FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to _______________
Commission File No. 0-28274
SYKES ENTERPRISES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Florida 56-1383460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 North Tampa Street, Suite 3900, Tampa, FL 33602
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 813-274-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for at least the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
[ ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $0.01 Par Value, 39,274,198 shares as of July 27, 1998.
Page 1 of 14 Pages
The Exhibit Index Appears on Page 14
<PAGE>
PART I
Item 1 - Financial Statements
<TABLE>
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $ 70,523,067 $ 27,230,515
Receivables, including unbilled.................... 68,520,471 82,895,871
Prepaid expenses and other current assets.......... 11,377,920 12,764,303
------------ ------------
Total current assets............................. 150,421,458 122,890,689
Property and equipment, net......................... 71,282,183 75,252,974
Marketable securities............................... 7,800,002 1,599,008
Investment in joint venture......................... 2,285,142 6,276,875
Deferred charges and other assets................... 9,874,680 11,224,382
------------ ------------
$ 241,663,465 $ 217,243,928
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt............. $ 2,989,271 $ 1,832,570
Accounts payable................................... 19,905,671 21,549,142
Income tax payable................................. 2,725,177 6,447,253
Accrued employee compensation and benefits......... 10,035,233 16,148,914
Other accrued expenses and current liabilities..... 6,449,650 5,345,162
------------ ------------
Total current liabilities........................ 42,105,002 51,323,041
Long-term debt ..................................... 33,312,597 546,918
Deferred income taxes............................... 4,374,963 4,060,803
Deferred grants..................................... 14,083,691 13,250,694
------------ ------------
Total liabilities................................. 93,876,253 69,181,456
------------ ------------
Commitments and contingencies (Note 5)
Shareholders' equity
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding...... - -
Common stock, $0.01 par value; 200,000,000 shares
authorized; 39,057,626 and 39,274,198 shares
issued and outstanding............................ 390,576 392,742
Additional paid-in capital......................... 133,579,200 134,136,499
Retained earnings.................................. 17,106,620 23,547,558
Unrealized loss on securities, net of taxes........ (734,518) (5,935,512)
Accumulated foreign currency translation
adjustments....................................... (2,554,666) (4,078,815)
------------ ------------
Total shareholders' equity....................... 147,787,212 148,062,472
------------ ------------
$ 241,663,465 $ 217,243,928
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
Six and Three Months Ended June 29, 1997 and June 30, 1998
(Unaudited)
<CAPTION>
Six Months Ended Three Months Ended
------------------------------ -----------------------------
June 29, June 30, June 29, June 30,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues........................... $145,820,843 $189,961,220 $ 79,223,898 $100,811,896
----------- ----------- ----------- -----------
Operating expenses
Direct salaries and related costs. 89,257,480 118,346,928 49,618,280 62,703,321
General and administrative........ 41,525,904 49,266,414 22,219,978 25,793,925
Impairment of long-lived assets... 10,400,000 - 10,400,000 -
----------- ----------- ----------- -----------
Total operating expenses......... 141,183,384 167,613,342 82,238,258 88,497,246
----------- ----------- ----------- -----------
Income (loss) from operations...... 4,637,459 22,347,878 (3,014,360) 12,314,650
Other income (expense)
Interest, net..................... 511,797 259,969 128,328 183,221
Net income (loss) from joint
venture.......................... - (7,995,149) - 20,000
Other............................. 82,045 (29,760) 23,644 (17,276)
----------- ----------- ------------ -----------
Total other income (expense)..... 593,842 (7,764,940) 151,972 185,945
----------- ----------- ------------ -----------
Income (loss) before income taxes.. 5,231,301 14,582,938 (2,862,388) 12,500,595
Provision for income taxes......... 5,641,691 8,142,000 2,694,870 4,588,000
----------- ----------- ------------ -----------
Net income (loss).................. $ (410,390) $ 6,440,938 $ (5,557,258) $ 7,912,595
=========== =========== =========== ===========
Basic net income (loss) per share.. $ (0.01) $ 0.17 $ (0.14) $ 0.20
=========== =========== =========== ===========
Diluted net income (loss) per share $ (0.01) $ 0.16 $ (0.14) $ 0.20
=========== =========== =========== ===========
Shares outstanding
Basic............................. 38,909,220 39,094,997 38,960,167 39,131,572
Diluted........................... 40,245,462 40,157,645 40,326,278 40,158,479
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 29, 1997 and June 30, 1998
(Unaudited)
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)..................................... $ (410,390) $ 6,440,938
Depreciation and amortization......................... 6,063,940 6,936,401
In-process research and development costs expensed
by joint venture..................................... - 7,995,149
Deferred income taxes................................. (127,516) (284,956)
Gain on disposal of property and equipment............ (88,972) (86,738)
Changes in assets and liabilities
Receivables, including unbilled...................... (9,619,321) (14,688,617)
Prepaid expenses and other current assets............ 4,644,452 (1,415,587)
Deferred charges and other assets.................... 847,327 (1,719,468)
Accounts payable..................................... 6,364,283 1,643,471
Income taxes payable................................. 440,202 4,135,317
Accrued employee compensation and benefits........... 121,182 5,980,166
Other accrued expenses and current liabilities....... (2,952,942) (970,973)
------------ ------------
Net cash provided by operating activities........... 5,282,245 13,965,103
------------ ------------
Cash flows from investing activities
Capital expenditures.................................. (11,816,946) (11,461,455)
Investment in marketable securities................... (8,000,000) -
Investment in joint venture........................... - (12,036,127)
Acquisition of business............................... (1,800,000) -
Proceeds from sale of marketable security............. - 1,000,000
Proceeds from sale of property and equipment.......... 161,727 37,406
------------ ------------
Net cash used for investing activities............. (21,455,219) (22,460,176)
------------ ------------
Cash flows from financing activities
Paydowns under revolving line of credit agreements.... (72,441,000) (654,016)
Borrowings under revolving line of credit agreements.. 72,441,000 713,638
Proceeds from grants.................................. 238,149 89,585
Proceeds from issuance of stock....................... 2,127,710 559,465
Proceeds from issuance of long-term debt.............. 16,175,268 -
Payment of long-term debt............................. (5,615,161) (33,982,002)
------------ ------------
Net cash provided by (used for) financing
activities....................................... 12,925,966 (33,273,330)
------------ ------------
Adjustment for foreign currency translation............ (1,037,402) (1,524,149)
------------ ------------
Net decrease in cash and cash equivalents.............. (4,284,410) (43,292,552)
Cash and cash equivalents - beginning.................. 92,836,884 70,523,067
------------ ------------
Cash and cash equivalents - ending..................... $ 88,552,474 $ 27,230,515
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 29, 1997 and June 30, 1998
(Unaudited)
Sykes Enterprises, Incorporated and consolidated subsidiaries (the
"Company") provides integrated information technology outsourcing services
including information technology support services, information technology
development services and solutions, and customer product services. The
Company's services are provided to a wide variety of industries.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial state-
ments. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month periods
ended June 30, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. For further informa-
tion, refer to the consolidated financial statements and notes thereto as
of and for the year ended December 31, 1997 included in the Company's Form
10-K dated December 31, 1997 as filed with the United States Securities and
Exchange Commission on March 16, 1998.
Note 1 - Acquisitions and Mergers
On September 26, 1997, the Company acquired all of the stock of TAS Tele-
marketing Gesellschaft fur Kommunikation and Dialog mbH ("TAS I") of
Bochum, Germany in exchange for 400,000 shares of the Company's common
stock. The Company accounted for the acquisition utilizing the pooling-of-
interests method of accounting. TAS I provides technical call center
support and customer care services, database development, consulting and
training services to customers in Germany and surrounding countries.
On September 26, 1997, the Company acquired all of the stock of TAS Hedi
Fabinyi GmbH ("TAS II") of Stuttgart, Germany, in exchange for 180,000
shares of the Company's common stock. The Company accounted for the
acquisition utilizing the pooling-of-interests method of accounting.
TAS II provides technical call center support and customer care services,
to customers in Germany and surrounding countries.
On December 31, 1997, the Company acquired all of the stock of McQueen
International Limited ("McQueen") of Galashiels, Scotland, in exchange for
3,540,000 shares of the Company's common stock. The Company accounted for
the acquisition utilizing the pooling-of-interests method of accounting.
McQueen provides inbound call center support and customer service,
software fulfillment and foreign language translation and localization
services.
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 TAS I, TAS II and
McQueen.
Separate results of operations for the period prior to the mergers with
TAS I, TAS II, and McQueen are outlined below.
Six Months Ended Three Months Ended
June 29, 1997 June 29, 1997
---------------- ------------------
Revenue:
Sykes.................. $ 95,134,724 $ 48,461,800
TAS I.................. 2,508,000 1,417,467
TAS II................. 910,000 502,000
McQueen................ 47,268,119 28,842,631
------------- ------------
Combined................ $ 145,820,843 $ 79,223,898
============= ============
Net income (loss):
Sykes.................. $ 8,961,806 $ 4,851,504
TAS I.................. 40,000 (31,000)
TAS II................. 64,000 36,000
McQueen.....(1)........ (9,476,196) (10,413,762)
------------- ------------
Combined................ $ (410,390) $ (5,557,258)
============= ============
Other changes in shareholders' equity:
Sykes.................. $ 3,562,561 $ 3,899,840
TAS I.................. (332,816) (332,816)
TAS II................. (23,225) (23,225)
McQueen................ 1,083,788 1,343,197
------------- ------------
Combined................ $ 4,290,308 $ 4,886,996
============= ============
(1) The six and three month periods ended June 29, 1997 include $10.4
million of charges associated with the impairment of a long-lived
asset pursuant to Statement of Financial Accounting Standards ("SFAS")
No. 121.
Note 2 - Marketable Securities
During May 1997, the Company purchased approximately 1.066 million shares
of SystemSoft Corp. common stock in conjunction with a strategic
technology exchange agreement between the parties. In accordance with
Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities", this investment is
classified as an available-for-sale security and is carried at an
aggregate market value of $1.6 million as of June 30, 1998. The
Company's cost basis in this investment is $8.0 million, and the
unrealized loss of $6.4 million, net of deferred income taxes of approxi-
mately $465,000, is reported as a separate component of shareholders'
equity.
Note 3 - Investment in Joint Venture
The Company has a 50% interest in a joint venture that is accounted for
using the equity method of accounting. Accordingly, the Company records
its proportionate share of the gains and losses of the joint venture in
the consolidated statement of income.
During March 1998, the Company's joint venture entity acquired Health
International ("HI") and Prudential Service Bureau, Inc. ("PSBI"). The
combined purchase price of the two acquisitions was $72.6 million. HI
is a disease management company that provides a comprehensive managed
medical care program for employees and plan administrators. PSBI
provides a wide range of call center-based health and welfare benefits
and administrative services.
These acquisitions were accounted for by the joint venture utilizing the
purchase method of accounting. As a result, the Company recorded non-
recurring charges of approximately $8.0 million, primarily representing
its share of the joint venture's acquired in-process research and develop-
ment.
Note 4 - Comprehensive Income
Effective January 1, 1998 the Company has adopted SFAS No. 130 "Reporting
Comprehensive Income" which requires that all items that are required to
be recognized under accounting standards as components of comprehensive
income be reported in the financial statements. Prior periods will be
reclassified as required. The Company's total comprehensive earnings were
as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
------------------------------- ------------------------------
June 29, June 30, June 29, June 30,
1997 1998 1997 1998
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net income (loss). . . . . . . $ (410,390) $ 6,440,938 $ (5,557,258) $ 7,912,595
Other comprehensive income:
Change in equity due to
foreign currency
translation adjustments. . (1,037,402) (1,524,149) (440,714) (603,632)
Unrealized gain (loss) on
securities, net of tax 3,200,000 (6,200,994) 3,200,000 (2,332,400)
----------- ------------ ----------- -----------
Other comprehensive income
before tax . . . . . . . . . 2,162,598 (7,725,143) 2,759,286 (2,936,032)
Income tax expense related
to other comprehensive
income . . . . . . . . . . . 779,000 (2,781,000) 993,000 (1,057,000)
----------- ------------ ----------- -----------
Other comprehensive income,
net of tax . . . . . . . . . 1,383,598 (4,944,143) 1,766,286 (1,879,000)
----------- ------------ ----------- -----------
Comprehensive income . . . . . $ 973,208 $ 1,496,795 $ (3,790,972) $ 6,033,563
=========== ============ =========== ===========
</TABLE>
Note 5 - Commitments and Contingencies
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 6 - Earnings Per Share
Basic earnings per share are based on the weighted average number of
common shares outstanding during the periods. Diluted earnings per share
includes the weighted average number of common shares outstanding during
the periods and the further dilution from stock options using the treasury
stock method.
The numbers of shares used in the earnings per share computation are as
follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------- -----------------------------
June 29, June 30, June 29, June 30,
1997 1998 1997 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Basic:
Weighted average common
Outstanding . . . . . . . . 38,909,220 39,094,997 38,960,167 39,131,572
----------- ----------- ----------- -----------
Total basic. . . . . . . 38,909,220 39,094,997 38,960,167 39,131,572
Diluted:
Dilution of stock options . . 1,336,242 1,062,648 1,366,111 1,026,907
----------- ----------- ----------- -----------
Total diluted. . . . . . 40,245,462 40,157,645 40,326,278 40,158,479
=========== =========== =========== ===========
</TABLE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following should be read in conjunction with the Sykes Enterprises,
Incorporated ("Sykes" or the "Company") Consolidated Financial Statements,
including the notes thereto. 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.
Financial Condition
The Company's primary sources of liquidity are equity offerings, cash
flows from operations and available borrowings under its credit facility.
The Company has utilized these proceeds and the balance of the funds
available from its equity offerings to make additional capital expendi-
tures associated primarily with its technical support services, to repay
debt associated with entities it has acquired subsequent to the public
offerings, to acquire interest in and provide capitalization to a joint
venture entry into the healthcare service industry, invest in technology
applications to further the Company's service offerings, and for working
capital and general corporate purposes. In addition, the Company intends
similar uses from the balance of its funds, including possible additional
acquisitions. Pending any such use, the Company will invest the balance
of its funds in short-term, investment-grade securities or money market
instruments.
During February 1998, the Company entered into a $150.0 million syndicated
facility, which provides for multi-currency lending. This facility
accrues borrowings at tiered levels between 75 and 175 basis points above
listed LIBOR pursuant to a defined ratio calculation within the agreement.
The facility, which matures in February 2001, contains certain financial
covenants associated with debt, leverage and coverage ratios and capital
expenditures and acquisitions as defined by the agreement.
During the six month period ended June 30, 1998, the Company generated
approximately $14.0 million in cash, net, from operations. The Company
utilized these funds and its available cash equivalents to fund $34.0
million repayment of debt, $12.0 million of additional capitalization in a
joint venture and $11.5 million of capital expenditures. The debt repay-
ments were associated with assumed debt levels resulting from certain
acquisitions the Company completed during 1997. During the first quarter
of 1998, the Company invested approximately $12.0 million of additional
capital in a joint venture entity, Sykes HealthPlan Services, Inc. The
capital equipment expenditures were predominately the result of the
Company's continued expansion, both domestically and internationally, in
providing technical product support services. The Company has recently
announced the expansion of its pan-European call center in Amsterdam, The
Netherlands, and anticipates that this new facility will become opera-
tional during 1999.
The Company believes that its current cash position, accessible funds
under its credit facilities and cash flows from operations, will be
adequate to meet its continued expansion objectives, anticipated levels of
capital expenditures and debt repayment requirements, including those
that may be required pursuant to the integration of its acquisitions, for
the foreseeable future.
Results of Operations
Six Months Ended June 30, 1998, Compared to Six Months Ended June 29, 1997
For the six months ended June 30, 1998, the Company recorded consolidated
revenues of $190.0 million, an increase of approximately $44.1 million or
30%, from the $145.8 million of the comparable period during 1997. This
growth in revenue was primarily the result of a $29.2 million or 45%
increase in technical support services, an increase of $5.9 million from
information technology services and solutions and an increase of $9.0
million from customer product services.
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 and the resultant increase in
call volumes from clients. Subsequent to the second quarter of 1997, the
Company opened two new IT call centers which were fully operational during
1998. The increase in customer product services revenue for the six
months ended June 30, 1998 is primarily associated with an acquisition
completed during the second quarter of 1997 by McQueen, which was accounted
for utilizing the purchase method of accounting. The increase in
information technology services and solutions revenues was attributable
to an increase in the average bill rate and hours billed to customers and
to an increase in license fees and royalties associated with the Company's
technology applications when compared to the comparable period in 1997.
Direct salaries and related costs increased approximately $29.1 million
or 33% to $118.3 million for the six month period in 1998 from the
comparable period in 1997. As a percentage of revenues, direct salaries
and related costs was approximately 62% in 1998 from approximately 61%
from the comparable period in 1997. The increase in the amount of direct
salaries and related costs was primarily attributable to the change in the
Company's mix of business associated with the McQueen acquisition and the
addition of personnel to support revenue growth.
General and administrative expenses increased approximately $7.7 million
or 19% to $49.3 million for the six month period in 1998 from the
comparable period in 1997. As a percentage of revenues, however, general
and administrative expenses decreased to 26% in 1998 from 29% for the six
month comparable period in 1997. The increase in the amount of general
and administrative expenses was primarily attributable to the addition of
management, sales and administrative personnel to support the Company's
growth. The decrease as a percentage of revenues resulted from
economies of scale associated with spreading costs over a large revenue
base.
Interest and other expense was $7.8 million during the first six months of
1998 from interest and other income of $0.6 million during the comparable
1997 period. As a percentage of revenues, interest and other expense
was approximately 4% in 1998 from interest and other income of less than
1% in 1997. The increase in interest and other expense for the six month
period was primarily attributable to the occurrence of approximately $8.0
million of acquisition-related, in-process research and development costs
associated with the acquisitions completed by the joint venture, which was
recorded as other expense. During the six months ended June 30, 1998,
the Company repaid a significant amount of outstanding bank debt.
The provision for income taxes increased $2.5 million to $8.1 million for
the six month period in 1998 from the comparable period in 1997. As a
percentage of revenue, the provision for income taxes increased to 4.3%
during the 1998 period when contrasted to approximately 3.9% for the
comparable 1997 period. The Company's marginal tax rate was 36% for both
the 1998 and 1997 periods, excluding the effect of one-time charges.
Three Months Ended June 30, 1998, Compared to Three Months
Ended June 29, 1997
For the three months ended June 30, 1998, the Company recorded consoli-
dated revenues of $100.8 million, an increase of approximately $21.6
million, or 27%, from the $79.2 million of the comparable period during
1997. This growth in revenue was primarily the result of $15.6 million,
or 49%, increase in technical support services, an increase in revenues of
$8.6 million from information technology services and solutions, partially
offset by a decrease of $2.7 million from customer product services.
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 and the resultant increase in
call volumes from clients. Subsequent to the second quarter of 1997, the
Company opened two new IT call centers which were fully operational during
1998. The increase in information technology services and solutions
revenues was attributable to an increase in the average bill rate and
hours billed to customers and to an increase in license fees and
royalties associated with the Company's technology applications when
compared to the comparable period in 1997. The decrease in customer
product services revenues was attributable to a reduction of selective
clients which were inconsistent with the Company's business objectives.
Direct salaries and related costs increased approximately $13.1 million,
or 26%, to $62.7 million, for the three month period in 1998 from the
comparable period in 1997. As a percentage of revenues, direct salaries
and related costs was approximately 62% in 1998 from approximately 63%
from the comparable period in 1997. The increase in the dollar amount
of direct salaries and related costs was primarily 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.
General and administrative expenses increased approximately $3.6 million,
or 16%, to $25.8 million, for the three month period in 1998 from the
comparable period in 1997. As a percentage of revenues, however, general
and administrative expenses decreased to 26% in 1998 from 28%, for the
three month comparable period in 1997. The increase in the amount of
general and administrative expenses was primarily attributable to the
addition of management, sales and administrative personnel to support the
Company's growth. The decrease as a percentage of revenues resulted from
economies of scale associated with spreading costs over a large revenue
base.
Interest and other income was $0.2 million during both the three months
ended June 30, 1998 and the comparable 1997 period.
The provision for income taxes increased $1.9 million, to $4.6 million,
for the three month period in 1998 from the comparable period in 1997.
As a percentage of revenue, the provision for income taxes increased to
4.6% during the 1998 period when contrasted to approximately 3.4% for the
comparable 1997 period. The Company's marginal tax rate was 36% for both
the 1998 and 1997 periods, excluding the effect of one-time charges.
Part II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
The following document it filed as an exhibit to this Report:
10.14 Management Stock Incentive Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
Date: July 28, 1998 By: /s/Scott J. Bendert
Senior Vice President-Finance,
Treasurer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
<PAGE>
SYKES ENTERPRISES, INCORPORATED
FORM 10-Q
(For The Six Months Ended June 30,1998)
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
------- ------
10.14 Management Stock Incentive Plan 15
27.1 Financial Data Schedule 22
SYKES ENTERPRISES, INCORPORATED
1997 MANAGEMENT STOCK INCENTIVE PLAN
1. Establishment. SYKES ENTERPRISES, INCORPORATED (the "Company"
which, for the purposes hereof, shall be construed to include and
encompass its Subsidiaries), hereby establishes a stock incentive plan for
its officers and managers, as described herein, which shall be known as
the "SYKES ENTERPRISES, INCORPORATED 1997 MANAGEMENT STOCK INCENTIVE PLAN"
(the "Plan"). It is intended that performance-accelerated non-qualified
stock options may be granted under the Plan.
2. Purpose. The purpose of the Plan is to reward certain officers
and certain managers for superior service to the Company, or any of its
Subsidiaries, to induce such persons to remain in the employ of the
Company, to provide incentives to enhance such persons' performance, and
to encourage such persons to secure or increase, on reasonable terms,
their stock ownership in the Company. The Board of Directors of the
Company (the "Board") believes that the Plan will promote continuity of
management, increased incentive and personal interest in the welfare of
the Company by those who are primarily responsible for shaping and
carrying out the long-range plans of the Company and secure its continued
growth and financial success.
3. Definitions.
3.1. "Board" shall mean the Board of Directors of the Company,
as the same shall change from time to time.
3.2. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
3.3. "Fair Market Value" means, with respect to a share, if the
shares are then listed and traded on a registered national or regional
securities exchange, or quoted on The National Association of Securities
Dealers' Automated Quotation System (including The Nasdaq Stock Market's
National Market), the average closing price of a share on such exchange or
quotation system for the five trading days immediately preceding the date
of grant of an Option, or, if Fair market Value is used herein in
connection with any event other than the grant of an Option, then such
average closing price for the five trading days immediately preceding the
date of such event. If the shares are not traded on a registered
securities exchange or quoted in such a quotation system, the Committee
shall determine the Fair market Value of a share.
3.4. "Performance Objectives" shall mean such performance
criteria as is determined by the Committee (as defined below) or the Board
and which will qualify the related Stock Option as performance-based
compensation under Section 162(m) of the Code. Such Performance
Objectives shall be equal to a desired level or levels for any fiscal
period, year or years of any or a combination of the following criteria on
an absolute or relative basis, and, where applicable, measured before or
after interest, depreciation, amortization, service fees, extraordinary
items and/or special items: (i) pre-tax earnings, (ii) operating earnings,
(iii) after-tax earnings, (iv) return on investment, (v) earnings value
added, (vi) earnings per share, (vii) revenues, (viii) cash flow or cash
flow return on investment, (ix) return on assets or return on net assets,
(x) return on capital, (xi) return on equity, (xii) return on sales,
(xiii) operating margin or (xiv) total shareholder return or stock price
appreciation, or such other non-financial criteria as determined by the
Committee; provided that with respect to certain participants, the
Performance Objectives may be based upon divisional rather than
consolidated results, or a combination of the two.
3.5. "Stock Options" shall mean performance-contingent non-
qualified stock options as more fully described in Section 8 hereunder.
3.6. "Subsidiary" means any "subsidiary corporation" within the
meaning of Section 424(f) of the Code.
4. Effective Date of the Plan. The effective date of the Plan is
the date of its adoption by the Board of Directors of the Company, subject
to the approval and ratification of the Plan by the shareholders of the
Company within twelve (12) months of the effective date, and any and all
awards made under the Plan prior to such approval shall be subject to such
approval.
5. Stock Subject to Plan. Subject to adjustment in accordance with
the provisions of Section 12, common stock, one cent ($.01) par value per
share, not to exceed four million (4,000,000) shares, may be issued
pursuant to the Plan. Such shares shall be authorized and unissued
shares. If any Stock Options expire, are canceled, or terminate for any
reason(s) without having been exercised in full, the shares subject to the
unexercised portion thereof shall again be available for the purposes of
the Plan.
6. Administration.
6.1. Committee. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board, consisting of not
less than two (2) directors, each of whom shall qualify as a "non-employee
director" within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any successor rule or
regulation, and an "outside director" within the meaning of Section 162(m)
of the Code, and the Treasury Regulations promulgated thereunder. If at
any time the Committee shall not be in existence or not consist of
directors who are qualified as "non-employee directors" and "outside
directors" as defined above, the Board shall administer the Plan. To the
extent permitted by applicable law, the Board may, in its discretion,
delegate to another committee of the Board or to one or more senior
officers of the Company any or all of the authority and responsibility of
the Committee with respect to Stock Options to Participants (as defined in
Section 7 hereunder) other than Participants who are subject to the
provisions of Section 16 of the Exchange Act ("Section 16 Participants").
To the extent that the Board has delegated to such other committee or one
or more officers the authority and responsibility of the Committee, all
references to the Committee herein shall include such other committee or
one or more officers.
6.2. Authority of the Committee. The Committee shall have
authority to grant Stock Options to any Participants (as defined in
Section 7 hereunder) under the Plan. Subject to the express provisions of
the Plan, the Committee shall have complete authority to establish such
rules and regulations as it deems necessary or advisable for the proper
administration of the Plan, and, in its discretion, to determine the
individuals to whom, and the time or times at which Stock Options shall be
granted, the exercise periods, limitations on exercise, the number of
shares to be subject to each Stock Option and any other terms,
limitations, conditions and restrictions on Stock Options as the
Committee, in its discretion, deems appropriate. In making such
determinations, the Committee may take into account the nature of the
services rendered by the respective individuals, their present and
potential contributions to the success of the Company or its subsidiaries,
and such other factors as the Committee in its discretion shall deem
relevant. The Committee shall also have complete authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating
to it, to determine the terms and provisions of the respective Stock
Options agreements (which need not be identical), to waive any conditions
or restrictions with respect to any Stock Option and to make all other
determinations necessary or advisable for the administration of the Plan.
The Committee determinations on the matters referred to in this Section
6.2 shall be conclusive.
6.3. No Liability. No member or former member of the Board or
Committee shall be liable for any action or inaction or determination made
in good faith with respect to the Plan or any Stock Option. To the
maximum extent permitted by applicable law and by the Company's Articles
of Incorporation and Bylaws, each such person shall be indemnified and
held harmless by the Company against any cost or expense and liability
arising out of any act or omission to act in connection with the Plan.
7. Eligibility. Stock Options may be granted to officers and
managers of the Company, or any of its Subsidiaries, rendering bona fide
services to the Company, or any of its Subsidiaries ("Participants") under
the Plan.
8. Grants of Stock Options.
8.1. Grant. Subject to the provisions of the Plan, the
Committee may grant to Participants performance-accelerated non-qualified
stock options (collectively "Stock Options") in such amounts as the
Committee shall determine. Subject to the provisions hereof, the
Committee shall have full discretion to determine the terms and conditions
(including vesting and exercise) of all Stock Options. Stock Options may
be granted under the Plan to such Participants as the Committee shall
determine in its sole discretion, based upon Performance Objectives.
8.2. Outside Exercise Period. The Committee shall establish an
exercise period within which the Stock Options must be vested and
exercisable (the "Outside Exercise Period"). The Outside Exercise Period
must have commenced and terminated within ten (10) years from the date of
grant of the Stock Option.
8.3. Acceleration. The Committee shall, in its sole discretion
specify Performance Objectives which shall cause the vesting and exercise
period of such Stock Options to accelerate (the "Accelerated Exercise
Period"). The Accelerated Exercise Period must terminate within ten (10)
years from the date of grant of the Stock Option.
8.4. Option Price. The per share option price of a Stock
Option, as determined by the Committee, shall never be less than the Fair
Market Value of the shares on the date of grant of the Stock Option.
9. Exercise of Options.
9.1. Manner of Exercise. The Committee shall prescribe the
manner in which a Participant may exercise a Stock Option which is not
inconsistent with the provisions of this Plan. A Stock Option may be
exercised, subject to limitations on its exercise, from time to time, only
by (i) providing written notice of intent to exercise the Stock Option
with respect to a specified number of shares, and (ii) payment in full to
the Company of the option price at the time of exercise. Payment of the
option price may be made (i) by delivery of cash and/or securities of the
Company having a then Fair Market Value equal to the option price, or (ii)
by delivery (including by fax) to the Company or its designated agent of
an executed irrevocable option exercise form together with irrevocable
instructions to a broker-dealer to sell or margin a sufficient portion of
the shares and deliver the sale or margin loan proceeds directly to the
Company to pay for the option price.
9.2. Prerequisites of Exercise. All certificates for shares of
stock delivered pursuant to the exercise of any Stock Option shall be
subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations and
other requirements of the Securities and Exchange Commission and any
applicable federal or state securities laws, and legends may be put on any
such certificates to make appropriate reference to such restrictions. As
a condition to the exercise of any Stock Option under the Plan, the
Committee may require a Participant to execute a lock-up agreement as
requested by the Company's underwriters. Each Stock Option shall be
subject to the requirement that, if at any time (i) the registration or
qualification of shares relating to such Stock Option on any securities
exchange or under any state or federal securities laws, or (ii) the
approval of any securities exchange or regulatory body, is necessary or
desirable as a precondition to issuance to, the issuance of shares in
connection therewith may not be consummated unless such listing,
registration, qualification or approval shall have been effected.
10. Transferability of Stock Options. Except as otherwise
specifically provided for herein, Stock Options are not transferable
otherwise than by will or the laws of descent and distribution, and may be
exercised during the life of the Participant only by the Participant.
11. Termination of Employment.
11.1. Termination Without Cause. Unless otherwise
determined by the Committee or provided in the Stock Option agreement
granted to a Participant, in the event of the termination of a
Participant's employment with the Company for any reason other than (i)
the Participant's death, permanent disability or retirement with the
written consent of the Company; (ii) for Cause, as defined in paragraph
11.2 hereinbelow; or (iii) the Participant's voluntary choice to leave the
employ of the Company, then the Participant shall have thirty (30) days
from the date of termination to exercise any Stock Option which was
exercisable immediately prior to such termination, and subject to the
provisions of paragraphs 8.2 and 8.3 hereof. The Committee may cancel a
Stock Option if, during the thirty (30) day period referred to in this
paragraph 11.1, the Participant engages in employment or activities
contrary, in the opinion of the Committee, to the best interests of the
Company.
11.2. Termination for Cause and Voluntary Termination. In
the event a Participant is terminated or dismissed for Cause, or if a
Participant voluntarily terminates his or her employment with the Company,
all rights to exercise any Stock Option shall terminate immediately on the
date of termination of employment, unless otherwise determined by the
Committee or provided in the Stock Option agreement granted to such
Participant.
For the purpose of this Section "Cause" shall mean:
(i) the continued failure by the Participant to
substantially perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness);
(ii) the engaging by the Participant in conduct which has
caused, or is reasonably likely to cause, demonstrable and serious injury
to the Company, monetarily or otherwise;
(iii) any "cause" defined in the Participant's
employment agreement with the Company, if any; or
(iv) the Participant's conviction of a felony, as evidenced
by a binding and final judgment, order or decree of a court of competent
jurisdiction, which substantially impairs the Participant's ability to
perform his or her duties to the Company.
11.3. Death, Retirement or Disability. If a Participant's
cessation of employment with the Company is due to Participant's (i) death
within the period while employed by the Company or within the period when
a Stock Option would have otherwise been exercised by the Participant;
(ii) retirement with the written consent of the Company; or (iii)
"permanent or total disability" (within the meaning of Section 22(e)(3) of
the Code), then Participant, or his or her beneficiary or duly authorized
representative may, at any time within three (3) months after such
cessation of employment, and subject to the provisions of paragraphs 8.2
and 8.3 hereof, exercise any Stock Option to the extent such Stock Option
was exercisable immediately prior to such Participant's death, retirement
or disability. The Committee may cancel all or part of the Stock Option
if, during the three (3) month period after Participant's retirement or
disability, as referred to herein, the Participant engages in employment
or activities contrary, in the opinion of the Committee, to the best
interests of the Company. In the discretion of the Committee, the three-
month period provided for in this paragraph 11.3 may be extended for a
period of up to one year. The Committee shall determine in each case
whether a termination of employment shall be considered a retirement with
the consent of the Company and subject to applicable law. The Committee
shall also determine whether a leave of absence shall constitute a
termination of employment. Any determinations of the Committee shall be
final and conclusive unless overruled by the Board.
12. Capital Adjustment Provisions. In the event of any change in
the shares of common stock of the Company by reason of a stock dividend,
stock split, reorganization, merger, consolidation, spin-off,
recapitalization, reclassification, split-up, combination or exchange of
shares, or otherwise, the aggregate number and class of shares available
under this Plan, the number and class of shares subject to each
outstanding Stock Option, and the exercise price for shares subject to
each outstanding Stock Option, shall be appropriately adjusted by the
Committee (whose determination in this regard shall be conclusive) such
that the proportionate interest of a Participant immediately following
such event shall, to the extent practicable, be the same as immediately
prior to such event.
13. Termination and Amendment of Plan. The Plan shall terminate ten
years from the effective date as defined in Section 4, unless sooner
terminated as hereinafter provided. The Board may at any time terminate
the Plan, or amend the Plan as it shall deem advisable including (without
limiting the generality of the foregoing) any amendments deemed by the
Board to be necessary or advisable to assure the Company's deduction under
Section 162(m) of the Code for all Stock Options granted under the Plan,
to assure conformity with any requirements of other state or federal laws
or regulations; provided, however, that shareholder approval of any
amendment of the Plan shall also be obtained if otherwise required by (i)
the Code or any rules promulgated thereunder (in order to enable the
Company to comply with the provisions of Section 162(m) of the Code) or
(ii) the listing requirements of any principal securities exchange or
market on which the shares are then traded (in order to maintain the
listing or quotation of the shares thereon). No termination or amendment
of the Plan may, without the consent of the Participant, adversely affect
the rights of such Participant under any Stock Option previously granted.
14. Rights of Participants. Nothing in this Plan or in any Stock
Options shall interfere with or limit in any way the right of the Company
to terminate any Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company.
15. Rights as a Shareholder. A Participant shall have no rights as
a shareholder with respect to shares covered by any Stock Option until the
date of issuance of the stock certificate to such Participant and only
after such shares are fully paid. No adjustment will be made for
dividends or other rights for which the record date is prior to the date
such stock is issued.
16. Tax Withholding. The Company may deduct and withhold from any
cash otherwise payable to a Participant such amount as may be required for
the purpose of satisfying the Company's obligation to withhold Federal,
state or local taxes in connection with any Stock Option. Further, in the
event the amount so withheld is insufficient for such purpose, the Company
may require that the Participant pay to the Company upon its demand or
otherwise make arrangements satisfactory to the Company for payment of
such amount as may be requested by the Company in order to satisfy its
obligation to withhold any such taxes.
A Participant may be permitted to satisfy the Company's withholding
tax requirements by electing to have the Company withhold shares of stock
otherwise issuable to the Participant. The election shall be made in
writing and shall be made according to such rules and in such form as the
Committee may determine.
17. Miscellaneous. The grant of any Stock Option under the Plan may
also be subject to other provisions as the Committee determines
appropriate, including, without limitation, provisions for (a) one or more
means to enable Participants to defer recognition of taxable income
relating to Stock Options, which means may provide for a return to a
Participant on amounts deferred as determined by the Committee; (b) the
purchase of stock under Stock Options in installments; and (c) compliance
with federal or state securities laws and stock exchange or market
requirements.
18. Agreements. Stock Options granted pursuant to the Plan shall be
evidenced by written agreements in such forms as the Committee shall from
time to time adopt.
19. Governing Law. The Plan and all determinations made and actions
taken pursuant thereto shall be governed by and construed in accordance
with the internal laws of the State of Florida.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,230,515
<SECURITIES> 0
<RECEIVABLES> 83,574,355
<ALLOWANCES> 678,484
<INVENTORY> 0
<CURRENT-ASSETS> 122,890,689
<PP&E> 123,297,090
<DEPRECIATION> 48,044,117
<TOTAL-ASSETS> 217,243,928
<CURRENT-LIABILITIES> 51,323,041
<BONDS> 0
0
392,742
<COMMON> 0
<OTHER-SE> 147,669,730
<TOTAL-LIABILITY-AND-EQUITY> 217,243,928
<SALES> 189,961,220
<TOTAL-REVENUES> 189,961,220
<CGS> 118,346,928
<TOTAL-COSTS> 118,346,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259,969
<INCOME-PRETAX> 14,582,938
<INCOME-TAX> 8,142,000
<INCOME-CONTINUING> 6,440,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,440,938
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
