consisting of amounts for subsidiaries located in the Americas and EMEA that are included in “Income taxes
payable” in the accompanying Consolidated Balance Sheet. Upon adoption of FIN 48 as of January 1, 2007, we had
$9.1 million of unrecognized tax benefits (including $4.6 million of net operating loss carryforwards that were
previously recognized as deferred tax assets with a full valuation allowance).
As of December 31, 2007, the Company had $5.4 million of unrecognized tax benefits, a net decrease of $3.7
million from $9.1 million as of January 1, 2007. This decrease relates primarily to the recognition of tax benefits as
a result of a favorable lower court ruling in 2007. This net decrease of $3.7 million had no impact on the effective
tax rate as it was offset by a full valuation allowance. If the Company recognized these tax benefits, approximately
$5.1 million and related interest and penalties would favorably impact the effective tax rate. The Company believes
it is reasonably possible that its unrecognized tax benefits will decrease or be recognized in the next twelve months
by up to $1.0 million due to resolutions under audit and appeal in various tax jurisdictions.
Impairment of Long-lived Assets
We review long-lived assets, which had a carrying value of $109.8 million as of December 31, 2007, 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 September 2006, the Financial Accounting Standards Board (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 beginning after November 15, 2007 and should be applied prospectively. In February
2008, the FASB deferred the effective date of SFAS 157 for nonfinancial assets and liabilities to fiscal years
beginning after November 15, 2008, except those that are recognized or disclosed at fair value in the financial
statements on an annual or more frequently recurring basis. We are currently evaluating the impact of adopting
SFAS 157 on our financial condition, results of operations and 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 assets, liabilities and related
compensation costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an
employee that extends into postretirement periods. The effective date of EITF 06-10 is for fiscal years beginning
after December 15, 2007. We are currently evaluating the impact of adopting EITF 06-10 on our financial
condition, results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and
Financial Liabilities - including an amendment to FASB Statement No. 115", which permits an entity to measure
certain financial assets and financial liabilities at fair value. Under SFAS 159, entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be
elected on an instrument-by-instrument basis, with few exceptions, as long as it is applied to the instrument in its
entirety. SFAS 159 is effective for fiscal years beginning after November 15, 2007. As of January 1, 2008, we did
not elect to use the fair value option for any of our financial assets and liabilities that are not currently recorded at
fair value.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), "Business Combinations" and
SFAS No. 160 (SFAS 160), "Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51". SFAS 141R will change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the
accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and
classified as a component of shareholders’ equity. SFAS 141R and SFAS 160 are effective for fiscal years beginning
37
after December 15, 2008 and should be applied prospectively for all business combinations entered into after the
date of adoption. However, the presentation and disclosure requirements of SFAS 160 shall be applied
retrospectively for all periods presented. We are currently evaluating the impact of adopting the presentation and
disclosure provisions of SFAS 160 on our financial condition, results of operations and cash flows.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency 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.
We serve a number of U.S.-based clients using customer contact management center capacity in the Philippines
which is within our Americas’ segment. Although the contracts with these clients are priced in U.S. dollars, a
substantial portion of the costs incurred to render services under these contracts are denominated in Philippine pesos
(PHP), which represent a foreign exchange exposure.
In order to hedge approximately 63% of our exposure related to the anticipated cash flow requirements
denominated in PHP, we had outstanding forward contracts as of December 31, 2007 with counterparties to acquire
a total of PHP 4.4 billion through December 2008 at fixed prices of $97.2 million U.S. dollars. As of December 31,
2007, we had net total derivative assets associated with these contracts of $8.2 million, which settle within the next
12 months. The fair value of these derivative instruments as of December 31, 2007 is presented in Note 6 of the
accompanying Consolidated Financial Statements. If the U.S. dollar/PHP exchange rate were to adversely change by
10% from current period-end levels, we would incur a $15.5 million loss on the underlying exposures of the
derivative instruments. However, this loss would be partially offset by a corresponding gain of $9.3 million in our
underlying exposures.
In February 2008, we entered into additional forward contracts to acquire a total of PHP 1.1 billion through
March 2009 at fixed prices of $26.0 million U.S.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into contracts
with those considered to have minimal credit risk. We periodically monitor changes to counterparty credit quality as
well as our concentration of credit exposure to individual counterparties. We do not use derivative instruments for
trading or speculative purposes.
Interest Rate Risk
Our exposure to interest rate risk results from variable debt outstanding under our $50.0 million revolving credit
facility. During the year ended December 31, 2007, we had no debt outstanding under this credit facility; therefore, 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 financial position or results of operations.
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
32 of this report, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
38
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2007, 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, 2007,
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, 2007. 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.
Based on our assessment, management believes that, as of December 31, 2007, our internal control over financial
reporting was effective.
Our independent registered public accounting firm has issued their attestation report on our assessment of our
internal control over financial reporting. This report appears on page 40.
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, 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Sykes Enterprises, Incorporated
Tampa, Florida
We have audited the internal control over financial reporting of Sykes Enterprises, Incorporated and subsidiaries
(the "Company") as of December 31, 2007, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
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, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2007, 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, 2007 of the Company and our report dated March 13, 2008 expressed an unqualified opinion on those
financial statements and financial statement schedule.
Certified Public Accountants
Tampa, Florida
March 13, 2008
40
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 2008 Annual Meeting of Shareholders.
41
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 86 of this report.
Other schedules have been omitted because they are not required or applicable or the information is
included in the consolidated financial statements or notes therein.
(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 and Antonio Marcelo Cid, an individual, Humberto Daniel Sahade, an individual, and AM
Transport, LLC, a Delaware limited liability company. (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)
42
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)*
Form of Restricted Share and Stock Appreciation Right Award Agreement dated as of January 2, 2008.
(34)*
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)*
43
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
10.48
10.49
10.50
10.51
Exhibit Description
Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises, Incorporated and
Jenna R. Nelson. (14)*
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)*
First Amended and Restated Exhibit A to Employment Agreement dated as of January 3, 2008 between
Sykes Enterprises, Incorporated and James T. Holder. (34)*
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)*
First Amended and Restated Exhibit A to Employment Agreement dated as of January 3, 2008 between
Sykes Enterprises, Incorporated and Daniel L. Hernandez. (34)*
Employment Agreement dated as of September 13, 2005 between Sykes Enterprises, Incorporated and
David L. Pearson. (23)*
First Amended and Restated Exhibit A to Employment Agreement dated as of January 3, 2008 between
Sykes Enterprises, Incorporated and David L. Pearson. (34)*
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)
Amendment No. 3 to Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National
Association and BNP Paribas dated December 15, 2006.
44
Exhibit
Number
10.52
10.53
Exhibit Description
Amendment No. 4 to Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National
Association and BNP Paribas dated May 4, 2007. (33)
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)
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
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).
Certification of Chief Executive Officer, pursuant to Section 1350.
Certification of Chief Financial Officer, pursuant to Section 1350.
Indicates management contract or compensatory plan or arrangement.
Filed as an Exhibit to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-
2324) and incorporated herein by reference.
Filed as Exhibit 2.12 to the Registrant’s Form 10-K filed with the Commission on March 16, 1998,
and incorporated herein by reference.
Filed as Exhibit 10 to the Registrant’s Form 10-Q filed with the Commission on July 28, 1998, and
incorporated herein by reference.
Filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on
September 25, 1998, and incorporated herein by reference.
Filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-3 filed with the
Commission on October 23, 1997, and incorporated herein by reference.
Filed as Exhibit 3.2 to the Registrant’s Form 10-K filed with the Commission on March 29, 1999,
and incorporated herein by reference.
Filed as Exhibit 10.19 to the Registrant’s Form 10-K filed with the Commission on March 29, 1999,
and incorporated herein by reference.
Filed as Exhibit 10.23 to the Registrant’s Form 10-K filed with the Commission on March 29, 2000,
and incorporated herein by reference.
Filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on
July 17, 2000, and incorporated herein by reference.
Filed as Exhibit 10.12 to Registrant’s Form 10-Q filed with the Commission on May 7, 2001, and
incorporated herein by reference.
Filed as Exhibit 10.32 to Registrant’s Form 10-Q filed with the Commission on May 7, 2001, and
incorporated herein by reference.
Filed as Exhibit 10.33 to Registrant’s Form 10-Q filed with the Commission on August 14, 2001,
and incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-K filed with the Commission on March 15, 2002, and
incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-Q filed with the Commission on May 10, 2002, and
incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-K filed with the Commission on March 10, 2004, and
incorporated herein by reference.
Filed as an Exhibit to Registrant’s Proxy Statement for the 2004 annual meeting of shareholders
filed with the Commission April 6, 2004.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
March 29, 2004, and incorporated herein by reference.
45
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
Filed as an Exhibit to Registrant’s Form 10-Q filed with the Commission on August 9, 2004, and
incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
December 16, 2004, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
March 8, 2005, and incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-K filed with the Commission on March 22, 2005, and
incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
May 31, 2005, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
September 19, 2005, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
January 5, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 10-K filed with the Commission on
March 14, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
April 4, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K/A filed with the Commission on
April 5, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
May 31, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
July 10, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
September 19, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
December 28, 2006, and incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
January 4, 2007, and incorporated herein by reference.
Filed as an Exhibit to Registrant’s Form 10-Q filed with the Commission on May 10, 2007, and
incorporated herein by reference.
Filed as an Exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
January 8, 2008, and incorporated herein by reference.
46
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 2008.
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, 2008
/s/ Paul L. Whiting
Paul L. Whiting
/s/ Charles E. Sykes
Charles E. Sykes
President and Chief Executive Officer and
Director (Principal Executive Officer)
/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
Director
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
Director
47
March 13, 2008
March 13, 2008
March 13, 2008
March 13, 2008
March 13, 2008
March 13, 2008
March 13, 2008
March 13, 2008
March 13, 2008
March 13, 2008
Table of Contents
Report of Independent Registered Public Accounting Firm .............................................................................
Consolidated Balance Sheets as of December 31, 2007 and 2006 ...................................................................
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005 ...................
Consolidated Statements of Changes in Shareholders’ Equity for the years ended
December 31, 2007, 2006 and 2005.............................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 .................
Notes to Consolidated Financial Statements ....................................................................................................
Page No.
49
50
51
52
53
54
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders 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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2007, 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 Company’s internal control over financial reporting as of December 31, 2007, 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, 2008 expressed an unqualified opinion on the Company’s
internal control over financial reporting.
As discussed in Note 17 to the consolidated financial statements, the Company adopted the provisions of Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes on January 1, 2007.
Certified Public Accountants
Tampa, Florida
March 13, 2008
49
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
ASSETS
December 31,
2007
2006
Current assets:
Cash and cash equivalents ................................................................................ $
Receivables, net ................................................................................................
Prepaid expenses and other current assets ........................................................
Short-term investments......................................................................................
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 .................................................
Total current liabilities ................................................................................
Deferred grants ....................................................................................................
Long-term income tax liabilities ..........................................................................
Other long-term liabilities ...................................................................................
177,682
145,490
30,733
17,827
—
371,732
78,574
22,468
6,646
26,055
505,475
21,588
46,245
—
4,592
31,822
14,132
118,379
10,329
6,269
5,177
$
$
$
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
104,875
10,811
—
8,414
Total liabilities .............................................................................................
140,154
124,100
Commitments and contingencies (Note 21)
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;
45,537 and 45,254 shares issued ....................................................................
Additional paid-in capital .................................................................................
Retained earnings .............................................................................................
Accumulated other comprehensive income.......................................................
Treasury stock at cost: 4,697 shares and 4,703 shares .....................................
Total shareholders’ equity ...........................................................................
—
—
455
184,184
195,203
37,457
(51,978)
453
179,021
158,058
5,869
(51,928)
365,321
505,475
$
291,473
415,573
$
See accompanying notes to Consolidated Financial Statements.
50
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
2007
Revenues .................................................................................. $ 710,120
Years Ended December 31,
2006
$ 574,223
2005
$ 494,918
Operating expenses:
Direct salaries and related costs ............................................
General and administrative ....................................................
Provision for regulatory penalties ..........................................
Net (gain) loss on disposal of property and equipment .........
Reversal of restructuring and other charges ..........................
Impairment of long-lived assets ............................................
451,280
206,009
1,312
339
—
—
365,602
176,701
—
(13,683)
—
445
309,604
160,470
—
(1,778)
(314)
605
Total operating expenses ..................................................
658,940
529,065
468,587
Income from operations ...........................................................
51,180
45,158
26,331
Other income (expense):
Interest income .....................................................................
Interest (expense) ...................................................................
Income from rental operations, net.........................................
Other income (expense) .........................................................
6,257
(803)
—
(2,583)
6,785
(674)
1,200
(1,010)
Total other income (expense) ............................................
2,871
6,301
2,559
(667)
940
(60)
2,772
Income before provision (benefit) for income taxes ................
54,051
51,459
29,103
Provision (benefit) for income taxes:
Current ..................................................................................
Deferred ................................................................................
Total provision (benefit) for income taxes .......................
14,086
106
14,192
8,938
198
9,136
7,098
(1,403)
5,695
Net income ............................................................................... $
39,859
$
42,323
$
23,408
Net income per share:
Basic ...................................................................................... $
Diluted ................................................................................... $
0.99
0.98
$
$
1.06
1.05
$
$
0.60
0.59
Weighted average shares:
Basic ......................................................................................
Diluted ...................................................................................
40,387
40,699
39,829
40,219
39,204
39,536
See accompanying notes to Consolidated Financial Statements.
51
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
Common Stock
Shares
Issued Amount
(In thousands)
Balance at January 1, 2005 .......... 43,832 $ 438
Additional
Paid-in
Capital
$ 163,885
Accumulated
Other
Deferred
Stock
Retained Comprehensive
Earnings
$ 92,327
Income (Loss) Compensation
$
Total
— $ (51,486 ) $ 210,035
4,871
$
Treasury
Stock
166
Issuance of common stock.............
Issuance of common stock and
restricted stock under equity
award plans .................................
Stock-based compensation
expense ....................................... — —
Comprehensive income (loss) ....... — —
11 —
2
836
953
—
—
—
—
—
—
—
—
838
(854 )
(483 )
(384 )
—
23,408
—
(8,306 )
499
—
—
—
499
15,102
Balance at December 31, 2005 ..... 44,009 440
165,674
115,735
(3,435 )
(355 )
(51,969 )
226,090
660
Reclassification of deferred
stock compensation balance
upon adoption of SFAS 123R ..... — —
Issuance of common stock.............
8
Stock-based compensation
expense ....................................... — —
Excess tax benefit from stock-
based compensation .................... — —
Issuance of common stock and
restricted stock under equity
award plans .................................
Modification of Deferred
Compensation Plan ..................... — —
Issuance of common stock for
2
business acquisition ....................
Comprehensive income ................. — —
Adjustment upon adoption of
SFAS 158, net of tax................... — —
270
315
3
(355 )
4,334
2,460
2,355
114
40
4,399
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
42,323
—
10,348
—
(1,044 )
Balance at December 31, 2006 ..... 45,254 453
179,021
158,058
5,869
70
Adjustment upon adoption of FIN
48 ................................................ — —
Issuance of common stock.............
1
Stock-based compensation
expense ....................................... — —
Issuance of common stock and
restricted stock under equity
award plans .................................
Issuance of common stock for
business acquisition ....................
25 —
Comprehensive income ................. — —
188
1
—
473
4,171
51
468
—
(2,714 )
—
—
—
—
—
—
—
—
39,859
—
31,588
355
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
41
—
—
—
—
—
4,342
2,460
2,355
158
40
4,401
52,671
(1,044 )
(51,928 )
291,473
—
—
—
(2,714 )
474
4,171
(50 )
2
—
—
468
71,447
Balance at December 31, 2007 ..... 45,537 $ 455
$ 184,184
$ 195,203
$
37,457
$
—
$ (51,978 ) $ 365,321
See accompanying notes to Consolidated Financial Statements.
52
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
2006
2007
2005
24,747
445
—
2,460
198
(13,683 )
721
(600 )
(105 )
—
—
(48 )
39,859 $ 42,323 $ 23,408
25,943
25,235
605
—
(314)
—
441
4,171
(1,403)
106
(1,778)
339
697
(54 )
(649)
407
(59)
(542 )
—
(292 )
—
43
(366)
(13 )
(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-based compensation expense.....................................................................................
Deferred income tax provision (benefit)..............................................................................
Net (gain) loss on disposal of property and equipment ......................................................
(Reversals of) termination costs associated with exit activities...........................................
Bad debt expense (reversals) ...............................................................................................
Unrealized (gain) on financial instruments, net...................................................................
Amortization of discount on short-term investments...........................................................
Amortization of actuarial losses on pension ........................................................................
Foreign exchange gain on liquidation of foreign entity .......................................................
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 ...................................................................
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 ...................................................................
Purchase of short-term investments.....................................................................................
Investments in restricted cash..............................................................................................
Proceeds from release of restricted cash..............................................................................
Other....................................................................................................................................
Net cash used for investing activities .........................................................................
CASH FLOWS FROM FINANCING ACTIVITIES
—
Payments of long-term debt ................................................................................................
(78)
838
474
Proceeds from issuance of stock .........................................................................................
—
—
Excess tax benefit from stock-based compensation.............................................................
—
248
Proceeds from grants ...........................................................................................................
—
242
Proceeds from short-term debt ............................................................................................
—
(242 )
Payments of short-term debt................................................................................................
760
722
Net cash provided by financing activities ...................................................................
(4,336)
19,508
Effects of exchange rates on cash .....................................................................................
33,744
19,102
Net increase in cash and cash equivalents ..........................................................................
93,868
CASH AND CASH EQUIVALENTS — BEGINNING ................................................... 158,580
CASH AND CASH EQUIVALENTS — ENDING .......................................................... $ 177,682 $ 158,580 $ 127,612
(19,420 )
(17,417 )
15,375
183
(213 )
(4,510 )
—
(132 )
(26,134 )
(23,912 )
(2,796 )
1,424
118
2,368
4,170
723
(4,247 )
1,142
48,249
(381 )
4,342
2,355
531
—
—
6,847
5,483
30,968
127,612
(20,816 )
(533 )
(4,603 )
2,481
4,685
2,758
(1,182 )
5,153
371
44,772
(31,472 )
(1,600 )
—
128
(17,535 )
(368 )
1,600
(130 )
(49,377 )
(795)
(507)
(2,991)
(946)
(470)
2,277
1,424
2,167
1,485
48,169
(9,910)
(3,246)
2,480
184
—
—
—
(357)
(10,849)
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ......................................................................... $
Cash paid during the year for income taxes................................................................. $
393 $
12,148 $
420 $
510
10,007 $ 10,006
See accompanying notes to Consolidated Financial Statements.
53
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 client’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 segments 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, which is based on
either a per minute, per call or per transaction basis, 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. 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.
Product sales, accounted for within our fulfillment services, are recognized upon shipment to the customer and
satisfaction of all obligations.
Revenue from contracts with multiple-deliverables is 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. Certain fulfillment
services contracts contain multiple-deliverables. Additionally, the Company has a contract that contains multiple-
deliverables for customer contact management services and fulfillment services. Separation 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
54
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. If the separation criteria are
met, revenue from these services is recognized as the services are performed under a fully executed contractual
agreement. If the separation criteria are not met because there is insufficient evidence to determine fair value of one
of the deliverables, all of the services are accounted for as a single combined unit of accounting. For these
deliverables with insufficient evidence to determine fair value, revenue is recognized on the proportional
performance method using the straight-line basis over the contract period, or the actual number of operational seats
used to serve the client, as appropriate.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash and highly liquid short-term
investments. Cash in the amount of $177.7 million and $158.6 million at December 31, 2007 and 2006, respectively,
was primarily held in interest bearing investments, which have an average maturity of less than 90 days. Cash and
cash equivalents of $166.4 million and $121.9 million at December 31, 2007 and 2006, 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 $2.8 million
and $2.5 million as of December 31, 2007 and 2006, or 1.9% and 2.2% of trade account receivables, respectively,
for estimated losses arising from the inability of its customers to make required payments. The Company’s estimate
is based on factors surrounding the credit risk of certain clients, historical collection experience and a review of the
current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance
for doubtful accounts will change if the financial condition of the Company’s customers were to deteriorate,
resulting in a reduced ability to make payments. Based on a review of the trade accounts receivables balances and
activity, the Company recorded $0.4 million and reversed $0.6 million of the allowance for doubtful accounts during
2007 and 2006, respectively.
Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the 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 $24.8 million, $25.0 million and $27.7 million for 2007,
2006 and 2005, respectively. Property and equipment includes $2.9 million, $2.0 million and $0.7 million of
additions included in accounts payable at December 31, 2007, 2006 and 2005, respectively. Accordingly, non-cash
transactions have been excluded from the accompanying Consolidated Statements of Cash Flows for 2007, 2006 and
2005, 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 $0.5 million and
$0.6 million at December 31, 2007 and 2006, 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.
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
55
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,” Financial Accounting
Standards Board (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 3.8% ownership interest in SHPS, Incorporated, which is
accounted for at cost of approximately $2.1 million as of December 31, 2007 and 2006 and is included in “Deferred
charges and other assets” in the accompanying Consolidated Balance Sheets. (See Note 11.) 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 23, Stock-Based Compensation, include the fair market value of
debt and equity securities held in various mutual funds. The fair market value of these mutual funds, classified as
trading securities in accordance with SFAS No. 115 (SFAS 115), “Accounting for Certain Investments in Debt and
Equity Securities”, is determined by quoted market prices and is adjusted to the current market price at the end of
each reporting period. The net realized and unrealized gains and losses on trading securities are included in “Other
income and expense” in the accompanying Consolidated Statements of Operations. For purposes of determining
realized gains and losses, the cost of securities sold is based on specific identification.
Short-term Investments — Short-term investments are investments in commercial paper, classified as held to
maturity according to the provisions of SFAS 115, and have terms greater than three months, but less than one year,
at the time of acquisition. These investments are carried at amortized cost.
Goodwill — The Company accounts for goodwill under SFAS No. 142 (SFAS 142), “Goodwill and Other
Intangible Assets.” Goodwill and other intangible assets with indefinite lives are not 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. The Company completed its annual goodwill impairment test during
the third quarter of 2007 and determined that the carrying amount of goodwill was not impaired. 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 useful lives. 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. The Company
does not have other intangible assets with indefinite lives.
Income Taxes — The Company accounts for income taxes under SFAS No. 109, (SFAS 109) “Accounting for
Income Taxes,” which requires recognition of deferred tax assets and liabilities to reflect tax consequences of
differences between the tax bases of assets and liabilities and their reported amounts in the accompanying
Consolidated Financial Statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight
of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that
the deferred tax assets will not be realized in accordance with criteria of SFAS 109.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and
records a liability for uncertain tax positions in accordance with FASB Interpretation No. 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes – an interpretation of FASB No. 109.” FIN 48 contains a two-step
approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS 109. First,
tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the
position will be sustained upon examination, including resolution of related appeals or litigation processes, if any.
Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of
being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits
in the provision for income taxes in the accompanying Consolidated Financial Statements.
56
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 $0.6 million and $1.2 million at December 31, 2007 and 2006,
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 $1.1 million, $1.3 million and
$2.0 million for the years ended December 31, 2007, 2006 and 2005, 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 October 2007 and December 2006, the Company received employment grants totaling
$0.8 million for jobs created under this agreement. This amount is amortized and recorded in “General and
administrative” in the Consolidated Statement of Operations using the proportionate performance model over the
five-year employment period. At December 31, 2007, 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 23. 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 and treasury 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.
57
In accordance with SFAS 123R, the Company recognizes in its income statement the grant-date fair value of
stock options and other equity-based compensation issued to employees and directors. Compensation expense for
equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation
expense for liability-based awards (those usually settled in cash rather than stock) is 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):
58
Net Income:
Net income as reported..................................................
Add: Stock-based compensation included in reported
net income, net of tax ..............................................
Deduct: Stock-based compensation under the
fair value method, net of tax....................................
Pro forma net income ...................................................
Net Income Per Share:
Basic, as reported .........................................................
Basic, pro forma ...........................................................
Diluted, as reported ......................................................
Diluted, pro forma ........................................................
Year Ended
December 31,
2005
$
23,408
441
(1,090)
22,759
0.60
0.58
0.59
0.58
$
$
$
$
$
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, Short-term Investments, Investments Held in Rabbi Trust and Accounts
Payable. The carrying values reported in the balance sheet for cash, accounts receivable, short-term
investments, investments held in rabbi trust and accounts payable approximate their fair values.
(cid:120) Forward currency forward contracts. Forward currency forward contracts are recognized in the balance
sheet at fair value based on quoted market prices of comparable instruments or, if none are available, on
pricing models or formulas using current market and model assumptions.
(cid:120) Long-Term Debt. The fair value of 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, 2007 and 2006, 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 — The Company accounts for financial derivative instruments
utilizing SFAS No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities”, as amended.
The Company generally utilizes non-deliverable forward contracts expiring within one to 24 months to reduce its
foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional
foreign currencies. Upon proper qualification, these contracts are accounted for as cash-flow hedges, as defined by
SFAS 133. These contracts are entered into to protect against the risk that the eventual cash flows resulting from
such transactions will be adversely affected by changes in exchange rates. In using derivative financial instruments
to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.
All derivatives, including foreign currency forward contracts, are recognized in the balance sheet at fair value.
Fair values for the Company’s derivative financial instruments are based on quoted market prices of comparable
instruments or, if none are available, on pricing models or formulas using current market and model assumptions.
On the date the derivative contract is entered into, the Company determines whether the derivative contract should
59
be designated as a cash flow hedge. Changes in the fair value of derivatives that are highly effective and designated
as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)”, until the forecasted
underlying transactions occur. Any realized gains or losses resulting from the cash flow hedges are recognized
together with the hedged transaction within “Revenues”. Cash flows from the derivative contracts are classified
within “Cash flows from operating activities” in the accompanying Consolidated Statement of Cash Flows.
Ineffectiveness is measured based on the change in fair value of the forward contracts and the fair value of the
hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is
recognized within “Revenues”.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk management objective and strategy for undertaking various hedging activities. This process includes linking all
derivatives that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses,
both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis.
When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective
hedge or if a forecasted hedge is no longer probable of occurring, the Company discontinues hedge accounting
prospectively. At December 31, 2007, all hedges were determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges. The purpose of
these derivative instruments is to reduce the effects on its operating results and cash flows from fluctuations caused
by volatility in currency exchange rates. The Company records changes in the fair value of these derivative
instruments within “Revenues”.
Recent Accounting Pronouncements – 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 beginning after November 15, 2007 and should be applied prospectively. In February
2008, the FASB deferred the effective date of SFAS 157 for nonfinancial assets and liabilities to fiscal years
beginning after November 15, 2008, except those that are recognized or disclosed at fair value in the financial
statements on an annual or more frequently recurring basis. The Company is currently evaluating the impact of
adopting SFAS 157 on its financial condition, results of operations and 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 assets, liabilities and related
compensation costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an
employee that extends into postretirement periods. The effective date of EITF 06-10 is for fiscal years beginning
after December 15, 2007. The Company is currently evaluating the impact of adopting EITF 06-10 on its financial
condition, results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and
Financial Liabilities - including an amendment to FASB Statement No. 115", which permits an entity to measure
certain financial assets and financial liabilities at fair value. Under SFAS 159, entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be
elected on an instrument-by-instrument basis, with few exceptions, as long as it is applied to the instrument in its
entirety. SFAS 159 is effective for fiscal years beginning after November 15, 2007. As of January 1, 2008, the
Company did not elect to use the fair value option for any of its financial assets and liabilities that are not currently
recorded at fair value.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), "Business Combinations" and
SFAS No. 160 (SFAS 160), "Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51". SFAS 141R will change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the
accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and
classified as a component of shareholders’ equity. SFAS 141R and SFAS 160 are effective for fiscal years beginning
after December 15, 2008 and should be applied prospectively for all business combinations entered into after the
date of adoption. However, the presentation and disclosure requirements of SFAS 160 shall be applied
retrospectively for all periods presented. The Company is currently evaluating the impact of adopting the
presentation and disclosure provisions of SFAS 160 on its financial condition, results of operations and cash flows.
60
Note 2. Acquisitions and Dispositions
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, which resulted
in the Company paying a premium for KLA resulting in recognition of goodwill. Total cash consideration paid was
approximately $3.2 million based on foreign currency rates in effect at the date of the acquisition. 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. The results of operations of KLA have
been included in the Company’s results of operations for its America’s segment beginning in the first quarter of
2005. 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 of 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 to broaden its operations in a growing market in the communications and
financial services verticals, which resulted in the Company paying a premium for Apex resulting in recognition of
goodwill. 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. In June 2007, the Company
settled the contingency related to the holdback of a portion of the purchase price based upon amounts billed to a
major client as amounts billed by Apex to the client reached the established targets. This settlement resulted in a
payout of $1.6 million in cash and $0.5 million in common stock from the escrow account and an increase in the
recorded amount of goodwill of $2.1 million. As of December 31, 2007, the remaining cash held in escrow of $2.4
million is included in “Prepaid expenses and other current assets” as restricted cash in the accompanying
Consolidated Balance Sheet. 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.
We allocated the net purchase price of $27.0 million less the $5.0 million contingent purchase price held in
escrow plus direct acquisition costs of $0.6 million, or $22.6 million, to the tangible assets, liabilities and intangible
purchased assets based on their estimated fair values in accordance with SFAS No. 141, “Business Combinations.”
The excess net purchase price over these fair values is recognized as goodwill, which is not expected to be
deductible for tax purposes. These fair values are based on management’s estimates and assumptions, including
variations of the income approach, the market approach and the cost approach, resulting in a purchase price
allocation to net assets of $4.2 million, to goodwill of $14.4 million, to a deferred tax liability of $2.9 million and to
purchased intangible assets of $6.9 million as detailed in the following table (in thousands):
Weighted
Average
Amortization
Period (years)
6
5
2
3
6
Amount
Assigned
5,500
1,000
200
165
6,865
Purchased Intangible Assets
Customer relationships ................... $
Trade Name ....................................
Non-compete agreements ...............
Other ...............................................
Total............................................ $
61
The purchase price allocation for the Apex acquisition resulted in the following condensed balance sheet as of the
acquisition date (in thousands):
Cash and cash equivalents ...................................... $
Receivables, net and other current assets................
Total current assets ............................................
Property and equipment, net ...................................
Goodwill .................................................................
Intangibles ..............................................................
Other long-term assets ............................................
$
Current liabilities .................................................... $
Long-term deferred tax liability..............................
Other long-term liabilities.......................................
Total liabilities ...................................................
Shareholders’ equity ...............................................
$
Amount
788
3,546
4,334
4,718
14,392
6,865
133
30,442
4,791
2,903
140
7,834
22,608
30,442
The following unaudited pro forma data summarizes the combined results of operations of the Company and
Apex for 2006 and 2005 as if the combination had been consummated on January 1, 2005.
Years Ended December 31,
2005
2006
Revenues .................................................................
Income before provision for income taxes.........
Net income ..............................................................
Net income per diluted share................................
$
$
$
$
588,280
54,144
44,064
1.10
$
$
$
$
514,934
30,379
24,165
0.61
Amortization expense, related to the purchased intangible assets resulting from the KLA and Apex acquisitions
(other than goodwill), of $1.5 million, $1.0 million and $0.3 million for the years ended December 31, 2007, 2006
and 2005 respectively, is included in “General and administrative” costs in the accompanying Consolidated
Statements of Operations.
The following table presents the Company’s purchased intangible assets (in thousands) as of December 31, 2007:
Gross
Intangibles
Accumulated
Amortization
Net
Intangibles
Weighted
Average
Amortization
Period (years)
Customer relationships ............. $
Trade Name ..............................
Non-compete agreements..........
Other .........................................
$
7,589
979
724
270
9,562
1,762
293
675
186
2,916
$
$
5,827
686
49
84
6,646
8
5
2
3
7
$
$
62
The following table presents the Company’s purchased intangible assets (in thousands) as of December 31, 2006:
Gross
Intangibles
Accumulated
Amortization
Net
Intangibles
Weighted
Average
Amortization
Period (years)
Customer relationships ....... $
Trade Name ........................
Non-compete agreements ...
Other ...................................
$
7,428
1,008
653
259
9,348
$
$
692
101
464
87
1,344
$
$
6,736
907
189
172
8,004
8
5
2
3
7
The Company’s estimated future amortization expense for the five succeeding years is as follows (in thousands):
Years Ending December 31,
2008 ........................................................................ $
2009 ........................................................................ $
2010 ........................................................................ $
2011 ........................................................................ $
2012 ........................................................................ $
Amount
1,347
1,267
1,240
1,142
596
Changes in goodwill, within the America’s segment, consist of the following (in thousands):
Balance at December 31, 2005 ....................... $
Acquisition of Apex ........................................
Foreign currency translation............................
Balance at December 31, 2006 .......................
Contingent payment for Apex acquisition .......
Foreign currency translation............................
Balance at December 31, 2007 ....................... $
Amount
5,918
14,392
112
20,422
2,068
(22 )
22,468
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. See Note 6 - Forward Contracts, for a discussion of the Company’s credit
risk relating to financial derivative instruments.
Note 4. Receivables
Receivables consist of the following (in thousands):
Trade accounts receivable ................................................ $ 144,165
549
Income taxes receivable ...................................................
Other .................................................................................
3,589
148,303
2007
2006
$ 115,848
266
1,436
117,550
December 31,
Less allowance for doubtful accounts ..............................
2,813
$ 145,490
2,534
$ 115,016
63
Note 5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
December 31,
2007
Forward contracts (Note 6)................................................ $
Deferred tax asset (Note 17)..............................................
Inventory, at cost ...............................................................
Restricted cash (Note 2) ....................................................
Investments held in Rabbi Trust (Note 7)..........................
Prepaid rent .......................................................................
Prepaid maintenance..........................................................
Prepaid insurance ..............................................................
Prepaid other......................................................................
8,372
5,780
3,486
3,132
1,405
1,534
2,117
933
3,974
$ 30,733
2006
$
—
5,385
1,229
302
1,014
1,395
1,435
485
3,421
$ 14,666
Note 6. Forward Contracts
The Company had derivative assets and liabilities related to outstanding forward contracts, designated as cash
flow hedges, maturing within 12 months, consisting primarily of Philippine peso contracts with a notional value of
$97.2 million at December 31, 2007. As of December 31, 2007, the Company had $8.4 million of these derivative
instruments classified as “Prepaid expenses and other current assets” and $0.1 million as “Other accrued expenses
and current liabilities”. A total of $5.0 million of deferred gains on the derivative instruments, net of taxes of $2.7
million, as of December 31, 2007 were included in “Accumulated other comprehensive income (loss)”, a component
of shareholders’ equity. Net gains of $6.1 million from settled derivative instruments for 2007 were reclassified
from “Accumulated other comprehensive income (loss)” to “Revenues” (none in 2006 or 2005). The deferred gain
expected to be reclassified to “Revenues” from “Accumulated other comprehensive income (loss)” during the next
12 months is $5.0 million. However this amount and other future reclassifications from “Accumulated other
comprehensive income (loss)” will fluctuate with movements in the underlying market price of the forward
contracts.
During 2007, the Company recognized in “Revenues” a loss of $1.1 million related to changes in the fair value of
the forward contracts attributable to the difference in the spot and forward exchange rates, which was excluded from
the assessment of hedge effectiveness. In addition, during 2007, the Company recognized gains related to hedge
ineffectiveness of $1.8 million which was reclassified from “Accumulated other comprehensive income (loss)” to
“Revenues”.
In February 2008, we entered into additional forward contracts to acquire a total of PHP 1.1 billion through
March 2009 at fixed prices of $26.0 million U.S.
During 2007, we also entered into and settled forward contracts to purchase PHP 385.3 million and CAD 2.5
million at fixed prices of $8.0 million and $2.5 million, respectively. Since these contracts were not designated as
accounting hedges, they were accounted for on a mark-to-market basis, with realized and unrealized gains or losses
recognized in the current period. As a result, we recognized immaterial gains and losses related to these contracts,
which are included in “Revenues” in the accompanying Consolidated Statement of Operations for 2007. As of
December 31, 2007, the Company had derivative liabilities of $0.1 million related to outstanding forward contracts,
not designated as hedges, maturing within three months, with a notional value of $0.9 million consisting primarily of
Canadian dollar forward contracts.
64
Note 7. Investments Held in Rabbi Trust
The Company’s Investments Held in Rabbi Trust, classified as trading securities and included in “Prepaid
expenses and other current assets” in the accompanying Consolidated Balance Sheets, at fair value, consist of the
following (in thousands):
Mutual funds.........................................................
$
1,196
$
1,405 $
December 31, 2007
Cost
Fair Value
December 31, 2006
Cost
851
$
1,014
Fair Value
Investments Held in Rabbi Trust were comprised of mutual funds, 84% of which are equity-based and 16% were
debt-based at December 31, 2007. Investment income, included in “Other income (expense)” in the accompanying
Consolidated Statements of Operations for the years ended December 31, 2007 and 2006 consists of the following
(in thousands):
Gross realized gains from sale of trading securities ........ $
Gross realized losses from sale of trading securities........
Dividend and interest income .........................................
Net unrealized holding gains (losses) .............................
Net investment income ................................................... $
2
(4 )
124
(71 )
51
$
$
20
(2 )
56
30
104
December 31,
2007
2006
Note 8. Short-term Investments
As of December 31, 2007, the Company had short-term investments of $17.8 million in commercial paper (none
as of December 31, 2006) with a remaining maturity of less than one year. Short-term investments are carried at
amortized cost, which approximates fair value. Therefore, there were no significant unrecognized holding gains or
losses.
Note 9. 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 the four third party leased U.S. customer contact management centers sold in September 2006. (See
Note 10, 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 Sheet. As of December 31, 2007, these assets (and the related deferred grants) were not sold within one
year and are no longer classified as held for sale. The amounts have been reclassified to “Property and Equipment”
and “Deferred Grants” in the accompanying Consolidated Balance Sheet.
Note 10. 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,
2007
4,262
52,770
192,170
2,692
701
258
252,853
174,279
78,574
$
2006
3,589
45,208
174,084
5,081
690
1,583
230,235
164,030
$ 66,205
In April 2005, the Company sold the land and building related to its Greeley, Colorado facility for $2.4 million
65
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.
In September 2006, the Company sold the land and buildings of four U.S. 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 these facilities of $6.3 million and other related assets of $0.5 million were offset by
the related deferred grants of $6.1 million.
During 2006, 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. Based on the Company’s evaluation for impairment,
as of December 31, 2007, the Company determined that its property and equipment was not impaired.
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
was placed back into service in August 2007.
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 18, 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.
Note 11. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
December 31,
Non-current deferred tax asset (see Note 17) ................. $ 14,757
6,394
Non-current value added tax receivable, net ...................
923
Restricted cash (see Notes 2 and 21) ...............................
2,089
Investment in SHPS, Incorporated, at cost .....................
1,892
Other ...............................................................................
$ 26,055
2007
2006
$ 16,910
5,750
4,533
2,089
2,889
$ 32,171
Note 12. Accrued Employee Compensation and Benefits
Accrued employee compensation and benefits consist of the following (in thousands):
December 31,
Accrued compensation ..................................................... $ 17,971
8,358
Accrued bonus and commissions......................................
Accrued vacation .............................................................
9,019
7,535
Accrued employment taxes ..............................................
Other ................................................................................
3,362
$ 46,245
2007
2006
$ 11,212
7,762
8,930
7,372
4,273
$ 39,549
66
Note 13. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
Future service ..............................................................
Penalties and holdbacks ...............................................
December 31,
2007
2006
$
$
28,571
3,251
31,822
$
$
25,403
5,321
30,724
Note 14. 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 ..........................
Deferred tax liability (Note 17).........................................
Accrued telephone charges ..............................................
Accrued rent .....................................................................
Forward contracts (Note 6) ...............................................
Other ................................................................................
$
December 31,
2007
2006
3,291
2,042
2,867
640
518
188
4,586
14,132
$
$
2,739
1,801
75
441
564
—
3,935
9,555
Note 15. Borrowings
The Company’s $50.0 million revolving credit facility with a group of lenders (the “Credit Facility”), which
amount is subject to certain borrowing limitations, was executed on March 15, 2004 and amended on May 4, 2007.
Pursuant to the amended 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 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, not to exceed a total of $50 million availability under the Credit Facility.
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 1.25%.
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
1.25%. In addition, a commitment fee of up to 0.25% 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, 2010, 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 2007 and no outstanding balances as of December 31, 2007, with $50.0 million availability on the
Credit Facility.
Note 16. 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):
67
Foreign
Currency
Translation
Adjustment
Unrealized
Actuarial Gain
(Loss) Related to
Pension Liability
Unrealized Gain
(Loss) on Cash
Flow Hedging
Instruments
Total
Balance at January 1, 2005 ........... $
Pre tax amount ............................
Reclassification to net income ....
Balance at December 31, 2005 ......
Pre tax amount ............................
Tax benefit ..................................
Reclassification to net income ....
Balance at December 31, 2006 ......
Pre tax amount ............................
Tax provision ..............................
Reclassification to net income ....
Foreign currency translation .......
Balance at December 31, 2007 ...... $
4,871
(8,540)
234
(3,435)
10,396
—
(48)
6,913
23,195
—
(13)
197
30,292
$
$
— $
—
—
—
(1,607)
563
—
(1,044)
4,166
(803)
43
(197)
2,165
$
— $ 4,871
(8,540)
—
—
234
(3,435)
—
8,789
—
563
—
(48)
—
5,869
—
41,182
13,821
(3,496)
(2,693 )
(6,128 )
(6,098)
—
—
5,000 $ 37,457
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 17. Income Taxes
The income (loss) before provision (benefit) for income taxes includes the following components (in thousands):
Domestic (U.S., state and local) ....................... $
Foreign .............................................................
Total income before provision for
income taxes ............................................... $
Years Ended December 31,
2006
555
50,904
2007
(7,426) $
61,477
$
2005
(1,864)
30,967
54,051
$
51,459
$
29,103
Significant components of the income tax provision (benefit) are as follows (in thousands):
2007
Years Ended December 31,
2006
2005
Current:
U.S. federal....................................................................... $
State and local...................................................................
Foreign .............................................................................
Total current provision for income taxes ......................
Deferred:
U.S. federal.......................................................................
State and local...................................................................
Foreign .............................................................................
Total deferred (benefit) provision for income taxes ....
403
66
13,617
14,086
57
7
42
106
$
107
—
8,831
8,938
977
(94)
(685)
198
$
—
—
7,098
7,098
—
—
(1,403)
(1,403)
Total provision for income taxes ................................. $ 14,192
$
9,136
$
5,695
68
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 provision (benefit) for income taxes ....... $
2007
(957)
1,465
435
398
(631)
(1,244)
640
106
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)
$
$
The reconciliation of income tax provision computed at the U.S. federal statutory tax rate to the Company’s
effective income tax provision is as follows (in thousands):
2007
Tax at U.S. statutory rate ........................................................ $ 18,917
3
State income taxes, net of federal tax benefit .........................
Tax holidays ...........................................................................
(6,499)
Change in valuation allowance, net of related adjustments ....
2,640
Foreign rate differential ..........................................................
(7,025)
Changes in uncertain tax positions ..........................................
1,087
Permanent differences ............................................................
3,124
Foreign withholding and other taxes ......................................
1,344
Other .......................................................................................
601
Total provision for income taxes ........................................ $ 14,192
Years Ended December 31,
2006
$ 18,011
(173)
(7,544)
2,659
(3,859)
—
(670)
849
(137)
9,136
$
2005
$ 10,186
(36)
(2,265)
1,487
(4,019)
—
(337)
631
48
5,695
$
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 $325.1 million at
December 31, 2007, 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 repatriated $12.0 million from its foreign
subsidiaries in 2007. The amount was primarily previously taxed income to the U.S.
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 2008 through 2018. Upon expiration, the Company intends to
seek renewals of these tax holidays, where possible. The Company’s tax holidays decreased the provision for
income taxes by $6.5 million ($0.16 per diluted share), $7.5 million ($0.19 per diluted share) and $2.3 million
($0.06 per diluted share) for the years ended December 31, 2007, 2006 and 2005, respectively.
The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of
December 31, 2007 and 2006, 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 ....................................................
$
69
December 31,
2007
2006
6,042
44,078
10,369
2,638
(34,023)
29,104
(1,259)
(9,430)
(4,952)
(15,641)
13,463
$
$
5,146
46,586
11,016
3,036
(35,267)
30,517
(1,259)
(9,642)
(2,089)
(12,990)
17,527
Classified as follows:
Prepaid expenses and other current assets (Note 5).............. $
Deferred charges and other assets (Note 11) .......................
Other accrued expenses and current liabilities (Note 14) .....
Other long-term liabilities ...................................................
Net deferred tax assets ................................................... $
December 31,
2007
2006
5,780
14,757
(2,867)
(4,207)
13,463
$
$
5,385
16,910
(75)
(4,693)
17,527
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, 2007, management has
determined that a valuation allowance of approximately $34.0 million is necessary to reduce U.S. deferred tax assets
by $10.4 million and foreign deferred tax assets by $23.6 million.
There is approximately $133.2 million of the income tax loss carryforwards at December 31, 2007 of which $90.6
million relates to foreign operations and $42.6 million relates to the U.S., with varying expiration dates. For U.S.
purposes, a net operating loss carryforward of approximately $42.6 million as well as $3.9 million of tax credits are
available at December 31, 2007 for carryforward, with the latest expiration date ending December 31, 2025. Of this
$42.6 million carryforward, $10.1 million is limited as it relates to net operating loss carryforwards of a domestic
subsidiary acquired in prior years. For foreign purposes, $60.6 million of the net operating loss carryforwards have
an indefinite expiration date and the remaining $30.0 million net operating loss carryforwards have varying
expiration dates through December 2029.
The Company is currently under examination by the U.S. Internal Revenue Service for certain tax years. An
examination of the Company’s U.S. tax returns through July 31, 2002 was concluded with a “no change” result. The
tax years ended July 31, 2003, December 31, 2003 and December 31, 2004 are in their final stages and the Company
is not aware of any proposed changes for any year. Certain German subsidiaries of the Company are under appeal
from prior examination results by the German tax authorities for periods covering 1996 through 2000. For tax years
2001 through 2004, audit results have been agreed upon with its German partnership entities in December 2007.
This result was the first step in a two-step process that involves two German entities. The conclusion of the second
step is anticipated for the first quarter of 2008. No material adjustments are anticipated at the final resolution of this
two step audit process. Additionally, certain Canadian subsidiaries are under examination by Canadian tax
authorities for the tax years covering 2002 through 2003 and a Philippine subsidiary is being audited by the
Philippine tax authorities for tax years 2004 through 2006. The Company’s Scotland subsidiaries are under audit for
the tax year 2005. 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.
The Company adopted the provisions of FASB Interpretation 48 (FIN 48), “Accounting for Uncertainty in Income
Taxes”, on January 1, 2007 and recognized a $2.7 million liability for unrecognized income tax benefits, including
interest and penalties, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.
This adjustment to the beginning balance of retained earnings includes $1.3 million related to transfer pricing
penalties that may be applicable in connection with an income tax audit of our Indian subsidiary.
As of December 31, 2006, prior to the adoption of FIN 48, the Company had a contingent income tax liability of
$4.2 million, consisting of amounts for subsidiaries located in both the Americas and EMEA segments that are
accounted for in "Income taxes payable" in the accompanying Consolidated Balance Sheet.
Upon adoption of FIN 48 as of January 1, 2007, the Company had $9.1 million of unrecognized tax benefits
(including $4.6 million benefit of net operating loss carryforwards that were previously recognized as deferred tax
assets with a full valuation allowance). If the Company recognized these tax benefits, approximately $4.5 million
and related interest and penalties would favorably impact the effective tax rate.
As of December 31, 2007, the Company had $5.4 million of unrecognized tax benefits, a net decrease of $3.7
million from $9.1 million as of January 1, 2007. This decrease relates primarily to the recognition of tax benefits as
a result of a favorable lower court ruling in 2007. This net decrease of $3.7 million had no impact on the effective
tax rate as it was offset by a full valuation allowance. If the Company recognized these tax benefits, approximately
$5.1 million and related interest and penalties would favorably impact the effective tax rate. The Company believes
70
it is reasonably possible that its unrecognized tax benefits will decrease or be recognized in the next twelve months
by up to $1.0 million due to transfer pricing and the classification of tax attributes related to intercompany accounts
that will be resolved under audit or appeal in various tax jurisdictions.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income
taxes. The Company had $3.0 million and $2.4 million accrued for interest and penalties as of December 31, 2007
and January 1, 2007, respectively. Of the accrued interest and penalties at December 31, 2007 and January 1, 2007,
$2.2 million and $1.8 million, respectively, relate to statutory penalties. The amount of interest and penalties
recognized in the accompanying Consolidated Statements of Operations for the years ended December 31, 2007 and
2006 was $0.6 million and $0.6 million, respectively.
The tabular reconciliation of the amounts of unrecognized net tax benefits for the year ended December 31, 2007
is presented below (in thousands):
Gross unrecognized tax benefits as of January 1 2007 (date of adoption).......$
Prior period tax position decreases....................................................................
Current period tax position increases ................................................................
Decrease from settlements with tax authorities .................................................
Foreign currency translation .............................................................................
Gross unrecognized tax benefits as of December 31, 2007 ...............................$
Amount
9,095
(4,110 )
220
(233 )
386
5,358
The Company files income tax returns in the U.S. and foreign jurisdictions. The following table presents the major
tax jurisdictions and tax years that are open as of December 31, 2007 and subject to examination by the respective
tax authorities:
Tax Jurisdiction
Canada
Costa Rica
Germany
India
Philippines
Scotland
United States
Tax Year Ended
2002 to present
2003 to present
1996 to present
2003 to present
2004 to present
2001 to present
(1997 to 1999)* and 2002 to present
*These tax years are open to the extent of the Net Operating Loss carryforward amount.
Note 18. 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 substantially completed the Plan by the end of the third quarter of 2007. Total charges related to the Plan
were $1.4 million. These charges include approximately $1.2 million for severance and related costs and $0.2
million for other exit costs. The Company ceased using certain property and equipment estimated at $0.2 million,
and depreciated these assets over a shortened useful life, which approximated eight months. As a result, the
Company recorded additional depreciation of approximately $0.2 million during 2006. The Company reversed
previously accrued termination costs of less than $0.1 million in “Direct salaries and related costs” in the
accompanying Consolidated Statement of Operations for 2007 due to a change in estimate. Termination costs of
$0.7 million are included in “Direct salaries and related costs” for 2006. Cash payments related to termination costs
made totaled $0.6 million and $0.6 million for 2007 and 2006, respectively. Termination costs to date approximate
$1.2 million as of December 31, 2007 with cash payments to date of $1.2 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
71
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.
Note 19. 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
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 2002 and $1.3 million in 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 and 2002 to 2004 (in thousands) (no activity in 2007 or 2006):
Balance at
January 1,
2005
Severance and related costs .......... $
Other restructuring costs ...............
$
106
285
391
Balance at
January 1,
2002
Severance and related costs ......... $
Lease termination costs ...............
Write-down of property, equip-
ment and capitalized costs ........
Other restructuring costs..............
$
— $
—
—
—
— $
Cash
Outlays
$
(34 )
(43 )
(77 )
$
Other
Non-Cash
Changes(1)
$
(72)
(242)
$ (314)
Balance at
December 31,
2005
$ —
—
$ —
Cash
Outlays
Other
Non-Cash
Changes
Balance at
December 31,
2004
Charges
5,012
1,827
$ (4,132 ) $
(1,886 )
(774 )(3) $
59 (2,4)
12,017
1,958
20,814
—
(1,806 )
$ (7,824 ) $
(12,017 )
133 (5)
(12,599 )
$
106
—
—
285
391
(1) During 2005, the Company reversed $0.3 million related to severance and related costs and certain other
closing costs associated primarily with the closure of certain European contact management centers.
(2) During 2004, the Company reversed $0.1 million related to the remaining lease termination and closing costs
for two of its European customer contact management centers and one European fulfillment center.
(3) During 2003, the Company reversed $0.8 million of the severance accrual related to the final termination
settlement for the closure of two of its European customer contact management centers and one European
fulfillment center.
(4) During 2003, the Company recorded $0.1 million in additional lease termination costs primarily related to the
final settlement of the lease for one of its European customer contact management centers.
72
(5) During 2003, the Company recorded $0.3 million in additional site closure costs related to one of its
European customer contact management centers offset by $0.1 million for the reversal of the remaining site
closure costs for its Galashiels, Scotland print facility and its Scottsbluff, Nebraska facility, which were both
sold in 2003.
2000 Charges
The Company recorded restructuring and other charges during the second and fourth quarters of 2000
approximating $30.5 million. The second quarter restructuring and other charges approximating $9.6 million
resulted from the Company’s consolidation of several European and one U.S. fulfillment center and the closing or
consolidation of six technical staffing offices. Included in the second quarter 2000 restructuring and other charges
was a $3.5 million lease termination payment to the founder and former Chairman of the Company related to the
termination of a ten-year operating lease agreement for use of his private jet. As a result of the second quarter 2000
restructuring, the Company reduced the number of employees by 157 during 2000 and satisfied the remaining lease
obligations related to the closed facilities during 2001.
The Company also announced, after a comprehensive review of operations, its decision to exit certain non-core,
lower margin businesses to reduce costs, improve operating efficiencies and focus on its core competencies of
technical support, customer service and consulting solutions. As a result, the Company recorded $20.9 million in
restructuring and other charges during the fourth quarter of 2000 related to the closure of its U.S. fulfillment
operations, the consolidation of its Tampa, Florida technical support center and the exit of its worldwide localization
operations. Included in the fourth quarter 2000 restructuring and other charges is a $2.4 million severance payment
related to the employment contract of the Company’s former President. In connection with the fourth quarter 2000
restructuring, the Company reduced the number of employees by 245 during the first half of 2001 and satisfied a
significant portion of the remaining lease obligations related to the closed facilities during 2001.
The following tables summarize the 2000 plan accrued liability for restructuring and other charges and related
activity in 2005 and 2000 to 2004 (in thousands) (no activity in 2007 or 2006):
Severance and related costs ..........................
$
87
Balance at
January 1,
2005
Cash
Outlays
(87)
$
Other
Non-Cash
Changes
$ —
Balance at
December 31,
2005
$ —
Balance at
January 1,
2000
Severance and related costs .......... $
Lease termination costs ................
Write-down of property,
equipment
Write-down of intangible assets ...
Other restructuring costs...............
$
— $
—
—
—
—
— $
Charges
3,974
5,404
Cash
Outlays
$ (3,812 )
(5,284)
$
Other
Non-Cash
Changes
Balance at
December 31,
2004
(75 )(2,3) $
(120 ) (1)
14,191
6,086
813
30,468
—
—
(813)
$ (9,909) $
(14,191 )
(6,086 )
—
(20,472 )
$
87
—
—
—
—
87
(1) During 2003, the Company reversed accruals related to the final settlement of lease termination costs.
(2) During 2002, the Company recorded $0.2 million in additional severance and related costs primarily due to
delays in closing its U.S. fulfillment center, which increased the cash outlay requirements for severance.
(3) During 2001, the Company reduced the original severance accrual by $0.3 million for severance payments
due to the Company’s former president.
73
Note 20. Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the
periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the
respective periods and the further dilutive effect, if any, from stock options, stock appreciation rights, restricted
stock, common stock units and shares held in a rabbi trust using the treasury stock method. For the years ended
December 31, 2007, 2006 and 2005, the impact of outstanding options to purchase shares of common stock and
stock appreciation rights of 0.1 million, 0.1 million and 0.5 million, respectively, were antidilutive and were
excluded from the calculation of diluted earnings per share.
The numbers of shares used in the earnings per share computation are as follows (in thousands):
Basic:
Weighted average common shares outstanding .....
Diluted:
Dilutive effect of stock options, stock
appreciation rights, common stock
units and shares held in a rabbi trust ...................
Years Ended December 31,
2007
2006
2005
40,387
39,829
39,204
312
390
332
Total weighted average diluted shares outstanding ....
40,699
40,219
39,536
On August 5, 2002, the Company’s Board of Directors authorized the Company to purchase up to three million
shares of its 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 such as, including but not limited to, the stock price and general
market conditions. During 2007, 2006 and 2005, the Company made no purchases under the 2002 repurchase
program. Subsequent to December 31, 2007, the Company cancelled all of its Treasury Stock. The cancellation of
the Treasury Stock did not impact the Company’s results of operations.
Note 21. Commitments and Contingencies
The Company leases certain equipment and buildings under operating leases having original terms ranging from
one to twenty-five years, some with options to cancel at varying points during the lease. The building leases contain
up to two five-year renewal options. Rental expense under operating leases for the years ended December 31, 2007,
2006 and 2005 was approximately $20.4 million, $17.3 million, and $16.5 million, respectively.
The following is a schedule of future minimum rental payments under operating leases having a remaining non-
cancelable term in excess of one year subsequent to December 31, 2007 (in thousands):
Year Ending December 31,
2008 ........................................................................ $
2009 ........................................................................
2010 ........................................................................
2011 ........................................................................
2012 .........................................................................
Thereafter ................................................................
Total minimum payments required .................... $
Total
Amount
14,892
6,431
4,546
2,592
1,824
8,299
38,584
A lease agreement, relating to the Company’s customer contact management center in Ireland, contains a
cancellation clause which requires the Company, in the event of cancellation, to restore the facility to its original
state at an estimated cost of $0.7 million as of December 31, 2007 and pay a cancellation fee of $0.6 million, which
approximates two annual rental payments under the lease agreement. As of December 31, 2007, the Company had
no plans to cancel this lease agreement. Therefore, the Company does not expect to make any payments under this
agreement and, accordingly, has not recorded a liability in the accompanying Consolidated Balance Sheets.
The Company enters into agreements with third-party vendors in the ordinary course of business whereby the
74
Company commits to purchase goods and services used in its normal operations. These agreements, which are not
cancelable, generally range from one to five year periods and contain fixed or minimum annual commitments.
Certain of these agreements allow for renegotiation of the minimum annual commitments based on certain
conditions.
The following is a schedule of future minimum purchases remaining under the agreements as of December 31,
2007 (in thousands):
Total
Amount
Year Ending December 31,
6,330
2008 ........................................................................ $
1,526
2009 ........................................................................
1,173
2010.........................................................................
2011.........................................................................
1,154
Total minimum payments required .................... $ 10,183
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.
The Company has previously disclosed regulatory sanctions assessed against our Spanish subsidiary relating to
the alleged inappropriate acquisition of personal information in connection with two outbound client contracts. In
order to appeal these claims, the Company issued a bank guarantee of $0.9 million. As of December 31, 2007, the
Company included the bank guarantee as restricted cash in “Deferred charges and other assets” in the accompanying
Consolidated Balance Sheet. The Company will continue to vigorously defend these matters. However, due to
further progression of several of these claims within the Spanish court system, and based upon opinion of legal
counsel regarding the likely outcome of several of the matters before the courts, the Company accrued a provision in
the amount of $1.3 million as of December 31, 2007 under SFAS No. 5, “Accounting for Contingencies” because
management now believes that a loss is probable and the amount of the loss can be reasonably estimated as to three
of the subject claims. There are two other related claims, one of which is currently under appeal, and the other of
which is in the early stages of investigation, but the Company has not accrued any amounts related to either of those
claims because management does not currently believe a loss is probable, and it is not currently possible to
reasonably estimate the amount of any loss related to those two 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.
75
Note 22. 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, 2007, the Pension Plan was unfunded. The Company does not expect to make cash contributions to its Pension
Plan during 2008.
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):
For the Years Ended
December 31,
2007
2006
Beginning benefit obligation ................................... $
Service cost1 ............................................................
Interest cost..............................................................
Actuarial (gain) loss.................................................
Effect of foreign currency translation ......................
Ending benefit obligation ....................................... $
3,455 $
(9)
305
(4,166)
768
353 $
1,548
348
188
1,170
201
3,455
Unfunded status ....................................................... $
Net amount recognized ........................................... $
(353) $
(353) $
(3,455 )
(3,455 )
1Service cost for 2007 includes a change in estimate for the assumptions related
to the employee turnover rate.
The net amount recognized consists of accrued benefit costs of $0.4 million and $3.5 million as of December 31,
2007 and 2006, respectively, and is included in “Other long-term liabilities” in the accompanying Consolidated
Balance Sheets.
Weighted-average actuarial assumptions used to determine the benefit obligations and net periodic benefit cost for
the Pension Plan were as follows:
Discount rate ...............................................................
Rate of compensation increase....................................
For the Years Ended
December 31,
2006
8.3%
8.0%
2007
8.3%
5.0% – 10.0%
2005
12.0%
8.0%
The Company evaluates these assumptions on a periodic basis taking into consideration current market
conditions and historical market data. The discount rate is used to calculate expected future cash flows at a present
value on the measurement date, which is December 31. This rate represents the market rate for high-quality fixed
income investments. A lower discount rate would increase the present value of benefit obligations. Other
assumptions include demographic factors such as retirement, mortality and turnover.
The following table provides information about the net periodic benefit cost and other accumulated
comprehensive income for the Pension Plan (in thousands):
76
Service cost....................................................................$
Interest cost....................................................................
Recognized actuarial losses ...........................................
Net periodic benefit cost................................................
Unrealized net actuarial (gain) loss, net of tax...............
Total recognized in net periodic benefit cost and
other accumulated comprehensive income ................ $ (1,826) $ 1,587
(9) $
305
43
339
(2,165)
For the Years Ended December 31,
2005
2006
2007
320
348
101
188
—
7
421
543
—
1,044
$
$
421
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):
Year Ending December 31,
2008
2009
2010
2011
2012
2013 through 2017
Amount
—
—
2
3
—
199
$
$
$
$
$
$
In December 2006, the Company adopted the recognition provisions of 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)” 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 recognize $0.1 million of net actuarial gains as a
component of net periodic benefit cost in 2008.
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 matches 50% of participant contributions to a maximum matching amount
of 2% of participant compensation. The Company contribution was $0.7 million, $0.7 million and $0.6 million for
the years ended December 31, 2007, 2006 and 2005, 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 23. 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 $4.2 million, $2.5
million and $0.4 million for the years ended December 31, 2007, 2006 and 2005, respectively. There were no related
income tax benefits recognized in the accompanying Consolidated Statements of Operations for years ended
December 31, 2007, 2006 and 2005. In addition, the Company realized the benefit of tax deductions in excess of
recognized tax benefits of $2.4 million and $30 thousand from the exercise of stock options in the years ended
December 31, 2006 and 2005, respectively (none in 2007). There were no capitalized stock-based compensation
costs at December 31, 2007, 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
77
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, 2007, 2006 and 2005.
The following table summarizes stock option activity under the Plan as of December 31, 2007 and for the year
then ended:
Stock Options
Outstanding at January 1, 2007 ............................
Granted ..................................................................
Exercised ...............................................................
Forfeited or expired ...............................................
Outstanding at December 31, 2007 ......................
Vested or expected to vest at December 31,
2007.......................................................................
Exercisable at December 31, 2007 .......................
Weighted-
Average
Exercise
Price
Shares
(000s)
583
—
(71 )
(28 )
484
484
484
$
$
$
$
13.13
—
6.71
22.87
13.49
13.49
13.49
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(000s)
2.9
$
2.9
2.9
$
$
2,181
2,181
2,181
There is no intrinsic value for options exercised in the three years ended December 31, 2007, 2006 and 2005 since
the exercise price of the options is the same as the market price of the underlying stock on the date of grant.
All stock options under the Plan were fully vested as of December 31, 2007 and there is no unrecognized
compensation cost related to these options granted under the Plan (the effect of estimated forfeitures is not material.)
The total fair value of stock options vested during the years ended December 31, 2006 and 2005 was $0.8 million
and $0.6 million, respectively (none in 2007).
Cash received from stock options exercised under all stock-based compensation plans for the years ended
December 31, 2007, 2006 and 2005 was $0.5 million, $4.3 million and $0.8 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 2007 and 2005.)
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.
78
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, 2007 and 2006 (no SARs were granted in 2005):
Expected volatility .....................................................
Weighted-average volatility .......................................
Expected dividends ....................................................
Expected term (in years) ............................................
Risk-free rate..............................................................
Years Ended
December 31,
2007
53%
53%
—
4.0
4.5%
2006
61%
61%
—
3.8
4.8%
The following table summarizes SARs activity under the Plan as of December 31, 2007 and for the year then ended:
Stock Appreciation Rights
Outstanding at January 1, 2007 ............................
Granted ..................................................................
Exercised ...............................................................
Forfeited or expired ...............................................
Outstanding at December 31, 2007 ......................
Vested or expected to vest at December 31, 2007.
Exercisable at December 31, 2007 .......................
Shares
(000s)
Weighted-
Average
Exercise
Price
—
—
—
—
—
$
126
121
—
(4 )
243
243
41
$
$
$
—
—
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(000s)
8.7
8.7
8.2
$
$
$
464
464
140
The weighted-average grant-date fair value of the SARs granted during the year ended December 31, 2007 and
2006 was $7.72 and $7.28, respectively (no SARs were granted in 2005.) No SARs were exercised during the years
ended December 31, 2007, 2006 and 2005.
The following table summarizes the status of nonvested SARs under the Plan as of December 31, 2007 and for the
year then ended:
Nonvested Stock Appreciation Rights
Nonvested at January 1, 2007 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2007 .............................
79
Shares
(000s)
126
121
(41)
(4)
202
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
7.28
7.72
7.28
7.28
7.54
As of December 31, 2007, there was $1.0 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 1.8 years. For the year ended December 31, 2007, 41 thousand SARs
vested (none in 2006 or 2005).
Restricted Shares -- The Company’s Board of Directors, at the recommendation of the Committee, approves
awards of performance and employment-based restricted shares (“Restricted Shares”) for eligible participants. In
some instances, where the issuance of Restricted Shares has adverse tax consequences to the recipient, the Board
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 are measured at the end of the performance period. If the performance
conditions are met for the performance period, the shares will vest and all restrictions on the transfer of the
Restricted Shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common
stock will be issued to the recipient). The Company recognizes compensation cost, net of 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. The employment-based restricted shares vest one-third on each of the first three
anniversaries of the date of grant, provided the participant is employed by the Company on such date.
In the event of a change in control (as defined in the Plan) prior to the date the Restricted Shares vest, all of the
Restricted Shares 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 have vested and the restrictions have lapsed with respect
to such vested shares, any Restricted Shares 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, 2007 and 2006 was $16.93 and $14.92 (no Restricted Shares/Units were granted in 2005.)
The following table summarizes the status of nonvested Restricted Shares/Units under the Plan as of December
31, 2007 and for the year then ended:
Nonvested Restricted Shares/Units
Nonvested at January 1, 2007 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited...................................................................
Nonvested at December 31, 2007 .............................
Shares
(000s)
308
228
—
(98)
438
Weighted
Average
Grant-Date
Fair Value
$ 14.92
$ 16.93
—
$
$ 17.84
15.69
$
As of December 31, 2007, based on the probability of achieving the performance goals, there was $4.0 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 1.7 years. None of
the Restricted Shares/Units vested during the years ended December 31, 2007, 2006 and 2005.
Other Awards -- The Company’s Board of Directors, at the recommendation of the Committee, approves awards
of Common Stock Units (“CSUs”) for eligible participants. A CSU is a bookkeeping entry on the Company’s books
that records the equivalent of one share of common stock. If the performance goals described under Restricted
Shares in this Note 23 are met, performance-based CSUs will vest on the third anniversary of the grant date. The
Company recognizes compensation cost, net of estimated forfeitures, based on the fair value (which approximates
the current market price) of the CSUs 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
80
period to period will result in corresponding changes in compensation expense. The employment-based CSUs vest
one-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the
Company on such date. On the date each CSU vests, the participant will become entitled to receive a share of the
Company’s common stock and the CSU will be canceled.
The following table summarizes CSUs activity under the Plan as of December 31, 2007, and changes during the
year then ended:
Nonvested Common Stock Units
Nonvested at January 1, 2007 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2007 .............................
Shares
(In thousands)
—
67
(1)
(8)
58
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
—
16.38
16.50
17.64
16.21
As of December 31, 2007, there was $0.2 million of total unrecognized compensation costs, net of estimated
forfeitures, related to nonvested CSUs granted under the Plan. This cost is expected to be recognized over a
weighted-average period of 1.1 years. During the years ended December 31, 2007, 868 CSUs vested (none in 2006).
Until a CSU vests, the participant has none of the rights of a shareholder with respect to the CSU or the common
stock underlying the CSU. CSUs are not transferable.
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. Until a CSU vests, the Director has none of the rights of a shareholder with respect to the CSU or
common stock underlying the CSU. CSUs are not transferable. 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 18 thousand, 30 thousand and 48 thousand CSUs issued under the 2004 Fee Plan during the years ended
December 31, 2007, 2006 and 2005, respectively. The weighted-average grant-date fair value of CSUs granted
during the years ended December 31, 2007, 2006 and 2005 was $19.19, $16.94 and $8.27, respectively. During the
years ended December 31, 2007, 2006 and 2005, 35 thousand, 46 thousand and 31 thousand CSUs vested,
respectively with a fair value of $0.7 million, $0.4 million and $0.3 million, respectively.
The following table summarizes the status of the nonvested CSUs under the 2004 Fee Plan as of December 31,
2007 and for the year then ended:
81
Nonvested Common Stock Units
Nonvested at January 1, 2007 ....................................
Granted ...................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2007 .............................
Shares
(000s)
48
18
(35)
—
31
Weighted
Average
Grant-Date
Fair Value
$ 12.20
$ 19.19
$ 10.96
$
—
17.69
$
Compensation expense for CSUs granted after the adoption of SFAS 123R on January 1, 2006, is recognized
immediately on the date of grant since these grants automatically vest upon termination of a Director’s service,
whether by death, retirement, resignation, removal or failure to be reelected at the end of his or her term. However,
compensation expense for CSUs granted before adoption of SFAS 123R is recognized over the requisite service
period, or “nominal” vesting period of two to three years, in accordance with APB 25. Compensation expense
related to CSUs granted before adoption of SFAS 123R was $0.1 million, $0.3 million and $0.5 million for the years
ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007, there was no unrecognized
compensation cost, net of estimated forfeitures, which relates to nonvested CSUs granted under the 2004 Fee Plan
before adoption of SFAS 123R.
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 7, Investments Held in Rabbi Trust.) As of December 31, 2007 and 2006, liabilities of $1.4 million
and $1.0 million, respectively, of the Deferred Compensation Plan were recorded in “Accrued employee
compensation and benefits” in the accompanying Consolidated Balance Sheets.
Additionally, the Company’s common stock match associated with the Deferred Compensation Plan, with a
carrying value of approximately $0.5 million and $0.4 million at December 31, 2007 and 2006, respectively, is
included in “Treasury Stock” in the accompanying Consolidated Balance Sheets.
The weighted-average grant-date fair value of common stock awarded during the years ended December 31, 2007,
2006 and 2005 was $18.12, $15.72 and $8.56, respectively.
The following table summarizes the status of the nonvested common stock issued under the Deferred
Compensation Plan as of December 31, 2007 and for the year then ended:
Nonvested Common Stock
Nonvested at January 1, 2007 ....................................
Awarded .................................................................
Vested .....................................................................
Forfeited ..................................................................
Nonvested at December 31, 2007 .............................
Shares
(000s)
9
6
(10)
—
5
Weighted
Average
Grant-Date
Fair Value
9.15
$
$ 18.12
$ 14.30
—
$
12.62
$
As of December 31, 2007, 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 3.5 years. The total fair value of the common stock
82
vested during the years ended December 31, 2007, 2006 and 2005 was $0.2 million, $0.3 million and $0.1 million,
respectively.
Cash used to settle the Company’s obligation under the Deferred Compensation Plan was $0.1 million and $0.1
million, respectively, for the years ended December 31, 2007 and 2006. There were no cash settlements during
2005.
Note 24. Segments and Geographic Information
The Company operates within two regions, the “Americas” and “EMEA” which represented 68.0% and 32.0%,
respectively, of consolidated revenues for 2007. The Americas and EMEA regions represented 67.4% and 32.6%,
respectively, of consolidated revenues for 2006, and 64.3% and 35.7%, respectively, of consolidated revenues for
2005. 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 technical staffing 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, 2007, 2006 and 2005 is
as follows:
For the Year Ended December 31, 2007:
Revenues .......................................................... $
Depreciation and amortization .........................
482,823
20,706
$
227,297
4,529
Americas
EMEA
Other (1)
Consolidated
Total
$
710,120
25,235
2,871
(14,192 )
$
$
Income (loss) from operations .......................... $
Other income ....................................................
Provision for income taxes ...............................
Net income .......................................................
77,980
$
13,396
$
(40,196 ) $
For the Year Ended December 31, 2006:
Revenues .......................................................... $
Depreciation and amortization .........................
387,305
20,137
$
186,918
4,610
Income (loss) from operations .......................... $
Other income ....................................................
Provision for income taxes ...............................
Net income .......................................................
For the Year Ended December 31, 2005:
Revenues .......................................................... $
Depreciation and amortization .........................
Income (loss) from operations .......................... $
Other income ....................................................
Provision for income taxes ...............................
Net income .......................................................
71,491
$
10,153
$
(36,486 ) $
6,301
(9,136 )
318,173
20,422
50,224
$
$
176,745
5,521
7,490
$
$
$
$
$
(31,383)
2,772
(5,695 )
83
51,180
2,871
(14,192)
39,859
574,223
24,747
45,158
6,301
(9,136)
42,323
494,918
25,943
26,331
2,772
(5,695)
23,408
(1) Other items (including corporate costs, provision for regulatory penalties, 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, 2007. 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 2007, 2006 and 2005 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):
2007
Years Ended December 31,
2006
2005
Revenues (1) :
United States ............................................... $
Argentina......................................................
Canada .........................................................
Costa Rica ...................................................
El Salvador ...................................................
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 ...................................................
El Salvador ...................................................
Philippines ...................................................
Other ............................................................
Total Americas ........................................
Germany ......................................................
United Kingdom ..........................................
Sweden ........................................................
Spain.............................................................
The Netherlands ..........................................
Hungary .......................................................
Other ............................................................
Total EMEA .............................................
Total ........................................................
$
82,880
36,723
110,472
59,325
22,341
161,684
9,398
482,823
60,389
65,874
24,707
21,156
18,702
15,230
21,239
227,297
710,120
21,907
11,067
10,599
4,395
4,162
16,334
2,133
70,597
2,886
5,904
732
751
777
2,005
1,568
14,623
85,220
$
$
$
$
82,441
15,117
92,876
53,147
9,522
126,418
7,784
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
3,208
13,812
2,481
60,621
3,113
5,441
238
338
597
2,459
1,402
13,588
74,209
$
$
$
$
78,997
—
82,084
45,435
5,973
98,766
6,918
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
2,343
15,324
1,020
60,267
3,494
5,527
376
971
215
2,071
1,452
14,106
74,373
(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.
84
Goodwill:
Americas
EMEA
Total
2007
$
$
22,468
—
22,468
December 31,
2006
$
$
20,422
—
20,422
2005
$
$
5,918
—
5,918
Revenues for the Company’s products and services are as follows (in thousands):
Outsourced customer contact management services ..................
Fulfillment services....................................................................
Enterprise support services ........................................................
Total ......................................................................................
$
$
Note 25. Related Party Transactions
Years Ended December 31,
2006
2005
$ 546,488
18,312
9,423
$ 574,223
$ 468,141
18,096
8,681
$ 494,918
2007
679,364
21,651
9,105
710,120
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, $0.2 million, $0.3 million and $0.6 million, for the
use of his private jet in the years 2007, 2006 and 2005, respectively, which is based on two times fuel costs and
other actual costs incurred for each trip.
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.
85
Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2007, 2006 and 2005
(In thousands)
Allowance for doubtful accounts:
Balance at
Beginning
of Period
Charged
(Credited) to
Costs and
Expenses
Beginning
Balance
(Additions) of Acquired
Deductions Company
Balance at
End of
Period
Year ended December 31, 2007.........................
Year ended December 31, 2006 .......................
Year ended December 31, 2005 ........................
$ 2,534
3,051
4,293
$
$
407
(600)
(649)
128 (1) $ —
(11) (1)
72
593 (1)
—
$ 2,813
2,534
3,051
Valuation allowance for net deferred tax assets:
Year ended December 31, 2007.........................
Year ended December 31, 2006 ......................
Year ended December 31, 2005 .......................
$ 35,267
28,807
30,391
$ (1,244) $ —
—
1,584
6,460
—
$ —
—
—
$ 34,023
35,267
28,807
(1)Net write-offs and recoveries
86
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 services through multiple communication channels encompassing
phone, e-mail, web 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.
FINANCIAL HIGHLIGHTS
Revenues (in Millions)
Operating Margins
Seat Capacity
Capacity Utilization Rate
$800.0
24%
8.0%
16%
$600.0
6%
6.0%
5.0%
7.4%
5.9%
$400.0
$200.0
$0.0
2005
*
2006 2007
Revenues
(in Millions)
4.0%
2.0%
0.0%
^
^^
^^^
2005 2006 2007
Operating Margins
2005
$494.9
5.3%
18,500
83%
2006
$574.2
7.9%
22,600
83%
2007
$710.1
7.2%
26,400
80%
30
25
20
15
10
84%
81%
78%
75%
72%
69%
66%
2005 2006 2007
#
Seat Capacity and
Capacity Utilization Rate
(in Thousands)
Seat Capacity
Capacity Utilization Rates
* In July 2006, the Company purchased Apex, a customer contact management company in Argentina.
Revenue contribution from the Argentina acquisition was $15.1 million for the six-months of 2006 and $36.7 for full-year 2007.
^ Excludes gain from sale of a customer contact management center in 2005, 0.3% of revenues.
^^ Excludes gain from sale of customer contact management centers as well as a charitable contribution reversal of approximately 2.4% and 0.3% of
revenues, respectively.
^^^ Excludes provision related to regulatory penalties in 2007, 0.2% of revenues.
– Differences due to rounding.
# In July 2006, the Company purchased Apex, a customer contact management company in Argentina with approximately 2,200 seats.
BOARD OF DIRECTORS
PRINCIPAL OFFICERS
CORPORATE INFORMATION
CHARLES E. SYKES
President and Chief Executive Officer
W. MICHAEL KIPPHUT
Senior Vice President and
Chief Financial Officer
JAMES C. HOBBY
Senior Vice President,
Global Operations
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
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
FURMAN P. BODENHEIMER, JR.
Director
President and Chief Executive Officer
Zickgraf Enterprises, Inc.
LT. GEN. MICHAEL P. DELONG
(retired)
Director
Corporate Vice President of Strategic
Planning and Operations
Shaw Environmental and
Infrastructure
H. PARKS HELMS, ESQ.
Director
Managing Partner for
Helms, Henderson & Fulton, P.A.
IAIN A. MACDONALD
Director
Chairman of Yakara, plc
Director of the Northern AIM VCT plc
Member of the Scottish Industrial
Development Advisory Board
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
Private Financial Consultant
Director of Heritage Family of Funds
Managing Partner (retired) for Arthur
Andersen’s Central Florida operations
Corporate Headquarters
400 North Ashley Drive,
Suite 2800
Tampa, FL USA 33602
(813) 274-1000
Fax (813) 273-0148
www.sykes.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP
201 E. Kennedy Boulevard,
Suite 1200
Tampa, FL USA 33602
REGISTRAR AND TRANSFER AGENT
Computershare
P.O. Box 43078
Providence, RI 02940-3078
(800) 568-3476
SYKES’ shares trade on
The NasdaqGS Stock Market under
the symbol “SYKE”
ANNUAL MEETING
SYKES’ annual meeting of
shareholders will be held at 9 a.m.
(ET) Wednesday, May 21, 2008 .
The meeting will be held at:
Tampa Mariott Waterside
700 South Florida Avenue
Tampa, FL 33602
INVESTOR INFORMATION
Quarterly Reports on Form 10-Q
and the Form 10-K Annual Report
filed with the Securities and Exchange
Commission are available on the
Company’s website at
http://www.sykes.com/ourcompany/
investorrelations/secfilings.aspx under
the heading “Financial Reports -
SEC Filings,” or upon written
request to Sykes’ Investor Relations
department in Tampa, Florida orby
contacting:
SUBHAASH KUMAR
Vice President, Investor Relations
(813) 274-1000
Corporate Information
JAMES (JACK) K. MURRAY, JR.
Director
Chairman
Murray Corporation
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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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