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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996).
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 0-28274
SYKES ENTERPRISES, INCORPORATED
(Exact name of registrant as specified in its charter)
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FLORIDA 56-1383460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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100 N. TAMPA STREET
SUITE 3900
TAMPA, FLORIDA
(Address of registrant's principal executive offices)
33602
(Zip Code)
(813) 274-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
VOTING COMMON STOCK $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 25, 1997, there were outstanding 21,893,818 shares of Common
Stock. The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the last sale price reported on the Nasdaq National
Market as of March 25, 1997 was $299,766,432.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents Form 10-K Reference
1996 Sykes Enterprises, Incorporated Annual Report Part II Items 5-8
Proxy Statement dated April 9, 1997 Part III Items 10-13
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SYKES ENTERPRISES, INCORPORATED
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE NO.
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 10
Item 3 Legal Proceedings........................................... 10
Item 4 Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5 Market for Registrant's Common Equity and Related 10
Stockholder Matters.........................................
Item 6 Selected Financial Data..................................... 11
Item 7 Management's Discussion and Analysis of Financial Condition 11
and Results of Operations...................................
Item 8 Financial Statements and Supplementary Data................. 11
Item 9 Changes in and Disagreements with Accountants on Accounting 11
and Financial Disclosure....................................
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 11
Item 11 Executive Compensation...................................... 11
Item 12 Security Ownership of Certain Beneficial Owners and 11
Management..................................................
Item 13 Certain Relationships and Related Transactions.............. 11
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 11
8-K.........................................................
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PART I
ITEM 1 -- BUSINESS
Sykes Enterprises, Incorporated ("SEi", "Sykes" or the "Company") provides
a wide array of information technology ("IT") outsourcing services, including
information technology support services and information technology development
services and solutions. The Company's services are provided at various stages
during the life cycle of computer hardware and software products. Through its
state-of-the-art IT call centers, the Company provides information technology
support services (i) to leading computer hardware and software companies by
providing technical product support services to end users of their products and
(ii) to major companies by providing help desk services to their employees.
Through its staff of technical professionals, the Company also provides
information technology development services and solutions to large corporations,
on a contract or temporary staffing basis, including software design,
development, integration and implementation; systems support and maintenance;
and documentation, foreign language translation and software localization. The
integration of these services provides Sykes customers the opportunity to
outsource a broad range of their information technology services needs to the
Company.
In 1993, in an effort to capitalize on the trend toward outsourcing
information technology services, the Company focused its strategic direction
exclusively on the information technology services marketplace and broadened its
array of services. Pursuant to this strategy, the Company began providing
information technology support services by opening IT call centers. Recently,
revenues from information technology support services have grown rapidly through
the opening of four IT call centers in 1994, two in late 1995 and three in 1996.
The domestic IT call centers are stand-alone facilities, each modeled after the
same prototype. The Company's strategy of locating its domestic IT call centers
in smaller communities, typically near a college or university, has enabled the
Company to benefit from a relatively low cost structure and a technically
proficient, stable work force. Including the recent announcement in 1997 to
commence construction on the Company's eighth domestic facility, the Company
estimates that the IT call centers will have the capacity to process in excess
of 100,000 calls per day in the aggregate, up from 7,000 calls per day in
January 1994, from users of hardware and software products seeking technical
assistance.
The Company believes that outsourcing by information technology companies
and companies with information technology needs will continue to grow as
increasing competition encourages businesses to focus on their core competencies
rather then non-revenue producing activities. Rapid technological changes,
significant capital requirements for state-of-the-art technology, and the need
to integrate and update complex information technology systems spanning multiple
generations of hardware and software components make it increasingly difficult
for businesses to cost-effectively maintain quality information technology
services in-house. To capitalize on this trend toward outsourcing, the company
has developed a strategy which includes the following key elements: (i) rapidly
expand information technology support services revenues through additional IT
call centers; (ii) market the Company's expanded array of services to existing
customers to position SEi to become a preferred vendor of outsourced services;
(iii) establish a competitive advantage through the Company's proprietary,
sophisticated technological capabilities; and (iv) expand its customer base
through strategic alliances and selective acquisitions.
Sykes was founded in 1977 in North Carolina and moved its headquarters to
Florida in 1993. In March 1996, Sykes changed its state of incorporation from
North Carolina to Florida.
INDUSTRY BACKGROUND
In today's rapidly changing technological environment, consumers and
businesses require a variety of information technology services in order to
effectively use and manage their complex information technology systems,
including technical support, software development and information systems
integration and management. Many companies' computer systems incorporate a
variety of hardware and software components which may span a number of
technology generations. For example, a company may use client/server systems or
mainframe or midrange hardware platforms running a variety of operating systems,
software applications and relational databases. Information technology services
have become much more important in this environment
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as information technology departments strive to integrate a company's
information processing capabilities into a single system while providing the
flexibility to change with technological innovations.
These technological changes are making it increasingly difficult and
expensive for companies to maintain in-house the necessary personnel to handle
all of their information technology needs. Hardware and software companies, as
well as businesses utilizing their products, are increasingly turning to third
party vendors to perform specialized functions and services. Outsourcing of (i)
product support functions by leading hardware and software companies, (ii)
employee help desk functions by major companies, and (iii) other information
technology services such as software design and systems integration and
management, is growing rapidly because of the following factors:
- Increasing need for companies to focus on core competencies rather than
non-revenue producing activities;
- Rapid technological changes requiring personnel with specialized
technical expertise;
- Growing capital requirements for sophisticated technology necessary to
provide timely product support and help desk functions;
- Increasing need to integrate and continually update complex systems
incorporating a variety of hardware and software components spanning a
number of technology generations;
- Extensive and ongoing staff training and associated costs required to
maintain responsive, up-to-date in-house technical support and information
technology services; and
- Cost savings from converting fixed employee costs to flexible, variable
costs
Dataquest reports that information technology services are expected to grow
from $50.7 billion in 1995 to $79.0 billion in 1999. Of this amount, Dataquest
estimates that technical support services, such as the services provided through
the Company's IT call centers, will increase from $20.6 billion in 1995 to $31.5
billion in 1999, with the amount of such services outsourced to third party
vendors increasing from $2.6 billion to $7.2 billion for the same periods. The
increasing cost to provide technical product support is especially evident, as
Dataquest now estimates that one in six employees of software companies performs
technical support functions, up from one in twelve employees in 1989, and that
the cost of technical support now amounts to approximately 4% and 8% of the
revenues of hardware and software companies, respectively.
In the face of rapid technological change, large corporations also find it
increasingly difficult and expensive to service all of their own information
technology needs through in-house personnel. Gartner Group, an information
technology advisory firm, predicts that more than 40% of companies with internal
help desks will outsource a portion of this function by 1998, compared with 15%
in 1995.
As the outsourcing of technical product support, help desk and other
information technology services has gained acceptance, many companies also are
seeking to consolidate the number of vendors which provide them with these
services. Accordingly, providers of information technology outsourcing services
must offer a wide array of services to maintain a preferred vendor relationship
with their customers. Sykes believes its broad range of services will allow it
to capitalize on this trend.
STRATEGY
The Company's objective is to continue its growth and to become a leading
provider of a wide variety of information technology outsourcing services by
being responsive to and providing skilled personnel for its clients' long-term
outsourcing needs. The Company's principal strategies for achieving this
objective are as follows:
Rapidly Expand Through Systematic Addition of IT Call Centers. The Company
intends to continue to rapidly expand information technology support services
revenues through its existing IT call centers and through additional IT call
centers. With the addition of five domestic IT call centers between October 1995
and December 1996 and the two IT call centers acquired through the Datasvar
acquisition, the Company's IT call centers currently have the capacity to handle
up to approximately 23.4 million calls per year. Sykes has
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systematized the establishment and ongoing operation of its domestic IT call
centers by: (i) locating the centers in smaller communities, near a college or
university, with a relatively low cost structure and a technically proficient,
stable work force; (ii) constructing the IT call centers modeled after the same
prototype; (iii) utilizing standardized procedures to hire and train
technicians; and (iv) maintaining consistently responsive, high quality services
through call monitoring and tracking technology and other quality assurance
procedures. The Company's systematic approach and procedures are part of its
strategy of providing responsive, high quality support at a lower cost than the
Company's competitors.
Position Sykes as a Preferred Vendor. The Company intends to cross-market
its expanded array of information technology services to existing customers and
to continue to provide consistently high quality services to new and existing
customers in order to position the Company as a preferred vendor of outsourced
services. Sykes believes that its ability to work in partnership with its
customers during the life cycle of their information technology products and
systems, from software design and systems implementation, through technical
documentation and foreign language translation, to end user technical product
support, gives it a competitive advantage to become the provider of choice to
its customers. Sykes has expanded the services it provides, such as help desk
and diagnostic support services, through its existing relationships with Fortune
500 companies, particularly those customers using the Company's services to
satisfy all or part of their information technology development services and
solutions needs.
Capitalize on Sophisticated Technology. The Company seeks to establish a
competitive advantage by continuing to capitalize on its sophisticated and
specialized technological capabilities, including PBX switches, automatic call
distributors, call tracking software and computer-telephone integration. These
capabilities allow its IT call centers to serve as the transparent extension of
the Company's customers, receive telephone calls and data directly from its
customers' systems, and report detailed information concerning the status and
results of the Company's services on a daily basis. The Company's sophisticated
technology and systems, which the Company is able to upgrade periodically
because of their open architecture, enable the Company to provide high response
rates at a low cost per transaction.
The Company's strategy is to continue to develop or acquire other
technologies that complement its technical product support functions. For
example, the Company intends to integrate the capabilities of it's sophisticated
diagnostic proprietary software with Sykes IT call centers to further enhance
the efficiency and quality of the Company's information technology support
services, and believes that enhancements to this software will enable it to
access and offer information technology support services directly to the home
and small business markets.
Growth Through Strategic Alliances. The Company intends to expand its
customer base, geographic presence and the information technology services Sykes
provides by forming strategic alliances with other information technology
service providers, particularly those who do not provide labor intensive
technical support. For example, information technology services providers such
as systems integrators increasingly are seeking partners to whom they can
outsource the help desk requirements of their customers. The Company continues
to actively seek help desk contracts with such providers.
Growth Through Selective Acquisitions. The Company intends to acquire
complementary businesses to increase market share, expand its services, enter
key industry sectors and expand its geographic presence. The Company believes it
can expand the scope and quality of its information technology support services
by acquiring companies with IT call centers in Europe and other international
markets which provide quality technical support for leading computer hardware
and software companies, as well as companies which enhance its ability to
provide such services. The Company further believes that significant
opportunities exist to acquire organizations which provide information
technology services within the Company's strategic focus of the retail, banking
and telecommunications industries in which the Company primarily does not
currently compete. The information technology services industry is highly
fragmented, with in excess of 1,000 firms providing software services in 1995 in
the United States, according to Dataquest. Many of these small, local firms may
be attractive acquisition candidates because they would enable Sykes to open new
or expand existing branch offices. During 1996, SEi acquired two such
organizations and issued a letter of intent to purchase a third, in a
transaction that was completed subsequent to the year end.
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SERVICES
The Company provides a wide array of information technology outsourcing
services, including information technology support services and information
technology development services and solutions. The following is a description of
Sykes' outsourcing services:
Technical Product Support. Sykes provides technical product support
services by telephone (24 hours a day, 7 days a week) to end users of the
products of hardware and software companies through its seven stand-alone IT
call centers in the United States and three IT call centers in Europe. Consumers
of hardware or software products of Sykes' customers dial a technical support
number listed in their product manuals and are automatically connected to an IT
call center technician who is specially trained in the applicable product and
acts as a transparent extension of the hardware or software company in
diagnosing problems and answering technical questions. The IT call centers also
provide technical product support by electronic mail and electronic bulletin
boards. The IT call centers in Europe provide support in 14 languages to 22
European countries.
As a result of a recent acquisition, the Company also develops and markets
proprietary diagnostic software for use by manufacturers, professional service
personnel and end users, which serves as a tool for enhancing Sykes' technical
product support services. Proprietary diagnostic products are developed and
marketed for use with a variety of operating systems which include software used
by personal computer manufacturers for quality assurance and pre-installed or
bundled software used by professional service personnel and end users for
verifying component functionality, troubleshooting, resolving hardware and
software conflicts and hardware repairs.
Help Desk Services. The Company provides help desk services to major
companies, at their facilities or through the IT call centers, that have
outsourced technical support for their internal information technology systems.
Employees of Sykes' customers telephone the help desk number provided to them by
their employer for technical assistance. Trained technicians dedicated to a
specific customer answer questions and diagnose and resolve technical problems
ranging from a simplistic error message to a wide area network failure.
Software Design, Development, Integration and Implementation. Sykes'
professional personnel provide software application design services geared
toward the development of a functional and technical blueprint for a client's
desired software application. These professionals identify applicable business
processes supported by an application and its related functions, determine end
user requirements and prepare a comprehensive plan for developing and
implementing the application. They also develop custom software necessary to
operate a desired application, integrate the application into the customer's
existing information processing architecture, test the functionality of the
application and assist the customer in training its personnel to use the
application.
Systems Specialization and Maintenance. Sykes' professional personnel
provide a variety of services designed to support and maintain client/server
systems and mainframe and midrange platforms. These services include systems
administration, maintenance and management support, applications enhancement and
training services.
Documentation and Foreign Language Translation. Sykes' professional
personnel provide companies with technical writing and editing of product
information and technical manuals and foreign language translation and
localization of software, technical manuals and product information in a variety
of sophisticated multimedia formats. They provide translation and localization
for 12 languages in 20 countries.
OPERATIONS
IT Call Centers. The Company's strategy in the United States is to locate
its IT call centers in smaller communities with similar demographic
characteristics, typically near a college or university. The Company believes
these characteristics tend to provide a well-educated, technically proficient
employee pool from which to attract qualified candidates. These locations also
tend to have lower labor and infrastructure costs than large metropolitan areas.
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New IT call centers are established to accommodate anticipated growth in
the Company's business or in response to a specific customer need. The Company
believes that additional IT call centers will be established in the United
States and Europe and potentially in Asia.
A typical domestic IT call center is approximately 42,000 square feet, has
425 work stations and can handle 12,000 calls per day. The IT call centers
employ current technology in PBX switches, call tracking software,
telephone-computer integration, interactive voice response and relational
database management systems that are integrated into centrally managed local
area networks and wide area networks. The Company's sophisticated equipment and
technology enable it to serve as the transparent extension of its customers at a
low cost per transaction and provide its customers with immediate access to the
status and results of the Company's services. Due to its modular, open system
architecture, the Company's computer system allows timely system updates and
modifications. The Company utilizes sophisticated call tracking software and
systems to provide efficient scheduling of personnel to accommodate fluctuations
in call volume.
Automated call distributors and digital switches identify each call by the
number dialed and automatically route the call to a technician with the
applicable knowledge and training. The technical product support calls are
routed directly from the end user to the IT call center or are overflow calls
routed from the client's place of business. Sykes IT call center in Amsterdam
receives calls from the United Kingdom, Western Europe and parts of Eastern
Europe, and the IT call centers in Sweden receive calls from Sweden, Norway,
Denmark and Finland.
IT call center systems capture and download to permanent databases a
variety of information concerning each call for reporting on a daily basis to
customers, including number and duration of calls (which are important for
billing purposes), response time and results of the call. Summary data and
complete databases are made available to the customer to enable it to monitor
the level of service provided by the Company, as well as to determine whether
end users of its products are encountering recurring problems that require
modification. The databases also provide Sykes customers with considerable
marketing information concerning end users, such as whether the user is a home
or business user and regional differences in purchasing patterns or usage. The
Company maintains tape backups and offsite storage to assure the integrity of
its reporting systems and databases.
The IT call centers are protected by a fire extinguishing system and backup
generators and short-term battery backup in the event of a power outage, reduced
voltage or power surge. Rerouting of telephone calls to one of the other IT call
centers is also available in the event of a telecommunications failure, natural
disaster or other emergency. Security measures are imposed to prevent
unauthorized access. Software and related data files are backed up daily and
stored off site at multiple locations. The Company carries business interruption
insurance covering interruptions that might occur as a result of damage to its
business. In addition, the Company believes that it has adequate arrangements
with its equipment vendors pursuant to which damaged equipment can be replaced
promptly.
Branch Offices. Sykes' professional personnel are assigned to one of the
Company's ten branch offices, which are located in metropolitan areas throughout
the United States in order to be closer to their major customers. Each branch
office is responsible for staffing the professional personnel needs of customers
within its geographic region and customers referred from other branch offices
based on specialized needs. These offices give Sykes the ability to (i) offer a
broad range of professional services on a local basis, and (ii) respond to
changing market demands in each geographical area served. The number of
professionals assigned to each branch office ranges from 14 to 130.
Each branch office is staffed with one or more account executives whose
goal is to become the client's partner in evaluating and meeting the client's
information technology needs. The account executive's primary responsibilities
include: client development; understanding and identifying clients' information
technology service needs; working closely with recruiters to staff assignments
appropriately; setting billing rates for each assignment; and monitoring ongoing
assignments. Each account executive is responsible for between four and ten
active corporate accounts, some of which may involve several projects with
multiple operating units of a particular company. The account executive
cultivates and maintains relationships with the client's chief information
officer and numerous department and project managers within the client's
organization.
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The account executive has responsibility for staffing an assignment on a
timely basis. Upon receiving a new assignment, the account executive prepares a
proposal with assignment specifications and distributes the proposal to a
recruiter who is familiar with the professionals who have the expertise required
for the assignment. The account executive reviews the recruiter's recommended
candidates, submits the resumes of qualified employees and other available
candidates to the client and schedules client interviews of the candidates.
Typically, an assignment is staffed within five working days. For certain
clients with whom the Company has long-term relationships, account executives
are given sole responsibility for staffing assignments with little or no client
involvement in the decision.
QUALITY ASSURANCE
The Company carefully trains, monitors and supervises its employees to
enhance efficiency and quality of its services. The training of new technicians
at the IT call centers is conducted in-house through certified trainers or by
professionals supplied by the Company's customers. The Company actively recruits
highly skilled professionals to staff specific assignment needs of its
information technology development services and solutions customers. Generally,
employees also receive ongoing training throughout the year to respond to
changes in technology.
An IT call center manager supervises project leaders, team leaders and
technicians dedicated to individual customer accounts. Each team leader at the
IT call centers monitors approximately ten technicians. A project leader
supervises a particular customer's account by monitoring calls and reviewing
quality standards. Using the Company's proprietary, sophisticated call tracking
software, the project leader monitors the number of calls each technician
handles, the duration of each call, time between calls, response time, number of
queries resolved after the first call and other statistics important in
measuring and enhancing productivity and service levels. Remote and on-site call
monitoring systems and on-line performance tracking are used to enhance high
quality services. Customers have daily access to a variety of measures of
service performance tracked by the Company's technology and can monitor calls
directly through the Company's remote call monitoring systems.
The Company emphasizes a team approach in order to provide high quality,
customized solutions to meet its clients' information technology development
services and solutions needs. The central role in this team approach is provided
by the Company's account executives and recruiters who work together to achieve
a successful relationship between the client and the Company's professionals.
The team shares information on active and prospective clients, reviews the
availability of professionals and discusses general market conditions. Such
forums enable the teams to remain informed and knowledgeable on the latest
technologies and to identify business development opportunities as they emerge.
The Company is committed to providing its customers with the highest
quality services. To that end, the Company's IT call center in Sterling,
Colorado has received ISO 9002 certification, an international standard for
quality assurance and consistency in operating procedures. The Company
anticipates that ISO 9002 certification will become a determining factor to
organizations outsourcing their technical product support or help desk
functions. Consequently, the Company has modeled each IT call center after ISO
9002 procedures to achieve consistency and quality. Additionally, the Company
received the 1995 and 1996 STAR Award in the highest call volume category. This
award has been presented annually since 1988 by the Software Support
Professionals Association (SSPA) to the software support company that achieves
superior customer satisfaction and call metrics.
SALES AND MARKETING
The Company's marketing objective is to develop long-term relationships
with existing and potential clients to become the preferred vendor of their
information technology outsourcing services. Sykes believes that its significant
client base provides excellent opportunities for further marketing of its broad
range of capabilities. In order to further enhance its marketing efforts, the
Company recently increased its direct sales force from 9 to 30 employees. The
Company markets its information technology services through a variety of
methods, including client referrals, personal sales calls, advertising in
industry publications, attending trade
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shows, direct mailings to targeted customers, telemarketing and cross selling
additional services to existing clients.
As part of its marketing efforts, the Company invites potential and
existing customers to visit the IT call centers, where the Company demonstrates
its sophisticated telecommunications and call tracking technology, quality
procedures and the knowledge of its technicians. The Company also demonstrates
its ability to quickly accommodate a new customer or a significant increase in
business from an existing customer by emphasizing its systematic approach to
establishing and managing IT call centers.
SEI's diagnostic products are marketed to hardware manufacturers by a
direct sales team for use by manufacturers in the manufacturing and quality
control processes or for bundling as part of factory-installed software for the
end user.
The Company also emphasizes account development to strengthen its
relationships with its customers. Sales representatives and account executives
are assigned to a limited number of accounts in order to develop a complete
understanding of each customer's particular needs, to form strong customer
relationships and encourage cross selling of other services offered by the
Company. Account executives also receive incentives for cross selling the
Company's services.
Technical product support services provided through IT call centers
generally are billed to the client based on a fee per call, rate per minute or
time and material basis. As a result of the significant infrastructure costs
required for each IT call center, the Company has recently begun increasing its
efforts to obtain contracts requiring a minimum billing amount to facilitate
planning and capital needs. Help desk services usually are billed at a flat rate
per employee per month, with the per employee charge varying depending on the
customer's total number of employees and the complexity of its information
systems.
Information technology development services and solutions engagements
generally are billed on a time and material basis. Sykes is expanding its
efforts to obtain contracts with customers lasting six months or longer to
increase recurring revenues, maximize utilization of professional personnel and
enhance long-term relationships. The Company also is attempting to obtain
contracts to provide for the management of a customer's entire information
technology project, rather than providing professionals to staff a
client-managed project, with a view to enhancing profit margins through the
provision of value-added management services.
CUSTOMERS
The Company has customers in the United States, Canada and Europe. The
Company's customers include Fortune 500 corporations and leading hardware and
software companies. The Company believes its nationally recognized customer base
presents opportunities for further cross-marketing of its services.
During 1996, 37% of the Company's consolidated revenues were attributable
to three significant customers. In 1995, 33% of the Company's consolidated
revenues were derived from two significant customers. Apple Computer, which
became a customer during 1994, accounted for 17% and 15% of the Company's
revenues in 1995 and 1996, respectively. Service 2000, which became a customer
during 1995, accounted for 11% of the Company's revenues in 1996. IBM, which had
historically been the Company's largest client, accounted for 30%, 27%, 16% and
11% of consolidated revenues for the year ended July 31, 1994, the five months
ended December 31, 1994, and the years ended December 31, 1995 and 1996,
respectively. During the first quarter of 1996, IBM instituted a policy that
certain information technology services be provided through designated national
vendors. The Company has entered into an agreement with such a vendor, Decision
Consultants, Inc., under which certain services, previously provided directly to
IBM, are being provided indirectly to IBM through this vendor. Although the
Company believes its relationship with IBM will not be affected by the change in
the method of providing its services to IBM, there can be no assurance that the
Company will continue to provide such services. The Company's loss of (or the
failure to retain a significant amount of business with) any of its key
customers could have a material adverse effect on the Company. The Company's
largest ten customers accounted for approximately 61% of the consolidated
revenues in 1996. Generally, the Company's contracts are cancelable by each
customer at any time or on short-term notice, and
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customers may unilaterally reduce their use of the Company's services under such
contracts without penalty. Sykes provided services to approximately 250
customers during 1996.
COMPETITION
The industry in which the Company competes is extremely competitive and
highly fragmented. While many companies provide information technology services,
management believes no one company is dominant. There are numerous and varied
providers of such services, including firms specializing in call center
operations, temporary staffing and personnel placement companies, general
management consulting firms, major accounting firms, divisions of large hardware
and software companies and niche providers of information technology services,
many of whom compete in only certain markets. The Company's competitors include
many companies who may possess substantially greater resources, greater name
recognition and a more established customer base than the Company. In addition,
the services offered by the Company historically have been provided by in-house
personnel. The Company's also competes with other developers of software
diagnostic tools, many of which have significantly greater financial, technical,
marketing and other resources than the Company.
The Company believes that the most significant competitive factors in the
sale of its services include quality and reliability of services, flexibility in
tailoring services to customer needs, price, experience, reputation and
comprehensive and integrated services. As a result of intense competition,
information technology development services and solutions engagements frequently
are subject to pricing pressure. Customers also require vendors to be able to
provide services in multiple locations. Competition for contracts for many of
Sykes' services takes the form of competitive bidding in response to requests
for proposals.
Many of Sykes' large customers purchase information technology services
primarily from a limited number of preferred vendors. Sykes has experienced and
continues to anticipate significant pricing pressure from these customers in
order to remain a preferred vendor. These companies also require vendors to be
able to provide services in multiple locations.
INTELLECTUAL PROPERTY
The Company relies upon a combination of contract provisions and trade
secret laws to protect the proprietary technology it uses at its IT call
centers. Sykes relies on a combination of copyright, trademark and trade secret
laws to protect it's proprietary software. The Company attempts to further
protect its trade secrets and other proprietary information through agreements
with employees and consultants. The Company does not hold any patents and does
not have any patent applications pending. There can be no assurance that the
steps taken by the Company to protect its proprietary technology will be
adequate to deter misappropriation of its proprietary rights or third party
development of similar proprietary software. Sykes(R) is a registered
servicemark of the Company. Through a subsidiary organization SEi holds a number
of registered trademarks, including DIAGSOFT(R), QAPLUS/WIN(R) and ETSC(R).
EMPLOYEES
As of March 1, 1997, the Company had 3,574 full-time employees, consisting
of 32 in sales and marketing, 2,743 customer support technicians at the IT call
centers, 597 technical professionals and 202 in management, administration and
finance.
The technical and service nature of the Company's business makes its
employees an important corporate asset. While the market for qualified personnel
is extremely competitive, the Company believes its relationship with its
employees is good. The Company's employees are not represented by any union.
The Company believes that it gains a competitive advantage by locating its
IT call centers in smaller communities in which they become an integral part of
the local economy and labor force. The Company believes that personnel located
in such communities can be employed at a lower overall cost than employees
located in a metropolitan setting. Sykes IT call centers are located in
communities near a college or university
8
<PAGE> 11
to provide a well-educated, technically proficient work force. Applicants are
interviewed for technical skills as well as interpersonal skills.
The Company recruits its professional personnel through a continually
updated recruiting network. This network includes a seasoned team of technical
recruiters, a Company-wide candidate database, Internet/ newspaper advertising,
candidate referral programs and job fairs. Qualified individuals have generally
been available as major companies have increasingly begun downsizing and
outsourcing information technology services instead of relying on in-house MIS
personnel. However, demand for qualified professionals conversant with certain
technologies may outstrip 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 OF THE REGISTRANT
The following table provides the names and ages of the Company's executive
officers, and the positions and offices with the Company currently held by each
of them:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
- ---- --- ------------------
<S> <C> <C>
John H. Sykes................................... 60 President and Chief Executive Officer
David E. Garner................................. 39 Senior Vice President
John D. Gannett, Jr............................. 42 Senior Vice President
Scott J. Bendert................................ 40 Vice President -- Finance, Treasurer
and Chief Financial Officer
John L. Crites, Jr.............................. 52 Vice President and General Counsel
</TABLE>
John H. Sykes has been President and Chief Executive Officer of the Company
since its inception in 1977. Previously, Mr. Sykes was Senior Vice President of
CDI Corporation, a publicly-held technical services firm.
David E. Garner joined the Company in 1984 and, since 1994, has served as
Senior Vice President with responsibility for information technology support
services for both national and international operations. Prior to becoming
Senior Vice President, Mr. Garner held various technical and managerial
positions within the Company.
John D. Gannett, Jr. rejoined the Company in 1995 as Senior Vice President
with responsibility for information technology development services and
solutions. Prior to 1995, Mr. Gannett provided consulting services to the
Company under an agreement entered into in 1991. From 1979 to 1991, Mr. Gannett
held various management positions within the technical and documentation
services areas of the Company.
Scott J. Bendert joined the Company in 1993 as Chief Financial Officer. In
1994, Mr. Bendert was named Treasurer, and in 1995 was appointed Vice
President--Finance. From 1984 to 1993, Mr. Bendert held various management
positions with Reflectone, Inc., a publicly-held producer of complex computer
simulator trainers and devices, most recently as Corporate Controller.
John L. Crites, Jr. joined the Company as Vice President and General
Counsel on April 1, 1996. Prior thereto and since 1991, Mr. Crites served as
Executive Director of the Vivian L. Smith Foundation for Restorative Neurology
at Baylor College of Medicine in Houston, Texas.
9
<PAGE> 12
ITEM 2 -- PROPERTIES
The Company's principal executive offices are located in Tampa, Florida.
This facility currently serves as the headquarters for senior management, the
financial and administrative departments and the Tampa branch office. The
following table sets forth additional information concerning the Company's
facilities:
<TABLE>
<CAPTION>
SQUARE LEASE
PROPERTIES FEET GENERAL USAGE EXPIRATION
- ---------- ------ ------------- ------------------
<S> <C> <C> <C>
Tampa, Florida................. 18,000 Corporate headquarters December 2002
5,000 Development office September 1998
Greeley, Colorado.............. 42,000 IT call center N/A
Sterling, Colorado............. 34,000 IT call center N/A
Hays, Kansas................... 42,000 IT call center N/A
Bismarck, North Dakota......... 42,000 IT call center N/A
Minot, North Dakota............ 42,000 IT call center N/A
Ponca City, Oklahoma........... 42,000 IT call center N/A
Klamath Falls, Oregon.......... 42,000 IT call center N/A
Amsterdam, The Netherlands..... 23,200 IT call center November 1997
Jarvso, Sweden................. 9,200 IT call center December 1997
Sveg, Sweden................... 6,600 IT call center June 1998
Boulder, Colorado.............. 13,000 Branch office March 1998
Boise, Idaho................... 2,400 Branch office January 1997
Overland Park, Kansas.......... 2,600 Branch office July 1999
Boston, Massachusetts.......... 26,000 Branch office September 2000
St. Louis, Missouri............ 5,500 Branch office September 1998
Poughkeepsie, New York......... 1,000 Branch office July 1997
Cary, North Carolina........... 9,500 Branch office December 1999
Charlotte, North Carolina...... 2,200 Branch office March 1997
Irving, Texas.................. 5,500 Branch office June 1998
</TABLE>
The Company owns each of its domestic IT call centers and anticipates that
additional IT call centers will be required due to growth and expansion.
Facilities formerly used as the Company's headquarters in Charlotte, North
Carolina are leased through October 2004 and are currently subleased to third
parties through June 1999.
ITEM 3 -- LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of management, no litigation to which the Company
currently is a party is likely to have a materially adverse effect on the
Company's results of operations or financial condition, if decided adversely to
the Company.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security-holders during the fourth
quarter of the year covered by this report.
PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The information called for by this Item is contained in the Company's
Annual Report, and is incorporated herein by reference.
10
<PAGE> 13
ITEM 6 -- SELECTED FINANCIAL DATA
The information called for by this Item is contained in the Company's
Annual Report, and is incorporated herein by reference.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this Item is contained in the Company's
Annual Report, and is incorporated herein by reference.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in the Company's
Annual Report, and is incorporated herein by reference.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item, with respect to Directors, is
contained in the Company's Proxy Statement pertaining to the 1997 Annual Meeting
of Shareholders, and is incorporated herein by reference. The information called
for by this Item, with respect to Executive Officers, is set forth in Item 1 of
this report under the caption "Executive Officers of the Registrant."
ITEM 11 -- EXECUTIVE COMPENSATION
The information called for by this Item is contained in the Company's Proxy
Statement pertaining to the 1997 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is contained in the Company's Proxy
Statement pertaining to the 1997 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is contained in the Company's Proxy
Statement pertaining to the 1997 Annual Meeting of Shareholders, and is
incorporated herein by reference.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements
- Report of Independent Certified Public Accountants.
The following information is contained in the Company's Annual Report,
and is incorporated herein by reference:
- Consolidated Balance Sheets as of December 31, 1995 and 1996.
- Consolidated Statements of Operations for the Year Ended July 31,
1994, the Five Months Ended December 31, 1994 and the Years Ended
December 31, 1995 and 1996.
11
<PAGE> 14
- Consolidated Statements of Changes in Shareholders' Equity for the
Year Ended July 31, 1994, the Five Months Ended December 31, 1994 and
the Years Ended December 31, 1995 and 1996.
- Consolidated Statements of Cash Flows for the Year Ended July 31,
1994, the Five Months Ended December 31, 1994 and the Years Ended
December 31, 1995 and 1996.
- Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
- Report of Independent Accountants
Schedule II -- Valuation and Qualifying Accounts
(a)(3) Exhibits
The following documents are filed as exhibits to this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <C> <S>
2.1 -- Articles of Merger between Sykes Enterprises, Incorporated,
a North Carolina corporation, and Sykes Enterprises,
Incorporated, a Florida corporation, dated March 1, 1996.(1)
2.2 -- Articles of Merger between Sykes Enterprises, Incorporated
and Sykes Realty, Inc.(1)
2.3 -- Stock Purchase Agreement dated July 1, 1996 among Sykes
Enterprises, Incorporated and Johan Holm, Arne Weinz and
Norhold Invest AB.(2)
2.4 -- Stock Purchase Agreement dated August 30, 1996 among Sykes
Enterprises, Incorporated and Gordon H. Kraft.(3)
2.5 -- Merger Agreement dated as of January 10, 1997 among Sykes
Enterprises, Incorporated, Info Systems of North Carolina,
Inc. and ISNC Acquisition Co. The schedules and Exhibit to
this document are not being filed herewith. Sykes
Enterprises, Incorporated agrees to furnish supplementally a
copy of such schedules to the Securities and Exchange
Commission upon request.(4)
3.1 -- Articles of Incorporation of Sykes Enterprises,
Incorporated.(1)
3.2 -- Bylaws of Sykes Enterprises, Incorporated, as amended.(1)
4.1 -- Specimen certificate for the Common Stock of Sykes
Enterprises, Incorporated.(1)
10.1 -- Loan Agreement between NationsBank, N.A. and Sykes
Enterprises, Incorporated dated as of December 31, 1996.
10.2 -- Employment Agreement dated as of January 1, 1996 between
John H. Sykes and Sykes Enterprises, Incorporated.(1)
10.3 -- Form of Employment Agreement between executive officers and
Sykes Enterprises, Incorporated.(1)
10.4 -- Stock Option Agreement between Sykes Enterprises,
Incorporated and David E. Garner dated as of December 31,
1995.(1)
10.5 -- 1996 Employee Stock Option Plan.(1)
10.6 -- 1996 Non-Employee Director Stock Option Plan.(1)
10.7 -- 1996 Non-Employee Directors' Fee Plan.(1)
10.8 -- Form of Split Dollar Plan Documents.(1)
10.9 -- Form of Split Dollar Agreement.(1)
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <C> <S>
10.10 -- Form of Indemnity Agreement between directors and executive
officers and Sykes Enterprises, Incorporated.(1)
10.11 -- Aircraft Lease Agreement between JHS Leasing of Tampa, Inc.
as lessor and Sykes Enterprises, Incorporated as lessee,
dated December 1, 1995.(1)
10.12 -- Single Tenant Property Lease Agreement between Sykes
Investments as landlord and Sykes Enterprises, Incorporated
as tenant dated October 31, 1989, for building in Charlotte,
North Carolina(1)
10.13 -- Tax Indemnification Agreement between Sykes Enterprises,
Incorporated and John H. Sykes.(1)
10.14 -- Consultant Agreement between Sykes Enterprises, Incorporated
and E.J. Milani Consulting Corp. dated April 1, 1996.(1)
10.15 -- Registration Rights Agreement among Sykes Enterprises,
Incorporated and Johan Holm, Arne Weinz and Norhold Invest
AB dated July 16, 1996.(2)
10.16 -- Registration Rights Agreement between Sykes Enterprises,
Incorporated and Gordon H. Kraft dated August 30, 1996.(3)
13.1 -- 1996 Sykes Enterprises, Incorporated Annual Report.
21.1 -- List of subsidiaries of Sykes Enterprises, Incorporated.(5)
23.2 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Power of Attorney relating to subsequent amendments
(included on the signature page of this report).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
(1) Filed as the same numbered Exhibit to Registration No. 333-2324 and
incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's Form 8-K dated July 31, 1996 and
incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Form 8-K dated September 16, 1996
and incorporated herein by reference.
(4) Included as Appendix A to the Proxy Statement/Prospectus contained in
Registration No. 333-20465.
(5) Filed as the same numbered Exhibit to Registration No. 333-20465 and
incorporated herein by reference.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1996.
13
<PAGE> 16
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 26th day of March, 1997.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
By: /s/ SCOTT J. BENDERT
------------------------------------
Scott J. Bendert
Vice President-Finance, Treasurer
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 in the capacities and on
the dates indicated. Each person whose signature appears below constitutes and
appoints Scott Bendert and John Crites and each of them individually, 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 attorneys-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 could do in person, hereby
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN H. SYKES Chairman of the Board, President, March 26, 1997
- ------------------------------------------------ Chief Executive Officer and
John H. Sykes Director (Principal Executive
Officer)
/s/ SCOTT J. BENDERT Vice President -- Finance, Chief March 26, 1997
- ------------------------------------------------ Financial Officer and Treasurer
Scott J. Bendert (Principal Financial and
Accounting Officer)
/s/ DAVID E. GARNER Director March 26, 1997
- ------------------------------------------------
David E. Garner
/s/ JOHN D. GANNETT, JR. Director March 26, 1997
- ------------------------------------------------
John D. Gannett, Jr.
/s/ FURMAN P. BODENHEIMER, JR. Director March 26, 1997
- ------------------------------------------------
Furman P. Bodenheimer, Jr.
/s/ H. PARKS HELMS Director March 26, 1997
- ------------------------------------------------
H. Parks Helms
/s/ GORDON H. LOETZ Director March 26, 1997
- ------------------------------------------------
Gordon H. Loetz
/s/ ERNEST J. MILANI Director March 26, 1997
- ------------------------------------------------
Ernest J. Milani
/s/ R. JAMES STROKER Director March 26, 1997
- ------------------------------------------------
R. James Stroker
</TABLE>
14
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Sykes Enterprises, Incorporated:
We have audited the consolidated balance sheets of Sykes Enterprises,
Incorporated and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year ended July 31, 1994, the five months ended December 31, 1994,
and the years ended December 31, 1995 and 1996, which financial statements are
included on pages 21 through 36 of the 1996 Sykes Enterprises, Incorporated
Annual Report and incorporated by reference herein. We have also audited the
financial statement schedule on page 16 of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sykes
Enterprises, Incorporated and subsidiaries as of December 31, 1995 and 1996, and
the consolidated results of their operations and their cash flows for the year
ended July 31, 1994, the five months ended December 31, 1994, and the years
ended December 31, 1995 and 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 14, 1997
15
<PAGE> 18
SYKES ENTERPRISES, INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JULY 31, 1994, THE FIVE MONTHS ENDED DECEMBER 31, 1994,
AND THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
BEGINNING CHARGE TO COST ENDING
BALANCE AND EXPENSES DEDUCTIONS(1) BALANCE
--------- -------------- ------------- --------
<S> <C> <C> <C> <C>
Year ended July 31, 1994
Allowance for doubtful accounts............... $225,677 $ 24,776 $ -- $250,453
Five months ended December 31, 1994
Allowance for doubtful accounts............... 250,453 36,871 94,928 192,396
Year ended December 31, 1995
Allowance for doubtful accounts............... 192,396 132,572 120,571 204,397
Year ended December 31, 1996
Allowance for doubtful accounts............... 204,397 7,074 91,471 120,000
</TABLE>
- ---------------
(1) Write-offs and recoveries
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
2.1 -- Articles of Merger between Sykes Enterprises, Incorporated,
a North Carolina corporation, and Sykes Enterprises,
Incorporated, a Florida corporation, dated March 1, 1996.(1)
2.2 -- Articles of Merger between Sykes Enterprises, Incorporated
and Sykes Realty, Inc.(1)
2.3 -- Stock Purchase Agreement dated July 1, 1996 among Sykes
Enterprises, Incorporated and Johan Holm, Arne Weinz and
Norhold Invest AB.(2)
2.4 -- Stock Purchase Agreement dated August 30, 1996 among Sykes
Enterprises, Incorporated and Gordon H. Kraft.(3)
2.5 -- Merger Agreement dated as of January 10, 1997 among Sykes
Enterprises, Incorporated, Info Systems of North Carolina,
Inc. and ISNC Acquisition Co. The schedules and Exhibit to
this document are not being filed herewith. Sykes
Enterprises, Incorporated agrees to furnish supplementally a
copy of such schedules to the Securities and Exchange
Commission upon request.(4)
3.1 -- Articles of Incorporation of Sykes Enterprises,
Incorporated.(1)
3.2 -- Bylaws of Sykes Enterprises, Incorporated, as amended.(1)
4.1 -- Specimen certificate for the Common Stock of Sykes
Enterprises, Incorporated.(1)
10.1 -- Loan Agreement between NationsBank, N.A. and Sykes
Enterprises, Incorporated dated as of December 31, 1996.
10.2 -- Employment Agreement dated as of January 1, 1996 between
John H. Sykes and Sykes Enterprises, Incorporated.(1)
10.3 -- Form of Employment Agreement between executive officers and
Sykes Enterprises, Incorporated.(1)
10.4 -- Stock Option Agreement between Sykes Enterprises,
Incorporated and David E. Garner dated as of December 31,
1995.(1)
10.5 -- 1996 Employee Stock Option Plan.(1)
10.6 -- 1996 Non-Employee Director Stock Option Plan.(1)
10.7 -- 1996 Non-Employee Directors' Fee Plan.(1)
10.8 -- Form of Split Dollar Plan Documents.(1)
10.9 -- Form of Split Dollar Agreement.(1)
10.10 -- Form of Indemnity Agreement between directors and executive
officers and Sykes Enterprises, Incorporated.(1)
10.11 -- Aircraft Lease Agreement between JHS Leasing of Tampa, Inc.
as lessor and Sykes Enterprises, Incorporated as lessee,
dated December 1, 1995.(1)
10.12 -- Single Tenant Property Lease Agreement between Sykes
Investments as landlord and Sykes Enterprises, Incorporated
as tenant dated October 31, 1989, for building in Charlotte,
North Carolina.(1)
10.13 -- Tax Indemnification Agreement between Sykes Enterprises,
Incorporated and John H. Sykes.(1)
10.14 -- Consultant Agreement between Sykes Enterprises, Incorporated
and E.J. Milani Consulting Corp. dated April 1, 1996.(1)
10.15 -- Registration Rights Agreement among Sykes Enterprises,
Incorporated and Johan Holm, Arne Weinz and Norhold Invest
AB dated July 16, 1996.(2)
10.16 -- Registration Rights Agreement between Sykes Enterprises,
Incorporated and Gordon H. Kraft dated August 30, 1996.(3)
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
13.1 -- 1996 Sykes Enterprises, Incorporated Annual Report.
21.1 -- List of subsidiaries of Sykes Enterprises, Incorporated.(5)
23.2 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Power of Attorney relating to subsequent amendments
(included on the signature page of this report).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
(1) Filed as the same numbered Exhibit to Registration No. 333-2324 and
incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's Form 8-K dated July 31, 1996 and
incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Form 8-K dated September 16, 1996
and incorporated herein by reference.
(4) Included as Appendix A to the Proxy Statement/Prospectus contained in
Registration No. 333-20465.
(5) Filed as the same numbered Exhibit to Registration No. 333-20465 and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS
1.01........................................................ 2
1.02........................................................ 4
ARTICLE II. CREDIT EXTENSIONS
2.01........................................................ 4
2.02........................................................ 5
2.03........................................................ 5
2.04........................................................ 5
2.05........................................................ 5
2.06........................................................ 5
2.07........................................................ 6
2.08........................................................ 6
2.09........................................................ 6
SECTION III. REPRESENTATIONS AND WARRANTIES
3.01........................................................ 7
SECTION IV. AFFIRMATIVE COVENANTS
4.01........................................................ 9
SECTION V. NEGATIVE COVENANTS
5.01........................................................ 12
SECTION VI. EVENTS OF DEFAULT AND ACCELERATION
6.01........................................................ 13
6.02........................................................ 13
ARTICLE VII. MISCELLANEOUS
7.01........................................................ 14
7.02........................................................ 14
7.03........................................................ 14
7.04........................................................ 15
7.05........................................................ 15
7.06........................................................ 15
7.07........................................................ 15
7.08........................................................ 15
7.09........................................................ 15
7.10........................................................ 15
7.11........................................................ 15
</TABLE>
<PAGE> 2
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of December 31, 1996 (the "Loan Agreement") by
and between
SYKES ENTERPRISES, INCORPORATED ("Sykes"), SYKES REALTY, INC. ("Realty")
and DIAGSOFT, INC. ("DiagSoft") (hereinafter Sykes, Realty and DiagSoft are
sometimes collectively referred to as the "Borrowers" and individually referred
to as the "Borrower")
NATIONSBANK, N.A., a national banking association existing under the laws
of the United States and having offices in Charlotte, North Carolina (the
"Bank").
RECITALS:
A. The Borrowers have applied to the Bank for credit facilities in the
aggregate amount of $25,000,000.00, to be borrowed for working capital needs,
for the refinancing of indebtedness to the Bank, for documentary and standby
letters of credit and for foreign exchange transactions.
B. The Bank is willing to provide such credit facilities for the purposes
stated hereinabove based on the terms and conditions set forth in this Loan
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the Borrowers and the Bank hereby agree as follows:
Article I
DEFINITIONS
1.01 For the purposes hereof:
"Advances" shall have the meaning given to such term in Section 2.01.
"Affiliate" means a Person (other than a Subsidiary)
(i) which directly or indirectly through one or more intermediaries
control, or is controlled by, or is under common control with Sykes; or
(ii) which beneficially owns or holds 5% or more of any class of
the Voting Stock of Sykes; or
(iii) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which
is beneficially owned or held by Sykes;
"Business Day" means a day on which banks are open for the transaction
of business of the nature required in this Loan Agreement in Charlotte,
North Carolina;
"Closing Date" means December 31, 1996;
"Consistent Basis" in reference to the application of Generally
Accepted Accounting Principles, means that the accounting principles
observed in the period referred to are comparable in all material respects
to those applied in the most recent preceding period except as to any
changes required by the American Institute of Certified Public Accountants
or the Financial Accounting Standards Board (except there shall be no
instance allowing upward revaluation of assets subsequent to the Borrower's
opening consolidated balance sheet);
"Consolidated Acquisition Indebtedness" means as of the date of
determination, Indebtedness of Sykes and its Subsidiaries (consisting of
seller financing, assumed funded indebtedness and non-compete agreements)
incurred in connection with the acquisitions of any businesses by Sykes and
its Subsidiaries;
"Consolidated EBIT" means, for any 12 month period of computation, the
sum of Consolidated Net Income for such period plus interest and taxes to
the extent deducted in determining such Consolidated Net Income;
2
<PAGE> 3
"Consolidated EBITDA" means, for any 12 month period of computation,
the sum of Consolidated Net Income for such period plus interest, taxes,
depreciation and amortization to the extent deducted in determining such
Consolidated Net Income;
"Consolidated Excess Liquidity" means as of the date of determination,
aggregate cash and cash equivalents of Sykes and its Subsidiaries less
$5,000,000;
"Consolidated Gross Funded Indebtedness" means as of the date of
determination, all Indebtedness of Sykes and its Subsidiaries, determined
on a consolidated basis in accordance with Generally Accepted Accounting
Principles, which by its terms matures more than one year after the date of
calculation, and any such Indebtedness maturing within one year from such
date which is renewable or extendable at the option of the obligor to a
date more than one year from such date including, in any event, all
Indebtedness under this Loan Agreement;
"Consolidated Interest Expense" means, for any 12-month period of
computation, aggregate interest expense for Sykes and its Subsidiaries on
Consolidated Gross Funded Indebtedness;
"Consolidated Net Funded Indebtedness" means as of the date of
determination, Consolidated Gross Funded Indebtedness less Consolidated
Acquisition Indebtedness; provided, however, the deduction for Consolidated
Acquisition Indebtedness shall not exceed the lesser of Consolidated Excess
Liquidity or $15,000,000;
"Consolidated Net Income" means for any period of computation, the net
income of Sykes and its Subsidiaries, determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles;
"Consolidated Tangible Net Worth" means at any time, consolidated net
stockholders' equity, determined in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis, with no upward
adjustments due to a revaluation of assets, minus the book value of assets
which would be treated as intangibles under Generally Accepted Accounting
Principles, including, but not limited to, goodwill, trade names,
trademarks, copyright, patents and unamortized debt discount and expenses;
"Dollar Advances" shall have the meaning given to such term in Section
2.01;
"Dollar Note" shall have the meaning given to such term in Section
2.04;
"Exchange Rate" means, in relation to the purchase of one currency
(for purposes of this definition the "first currency") with another
currency (for purposes of this definition the "second currency") on a given
date, the Bank's spot rate of exchange, for the amount in question, in the
London interbank market at or about 11:00 a.m. Charlotte, North Carolina
time on such date for the purchase of the first currency with the second
currency, for delivery two Business Days later;
"Generally Accepted Accounting Principles" means those principles of
accounting set forth in pronouncements of the Financial Accounting
Standards Board, the American Institute of Certified Public Accountants or
which have other substantial authoritative support and are applicable in
the circumstances as of the date of a report, as such principles are from
time to time supplemented and amended;
"Guaranty Agreement" means the Guaranty Agreement executed by the
Borrowers in favor of the Bank whereby the Borrowers guarantee the
repayment of the obligations of the Swedish Subsidiary and the Netherlands
Subsidiaries to the Bank under the Krona Note and the Guilder Note;
"Guilder Advances" shall have the meaning given to such term in
Section 2.01;
"Guilder Note" shall have the meaning given to such term in Section
2.03;
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"Indebtedness" of any Person at any date means:
(a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current
trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices),
(b) any other indebtedness which is evidenced by a note, bond,
debenture or similar instrument,
(c) all capital lease obligations of such Person,
(d) all obligations of such Person in respect of outstanding
letters of credit, acceptances and similar obligations created for the
account of such Person, and
(e) all liabilities secured by any lien on any property owned by
such Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Krona Advances" shall have the meaning given to such term in Section
2.01;
"Krona Note" shall have the meaning given to such term in Section
2.02;
"Letter of Credit Applications" shall have the meaning given to such
term in Section 2.09 hereof;
"Letter of Credit Obligations" shall have the meaning given to such
term in Section 2.09 hereof;
"Letters of Credit" shall have the meaning given to such term in
Section 2.09 hereof;
"Loan Documents" means this Loan Agreement, the Notes, the Letter of
Credit Applications and the Guaranty Agreement;
"Netherlands Subsidiaries" means Sykes Enterprises Incorporated
Holdings BV and Sykes Enterprises Incorporated BV;
"Notes" means a collective reference to the Dollar Note, the Krona
Note and the Guilder Note;
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government or
agency or political subdivision thereof;
"Revolving Loan Committed Amount" shall have the meaning given to such
term in Section 2.01 hereof;
"Subsidiary" or "Subsidiaries" means any corporation or corporations
of which more than fifty percent (50%) of the Voting Stock at the time of
computation is owned, directly or indirectly, by Sykes or a Subsidiary of
Sykes;
"Swedish Subsidiary" means Datasvar Support AB, Stockholm, Sweden;
"Termination Date" means June 1, 1998; and
"Voting Stock" means common stock of a corporation, the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar
functions).
1.02 All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles applied on
a Consistent Basis.
ARTICLE II
CREDIT EXTENSIONS
2.01 The Bank agrees, on the terms herein set forth, to make revolving loan
advances (the "Advances") from time to time during the period from the date
hereof to the Termination Date in an amount equal to $25,000,000 (or such higher
amount as the parties hereto may from time to time agree) (the "Revolving Loan
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Committed Amount"). The Bank agrees that a portion of the Advances shall be
available to the Swedish Subsidiary in Krona (the "Krona Advances") in an
aggregate amount up to 14,000,000 Krona at any time outstanding and that a
portion of the Advances shall be available to the Netherlands Subsidiaries in
Guilder (the "Guilder Advances") in an aggregate amount up to 4,000,000 Guilder.
The Bank agrees that the remaining portion of the Advances shall be available to
the Borrowers in U.S. dollars (the "Dollar Advances"). Within the limits set
forth herein and in the Krona Note (as hereinafter defined), the Guilder Note
and the Dollar Note (as hereinafter defined), the Bank shall make Advances,
accept payments and prepayments pursuant to the terms hereof and readvance any
amount so paid or prepaid.
2.02 The Krona Advances shall be made, shall be repaid and shall bear
interest in accordance with the terms of that certain Promissory Note of even
date herewith executed by the Swedish Subsidiary in favor of the Bank in the
original principal amount of up to 14,000,000 Krona (the "Krona Note"), the
terms of which are incorporated herein by reference.
2.03 The Guilder Advances shall be made, shall be repaid and shall bear
interest in accordance with the terms of that certain Promissory Note of even
date herewith executed by the Netherlands Subsidiaries in favor of the Bank in
the original principal amount of up to 4,000,000 Guilder (the "Guilder Note"),
the terms of which are incorporated herein by reference.
2.04 The Dollar Advances shall be made, shall be repaid and shall bear
interest in accordance with the terms of that certain Promissory Note of even
date herewith executed by the Borrowers in favor of the Bank in the original
principal amount of up to $25,000,000 (the "Dollar Note"), the terms of which
are incorporated herein by reference.
2.05 If the U.S. dollar equivalent of the outstanding principal balance of
the Krona Note and the Guilder Note (based upon the most recently available
Exchange Rate) plus the outstanding principal balance of the Dollar Note plus
the then outstanding Letter of Credit Obligations plus the aggregate amount of
foreign exchange contracts margined at 15% of their U.S. dollar value shall at
any time exceed U.S. $25,000,000, the Borrowers shall within two Business Days
after receiving notice thereof from the Bank make a repayment to the Bank for
purposes of eliminating such excess, with such repayment to be applied first to
the Dollar Note and then to the Krona Note and the Guilder Note (pro rata based
on outstandings) to the extent of any surplus payment amount. The Borrowers
agree to deliver to the Bank within 15 days after the end of each month in which
Advances are outstanding a certificate signed by its chief financial officer
setting forth as of the last day of such month (i) the U.S. dollar equivalent of
the outstanding principal balance of the Krona Note and the Guilder Note (based
upon the Exchange Rate as of the last day of such month), (ii) the outstanding
principal balance of the Dollar Note, (iii) the outstanding Letter of Credit
Obligations, (iv) the aggregate amount of foreign exchange contracts margined at
15% of their U.S. dollar value, (v) the sum of items (i), (ii), (iii) and (iv)
above and (vi) and the difference between the Revolving Loan Committed Amount
and the sum of items (i), (ii), (iii) and (iv) above.
2.06 The obligation of the Bank to make any Advance or to issue any Letter
of Credit shall be subject to the satisfaction of the following conditions:
(a) the representations and warranties set forth in Article III hereof
shall be true and correct in all material respects as of the day of the
making of such Advance or the issuance of such Letter of Credit, except to
the extent any such representation or warranty relates to a prior date;
(b) at the time of the making of and immediately after the making of
such Advance or the issuance of such Letter of Credit there shall have
occurred or be continuing no Event of Default, or event which upon notice
or lapse of time or both would constitute an Event of Default; and
(c) immediately after the making of such Advance or the issuance of
such Letter of Credit, the sum of the U.S. dollar equivalent of the
outstanding principal balance of the Krona Note and the Guilder Note (based
upon the most recently available Exchange Rate) plus the outstanding
principal balance of the Dollar Note plus the then outstanding Letter of
Credit Obligations plus the aggregate amount of foreign exchange contracts
margined at 15% of their U.S. dollar value shall not exceed U.S.
$25,000,000.
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Each Advance made at the request of any Borrower, the Swedish Subsidiary or
either Netherlands Subsidiary, as the case may be, hereunder shall be deemed to
be a reaffirmation on the date of such Advance as to the matters specified in
subsections (a) and (b) hereof.
2.07 The Borrowers shall have the right from time to time to voluntarily
reduce the Revolving Loan Committed Amount; provided, however, if upon such
reduction the U.S. dollar equivalent of the outstanding principal balance of the
Krona Note and the Guilder Note (based upon the most recently available Exchange
Rate) plus the outstanding principal balance of the Dollar Note plus the then
outstanding Letter of Credit Obligations plus the aggregate amount of foreign
exchange contracts margined at 15% of their U.S. dollar value shall exceed such
reduced Revolving Loan Committed Amount, the Borrowers shall make a repayment to
the Bank for purposes of eliminating such excess, with such repayment to be
applied first to the Dollar Note and then to the Krona Note and the Guilder Note
(based on outstandings), to the extent of any surplus payment amount.
2.08 The Borrowers agree to pay to the Bank a facility fee on the date
hereof in an amount equal to $10,500 and on June 1, 1997 and on each anniversary
of such date thereafter in an amount equal to 1/10% of the Revolving Loan
Committed Amount on each such date.
2.09 The Bank also agrees to issue standby and documentary letters of
credit (the "Letters of Credit") on the application of the Borrowers from time
to time in accordance with the following terms and conditions:
(a) the Borrowers will execute a letter of credit application on the
Bank's standard form in connection with the issuance of each Letter of
Credit (hereinafter the "Letter of Credit Applications");
(b) The form of each Letter of Credit must be satisfactory to the Bank
in its reasonable discretion;
(c) No Letter of Credit shall have a term in excess of one year;
(d) No Letter of Credit shall have an expiration date more than six
months beyond the Termination Date;
(e) The aggregate undrawn amounts of the Letters of Credit at any time
outstanding plus the outstanding principal amount of amounts drawn under
the Letters of Credit and not reimbursed by the Borrower (the "Letter of
Credit Obligations") shall not exceed $5,000,000 and the Letter of Credit
Obligations plus the outstanding principal balance of the Dollar Advances
plus the U.S. dollar equivalent of the Krona Advances and the Guilder
Advances (based upon the most recently available Exchange Rate) plus the
aggregate amount of foreign exchange contracts margined at 15% of their
U.S. dollar value shall not exceed U.S. $25,000,000;
(f) The Bank is authorized to reimburse itself for amounts drawn under
the Letters of Credit by disbursing directly to itself proceeds of the
Dollar Advances;
(g) Amounts drawn under the Letters of Credit shall be payable in
accordance with the terms of the Letter of Credit Applications;
(h) If the expiration date of any Letter of Credit extends beyond the
Termination Date, the Borrowers shall pay to the Bank on the Termination
Date an amount equal to the then outstanding Letter of Credit Obligations
with respect to such Letter of Credit to be held in an interest bearing
cash collateral account in the name of the Borrowers as security for the
reimbursement obligations which thereafter may arise on account of
subsequent drawings or payments on any such Letter of Credit;
(i) The Borrowers shall pay the Bank such fees with respect to the
Letters of Credit as are agreed to by the Borrowers and the Bank from time
to time; and
(j) If at any time after the date hereof, and from time to time, the
Bank reasonably determines that the adoption or modification of any
applicable law, rule or regulation regarding taxation, the Bank's required
levels of reserves, deposits, insurance or capital (including any
allocation of capital requirements or conditions), or similar requirements,
or any interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation,
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administration or compliance of the Bank with any of such requirements, has
or would have the effect of (i) increasing the Bank's costs relating to the
Letters of Credit hereunder, or (ii) reducing the yield or rate of return
of the Bank on the Letters of Credit hereunder, to a level below that which
the Bank could have achieved but for the adoption or modification of any
such requirements, the Borrowers shall, within 15 days of any written
request (which request shall state in reasonable detail the basis therefor)
by the Bank, pay to the Bank such additional amounts as will compensate the
Bank for such increase in costs or reduction in yield or rate of return of
the Bank. No failure by the Bank to immediately demand payment of any
additional amounts payable hereunder shall constitute a waiver of the
Bank's right to demand payment of such amounts at any subsequent time.
Nothing herein contained shall be construed or so operate as to require the
Borrowers to pay any interest, fees, costs or charges greater than is
permitted by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.0l Sykes represents and warrants that:
(a) (i) Sykes and each of its Subsidiaries is a corporation, duly
organized, validly existing and in good standing under the jurisdiction in
which they are incorporated;
(ii) Sykes and each of its Subsidiaries has the corporate power and
authority to own its properties and assets and to carry on its business
as now being conducted and is qualified to do business in every
jurisdiction in which, by reason of the character of its business, it is
required to qualify as a foreign corporation;
(iii) each Borrower has the corporate power and authority to
execute and perform this Loan Agreement, to borrow hereunder and to
execute and deliver each of the Loan Documents and all other
certificates, instruments and documents with respect to the indebtedness
of such Borrower hereunder;
(iv) the Swedish Subsidiary has the corporate power and authority
to execute and perform the Krona Note, to borrow thereunder and to
execute and deliver the Krona Note, and all other certificates,
instruments and documents with respect to the indebtedness of the
Swedish Subsidiary thereunder;
(v) the Netherlands Subsidiaries have the corporate power and
authority to execute and perform the Guilder Note, to borrow thereunder
and to execute and deliver the Guilder Note, and all other certificates,
instruments and documents with respect to the indebtedness of the
Netherlands Subsidiaries thereunder;
(vi) when executed and delivered, the Loan Documents will be valid
and binding obligations of the Borrowers, the Swedish Subsidiary and the
Netherlands Subsidiaries enforceable in accordance with their respective
terms;
(vii) no Borrower has any Subsidiaries other than those listed in
Exhibit A hereto;
(viii) no Borrower owns any interest in any Person other than the
Persons listed in Exhibit A hereto;
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(b) the execution, delivery and performance of the Loan Documents
(i) have been duly authorized by all requisite corporate action of the
Borrowers, the Swedish Subsidiary and the Netherlands Subsidiaries required
for the lawful creation and issuance thereof;
(ii) do not violate any provisions of law, any order of any court or
other agency of government or the charter documents or by-laws of any
Borrower, the Swedish Subsidiary or either Netherlands Subsidiary, or any
provisions of any indenture, agreement or other instrument to which any
Borrower, the Swedish Subsidiary or either Netherlands Subsidiary or the
properties or assets of any Borrower, the Swedish Subsidiary or either
Netherlands Subsidiary are bound;
(iii) will not be in conflict with, result in a breach of or
constitute an event of default nor an event which, upon notice or lapse of
time, or both, would constitute such an event of default under any
indenture, agreement or other instrument to which any Borrower, the Swedish
Subsidiary or either Netherlands Subsidiary is a party;
(iv) will not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or
assets of any Borrower, the Swedish Subsidiary or either Netherlands
Subsidiary except to the extent any liens are created by such Loan
Documents;
(c)(i) Sykes has heretofore furnished the Bank with a consolidated balance
sheet of Sykes and its Subsidiaries as of December 31, 1995 and the related
consolidated statements of income and retained earnings for the fiscal year then
ended. Such financial statements have been prepared in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis throughout the
period involved; the consolidated balance sheet presents fairly the financial
position of Sykes and its Subsidiaries as of the date thereof, and the
consolidated statements of income and retained earnings and the notes thereto
present fairly the results of the operation of Sykes and its Subsidiaries for
the period indicated, and such balance sheet thereto shows all known and
determinable direct liabilities of Sykes and its Subsidiaries contemplated as of
the date thereof;
(ii) since the date of the financial statements set forth in Section
3.01(c)(i) hereinabove, there has been no material adverse change in the
condition, financial or otherwise, of Sykes and its Subsidiaries nor have such
businesses or properties been adversely affected as a result of any fire,
explosion, earthquake, accident, strike, lockout combination of workers, flood,
embargo, acts of God or by cancellation or loss of any major contract;
(d) except as set forth in Exhibit B hereto, there is no action, suit or
proceeding at law or in equity or by or before any governmental instrumentality
or agency or arbitral body now pending, or to the knowledge of Sykes, threatened
by or against or affecting Sykes or any of its Subsidiaries or any properties or
rights of Sykes or any of its Subsidiaries which, if adversely determined, would
impair the right of Sykes or any such Subsidiary to carry on business
substantially as now conducted or would materially adversely affect the
financial condition, business or operations of Sykes or any such Subsidiary;
(e) Sykes and its Subsidiaries have filed or caused to be filed all
federal, state and local tax returns which are required to be filed and have
paid or caused to be paid all taxes as shown on said returns or on any
assessment received by it, to the extent that such taxes have become due;
(f) neither Sykes nor any of its Subsidiaries is
(i) a party to any judgment, order, decree or any agreement or
instrument or subject to corporate restrictions materially adversely
affecting its business, properties or assets, operations or condition
(financial or otherwise);
(ii) in default in the performance, observance or fulfillment of any
material obligations, covenants or conditions contained in any agreement or
instrument to which it is a party;
(g) no part of the proceeds of any loan hereunder will be used to purchase
or carry or to reduce or retire any loan incurred to purchase or carry, any
"margin securities" (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System) or to extend credit to others for the
purpose of purchasing or carrying any such margin stocks. Neither Sykes nor any
of its Subsidiaries is engaged, as one of its
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important activities, in extending credit for the purpose of purchasing or
carrying such margin stock. If requested by the Bank, Sykes will furnish to the
Bank in connection with any loan hereunder, a statement in conformance with the
requirements of Federal Reserve Form U-1 referred to in said Regulation;
(h) Sykes and its Subsidiaries possess all necessary patents, licenses,
trademarks, trademark rights, tradenames, tradename rights and copyrights to
conduct their respective businesses without known conflict with any patent,
license, trademark, tradename or copyrights of any other Person;
(i) none of the Loan Documents contains any misrepresentations or untrue
statement or fact or omits to state a material fact necessary in order to make
any such representation or statement contained therein not misleading;
(j) neither the nature of Sykes nor any of its Subsidiaries nor of their
respective businesses or properties, nor any relationship between Sykes or any
such Subsidiary and any other Person, nor any circumstance in connection with
the offer, issue, sale or delivery of the notes is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
governmental authority on the part of Sykes or any such Subsidiary as a
condition in the execution and delivery of this Loan Agreement or any other Loan
Document;
(k) neither Sykes nor any of its Subsidiaries has incurred or assumed any
liability for any accumulated unfunded deficiency within the meaning of the
Employee Retirement Income Security Act of 1974 as amended ("ERISA") or has
incurred any material liability to the Pension Benefit Guaranty Corporation
("PBGC") established under ERISA (or any successor thereto under ERISA) in
connection with any employee benefit plan established or maintained by Sykes or
any such Subsidiary. Sykes will furnish to the Bank
(i) as soon as possible and in any event within 30 days after Sykes or
duly appointed administrator of a Plan knows or has reason to know that any
Reportable Event with respect to any Plan has occurred, a statement of the
Chief Financial Officer of Sykes setting forth details as to such
Reportable Event any action which Sykes proposes to take with respect
thereto, together with a copy of the notice of such Reportable Event given
to the PBGC or a statement that said notice will be filed with the annual
report to the United States Department of Labor with respect to such Plan
if such filing has been authorized;
(ii) promptly after the filing thereof with the United States
Department of Labor, the Internal Revenue Service of the PBGC copies of
each annual report and other reports with respect to each Plan; and
(iii) promptly after receipt thereof a copy of any notice Sykes or any
member of the Controlled Group may receive from the United States
Department of Labor, the Internal Revenue Service of the PBGC with respect
to any Plan;
The terms "Plan" and "Reportable Event" are defined in Title IV of ERISA.
The term "Controlled Group" is defined in Section 1563 of the Internal Revenue
Code of 1954 as amended (the "Code");
(m) except as set forth on Exhibit C, Sykes and its Subsidiaries have good
and marketable fee simple title to all their respective properties (Exhibit C
lists all properties subject to liens and identifies the lienholder).
ARTICLE IV
AFFIRMATIVE COVENANTS
4.01 Sykes covenants and agrees that from the date hereof and until payment
in full of all principal and interest on the Notes and the Letter of Credit
Obligations and until the Bank's obligation to extend credit hereunder has been
terminated, Sykes will (unless the Bank shall otherwise consent in writing):
(a) as soon as practical and in any event not later than within one
hundred twenty (120) days of the end of each fiscal year ending after the
Closing Date, deliver to the Bank its Form 10-K as filed with the
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<PAGE> 10
Securities and Exchange Commission which will include at a minimum a
financial report including a consolidated balance sheet of Sykes and its
Subsidiaries as at the end of such fiscal year, and the notes thereto, and
the related consolidated statements of income and retained earnings and the
notes thereto and of changes in cash flows for such fiscal year, setting
forth in each case comparative financial statements for the corresponding
period in the preceding year, all prepared in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis and certified
(in the case of consolidated financial statements only) by independent
certified public accountants selected by Sykes and acceptable to the Bank;
(b) as soon as practical and in any event not later than within sixty
(60) days after the end of each fiscal quarter of each fiscal year of
Sykes, deliver to the Bank its Form 10-Q as filed with the Securities and
Exchange Commission which will include at a minimum a financial report (in
audit format) including a consolidated balance sheet of Sykes and its
Subsidiaries as at the end of such quarterly period and the related
consolidated statements of income for the period from the beginning of the
current fiscal year to the end of such quarterly period, all prepared in
accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis;
(c) together with each delivery of financial reports required by
Sections 4.01(a) and (b) hereof, deliver to the Bank a statement signed by
the chief financial officer of Sykes substantially in the form of Exhibit D
hereto, (i) setting forth the calculations of the actual results of Sykes
concerning the financial covenants as set forth in Sections 4.01(f), (g)
and (h) for the period then ended compared to the required covenant levels
set forth in such sections, (ii) setting forth the calculation of
Consolidated Gross Funded Indebtedness as of the last day of the period
then ended to Consolidated EBITDA for the four fiscal quarterly periods
then ending (provided, however, the information required by subsections (i)
and (ii) shall only be required if Advances are outstanding hereunder or in
connection with the making of the initial Advance hereunder) and (iii)
setting forth that, to the best of his knowledge, the Borrowers have kept,
observed, performed and fulfilled each and every agreement binding on them
contained in the Loan Documents and are not at the time in default in the
keeping, observance, performance or fulfillment of any of the terms,
provisions and conditions of any of the Loan Documents, and that no event
of default specified in Article VI hereof, nor any event, which, upon
notice or lapse of time or both, would constitute such an event of default,
has occurred, or if such event of default exists or would occur as the case
may be, stating the nature thereof, the period of existence thereof and
what action Sykes proposes to take with respect thereto;
(d) promptly upon becoming available, deliver to the Bank a copy of
all financial statements, reports, notices, proxy statements and press
releases sent to non-management stockholders and to the Securities and
Exchange Commission;
(e) promptly, from time to time, deliver to the Bank such other
information regarding its operations, business affairs and financial
condition as the Bank may reasonably request. The Bank agrees to hold such
information on a confidential basis; provided, however, the Bank is hereby
authorized to deliver a copy of any such financial information delivered
hereunder to the Bank to any regulatory authority having jurisdiction over
the Bank on a need-to-know basis and the Bank is authorized to disclose
such information if required pursuant to legal process;
(f) maintain for Sykes and its Subsidiaries on a consolidated basis at
the end of each fiscal quarter Consolidated Tangible Net Worth of at least
$100,000,000.00; provided, however, such amount shall be increased on the
last day of each fiscal year (commencing with the fiscal year ending
December 31, 1996) by an amount equal to 50% of Consolidated Net Income of
Sykes and its Subsidiaries for such fiscal year (but not decreased by
losses in any such fiscal year);
(g) maintain for Sykes and its Subsidiaries on a consolidated basis at
the end of each fiscal quarter a ratio of Consolidated Net Funded
Indebtedness (computed on the last day of such quarter) to Consolidated
EBITDA (computed for the 12 months then ended) of no greater than 3.0 to
1.0;
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(h) maintain for Sykes and its Subsidiaries on a consolidated basis at
the end of each fiscal quarter a ratio of Consolidated EBIT to Consolidated
Interest Expense of at least 3.0 to 1.0 (computed for the fiscal 12 months
then ending);
(i) do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights and franchises;
(j) comply with or contest in good faith, and cause each of its
Subsidiaries to comply with or contest in good faith, all statutes and
governmental regulations and pay, and cause each of its Subsidiaries to
pay, all taxes, assessments, governmental charges, material claims for
labor, significant amount of supplies, rent and any other material
obligation which, if unpaid, might become a lien against any of Sykes' or
any such Subsidiary's property except liabilities being contested in good
faith and against which, if requested by the Bank reserves satisfactory to
the Bank will be established;
(k) at all times keep the insurable properties of Sykes and its
Subsidiaries insured to such extent and against such risks, including,
without limitation, public liability insurance, worker's compensation and
other insurance required by law, as is customary with companies of
comparable size in the same or similar business;
(l) preserve, protect, retain and maintain free from encumbrances the
patents, licenses trademarks, trademark rights, tradenames, tradename
rights and copyrights of Sykes and its Subsidiaries and maintain all of the
other properties and assets used or useful in the conduct of the business
of Sykes and its Subsidiaries in good repair, working order and condition
and from time to time cause to be made all proper replacements, betterments
and improvements thereto;
(m) keep true books of records and accounts in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis, and
in which full, true and correct entries will be made of all of its dealings
and transactions;
(n) permit any officer of the Bank designated in writing by the Bank,
to visit and inspect any of the properties, corporate books and financial
records of Sykes or any of its Subsidiaries at such times as the Bank may
reasonably request upon reasonable notice and during ordinary business
hours;
(o) upon the written request of the Bank, authorize any officer of the
Bank to discuss the financial statements and financial affairs of Sykes and
its Subsidiaries at any time from time to time with Sykes' independent
certified public accountants upon reasonable notice and during ordinary
business hours;
(p) deliver to the Bank forthwith, upon any officer obtaining
knowledge of an event of default under the Loan Documents (and such officer
was aware that such event was an event of default under the Loan Documents)
or an event which would constitute such an event of default but for the
requirement that notice be given or time elapse or both, a certificate of
the chief executive officer or treasurer of Sykes specifying the nature and
period of existence thereof and what action Sykes propose to take with
respect thereto;
(q) notify the Bank in writing within five (5) Business Days of the
earlier of the occurrence or the obtaining of any knowledge by any officer
of Sykes of any of the following with respect to Sykes or any of its
Subsidiaries:
(i) the pendency or commencement of any material action, suit or
proceeding at law or in equity wherein the opposing party seeks damages
of more than $750,000.00;
(ii) any event or condition which shall constitute an event of
default under the Loan Agreement or any other agreement for borrowed
money or any known or potential material change in this or any other
contractual agreement;
(iii) any levy of an attachment, execution or other process against
the assets of Sykes or any of its Subsidiaries;
11
<PAGE> 12
(iv) any change in any existing agreement or contract which may
adversely affect the business or affairs, financial or otherwise of
Sykes or any of its Subsidiaries; and
(r) maintain a primary banking relationship with the Bank.
ARTICLE V
NEGATIVE COVENANTS
5.01 Until payment in full of the principal and interest of the Notes and
the Letter of Credit Obligations and until the Bank's obligation to extend
credit hereunder has been terminated, Sykes covenants that (without the prior
written consent of the Bank) it will not:
(a) incur, create, assume or permit to exist any Indebtedness (or
permit any of its Subsidiaries to incur, create, assume or permit to exist
any Indebtedness), however evidenced, or its equivalent, except
(i) the Loans hereunder and loans permitted hereby;
(ii) existing indebtedness set forth in Exhibit E hereof on the
terms represented to the Bank on the date of this amendment and
restatement as then in effect; and
(iii) Consolidated Acquisition Indebtedness;
(b) incur, create, assume or permit to exist any mortgage, pledge,
lien, charge or other encumbrance of any nature whatsoever on any of the
assets of Sykes or any of its Subsidiaries, now or hereafter owned, other
than
(i) existing liens as set forth in Exhibit C hereto;
(ii) any unfiled lien of materialmen, mechanics, workmen,
warehousemen, carriers, landlords or repairmen arising in the ordinary
course of business which do not materially detract from the value of the
assets of Sykes or any of its Subsidiaries in the aggregate or otherwise
materially impair the operation of the business of Sykes or any of its
Subsidiaries; provided that if such a lien shall be perfected and shall
not be contested in good faith, it shall be discharged of record
immediately by payment, bond or otherwise;
(iii) tax liens which are being contested in good faith;
(iv) existing liens on assets of acquired entities which secure
Indebtedness that contains punitive prepayment provisions; provided,
however, such Indebtedness shall not exceed $15,000,000 in the aggregate
at any time outstanding;
(c) acquire, consolidate, merge or combine with any Person unless
Sykes is the surviving entity after such transaction and immediately
following the transaction, the Borrowers are not in violation of the Loan
Agreement;
(d) other than in the ordinary course of business, sell, lease,
transfer or otherwise dispose of (or permit any of its Subsidiaries to
sell, lease, transfer or otherwise dispose of) the properties and assets of
Sykes or any of its Subsidiaries;
(e) guarantee, endorse or become liable for (or permit any of its
Subsidiaries to guarantee, endorse or become liable for) directly or
indirectly the obligations of any Person (other than Sykes) other than
endorsement of negotiable instruments in the ordinary course of business;
(f) create or permit to exist any Subsidiaries unless such
Subsidiaries become parties to this Loan Agreement on a co-borrower basis
with the other Borrowers pursuant to documentation reasonably satisfactory
to the Bank; provided, however, the foregoing shall not be applicable to
any now existing or hereafter created Subsidiaries if Sykes and the Bank
shall mutually agree to exclude such Subsidiaries;
(g) permit any change in the basic business of Sykes or any of its
Subsidiaries; or
12
<PAGE> 13
(h) permit any material adverse change in the financial condition of
Sykes.
ARTICLE VI
EVENTS OF DEFAULT AND ACCELERATION
6.01 Any of the following shall be events of default hereunder:
(a) the failure of any Borrower, the Swedish Subsidiary or either
Netherlands Subsidiary to make payment when due of any installment of
principal or payment of interest required by any of the Notes or any Letter
of Credit Application;
(b) the failure of any Borrower, the Swedish Subsidiary or either
Netherlands Subsidiary to comply with any other covenants or terms in this
Loan Agreement or any other Loan Document and the continuation of such
failure for a period of thirty (30) days after Sykes receives written
notice thereof from the Bank;
(c) if any representation or warranty made by any Borrower in this
Loan Agreement or in any other Loan Document or by any Borrower, the
Swedish Subsidiary or either Netherlands Subsidiary to the Bank shall be
untrue in any material respect;
(d) in the event that Sykes or any of its Subsidiaries
(i) shall make an assignment for the benefit of creditors; or
(ii) has a petition initiating a proceeding under any section or
chapter of the Bankruptcy Code of its amendments, filed by or against it
and, if against it, such petition is not set aside within forty-five
(45) days after such filing; or
(iii) shall file any proceedings for dissolution or liquidation; or
(iv) has a receiver, trustee or custodian appointed for all or part
of its assets; or
(v) seeks to make an adjustment, settlement or extension of its
debts with its creditors generally; or
(vi) has a notice of an action for enforcement of a lien filed or
recorded or a judgment lien or execution obtained against it in excess
of an aggregate of $20,000.00 which notice of lien is not removed, or
satisfied or contested in good faith within thirty (30) days after any
officer of Sykes becomes aware of such lien;
(e) if Sykes or any of its Subsidiaries shall default in the
performance of any obligation in connection with any agreement between it
and the Bank (other than any Loan Document); or
(f) if Sykes or any of its Subsidiaries in the performance of any
other agreement between it and any other lender defaults and such default
results in acceleration of any other indebtedness of Sykes or any of its
Subsidiaries for borrowed money and such indebtedness accelerated is not
satisfied within fourteen (14) days from the date of such acceleration.
6.02 Upon the occurrence of any such event of default (taking into account
applicable grace periods, if any, as provided in Section 6.01 hereof) and unless
the Bank agrees to waive in writing such an event of default:
(a) the Bank's commitment to make Advances shall terminate and all of
the indebtedness of any and every kind owing by the Borrowers to the Bank
or any corporate affiliate of the Bank shall become due and payable upon
written notice to the Borrowers (other than an event of default described
in Section 6.01(d) in which case the Bank's commitment to make Advances
shall automatically terminate and such indebtedness shall become due and
payable immediately without necessity of written demand) without the
necessity of any other demand, presentment, protest or notice upon the
Borrowers, all of which are hereby expressly waived by the Borrowers;
13
<PAGE> 14
(b) all of the obligations of the Borrowers under the Loan Documents
shall thereupon be immediately due and payable without the necessity of any
other demand, presentment, protest or notice upon the Borrowers, all of
which are hereby expressly waived by the Borrowers;
(c) the Bank shall have the right, immediately and without further
action by it, to set-off against the Notes and the Guaranty Agreement all
money owed by the Bank in any capacity to any Borrower, whether or not due,
and the Bank shall be deemed to have exercised such right of set-off and to
have made a charge against any such money immediately upon the occurrence
of such event of default even though such charge is made or entered on the
books of the Bank subsequent thereto; and
(d) the Bank may demand, and the Borrowers shall immediately pay to
the Bank upon such demand, cash in an amount equal to the then outstanding
Letter of Credit Obligations and foreign exchange contract obligations of
the Borrowers to the Bank which will be held in an interest bearing cash
collateral account in the name of the Borrowers and under the dominion and
control of the Bank as additional security for the reimbursement
obligations which may thereafter arise on account of subsequent drawings or
payments under the Letters of Credit or such foreign exchange contracts.
ARTICLE VII
MISCELLANEOUS
7.01 Any notice shall be conclusively deemed to have been received by any
party hereto and be effective on the day on which delivered to such party at the
address set forth below or such other address as such party shall specify to the
other party in writing, or if sent prepaid by certified or registered mail or by
telegram or telex (where the receipt of such message is verified by return) on
the third Business Day after the day on which mailed (or sent), addressed to
such party at said address:
(a) if to any Borrower at the following address:
c/o Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Chief Financial Officer
(b) if to the Bank:
NationsBank, N.A.
NationsBank Plaza, NC1-002-03-10
Charlotte, North Carolina 28255
Attention: William A. Serenius,
Sr. Vice President
7.02 No failure or delay on the part of the Bank in the exercise of any
right, power or privilege hereunder or under any other Loan Document shall
operate as a waiver of any such right, power or privilege nor shall any preclude
any other or further exercise thereof. The rights and remedies herein provided
are cumulative and not exclusive or any rights or remedies provided by law.
7.03 All covenants, agreements, representations and warranties made herein
and in the other Loan Documents shall survive the making by the Bank of the
loans herein contemplated and the execution and delivery to the Bank of the Loan
Documents and shall continue in full force and effect so long as any of the
indebtedness of the Borrowers to the Bank or any obligations of the Borrowers to
the Bank remain outstanding and unpaid. Whenever in this Loan Agreement, any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party and all covenants, provisions and
agreements by or on behalf of the Borrowers which are contained in the Loan
Documents or this Loan Agreement shall inure to the benefit of the successors
and assigns of the Bank.
14
<PAGE> 15
7.04 The Borrower agrees to pay $7,500 to the Bank's counsel in connection
with the preparation, execution and delivery of the Loan Documents and all other
documents necessary to consummate the transactions contemplated by the
commitment letter of the Bank to Sykes including all documents to effect
releases of collateral and insurance assignments held by the Bank under the
previous loan documentation. The Borrowers also agree to pay the costs and
expenses of the Bank in connection with the enforcement of the Loan Documents
and this Loan Agreement, as well as any actual filing and recording fees and
stamp and other taxes with respect thereto.
7.05 No approval required by the Bank ("Approval") hereunder nor any
modification, amendment or waiver ("Waiver") of any provision of this Loan
Agreement or any other Loan Document, nor any consent to any departure by the
Borrowers therefrom ("Consent") shall in any event be effective unless the same
shall be delivered in accordance with the provisions of Section 7.01 hereof, and
then such Approval, Waiver or Consent shall be effective only in the specific
instance and for the purpose for which given, but any such Approval, Waiver or
Consent when so signed shall be effective and binding upon the Bank. Notice to
or demand on the Borrowers in any case shall not entitle the Borrowers to any
other or further notice or demand in the same, similar or other circumstances.
7.06 Interest, fees and premiums hereunder shall be computed on the basis
of a three hundred sixty (360) day year for the actual number of days in the
interest period unless any promissory note for foreign currency borrowings
contains a contrary calculation.
7.07 Should any installment or other payment of the principal of or
interest on any Note become due and payable on other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day
thereafter and in the case of an installment of principal, interest shall be
payable thereon at the rate per annum herein specified during such extension.
7.08 This Loan Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Loan Agreement to produce or
account for more than one such counterpart.
7.09 The terms hereof shall extend to any subsequent holder of the Notes
and the Guaranty Agreement.
7.10 The term of this Loan Agreement shall be until payment in full of all
sums payable by the Borrowers hereunder, under the Notes, or otherwise payable
to the Bank, howsoever evidenced, whichever is later.
7.11 All documents executed pursuant to the transactions contemplated
herein, including without limitation this Loan Agreement and each of the Notes,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with, the internal laws and judicial decisions of the
State of North Carolina. The Borrower hereby submits to the jurisdiction and
venue of the state and federal courts of North Carolina for the purposes of
resolving disputes hereunder or for the purposes of collection.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed under seal by their duly authorized officers in Charlotte, North
Carolina at the offices of the Bank as of the day and year first above written.
<TABLE>
<S> <C>
SYKES ENTERPRISES, INCORPORATED
ATTEST:
By By /s/ SCOTT J. BENDERT
- -------------------------------------------- --------------------------------------------
Scott J. Bendert
Vice President, Treasurer and Chief
Financial Officer
Title
------------------------------------------
(Corporate Seal)
SYKES REALTY, INC.
ATTEST:
By By /s/ SCOTT J. BENDERT
- -------------------------------------------- --------------------------------------------
Scott J. Bendert
Treasurer
Title
------------------------------------------
(Corporate Seal)
DIAGSOFT, INC.
ATTEST:
By By /s/ SCOTT J. BENDERT
- -------------------------------------------- --------------------------------------------
Scott J. Bendert
Vice President
Title
------------------------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By /s/ WILLIAM A. SERENIUS
--------------------------------------------
William A. Serenius
Senior Vice President
</TABLE>
16
<PAGE> 17
EXHIBIT A
LIST OF SUBSIDIARIES AND OWNERSHIP IN OTHER PERSONS
<PAGE> 18
EXHIBIT B
LITIGATION
<PAGE> 19
EXHIBIT C
LIENS
<PAGE> 20
EXHIBIT D
OFFICER'S CERTIFICATE
[LETTERHEAD OF SYKES ENTERPRISES, INCORPORATED]
, 19
Mr. William A. Serenius
Senior Vice President
NationsBank, N.A.
Charlotte Region Commercial Banking
NationsBank Plaza NC1-002-03-10
Charlotte, North Carolina 28255
Dear Mr. Serenius:
In accordance with Section 2.05 of the December 31, 1996 Loan Agreement, by
and among Sykes Enterprises, Incorporated, certain of its subsidiaries and
NationsBank, N.A. (the "Loan Agreement"), the following is the status of the
Revolving Loan Facility components as of :
<TABLE>
<S> <C> <C>
1. The outstanding aggregate principal balance of the Krona
Note as of the Calculation Date: Krona ;
multiplied by Exchange Rate @ as of the
Calculation Date results in U.S. Dollar Equivalent of....... $
2. The outstanding aggregate principal balance of the Guilder
Note as of the Calculation Date: Guilder ;
multiplied by Exchange Rate @ as of the
Calculation Date results in U.S. Dollar Equivalent of ... $
3. The outstanding principal balance of the Dollar Note........ $
4. The outstanding Letter of Credit Obligations................ $
5. The outstanding Foreign Exchange Contracts valued in U.S. $
margined at 15% of U.S. Dollar Value = exposure of ... $
6. Total Exposure (the sum of lines 1, 2, 3, 4 and 5).......... $
7. Revolving Loan Committed Amount............................. $25,000,000
8. Availability (line 7 minus line 6).......................... $
</TABLE>
With reference to the Loan Agreement, I hereby certify on behalf of the
borrower as follows:
A. The above statements are true and correct.
B. The terms used in calculating the above amounts which are defined
in the Loan Agreement have the respective meanings therein specified;
C. As of the date hereof, no Event of Default or event which might
mature into an event of default has occurred and is continuing.
SYKES ENTERPRISES, INCORPORATED
By
--------------------------------------
Scott J. Bendert
Chief Financial Officer
<PAGE> 21
EXHIBIT E
INDEBTEDNESS
<PAGE> 1
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the Company's
consolidated financial statements. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Company's Consolidated Financial Statements
and related notes.
<TABLE>
<CAPTION>
Five Months
Ended Years Ended
Years Ended July 31, December 31, December 31,
1992 1993 1994 1994 1995 1996
---- ---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $47,189 $56,912 $55,589 $21,613 $74,595 $117,018
Income from operations 2,410 1,872 1,441 213 4,771 15,320
Net income (loss)(1) 1,378 720 595 (179) 2,224 9,703
Per Share Data:
Net income (loss)(1) $0.08 $0.04 $0.04 $(0.01) $0.13 $0.49
<CAPTION>
July 31, December 31,
1992 1993 1994 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $6,269 $4,463 $4,482 $5,022 $1,050 $110,743
Total assets 17,773 16,624 21,960 28,287 46,151 163,828
Long-term debt, less
current installments 2,172 276 3,245 6,987 8,590 226
Shareholders' equity 7,787 8,678 9,297 8,277 10,864 134,737
</TABLE>
(1) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes, were subject to income taxes for all periods presented, based on the
tax laws in effect during the respective periods.
Market Shareholder Data
Sykes common stock has been quoted on the Nasdaq National Market under the
symbol SYKE since Sykes' initial public offering in April 1996. The following
table sets forth, for the periods indicated, certain information as to the
high and low sale prices per share of Sykes common stock as quoted on the
Nasdaq National Market since April 30, 1996, as adjusted for a three for two
stock split effected on July 28, 1996.
<TABLE>
<CAPTION>
Year Ending December 31, High Low
<S> <C> <C>
1996
First Quarter N/A N/A
Second Quarter (commencing April 30) $36 1/8 $20 1/2
Third Quarter 48 3/4 25 1/8
Fourth Quarter 53 1/8 35 1/2
</TABLE>
Holders of Sykes common stock are entitled to receive dividends out of the
funds legally available when and if declared by the Board of Directors. Sykes
has not declared or paid any cash dividends on its common stock in the past.
Sykes currently anticipates that all of its earnings will be retained for
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future.
As of March 25, 1997, the last sale price of the registrant's common stock
was $32 on the Nasdaq National Market, and there were approximately 56
holders of record of the common stock. The Company believes that there are
approximately 4,500 beneficial owners of its common stock.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto. Effective August 1, 1994,
the Company changed its fiscal year end from July 31 to December 31. The
following discussion compares the twelve months ended December 31, 1996
("1996") to the twelve months ended December 31, 1995 ("1995"), and 1995 to the
twelve months ended December 31, 1994 ("1994"). See Note 16 of Notes to
Consolidated Financial Statements for the corresponding selected consolidated
financial data. The following discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Future events and the
Company's 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.
OVERVIEW
The Company derives its revenues from providing information technology
("IT") support services and information technology development services and
solutions. Revenues from information technology support services provided
through the IT call centers and the sale of diagnostic software are recognized
as services are rendered. These services are billed on a fee per call, rate per
minute, time and material or unit basis. Information technology development
services and solutions usually are billed on a time and material basis,
generally by the hour, and revenues generally are recognized as the services
are provided. Revenues from fixed-price contracts, generally with terms of
less than one year, are recognized using the percentage-of-completion method.
Most of the Company's revenues are derived from non-fixed price contracts.
The Company has not experienced material losses due to fixed price contracts
and does not anticipate a significant increase in revenues derived from such
contracts in the future. Revenues from these information technology services
have increased significantly from $43.7 million in 1994 to $116.6 million in
1996.
In 1993, in an effort to capitalize on a trend toward the outsourcing of
information technology services, the Company began providing information
technology support services through the opening of IT call centers while
phasing out its non-information technology services. Revenues from these
services decreased $5.0 million from 1994 to 1995 and decreased $4.1 million
from 1995 to 1996. The phase-out of these services was substantially completed
in 1995.
Direct salaries and related costs includes direct personnel compensation,
statutory and other benefits associated with such personnel and other direct
costs associated with providing services to customers. General and
administrative expenses include administrative, sales and marketing, occupancy
and other indirect costs. General and administrative costs incurred in opening
new IT call centers are expensed when incurred. Interest and other income
(expense) consists primarily of interest expense and foreign currency
transaction gains and losses. Foreign currency transaction gains and losses
generally result from exchange rate fluctuations on intercompany transactions.
Grants from local or state governments for the acquisition of property and
equipment are deferred and recognized as income over the corresponding useful
lives of the related property and equipment. The deferred grants, net of
amortization, totaled $6.8 million and $11.7 million at December 31, 1995 and
1996, respectively.
The Company's effective tax rate for the periods presented reflects the
effects of foreign taxes, net of foreign income not taxed in the United States,
nondeductible expenses for income tax purposes and the provision of potential
additional income tax liability resulting from an Internal Revenue Service
examination currently being conducted. The Company believes its reserves for
any liability that may result from this examination are adequate.
<PAGE> 3
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items reflected in the Company's statements of
income:
<TABLE>
<CAPTION>
Percentage of Revenues
----------------------
Years Ended December 31,
------------------------
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct salaries and related costs 63.4 59.8 56.1
General and administrative(1) 34.4 33.8 30.8
----- ----- -----
Income from operations 2.2 6.4 13.1
----- ----- -----
Interest and other income (expense) (1.0) (1.0) 0.5
Income before income taxes 1.2 5.4 13.6
----- ----- -----
Provision for income taxes(2) 0.9 2.4 5.3
----- ----- -----
Net income(1)(2) 0.3% 3.0% 8.3%
====== ====== ======
</TABLE>
(1) Includes non-cash compensation expense of 1.3% related to the grant
of stock options to an executive officer in 1995.
(2) Adjusted as if an affiliate of the Company included in the
consolidated financial statements, which was an S corporation for federal
income tax purposes, were subject to income taxes for all periods
presented, based on the tax laws in effect during the respective periods.
See Note 15 of Notes to Consolidated Financial Statements.
1996 COMPARED TO 1995
Revenues. Revenues increased $42.4 million, or 56.9%, to $117.0
million in 1996 from $74.6 million in 1995. These results reflect an increase
in revenues of $40.6 million from information technology support services
provided through IT call centers and an increase in revenues of $5.9 million
from information technology services and solutions, partially offset by a $4.1
million reduction in revenues from non-information technology services that
were substantially phased out in 1995.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers
providing services throughout the period, the addition of several significant
customers since 1995 and the resultant increase in call volumes from clients.
During the fourth quarter of 1995, the Company opened two new IT call centers
which were fully operational throughout 1996, and opened three additional
centers in 1996. In addition, the Company has added 36 customers in its
information technology support services since the beginning of 1995, giving
it 58 customers that utilized these services as of December 31, 1996. The
increase in revenues for information technology services and solutions was
primarily attributable to the increase in hours billed to customers for
professional services when compared to the prior period.
Direct Salaries and Related Costs. Direct salaries and related costs
increased $21.1 million, or 47.3%, to $65.7 million in 1996 from $44.6 million
in 1995. As a percentage of revenues, however, direct salaries and related
costs decreased to 56.1% in 1996 from 59.8% in the comparable 1995 year. The
increase in the amount of direct salaries and related costs was attributable to
the addition of personnel to support revenue growth. The decrease as a
percentage of revenues resulted from economies of scale associated with
spreading costs over a larger revenue base and the continued change in the
Company's mix of business reflecting the growth of information technology
support services as a percentage of consolidated results.
<PAGE> 4
General and Administrative. General and administrative expenses increased
42.8% to $36.0 million in 1996 from $25.2 million in 1995. As a percentage of
revenues, however, general and administrative expenses decreased to 30.8% in
1996 from 33.8% in 1995. The increase in the amount of general and
administrative expenses was primarily attributable to the addition of
management and administrative personnel to support the Company's growth and
depreciation expenses associated with facility and capital equipment
expenditures incurred in connection with the IT call centers.
Interest and Other Income. Interest and other income increased to
$0.6 million during 1996 from interest and other expense of $0.7 million during
1995. As a percentage of revenues, interest and other income was 0.5% in 1996
from interest and other expense of 1.0% in 1995. The increase was primarily
attributable to an increase in the Company's cash position as a result of
public offerings completed during 1996. The Company repaid all amounts
outstanding under bank borrowing arrangements and invested the remaining net
proceeds of the offerings in short term investment grade securities and money
market instruments.
Income Taxes. Income taxes increased $4.4 million, or 238.2%, to $6.2
million during 1996 from $1.8 million during 1995, and increased as a
percentage of revenues to 5.3% from 2.4%, respectively. This increase was
attributable to the significant increase in the amount of income before income
taxes and in income before income taxes as a percentage of revenues. However,
the Company's marginal tax rate decreased to 39.3% during 1996 primarily as a
result of nondeductible expenses being a lower percentage of the larger income
before income taxes and tax-exempt interest income.
Net Income. As a result of the foregoing, net income increased to $9.7
million in 1996 from $2.2 million in 1995.
1995 COMPARED TO 1994
Revenues. Revenues increased $21.4 million, or 40.3%, to $74.6 million
in 1995 from $53.2 million in 1994. These results reflect an increase in
revenues of $22.4 million from information technology support services
provided through IT call centers and an increase in revenues of $4.0 million
from information technology services and solutions. These increases were
partially offset by a $5.0 million reduction in revenues from the non-
information technology services that were substantially phased out in 1995.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers
providing services throughout the year, the addition of several significant
customers and the resultant increase in call volumes from clients. During
the fourth quarter of 1995, the Company opened two new IT call centers in
addition to the four opened during 1994, all four of which were fully
operational throughout 1995. In addition, the Company added 27 customers
for its information technology support services during 1995, giving it 49
customers that utilized these services as of December 31, 1995. The increase
in revenues for information technology services and solutions was primarily
attributable to the increase in hours billed to customers for professional
services when compared to the prior year.
Direct Salaries and Related Costs. Direct salaries and related costs
increased 32.2% to $44.6 million in 1995 from $33.7 million in 1994. As a
percentage of revenues, however, direct salaries and related costs decreased
to 59.8% in 1995 from 63.4% in 1994. The increase in the amount of direct
salaries and related costs was attributable to the addition of personnel to
support revenue growth. The decrease as a percentage of revenues resulted from
economies of scale associated with spreading costs over a larger revenue base.
General and Administrative. General and administrative expenses increased
37.8% to $25.2 million in 1995 from $18.3 million in 1994. As a percentage of
revenues, general and administrative expenses decreased to 33.8% in 1995 from
34.4% in 1994. The increase in the amount of general and administrative
expenses was primarily attributable to the addition of management and
administrative personnel to support the Company's growth and depreciation
expense associated with facility and capital equipment expenditures incurred in
connection with the IT call centers. The increase also was attributable to a
non-cash compensation expense of $949,960 related to the grant of stock options
to an executive officer in 1995. The decrease as a percentage of revenues
resulted from economies of scale associated with spreading costs over a larger
revenue base.
<PAGE> 5
Interest and Other Expense. Interest and other expense increased 49.1%
to $0.7 million in 1995 from $0.5 million in 1994, but remained constant as a
percentage of revenues. The increase was primarily attributable to an increase
in the Company's borrowings and increased rates of interest on such borrowings
during 1995. The Company's borrowings increased to $10.2 million at December
31, 1995 from $7.7 million at December 31, 1994, primarily as a result of
capital expenditures required for the IT call centers.
Income Taxes. Income taxes increased $1.3 million, or 259.5%, to $1.8
million during 1995 from $0.5 million in 1994, and increased as a percentage of
revenues to 2.4% from 0.9%, respectively. This increase was attributable to
the significant increase in the amount of income before income taxes and in
income before income taxes as a percentage of revenues. However, the Company's
marginal tax rate decreased to 45.0% in 1995 primarily as a result of
nondeductible expenses being a lower percentage of the larger income before
income taxes.
Net Income. As a result of the foregoing, net income increased to $2.2
million in 1995 from $155,000 in 1994.
QUARTERLY RESULTS
The following information presents unaudited quarterly operating results
for the Company for 1995 and 1996. The data has been prepared by the Company
on a basis consistent with the Consolidated Financial Statements included
elsewhere in this Form 10-K, and includes all adjustments, consisting of normal
recurring accruals, that the Company considers necessary for a fair
presentation thereof. These operating results are not necessarily indicative
of the Company's future performance.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------
4/2/95 7/2/95 10/1/95 12/31/95 3/31/96 6/30/96 9/29/96 12/31/96
------ ------ ------- -------- ------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $16,243 $16,832 $18,240 $23,280 $25,955 $26,512 $28,541 $36,010
Direct salaries
and related costs 10,202 10,112 10,644 13,787 14,842 14,599 16,095 20,140
General and
administrative(1) 5,368 5,586 5,807 8,316 8,203 8,507 8,704 10,609
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations 673 1,134 1,789 1,177 2,910 3,406 3,742 5,261
Interest and
other income
(expense) (70) (220) (220) (218) (291) 110 271 493
------- ------- ------- ------- ------- ------- ------- -------
Income before
income taxes 603 914 1,569 959 2,619 3,516 4,013 5,754
Provision for
income taxes(2) 246 392 682 502 1,063 1,437 1,561 2,091
------- ------- ------- ------- ------- ------- ------- -------
Net income(2) $ 357 $ 522 $ 887 $457 $1,556 $ 2,079 $ 2,452 $ 3,663
======= ======= ======= ======= ======= ======= ======= =======
Net income per
share(2) $ 0.02 $ 0.03 $ 0.05 $ 0.03 $ 0.09 $ 0.11 $ 0.12 $ 0.17
======= ======= ======= ======= ======= ======= ======= =======
Weighted average
shares outstanding 16,874 16,874 16,874 16,874 16,874 18,817 21,023 22,156
</TABLE>
(1) Includes non-cash compensation expense of $949,960 related to the
grant of stock options to an executive officer in the quarter ended
December 31, 1995. Excluding the effect of such expense, income from
operations, income before income taxes, and net income for the quarter
ended December 31, 1995 would have been $2.1 million, $1.9 million and
$1.0 million, respectively, and net income per share would have been
$0.06.
(2) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes, were subject to income taxes for all periods presented, based on
the tax laws in effect during the respective periods. See Note 15 of
Notes to Consolidated Financial Statements.
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are equity offerings, cash
flows from operations and available borrowings under its credit facility. The
net proceeds to the Company of $39.7 million from its April 1996 initial public
offering were used to repay debt and make capital expenditures. In November
1996, the Company received proceeds, net of offering expenses, of $71.5 million
from the sale of approximately 1.6 million shares of common stock pursuant to a
secondary offering. The Company intends to utilize these proceeds and the
balance of the funds available from the initial public offering to make
additional capital expenditures associated primarily with its technical support
services as identified above, and for working capital and general corporate
purposes, including possible acquisitions. Pending any such use, the Company
will invest the balance of such funds in short-term, investment grade
securities or money market instruments.
In December 1995, the Company entered into a $20.0 million credit
facility. This facility consisted of a revolving line of credit of $12.0
million and an $8.0 million term loan maturing in May 1997. In addition, in
1994 the Company obtained a $1.3 million loan to construct one of the IT call
centers. The Company used approximately $16.7 million of the net proceeds of
its April 1996 initial public offering to repay all amounts outstanding under
the Company's bank borrowings, and no bank borrowings are currently
outstanding. Subsequent to the 1996 year end, the Company entered into an
agreement replacing its previous credit line with an unsecured revolving $25
million facility. This new facility accrues borrowings at tiered levels between
125 and 200 basis points above listed Libor pursuant to a defined ratio
calculation within the agreement. The facility matures in June 1998, and
contains certain covenants associated with tangible net worth, debt and debt
funding as defined by the agreement.
During 1996, the Company used approximately $0.5 million to fund operating
activities, resulting primarily from an increase in the Company's accounts
receivable associated with continued growth and resultant effects in mix of
business, and a decrease in accounts payable, primarily in the first calendar
quarter of 1996, from the payment of uncommonly large fourth quarter 1995
purchases. The Company has used a portion of its proceeds from its initial
public offering, together with $5.3 million received as incentive grants from
local and state governmental agencies, to fund $19.1 million of capital
expenditures in 1996 predominantly to construct and outfit three new IT call
centers. As a result of the Company's continued expansion, it is anticipated
that 1997 capital expenditures will be approximately $18.0 million, primarily
for completing additional IT call centers. Each IT call center requires
approximately $2.0 million to construct and approximately $5.0 million of
capital expenditures to complete the build-out and equip the center.
During 1996, the Company increased its European technical support presence
and acquired additional sophisticated information technology capabilities to
enhance its technical support services through the acquisitions of Datasvar
Support AB and DiagSoft, Inc. ("the acquisitions"). The purchase price for the
acquisitions was approximately 922,000 shares of the Company's common stock,
and were accounted for using the pooling-of-interests method of accounting.
During 1995, the Company generated $8.9 million in cash from operations.
The cash generated during 1995, together with $3.2 million in net borrowings
and $2.6 million received as incentive grants from local and state governmental
agencies in connection with additional IT call centers, was used to fund $13.7
million of capital expenditures during 1995. Capital expenditures, which
consisted primarily of construction of facilities, information technology,
telecommunications equipment and computer systems, and furniture and fixtures,
were made to support the continued growth and expansion of the IT call centers.
During 1995, the Company opened its sixth and seventh IT call centers and
commenced construction of its eighth IT call center, which was opened in
January 1996.
The Company believes that the net proceeds from its secondary offering,
combined with available amounts of cash, accessible funds under its credit
facilities and cash flows from operations, will be adequate to meet its capital
requirements for the foreseeable future.
<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Sykes Enterprises, Incorporated
We have audited the accompanying consolidated balance sheets of Sykes
Enterprises, Incorporated and subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the year ended July 31, 1994, the five
months ended December 31, 1994 and the years ended December 31, 1995 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sykes
Enterprises, Incorporated and subsidiaries as of December 31, 1995 and 1996
and the consolidated results of their operations and their cash flows for the
year ended July 31, 1994, the five months ended December 31, 1994, and the
years ended December 31, 1995 and 1996, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 14, 1997
<PAGE> 8
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $2,602,480 $89,205,758
Receivables, including unbilled........................... 16,744,039 33,275,531
Prepaid expenses and other current assets................. 1,650,152 2,220,769
----------- ------------
Total current assets..................................... 20,996,671 124,702,058
Property and equipment, net................................ 24,384,987 38,535,585
Deferred charges and other assets.......................... 769,685 589,968
----------- ------------
$46,151,343 $163,827,611
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt................... $1,566,645 $ -
Accounts payable......................................... 6,221,965 3,957,741
Accrued employee compensation and benefits............... 5,849,096 7,100,279
Deferred income taxes.................................... 3,366,000 -
Other accrued expenses and current liabilities........... 2,942,782 2,901,158
----------- ------------
Total current liabilities............................... 19,946,488 13,959,178
Long-term debt............................................ 8,589,530 225,835
Deferred income taxes..................................... - 3,236,000
Deferred grants........................................... 6,751,782 11,669,273
Commitments and contingencies (Notes 9 and 17)
Shareholders' equity
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding.............. - -
Common stock, $.01 par value; 50,000,000 shares authorized;
14,121,819 and 21,893,818 issued and outstanding.......... 141,218 218,938
Additional paid-in capital................................. 645,437 121,287,757
Retained earnings.......................................... 10,008,015 13,267,885
Accumulated foreign currency translation adjustments....... 68,873 (37,255)
----------- ------------
Total shareholders' equity................................ 10,863,543 134,737,325
----------- ------------
$46,151,343 $163,827,611
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 9
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues.............................. $55,589,334 $21,612,513 $74,594,634 $117,018,154
----------- ----------- ----------- ------------
Operating expenses
Direct salaries and related costs.... 35,362,219 14,157,479 44,592,380 65,675,668
General and administrative........... 18,785,692 7,242,028 25,231,077 36,022,963
----------- ----------- ----------- ------------
Total operating expenses............ 54,147,911 21,399,507 69,823,457 101,698,631
----------- ----------- ----------- ------------
Income from operations 1,441,423 213,006 4,771,177 15,319,523
Other income (expense)
Interest income...................... - - - 941,688
Interest expense..................... (134,657) (192,170) (726,142) (419,988)
Other................................ (115,127) (83,662) (1,652) 61,261
----------- ----------- ----------- ------------
Total other income (expense)........ (249,784) (275,832) (727,794) 582,961
----------- ----------- ----------- ------------
Income (loss) before income taxes..... 1,191,639 (62,826) 4,043,383 15,902,484
Provision for income taxes
Current.............................. (176,906) 63,852 817,044 6,468,000
Deferred............................. 758,954 28,821 830,254 (383,000)
----------- ----------- ----------- ------------
Total provision for income taxes.... 582,048 92,673 1,647,298 6,085,000
----------- ----------- ------------ ------------
Net income (loss)..................... 609,591 (155,499) 2,396,085 9,817,484
Preferred stock dividends............. - - - (47,343)
----------- ----------- ------------ ------------
Net income (loss) applicable to
common shareholders.................. $ 609,591 $ (155,499) $ 2,396,085 $ 9,770,141
=========== =========== =========== ============
Pro forma income data (unaudited)
Income (loss) before income taxes..... $ 1,191,639 $ (62,826) $ 4,043,383 $ 15,902,484
Pro forma provision for income taxes
relating to S corporation............ 15,000 23,500 172,000 67,000
Actual provision for income taxes..... 582,048 92,673 1,647,298 6,085,000
----------- ----------- ----------- ------------
Total provision and pro forma
provision for income taxes......... 597,048 116,173 1,819,298 6,152,000
----------- ----------- ----------- ------------
Pro forma net income (loss)........... 594,591 (178,999) 2,224,085 9,750,484
Preferred stock dividends............. - - - (47,343)
----------- ----------- ----------- ------------
Pro forma net income (loss)
applicable to common shareholders.... $ 594,591 $ (178,999) $ 2,224,085 $ 9,703,141
=========== =========== =========== ============
Pro forma net income (loss) per share. $ 0.04 $ (0.01) $ 0.13 $ 0.49
=========== =========== =========== ============
Pro forma weighted average common and
common equivalent shares outstanding. 16,873,982 16,873,982 16,873,982 19,957,851
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 10
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
---------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1993....... 14,300,166 $143,001 $ 366,380 $ 7,157,838 $ (3,414)
Contribution to capital........ - - 350,000 - -
Redemption of common stock..... (363,462) (3,634) (96,366) - -
Issuance of common stock....... 61,704 617 (205) - -
Foreign currency translation
adjustment.................... - - - - (95,428)
Net income..................... - - - 609,591 -
---------- -------- -------- ---------- -------
Balance at July 31, 1994........ 13,998,408 139,984 619,809 7,767,429 (98,842)
Foreign currency translation
adjustment.................... - - - - 3,802
Net loss....................... - - - (155,499) -
---------- -------- -------- ---------- -------
Balance at December 31, 1994.... 13,998,408 139,984 619,809 7,611,930 (95,040)
Issuance of common stock....... 41,342 413 26,449 - -
Stock dividend................. 82,069 821 (821) - -
Foreign currency translation
adjustment.................... - - - - 163,913
Net income..................... - - - 2,396,085 -
---------- -------- -------- ---------- -------
Balance at December 31, 1995.... 14,121,819 141,218 645,437 10,008,015 68,873
Merger with Sykes Realty, Inc.. 1,220,000 12,200 253,366 (827,554) -
Conversion of redeemable
preferred stock............... 298,686 2,987 5,373,365 (5,376,352) -
Issuance of common stock....... 4,285,088 42,851 111,168,785 - -
Three-for-two stock split...... 1,968,225 19,682 (19,682) - -
Distribution................... - - - (306,365) -
Tax effect of non-qualified
exercise of stock options..... - - 3,866,486 - -
Foreign currency translation
adjustment.................... - - - - (106,128)
Preferred stock dividends...... - - - (47,343) -
Net income..................... - - - 9,817,484 -
---------- -------- ------------ ----------- --------
Balance at December 31, 1996.... 21,893,818 $218,938 $121,287,757 $13,267,885 $(37,255)
========== ========= ============ =========== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 11
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995 1996
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................... $ 609,591 $ (155,499) $2,396,085 $ 9,817,484
Depreciation and amortization....... 1,430,317 937,351 2,958,053 5,075,416
Deferred compensation............... - - 949,960 -
Deferred income taxes............... 758,954 28,821 830,254 (383,000)
Loss (gain) on disposal of property
and equipment...................... 109,877 34,949 43,840 (545)
Changes in assets and liabilities
Receivables, including unbilled.... (667,874) (1,272,499) (5,323,205) (15,929,295)
Prepaid expenses and other current
assets............................ (1,540,097) (68,765) (47,635) (496,481)
Deferred charges and other assets.. (275,518) 146,194 42,941 (126,801)
Accounts payable................... 145,015 930,878 3,569,699 (2,883,810)
Accrued employee compensation and
benefits.......................... 664,662 (190,231) 2,502,987 1,251,183
Other accrued expenses and current
liabilities....................... 535,514 593,563 934,466 3,132,326
----------- ---------- ---------- -----------
Net cash provided by (used for)
operating activities............ 1,770,441 984,762 8,857,445 (543,523)
----------- ---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditure................. (5,080,358) (5,293,027) (13,701,584) (19,088,593)
Acquisition of business............. (104,000) - - -
Proceeds from sale of property and
equipment.......................... 67,181 211,218 79,936 150,514
----------- ---------- ---------- -----------
Net cash used for investing
activities...................... (5,117,177) (5,081,809) (13,621,648) (18,938,079)
----------- ---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Paydowns under revolving line of
credit agreements.................. (18,563,000) (8,058,000) (32,413,539) (20,331,569)
Borrowings under revolving line of
credit agreements.................. 19,043,000 10,383,000 30,573,273 19,916,835
Proceeds from issuance of stock..... 32,917 - 26,861 111,211,636
Proceeds from grants................ 700,987 1,671,093 2,603,485 5,263,420
Proceeds from issuance of long-term
debt............................... 3,023,056 1,630,056 5,000,000 -
Subsidiary stock redemption......... (100,000) - - -
Payment of long-term debt........... (652,358) (258,698) (669,452) (9,515,606)
Dividends paid...................... - - - (353,708)
----------- ---------- ---------- -----------
Net cash provided by financing
activities...................... 3,484,602 5,367,451 5,120,628 106,191,008
---------- ---------- ---------- -----------
Adjustment for foreign currency
translation......................... (95,428) 3,802 163,913 (106,128)
----------- ---------- ---------- -----------
Net increase in cash and
cash equivalents.................... 42,438 1,274,206 520,338 86,603,278
CASH AND CASH EQUIVALENTS - BEGINNING 765,498 807,936 2,082,142 2,602,480
----------- ---------- ---------- -----------
CASH AND CASH EQUIVALENT - ENDING... $ 807,936 $2,082,142 $2,602,480 $89,205,758
=========== ========== ========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest......................... $ 127,606 $ 225,657 $ 772,368 $ 334,630
Income taxes..................... $ 767,535 $ 2,411 $ 816,090 $ 3,187,242
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 12
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sykes Enterprises, Incorporated and consolidated subsidiaries (the "Company"
or "Sykes") provide comprehensive information technology outsourcing services
including information technology support services, consisting of technical
product support, help desk services and diagnostic software tools, and
information technology development services and solutions, consisting of
software design, development, integration and implementation and documentation,
foreign language translation and localization services. The Company's
services are provided to a wide variety of industries.
Unless otherwise noted, all information has been adjusted to retroactively
reflect the three-for-two stock split in the form of a 50% stock dividend to
shareholders of record on July 18, 1996, which was reflected on the Nasdaq
National Market on July 29, 1996.
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Sykes Enterprises, Incorporated and its wholly owned
subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation.
Change in Fiscal Year - The Company changed its fiscal year end from
July 31 to December 31 effective August 1, 1994. The consolidated statements
of income, changes in shareholders' equity and cash flows for the year ended
July 31, 1994, the five months ended December 31, 1994 and the years ended
December 31, 1995 and 1996 are presented in the accompanying consolidated
financial statements.
Recognition of Revenue - The Company primarily recognizes its revenue as
services are performed. Royalty revenue is recognized at the time royalties
are earned and the remaining revenue is recognized on fixed price contracts
using the percentage-of-completion method of accounting. Adjustments to fixed
price contracts and estimated losses, if any, are recorded in the period when
such adjustments or losses are known. Software sales are recognized upon
shipment.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid
short term investments classified as available for sale as defined under the
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At December 31, 1996, cash in the
amount of approximately $79,975,000 was held in tax free interest bearing
investments, approximately $6,721,000 was held in taxable interest bearing
investments, both of which are classified as available for sale, and
approximately $136,000 was held in an interest bearing account and pledged
as collateral with respect to office space leased in Amsterdam, The Netherlands.
It is the Company's intention to continue to maintain the Netherlands'
investment throughout the term of the lease.
Shareholder Payable - The Company recorded a net payable due to its majority
shareholder of approximately $645,000 which has been included in accounts
payable at December 31, 1995. There was no balance due to the shareholders
at December 31, 1996.
<PAGE> 13
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES, continued
Property and Equipment - Property and equipment is recorded at cost and
depreciated using the straight-line method over the estimated useful lives
of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the useful lives of the improvements.
Cost and related accumulated depreciation on assets retired or disposed of are
removed from the accounts and any gains or losses resulting therefrom are
credited or charged to income. Depreciation expense was approximately
$1,338,000, $847,000, $3,171,00 and $5,725,000 for the year ended July 31,
1994, the five months ended December 31, 1994 and the years ended December 31,
1995 and 1996, respectively. Property and equipment includes approximately
$620,000 of additions included in accounts payable at December 31, 1996.
Accordingly, this non-cash transaction has been excluded from the accompanying
consolidated statement of cash flows for the year ended December 31, 1996.
Land received from various governmental agencies under grants is recorded at
fair value (as determined by an independent appraiser) at date of grant. During
the years ended December 31, 1995 and 1996 the Company recorded approximately
$1,824,000 and $317,000, respectively, in land acquisitions as a result of such
grants. Accordingly, these non-cash transactions have been excluded from the
accompanying consolidated statements of cash flows for the years ended
December 31, 1995 and 1996.
Deferred Charges and Other Assets - Deferred charges and other assets consist
primarily of long-term deposits, and goodwill and covenants not to compete
arising from business acquisitions. These intangible assets are being amortized
over periods ranging from two to ten years.
Impairment of Long-lived Assets - The Company reviews long-lived assets and
certain identifiable intangibles for impairment and writes down to fair value
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Since adoption, no impairment losses have been
recognized.
Income Taxes - Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income.
The Company and its consolidated subsidiaries are either taxed as C
corporations or have elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code through the effective date of the
Company's initial public offering (See Note 15). The Company's affiliate which
elected to be taxed as an S corporation terminated its S corporation election
during the year and accordingly became subject to federal and state income
taxes.
Deferred Grants - Grants for relocation and the acquisition of property and
equipment are deferred and recognized in income over the corresponding useful
lives of their related property and equipment. There are no significant
contingencies associated with the grants that would impact the Company's
ability to utilize assets received in association with the grants.
<PAGE> 14
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES, continued
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 are not included in
determining net income, but are accumulated as a separate component of
shareholders' equity. Foreign currency translation gains and losses are
included in determining net income. Such gains and losses are not material
for any period presented.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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; however,
management does not believe these differences would have a material effect on
operating results.
NOTE 2 - ACQUISITIONS AND MERGERS
On July 16, 1996, the Company acquired Datasvar Support AB ("Datasvar") of
Stockholm, Sweden in exchange for 246,819 shares of the Company's common
stock. Datasvar operates two information technology call centers in Sweden
serving the Scandinavian region. Datasvar employs 97 employees and had
1995 revenues of approximately $5.3 million and after-tax earnings of
approximately $1.0 million.
On August 30, 1996, the Company acquired all of the stock of DiagSoft, Inc.
("DiagSoft") in exchange for 675,000 shares of the Company's common stock.
DiagSoft develops and markets diagnostic software applications which will
enhance the Company's technology support services. DiagSoft employs 24
employees and had 1995 revenues of approximately $6.2 million and after-tax
loss of approximately $112,000.
The above transactions have been accounted for as pooling-of-interests and,
accordingly, the consolidated financial statements for the periods presented
have been restated to include the accounts of Datasvar and DiagSoft.
Separate results of operations for the periods prior to the merger with
Datasvar and DiagSoft are outlined on the following page.
<PAGE> 15
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS AND MERGERS, continued
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Year Ended
July 31, December 31, December 31,
1994 1994 1995
---------- ----------- -------------
<S> <C> <C> <C>
Net Sales
Sykes......................... $47,661,706 $18,167,860 $63,096,660
Datasvar...................... 2,659,788 1,486,741 5,341,450
DiagSoft...................... 5,267,840 1,957,912 6,156,524
------------ ----------- -----------
Combined....................... $55,589,334 $21,612,513 $74,594,634
------------ ----------- -----------
Net Income
Sykes......................... $ 485,023 $ 34,435 $ 1,502,946
Datasvar...................... 203,992 (32,243) 1,005,548
DiagSoft...................... (79,424) (157,691) (112,409)
------------ ----------- -----------
Combined....................... $ 609,591 $ (155,499) $ 2,396,085
------------ ----------- -----------
Other changes in shareholder's
equity
Sykes......................... $ 291,249 $ (3,185) $ 29,054
Datasvar...................... (36,265) 6,987 161,721
DiagSoft...................... (100,000) - -
----------- ----------- -----------
Combined....................... $ 154,984 $ 3,802 $ 190,775
=========== =========== ===========
</TABLE>
NOTE 3 - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade receivables. With the exception of
approximately $4.2 million of receivables from a significant customer
(See Note 14), the Company's credit concentrations are limited due to the
wide variety of customers and markets into which the Company's services are
sold.
NOTE 4 - RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Trade accounts receivable.................... $15,532,420 $27,325,175
Unbilled accounts receivable................. 968,331 2,509,946
Notes from officers and related parties...... 145,000 -
Other........................................ 302,685 3,560,410
----------- ------------
16,948,436 33,395,531
Less allowance for doubtful accounts......... 204,397 120,000
----------- ------------
$16,744,039 $33,275,531
=========== ===========
</TABLE>
<PAGE> 16
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land....................................... $ 2,240,746 $ 2,506,421
Buildings and leasehold improvements....... 9,461,812 15,447,356
Equipment, furniture and fixtures.......... 18,320,509 33,262,744
Transportation equipment................... 538,011 504,147
Construction in progress................... 1,499,363 -
----------- -----------
32,060,441 51,720,668
Less accumulated depreciation.............. 7,675,454 13,185,083
----------- -----------
$24,384,987 $38,535,585
=========== ===========
</TABLE>
NOTE 6 - LONG-TERM DEBT
Effective December 31, 1996, the Company entered into an agreement replacing
it's previous credit line with an unsecured revolving $25 million facility.
This new facility accrues borrowings at tiered levels between 125 and 200 basis
points above listed Libor pursuant to a defined ratio calculation within the
agreement. The facility matures in June 1998, and contains certain covenants
associated with tangible net worth, debt and debt funding as defined by the
agreement.
The Company had a credit facility with NationsBank, N.A. comprised of $12
million revolving line of credit and a term note issued in the original amount
of $8 million. Borrowings under the credit facility was approximately
$8,165,000 at December 31, 1995. The Company extinguished the debt with the
proceeds from its initial public offering and had no borrowings under either
credit facility at December 31, 1996.
A foreign subsidiary of the Company had a bank loan with a balance of
approximately $153,000 and $226,000 at December 31, 1995 and 1996,
respectively. The loan agreement has an interest rate of the official
discount rate plus 5%. Principal and interest are payable semi-annually.
Other debt extinguished during 1996 consisted of bank loans and capital
leases. In the aggregate, the balance at December 31, 1995 was
approximately $1,765,000.
NOTE 7 - INCOME TAXES
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Year Ended December 31,
July 31, December 31, -------------------------
1994 1994 1995 1996
--------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Domestic............... $ 950,880 $ (8,655) $2,438,708 $14,762,310
Foreign................ 240,759 (54,171) 1,604,675 1,140,174
---------- ----------- ---------- -----------
Total income (loss)
before income taxes.. $1,191,639 $ (62,826) $4,043,383 $15,902,484
========== =========== ========== ===========
</TABLE>
<PAGE> 17
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES, continued
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Year Ended December 31,
July 31, December, 31 -------------------------
1994 1994 1995 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.................. $ (237,881) $ 50,209 $ 292,594 $4,975,000
State.................... 7,453 10,381 80,904 961,000
Foreign.................. 53,522 3,262 443,546 532,000
---------- ---------- ---------- ----------
Total current provision
for income taxes....... (176,906) 63,852 817,044 6,468,000
---------- ---------- ---------- ----------
Deferred:
Federal.................. 770,232 25,249 728,792 (243,000)
State.................... (11,278) 3,572 101,462 (4,000)
Foreign.................. - - - (136,000)
---------- ---------- ---------- ----------
Total deferred provision
for income taxes....... 758,954 28,821 830,254 (383,000)
---------- ---------- ---------- ----------
Total provision for
income taxes.......... $ 582,048 $ 92,673 $1,647,298 $6,085,000
========== ========== ========== ==========
</TABLE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- --------
<S> <C> <C>
Current:
Deferred tax asset:
Accounts payable................................... $ 428,000 $ -
Accrued expenses................................... 1,534,000 686,000
State operating loss carryforward.................. 1,000 -
Bad debt reserve................................... - 15,000
Other.............................................. 109,000 -
----------- --------
Total current deferred tax asset.................. $ 2,072,000 $701,000
----------- --------
Deferred tax liability:
Receivables........................................ $(5,337,000) $ -
State tax refunds.................................. (57,000) -
Property and equipment............................. (44,000) (149,000)
Cash to accrual-Section 481 adjustment............. - (277,000)
----------- --------
Total current deferred tax liability.............. (5,438,000) (426,000)
----------- --------
Net current deferred tax asset (liability)....... $(3,366,000) $275,000
=========== ========
Non-current:
Deferred tax asset:
Deferred compensation.............................. $ 360,000 $240,000
R & D credits...................................... 25,464 -
Bad debt reserve................................... 48,566 -
Accrued expenses................................... 87,258 3,000
State operating loss carryforward.................. 37,000 -
Other.............................................. 34,386 -
----------- --------
Total non-current deferred tax asset.............. $ 592,674 $243,000
----------- --------
</TABLE>
<PAGE> 18
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES, continued
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- --------
<S> <C> <C>
Deferred tax liability:
Property and equipment............................ $ (344,705) $ (338,000)
Untaxed reserves - foreign........................ (97,318) (136,000)
Cash to accrual-Section 481 adjustment............ - (2,903,000)
Other............................................. (139,617) (102,000)
----------- ----------
Total non-current deferred tax liability......... (581,640) (3,479,000)
----------- ----------
Net non-current deferred tax asset (liability).. $ 11,034 $(3,236,000)
=========== ===========
</TABLE>
The corporation has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations. Undistributed earnings amounted to
approximately $2 million at December 31, 1996, excluding amounts which, if
remitted, generally would result in minimal additional U.S. income taxes because
of available foreign tax credits. If the earnings of such foreign subsidiaries
were not indefinitely reinvested, a deferred tax liability of approximately
$300,000 would have been required.
In conjunction with the Company's initial public offering, the Company changed
its method of accounting for income taxes from the cash basis to the accrual
method. The corresponding adjustment will be included in taxable income over a
period not to exceed four years.
The following summarizes the principal differences between income taxes at the
federal statutory rate and the effective income tax amounts reflected in the
financial statements:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Year Ended December 31,
July 31, December 31, -----------------------
1994 1994 1995 1996
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Statutory tax...................... $ 405,310 $ (20,649) $ 1,375,089 $ 5,407,000
State income taxes net of federal
tax benefit....................... 36,986 (2,934) 102,169 606,000
Effect of income not subject to
federal and state income tax..... (13,000) (21,000) (155,000) (284,000)
Change in state tax rate......... (67,000) - - -
Foreign taxes, net of foreign income
not taxed in U.S. ................. (26,533) 21,836 (110,306) (48,000)
Permanent differences............... 321,551 178,427 366,555 153,000
Tax credits......................... (57,246) (43,007) (90,209) -
Other............................... (18,020) (20,000) 159,000 251,000
----------- ------------- ------------ ------------
Total provision for income taxes.. $ 582,048 $ 92,673 $ 1,647,298 $ 6,085,000
========== ============ =========== ===========
</TABLE>
The Company is currently under examination by the Internal Revenue Service for
tax years ended July 31, 1991, 1992, 1993 and 1994. The Company has reviewed
various matters that are under consideration and believes that it has
adequately provided for any liability that may result from this examination.
In the opinion of management, any liability that may arise from prior periods
as a result ofthe examination will not have a material effect on the
Company's financial condition or results of operations.
<PAGE> 19
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8- EARNINGS PER SHARE
Primary earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding during the periods and assumes,
(i) that the redeemable preferred stock was converted at the beginning of each
period, or date of issuance, if later, and (ii) that earnings were increased
for preferred dividends that would not have been incurred had conversion taken
place. Common share equivalents include, when applicable, dilutive stock
options using the treasury stock method. Fully diluted earnings per share
assumes, in addition to the above, the additional dilutive effect of stock
options.
The numbers of shares used in the earnings per share computation are as follows:
<TABLE>
<CAPTION>
Five Months
Year Ended Ended December 31,
July 31, December 31, -----------------------
1994 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary
Weighted average
common outstanding....... 15,951,819 15,951,819 15,951,819 18,929,146
Conversion of
preferred stock.......... 448,029 448,029 448,029 151,434
Stock options............. 474,134 474,134 474,134 843,792
---------- ---------- ---------- ----------
Total primary........... 16,873,982 16,873,982 16,873,982 19,924,372
Fully Diluted
Additional dilution
of stock options......... - - - 33,479
---------- ---------- ---------- ----------
Total fully diluted..... 16,873,982 16,873,982 16,873,982 19,957,851
========== ========== ========== ==========
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and buildings under operating leases
having terms ranging from one to ten years. The building leases contain up
to two five year renewal options.
Rental expense under operating leases for the year ended July 31, 1994, the
five months ended December 31, 1994 and the years ended December 31, 1995 and
1996 was approximately $2,411,000, $716,000, $1,667,000 and $4,211,000,
respectively. Rental expense for an office building leased from the Company's
major shareholder, net of subleases was approximately $277,000, $45,000,
$104,000 and $104,000 for the year ended July 31, 1994, the five months ended
December 31, 1994 and the years ended December 31, 1995 and 1996, respectively.
The Company has a ten-year operating lease agreement, signed in 1995, with the
Company's majority shareholder for its corporate aircraft. The lease expense
for 1995 and 1996 was approximately $51,000 and $615,000, respectively.
<PAGE> 20
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES, continued
The Company has a five year noncancelable sublease agreement with an unrelated
tenant for its Charlotte, N.C. facility. The minimum sublease rental amounts
the Company is to receive are approximately $181,000, $187,000, and $94,000 for
the years ended December 31, 1997 through 1999, respectively.
The following is a schedule of future minimum rental payments (without regard
to the Charlotte, N.C. sublease) under operating leases having a remaining
noncancelable term in excess of one year subsequent to December 31, 1996:
<TABLE>
<CAPTION>
Related Non-Related Total
Year Party Party Amount
- ---- ---------- ----------- -----------
<S> <C> <C> <C>
1997............................ $ 896,000 $ 2,094,000 $ 2,990,000
1998............................ 896,000 1,584,000 2,480,000
1999............................ 896,000 769,000 1,665,000
2000............................ 896,000 626,000 1,522,000
2001............................ 896,000 435,000 1,331,000
Thereafter...................... 3,207,000 - 3,207,000
---------- ----------- -----------
Total minimum payments required $7,687,000 $ 5,508,000 $13,195,000
========== =========== ===========
</TABLE>
The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management believes
that it has adequate legal defenses and/or provided adequate accruals for
related costs such that the ultimate outcome will not have a material adverse
effect on the Company's future financial position.
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan covering defined employees who meet
established eligibility requirements. Under the plan provisions, the Company
matches 25% of participant contributions to a maximum matching amount of 1%
of participant compensation. Company contributions are funded on a bi-weekly
basis. The Company contribution was approximately $81,000, $105,000, $95,000
and $120,000 for the year ended July 31, 1994, the five months ended December
31, 1994 and the years ended December 31, 1995 and 1996, respectively. In
addition, one of the Company's subsidiaries currently maintained a separate
401(k) plan. There were no Company contributions made to the plan during the
periods presented.
NOTE 11 - PUBLIC OFFERINGS
In April 1996, the Company completed its initial public offering for the sale
of 3,000,000 shares of common stock. Coincident with such offering, the
underwriters of the offering exercised their 15% over-allotment and accordingly
an additional 626,652 shares of the Company's common stock were sold by the
Company. The Company received approximately $39.7 million from the sale of the
shares, net of underwriting discounts and expenses associated with such
offering. The proceeds were used to repay all outstanding indebtedness and
make capital expenditures, with the remaining balance held for general
corporate and working capital purposes.
In November 1996, the Company completed a secondary offering for the sale of
1,613,320 shares of common stock, inclusive of the underwriters over-allotment
option. The Company received approximately $71.5 million from the offering,
net of underwriting discounts and expenses. The net proceeds were held for
general corporate and working capital purposes.
<PAGE> 21
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTIONS
In 1995, the Company granted options to an executive officer to purchase
762,000 shares of common stock at $4.53 per share. The Company determined that
the price was approximately $1.25 below fair market value at the date of the
grant and recognized $949,960 as compensation expense for the year ended
December 31, 1995. The options become exercisable three years from the date of
grant, except that one-third were exercisable to the extent that the underlying
shares were permitted to be included by the underwriters in an underwritten
public offering. In November, 1996 the Company completed its secondary public
offering and 254,000 of the options granted to the executive officer were
exercised and sold in the offering. The remaining 508,000 options expire if
not exercised by the tenth anniversary of their grant date.
Another executive officer was granted options under the Company's 1996 Employee
Stock Option Plan to purchase 139,894 shares of the Company's common stock with
an exercisable price of (i) 33 1/3% of such shares at $12.00 per share,
(ii) 33 1/3% at $11.33 per share, and (iii) 33 1/3% at $10.00 per share.
Compensation expense of $27,634 is recognized in the general and administrative
expenses in the accompanying consolidated statements of operations for the year
ended December 31, 1996.
1996 Employee Stock Option Plan - The Company's 1996 Employee Stock Option Plan
(the "Employee Plan") permits the granting of incentive or nonqualified stock
options to purchase up to 1,750,000 shares of the Company's common stock at
not less than the fair value at the time the options are granted. Certain other
officers and employees hold options to purchase additional shares of common
stock at a range of $10.00 to $46.90 per share and vest ratably over the
three-year period following the date of grant, except for 120,000 options
granted to key employees of DiagSoft, all of which are immediately
exercisable. All options granted under the Employee Plan expire if not
exercised by the tenth anniversary of their grant date.
Transactions related to the 1996 Employee Stock Option Plan are summarized
as follows:
<TABLE>
<CAPTION>
Shares Option Price
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995........... -
Granted................................... 649,070 $10.00 to $46.90
Exercised................................. -
Expired or terminated..................... (47,875) $12.00
---------
Outstanding at December 31, 1996........... 601,195 $10.00 to $46.90
---------
</TABLE>
1996 Non-Employee Director Stock Option Plan - The Company's 1996 Non-Employee
Director Stock Option Plan (the "Non-Employee Plan") permits the granting of
nonqualified stock options to purchase up to 300,000 shares of the Company's
common stock to members of the Board of Directors who are not employees of the
Company. Each outside director received options to purchase 7,500 shares of
common stock at an exercise price of $12.00 per share and will receive options
to purchase 5,000 shares on the day following the annual meeting of
shareholders. Thereafter, on the date on which a new outside director is
first elected or appointed, he or she will automatically be granted options
to purchase 5,000 shares of common stock. All options granted will have an
exercise price equal to the then fair market value of the common stock. At
December 31, 1996 no options granted were exercisable. All options granted
under the Non-Employee Plan expire if not exercised by the tenth anniversary
of their grant date.
Transactions related to the 1996 Non-Employee Director Stock Option Plan are
summarized as follows:
<TABLE>
<CAPTION>
Shares Option Price
---------- ------------
<S> <C> <C>
Outstanding at December 31, 1995............ -
Granted.................................... 37,500 $12.00
Exercised.................................. -
Expired or terminated...................... -
----------
Outstanding at December 31, 1996............ 37,500 $12.00
----------
</TABLE>
<PAGE> 22
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTIONS, continued
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", but applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans. Therefore, no
compensation expense has been recognized for stock options granted under its
plans. If the Company had elected to recognize compensation expense for stock
options based on the fair value at grant date, consistent with the method
prescribed by SFAS No. 123, net income and earnings
per share would have been reduced to the pro forma amounts shown below:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended December 31,
July 31, December 31, -------------------
1994 1994 1995 1996
-------- -------- ------- ------
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Pro forma net income (loss)
as reported $ 595 $ (179) $2,224 $9,750
Pro forma net income (loss)
as prescribed by SFAS 123 $ 595 $ (179) $1,027 $8,371
Pro forma net income (loss)
per share as reported $ 0.04 $ (0.01) $ 0.13 $ 0.49
Pro forma net income (loss)
as prescribed by SFAS 123 $ 0.04 $ (0.01) $ 0.06 $ 0.42
</TABLE>
The pro forma amounts were determined using the Black-Scholes valuation model
with the following key assumptions: (I) a discount rate of 0.6% for 1995 and
1996; (ii) a volatility factor initially based upon the average trading price
since the Company's common stock has traded on the Nasdaq National Market;
iii) no dividend yield; and (iv) an average expected option life of
approximately 3.5 years.
NOTE 13 - INTERNATIONAL OPERATIONS
The Company's international operations are conducted from four offices located
in Amsterdam, The Netherlands, and Sveg, Jarvso, and Stockholm, Sweden. With
the exception of the Stockholm office, each facility provides technical support
services for regions throughout Europe. The revenue, income (loss) before
income taxes and total assets of the Company associated with its international
operations are as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Year Ended December 31,
July 31, December 31,-------------------------
1994 1994 1995 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue............... $3,780,146 $2,228,422 $8,126,923 $11,561,117
Income (loss) before
income taxes........ 240,759 (54,171) 1,604,675 1,140,174
Total assets.......... 2,743,116 3,839,487 6,442,720 7,397,306
</TABLE>
NOTE 14 - SIGNIFICANT CUSTOMERS
Significant customers of the Company comprised 30%, 27%, 33% and 37% of the
Company's consolidated revenues for the year ended July 31, 1994, and the five
months ended December 31, 1994 and the years ended December 31, 1995 and 1996,
respectively. Two customers comprised 33% and 26% of the Company's revenues
for the years ended December 31, 1995 and 1996, respectively. Revenues from one
customer amounted to 30%, 27%, 16% and 11% for the year ended July 31, 1994 and
the five months ended December 31, 1994 and the years ended December 31,
1995 and 1996, respectively.
<PAGE> 23
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - PRO FORMA DISCLOSURES
Preferred Stock - In connection with an agreement entered into in February
1996, the Company's majority shareholder transferred all the newly issued
shares of the Company's outstanding preferred stock and all of the outstanding
non-voting common stock to a related party. Effective immediately prior to the
Company's initial public offering, the preferred stock and non-voting common
stock was automatically converted into shares of common stock. These shares
were sold in connection with such offering.
Pro Forma Income Taxes - An affiliate of the Company had elected to be treated
as an S corporation for federal and state income tax purposes. As such, the
affiliate's taxable income was reported to and subject to tax to the
affiliate's shareholder. Prior to the Company's initial public offering, the
Company's affiliate terminated its S corporation election and accordingly
became subject to federal and state income taxes. The pro forma provision for
income taxes reported on the consolidated statements of operations presents
federal and state income taxes that would have been incurred if the affiliate
had been subject to tax as a C corporation. In addition, the Company changed
its method of accounting for income taxes from the cash basis to the accrual
method in connection with the offering. The corresponding adjustment will be
included in taxable income over a period not to exceed four years.
Pro Forma Net Income Per Share - In March 1996, the Company was a North
Carolina corporation and amended its Articles of Incorporation to authorize
the issuance of up to 10,000 shares of $1,000 par value per share preferred
stock. At that time, the Company approved a 95-to-1 stock split of all
outstanding common stock. Subsequent to the amendment and stock split, the
Company changed its state of incorporation from North Carolina to Florida
and changed the authorized number of shares of common stock from 100,000 to
50,000,000. As part of the change of state of incorporation, each share of
common stock of the North Carolina corporation was exchanged for 88 shares
(132 shares as adjusted for a three-for-two stock split) of common stock of
the Company. All applicable share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect these events.
Weighted average common shares outstanding includes the common share
equivalents discussed in Note 8 applying the treasury stock method. In
addition, the calculation includes certain preferred stock issued during the
year that was converted to common stock immediately prior to the closing of
and sold in the Company's initial public offering. Such shares were deemed
outstanding for all periods presented.
In addition, the Company issued 1,830,000 shares of common stock as a result
of the merger involving Sykes Realty, Inc. immediately prior to the offering,
which shares were deemed outstanding for all periods presented.
<PAGE> 24
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SELECTED FINANCIAL DATA
Effective August 1, 1994, the Company changed its fiscal year end from
July 31 to December 31. Accordingly, the financial statements for
December 31, 1994 reflect the Company's results of operations for a
five month period.
Selected financial data for the twelve months ended December 31, 1994,
1995 and 1996, as shown on the following page, consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1994 1995 1996
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Revenues.................................... $53,185,255 $74,594,634 $117,018,154
----------- ----------- ------------
Operating expenses:
Direct salaries and related costs.......... 33,731,677 44,592,380 65,675,668
General and administrative................. 18,304,452 25,231,077 36,022,963
----------- ----------- ------------
Total operating expense................... 52,036,129 69,823,457 101,698,631
----------- ----------- ------------
Income from operations...................... 1,149,126 4,771,177 15,319,523
Other income (expense)
Interest................................... (292,943) (726,142) 521,700
Other...................................... (195,332) (1,652) 61,261
----------- ----------- ------------
Total other income (expense).............. (488,275) (727,794) 582,961
----------- ----------- ------------
Income before income taxes.................. 660,851 4,043,383 15,902,484
Provision for income taxes.................. 467,131 1,647,298 6,085,000
----------- ----------- ------------
Net income.................................. 193,720 2,396,085 9,817,484
----------- ----------- ------------
Preferred stock dividends................... - - (47,343)
----------- ----------- ------------
Net income applicable to common shareholders $ 193,720 $ 2,396,085 $ 9,770,141
=========== =========== ============
Pro forma income data (unaudited)
Income before income taxes.................. $ 660,851 $ 4,043,383 $ 15,902,484
Pro forma provision for income taxes
relating to S corporation.................. 39,000 172,000 67,000
Actual provision for income taxes........... 467,131 1,647,298 6,085,000
----------- ----------- ------------
Total provision and pro forma provision
for income taxes.......................... 506,131 1,819,298 6,152,000
----------- ----------- ------------
Pro forma net income........................ 154,720 2,224,085 9,750,484
Preferred stock dividends................... - - (47,343)
----------- ----------- ------------
Pro forma net income applicable to common
shareholders............................... $ 154,720 $ 2,224,085 $ 9,703,141
=========== =========== ============
Pro forma net income per share.............. $ 0.01 $ 0.13 $ 0.49
=========== =========== ============
Pro forma weighted average common and common
equivalent shares outstanding............... 16,873,982 16,873,982 19,957,851
</TABLE>
<PAGE> 25
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS
In January 1997, the Company entered into an agreement to acquire all of the
common stock of Info Systems of N.C., Inc. ("ISI") for $23 million in value of
the Company's common stock. The transaction, which is subject to ISI
shareholder approval, will be accounted for on a pooling-of-interests method
of accounting. ISI specializes in the design, programming, licensing and
support of back-office and point-of-sale software for the retail industry.
Effective January 1, 1997, the Company acquired all of the common stock of
Traffic, N.V. of Brussels, Belgium, and certain other assets, for $1.8 million
in cash. The transaction will be accounted for under the purchase method of
accounting and has been approved by the boards of directors of both companies.
Traffic, N.V. specializes in foreign language translation and multi-media
documentation development. Pro forma information is not presented as the
operating results are not material to the Company's consolidated results.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Sykes Enterprises, Incorporated and subsidiaries on Form S-8 of our report
dated February 14, 1997, on our audits of the consolidated financial statements
of Sykes Enterprises, Incorporated and subsidiaries as of December 31, 1995 and
1996 and for the year ended July 31, 1994, the five months ended December 31,
1994, and the years ended December 31, 1995 and 1996, which is incorporated by
reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,509,610
<SECURITIES> 86,696,148
<RECEIVABLES> 32,056,679
<ALLOWANCES> 120,000
<INVENTORY> 0
<CURRENT-ASSETS> 123,088,206
<PP&E> 43,611,001
<DEPRECIATION> 5,075,416
<TOTAL-ASSETS> 163,124,197
<CURRENT-LIABILITIES> 14,558,695
<BONDS> 0
0
0
<COMMON> 218,938
<OTHER-SE> 134,518,387
<TOTAL-LIABILITY-AND-EQUITY> 163,124,197
<SALES> 0
<TOTAL-REVENUES> 117,018,154
<CGS> 0
<TOTAL-COSTS> 65,675,668
<OTHER-EXPENSES> 36,022,963
<LOSS-PROVISION> 61,261
<INTEREST-EXPENSE> 419,988
<INCOME-PRETAX> 15,902,484
<INCOME-TAX> 6,085,000
<INCOME-CONTINUING> 9,817,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 47,343
<NET-INCOME> 9,770,141
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
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