<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
---------------------------------- 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 (IRS Employer Identification No.)
of incorporation or organization)
100 North Tampa Street, Suite 3900, Tampa, FL 33602
---------------------------------------------------
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 10, 2000, there were 42,009,063 shares of common stock outstanding.
Page 1 of 17
The Exhibit Index Appears on Page 16
<PAGE> 2
PART I
ITEM 1 - FINANCIAL STATEMENTS
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................................... $ 31,001,354 $ 27,531,677
Restricted cash ............................................. 15,108,523 19,798,883
Receivables ................................................. 131,903,360 150,097,047
Prepaid expenses and other current assets ................... 15,252,307 16,429,812
------------- -------------
Total current assets ...................................... 193,265,544 213,857,419
Property and equipment, net ................................... 134,755,878 146,370,026
Marketable securities ......................................... 199,875 199,875
Intangible assets, net ........................................ 76,830,977 74,802,019
Deferred charges and other assets ............................. 22,533,880 21,829,025
------------- -------------
$ 427,586,154 $ 457,058,364
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt ...................... $ 3,236,451 $ 4,528,973
Accounts payable ............................................ 39,494,955 30,607,262
Income taxes payable ........................................ 2,804,155 977,531
Accrued employee compensation and benefits .................. 24,205,591 25,318,215
Customer deposits ........................................... 11,820,739 22,484,360
Other accrued expenses and current liabilities .............. 17,159,191 20,015,610
------------- -------------
Total current liabilities ................................. 98,721,082 103,931,951
Long-term debt ................................................ 80,052,717 91,755,493
Deferred grants ............................................... 21,198,709 23,217,501
Deferred revenue .............................................. 24,861,639 45,392,495
Other long-term liabilities ................................... 1,400,466 2,683,761
------------- -------------
Total liabilities ......................................... 226,234,613 266,981,201
------------- -------------
Commitments and contingencies
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;
42,734,284 and 43,009,063 issued .......................... 427,343 430,091
Additional paid-in capital .................................. 155,022,390 157,217,819
Retained earnings ........................................... 51,762,003 58,462,965
Accumulated other comprehensive income ...................... (5,860,195) (9,834,772)
------------- -------------
201,351,541 206,276,103
Treasury stock at cost; 1,000,000 shares (none in 1999) ..... -- (16,198,940)
------------- -------------
Total shareholders' equity ................................ 201,351,541 190,077,163
------------- -------------
$ 427,586,154 $ 457,058,364
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
------------- -------------
<S> <C> <C>
Revenues .......................... $ 136,377,905 $ 161,311,916
------------- -------------
Operating expenses
Direct salaries and related costs 83,246,909 102,211,246
General and administrative ...... 36,276,791 46,915,076
------------- -------------
Total operating expenses ...... 119,523,700 149,126,322
------------- -------------
Income from operations ............ 16,854,205 12,185,594
Other expense
Interest, net ................... (658,844) (1,235,732)
Other ........................... 83,952 (900)
------------- -------------
Total other expense ........... (574,892) (1,236,632)
------------- -------------
Income before income taxes ........ 16,279,313 10,948,962
Provision for income taxes ........ 6,300,094 4,248,000
------------- -------------
Net income ........................ $ 9,979,219 $ 6,700,962
============= =============
Net income per share
Basic ........................... $ 0.24 $ 0.16
============= =============
Diluted ......................... $ 0.23 $ 0.16
============= =============
Weighted average shares outstanding
Basic ........................... 41,458,845 42,606,204
Diluted ......................... 42,824,342 42,901,775
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Common Additional Other
Stock Stock Paid-in Retained Comprehensive Treasury
Shares Amount Capital Earnings Income Stock Total
---------- ----------- ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 41,451,905 $ 414,519 $136,199,748 $29,730,975 $(1,407,760) -- $ 164,937,482
Issuance of common stock 635,164 6,352 536,956 -- -- -- 543,308
Net income -- -- -- 9,979,219 -- -- 9,979,219
Foreign currency translation
adjustment -- -- -- -- (709,497) -- (709,497)
Unrealized gain on securities -- -- -- -- 2,754 -- 2,754
-------------
Comprehensive income 9,272,476
---------- ----------- ------------ ----------- ----------- ------------ -------------
Balance at March 31, 1999
(unaudited) 42,087,069 420,871 136,736,704 39,710,194 (2,114,503) -- 174,753,266
Issuance of common stock 647,215 6,472 10,834,363 -- -- -- 10,840,835
Tax-effect of non-qualified
exercise of stock options -- -- 7,451,323 -- -- -- 7,451,323
Net income -- -- -- 12,051,809 -- -- 12,051,809
Foreign currency translation
adjustment -- -- -- -- (3,745,692) -- (3,745,692)
-------------
Comprehensive income 8,306,117
---------- ----------- ------------ ----------- ----------- ------------ -------------
Balance at December 31, 1999 42,734,284 427,343 155,022,390 51,762,003 (5,860,195) -- 201,351,541
Issuance of common stock 274,779 2,748 2,195,429 -- -- -- 2,198,177
Purchase of treasury stock -- -- -- -- -- $(16,198,940) (16,198,940)
Net income -- -- -- 6,700,962 -- -- 6,700,962
Foreign currency translation
adjustment (3,974,577) (3,974,577)
-------------
Comprehensive income 2,726,385
---------- ----------- ------------ ----------- ----------- ------------ -------------
Balance at March 31, 2000
(unaudited) 43,009,063 $ 430,091 $157,217,819 $58,462,965 $(9,834,772) $(16,198,940) $ 190,077,163
========== =========== ============ =========== =========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income ......................................... $ 9,979,219 $ 6,700,962
Depreciation and amortization ...................... 8,567,604 9,724,197
Deferred income taxes .............................. (1,494,501) 6,581,023
Changes in assets and liabilities
Receivables ....................................... (7,523,003) (18,018,386)
Prepaid expenses and other current assets ......... (3,232,245) (966,221)
Intangible assets ................................. (90,139) --
Deferred charges and other assets ................. (493,952) (4,656,097)
Accounts payable .................................. 622,186 (8,887,693)
Income taxes payable .............................. 1,913,996 (2,001,927)
Accrued employee compensation and benefits ........ 1,926,373 1,112,624
Customer deposits, net of restricted cash ......... 736,348 5,973,261
Other accrued expenses and current liabilities .... 603,277 2,856,419
Deferred revenue .................................. 1,143,255 20,530,856
Other long-term liabilities ....................... (568,612) 176,653
------------ ------------
Net cash provided by operating activities ........ 12,089,806 19,125,671
------------ ------------
Cash flows from investing activities
Capital expenditures ............................... (19,731,518) (19,635,308)
------------ ------------
Net cash used for investing activities ........... (19,731,518) (19,635,308)
------------ ------------
Cash flows from financing activities
Paydowns under revolving line of credit agreements . (17,000,000) (18,544,603)
Borrowings under revolving line of credit agreements 14,500,000 31,539,903
Proceeds from issuance of stock .................... 543,308 2,198,177
Proceeds from grants ............................... 5,280,976 2,020,000
Purchase of treasury stock ......................... -- (16,198,940)
Payments of long-term debt ......................... (2,048,615) --
------------ ------------
Net cash provided by financing activities ........ 1,275,669 1,014,537
------------ ------------
Adjustments for foreign currency translation ......... (709,497) (3,974,577)
------------ ------------
Net decrease in cash and cash equivalents ............ (7,075,540) (3,469,677)
Cash and cash equivalents - beginning ................ 36,348,868 31,001,354
------------ ------------
Cash and cash equivalents - ending ................... $ 29,273,328 $ 27,531,677
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
(Unaudited)
Sykes Enterprises, Incorporated and consolidated subsidiaries ("Sykes" or the
"Company") provides vertically integrated information technology-based
solutions to customers on a worldwide basis. By utilizing its information
technology support centers and e-commerce platform, Sykes is able to provide
traditional and e-commerce services at all stages in the life cycle of its
clients' products and services, including initial development documentation and
localization, customer product services, and end-user support. The Company's
services are provided to customers throughout a wide variety of industries.
The accompanying unaudited 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 statements. 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 period ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the consolidated financial statements
and notes thereto as of and for the year ended December 31, 1999 included in
the Company's Form 10-K for the year ended December 31, 1999 as filed with the
United States Securities and Exchange Commission ("SEC") on March 29, 2000.
NOTE 1 - ACQUISITIONS AND MERGERS
On August 20, 1999, the Company acquired all of the common stock of
CompuHelpline, Inc., (d/b/a PC Answer) for approximately $340,000 consisting of
$40,000 of cash and 11,594 shares of the Company's common stock. PC Answer was
engaged in developing, marketing and selling prepaid technical computer support
cards and services under the trademark names of PC Answer and MAC Answer. The
transaction was accounted for under the purchase method of accounting with
resulting goodwill being amortized over a ten-year life. Pro forma information
is not presented as the operating results of PC Answer are not material to the
Company's consolidated operations.
Effective August 31, 1999, the Company acquired all of the common stock of Acer
Servicios de Informacion Sociedad Anonima ("AIS") of Heredia, Costa Rica for
$6.0 million in cash. AIS operated an information technology call center that
provided technical support and services to customers in North America and
Central America. The transaction was accounted for under the purchase method of
accounting with resulting goodwill being amortized over a ten-year life. Pro
forma information is not presented as the operating results of AIS are not
material to the Company's consolidated operations.
Effective October 12, 1999, the Company acquired the AnswerExpress Support
Suite for $2.5 million in cash. The transaction was accounted for under the
purchase method of accounting with resulting goodwill being amortized over a
ten-year life. Pro forma information is not presented as the operating results
of AnswerExpress are not material to the Company's consolidated operations.
NOTE 2 - CREDIT FACILITY
Effective May 2, 2000, the Company amended and restated its existing syndicated
credit facility with a syndicate of lenders for which Bank of America, N.A. and
SunTrust Bank serve as agents (the "Amended Credit Facility"). Pursuant to the
terms of the Amended Credit Facility, the amount of the Company's revolving
credit facility was maintained at $150.0 million. The $150.0 million Amended
Credit Facility includes a $10.0 million swingline loan to be used for working
capital purposes. In addition, the Company amended and restated its $15.0
million multi-currency credit facility that provides for multi-currency
lending. Borrowings under the Amended Credit Facility bear interest, at the
Company's option, at (a) the lender's base rate plus an applicable margin of up
to .25% or (b) a Eurodollar rate plus an applicable margin of up to 1.75 %.
Borrowings under the $10.0 million swingline loan bear interest, at the
Company's option, at (a) the lender's base rate plus an applicable margin of up
6
<PAGE> 7
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
(Unaudited)
NOTE 2 - CREDIT FACILITY (CONTINUED)
to .25% or (b) a Quoted Rate for swingline loans. Borrowings under the $15.0
million multi-currency facility bear interest, at the Company's option, at (a)
the lender's base rate plus an applicable margin of up to .25% or (b) a quoted
Euro rate for swingline loans. The Company paid aggregate financing fees of
approximately $0.3 million, which have been deferred and will be amortized over
the term of the Amended Credit Agreement. In addition, a commitment fee up to
.375% will be charged on the unused portion of the Amended Credit Facility on a
quarterly basis. The Amended Credit Facility matures on February 28, 2003, and
the multi-currency facility matures on February 28, 2002. The long-term debt as
of March 31, 2000 that is presented in the balance sheet is classified in
accordance with the terms of the Amended Credit Agreement.
Borrowings under the Amended Credit Agreement are guaranteed by certain of the
Company's subsidiaries as evidenced by a pledge of 66% of the respective
subsidiary's common stock. Under the terms of the Amended Credit Agreement, the
Company is required to maintain certain financial ratios and other financial
and non-financial conditions. The Amended Credit Agreement prohibits the
Company from incurring additional indebtedness, limits certain investments,
advances or loans and restricts substantial asset sales, capital expenditures
and cash dividends.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
As of May 5, 2000, the Company is aware of 14 purported class action lawsuits
that have been filed against Sykes and certain of its officers alleging
violations of federal securities laws. All of the actions were filed in the
United States District court for the Middle District of Florida, and all of the
actions have been consolidated into one action. The plaintiffs of these
lawsuits purport to assert claims on behalf of a class of purchasers of Sykes
common stock during part of 1999 and through February 4, 2000. The actions
claim violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. Among other things, the actions
allege that during 1999 and 2000, the Company and certain of its officers made
materially false statements concerning the Company's financial condition and
its future prospects. The complaints also claim that certain of the Company's
quarterly financial statements during 1999 were not prepared in accordance with
generally accepted accounting principles. The actions seek compensatory and
other damages, and costs and expenses associated with the litigation.
The Company intends to defend the actions vigorously. However, the Company
cannot predict the outcome of this lawsuit or the impact that they may have on
the Company. The Company also cannot predict whether any other suits, claims,
or investigations may arise in the future based on the same claims. The outcome
of this lawsuit or any future lawsuits, claims, or investigations relating to
the same subject matter may have a material adverse impact on the Company's
financial condition and results of operations.
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.
During January 2000, the Company became contingently liable for a letter of
credit in the amount of $30.0 million, which guaranteed performance of a
contractual obligation.
7
<PAGE> 8
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
(Unaudited)
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Sykes presents data in the Consolidated Statements of Changes in Shareholders'
Equity in accordance with Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income." This statement establishes rules for the
reporting of comprehensive income and its components. The components of other
unaudited comprehensive income are as follows:
Accumulated
Other
Comprehensive
Income
-------------
Balance at December 31, 1999 .............. $(5,860,195)
Foreign currency translation adjustment.... (3,974,577)
-----------
Balance at March 31, 2000 (unaudited) ..... $(9,834,772)
===========
Earnings associated with the Company's investment in its foreign subsidiaries
are considered permanently invested and no provision for United States federal
and state income taxes on those earnings or translation adjustments has been
provided.
NOTE 5 - 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 respective
periods and the further dilutive effect, if any, from stock options using the
treasury stock method.
The numbers of shares used in the earnings per share computation are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 2000
---------- ----------
<S> <C> <C>
Basic:
Weighted average common shares outstanding ............ 41,458,845 42,606,204
---------- ----------
Total weighted average basic shares outstanding .... 41,458,845 42,606,204
Diluted:
Dilutive effect of stock options ........................ 1,365,497 295,571
---------- ----------
Total weighted average diluted shares outstanding... 42,824,342 42,901,775
========== ==========
</TABLE>
8
<PAGE> 9
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 (the "Company") December 31, 1999 Consolidated Financial
Statements, including the notes thereto. The following discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Words
such as "may", "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates", variations of such words, and similar expressions are
intended to identify such forward-looking statements. Similarly, statements
that describe the Company's future plans, objectives, or goals also are
forward-looking statements. 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.
Factors that could cause actual results to differ materially from what is
expressed or forecasted in such forward-looking statements include, but are not
limited to, the marketplace's continued receptivity to the Company's bundled
service offering; the Company's ability to continue the growth of its support
service revenues through additional technical support centers; the Company's
ability to further penetrate into vertically integrated markets; the Company's
ability to expand its e-commerce service platform revenues; the Company's
ability to continue to establish a competitive advantage through sophisticated
technological capabilities; the outcome of pending litigation against the
Company; the Company's ability to continue growth through acquisitions or
expansion of its existing operations; the Company's ability to manage growth;
the Company's ability to complete any recommended alternatives with respect to
SHPS; the loss of a significant customer; technological change; the Company's
ability to integrate the operations of acquisitions; risks associated with the
Company's international operations and expansion; the Company's ability to
attract and retain experienced personnel; the continuance of the industry trend
toward outsourcing of information technology services; the emergency
interruption of technical support center operations; the loss of any senior
management or key personnel; risks associated with SHPS's care management
contracts; potential legal liability for SHPS' care management services;
potential legal liability of SHPS as a benefits administrator under ERISA and
COBRA; risks on SHPS relating to laws governing the corporate practice of
medicine; risks of SHPS relating to telemedicine; and the possible adverse
effect on SHPS of national and state healthcare reform proposals.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000, COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
For the three months ended March 31, 2000, the Company recorded consolidated
revenues of $161.3 million, an increase of $24.9 million or 18.3%, from the
$136.4 million of consolidated revenues for the comparable period during 1999.
This growth in revenue was the result of a $26.6 million or 26.6% increase in
information technology support services, an increase of $0.1 million from
e-commerce services and solutions, partially offset by a decrease of $1.8
million from e-business distribution services.
The increase in information technology support services revenues for the three
months ended March 31, 2000 was primarily attributable to an increase in the
number of technical support centers providing services throughout the period
and the resultant increase in e-mail requests and call volumes from clients.
The new technical support centers were required as a result of continued growth
of technical support services from both e-commerce and traditional telephone
support services. Subsequent to the first quarter of 1999, the Company opened
four domestic and four international technical support centers, and
significantly expanded an additional four international centers. The increase
in e-commerce services and solutions revenues was attributable to an increase
in the average bill rate charged for consulting services, partially offset by
the sale of the Company's Manufacturing and Distribution operation during the
second quarter of 1999 and to a decline in language translation and
localization services due to the delay in the commencement of certain projects.
The decrease in e-business distribution services revenue for the three months
ended March 31, 2000 was primarily attributable to the loss of a client that
decided to discontinue operations within North America.
9
<PAGE> 10
SYKES ENTERPRISES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000, COMPARED TO THREE MONTHS ENDED MARCH 31,
1999 (CONTINUED)
Direct salaries and related costs increased approximately $19.0 million or
22.8% to $102.2 million for the three-month period in 2000 from $83.2 million
in 1999. As a percentage of revenues, direct salaries and related costs
increased to approximately 63.4% in 2000 from approximately 61.0% for the
comparable period in 1999. The increase in both the dollar amount and
percentage of revenue was primarily attributable to a $17.6 million increase in
salaries and benefits to support revenue growth and associated training costs.
In addition, during the first quarter of 1999, the Company capitalized
approximately $0.4 million of costs related to internally developed software
with no additional costs capitalized during the first quarter of 2000.
General and administrative expenses increased approximately $10.6 million or
29.3% to $46.9 million for the three month period in 2000 from $36.3 million in
1999. As a percentage of revenues, general and administrative expenses
increased to 29.1% in 2000 from 26.6% for the comparable period in 1999. The
increase in the dollar amount of general and administrative expenses was
primarily attributable to a $4.4 million increase in salaries and benefits to
support the Company's growth, a $1.0 million increase in depreciation expenses
associated with facility and capital equipment expenditures incurred in
connection with the integration and expansion of the Company's technical
support and e-commerce services, and to a $0.9 million increase in telecom
costs.
Interest and other expense was $1.2 million during the first three months of
2000, compared to $0.6 million during the comparable 1999 period. The increase
in interest and other expense for the three-month period was attributable to an
overall increase in interest rates and to an increase in the Company's average
outstanding debt position. The Company's average interest rate for the first
quarter of 2000 was 7.75% compared to 6.50% for the comparable period of 1999,
resulting in an increase of interest of approximately $0.3 million. The
Company's average debt balance for the first quarter of 2000 was approximately
$77.2 million compared to approximately $75.4 million for the first quarter of
1999. The increase in the average debt balance is principally due to the
Company's repurchase of 1.0 million shares of its common stock to be held as
treasury shares.
The provision for income taxes decreased $2.1 million, or 32.6%, to $4.2
million for the three-month period in 2000 from $6.3 million for the comparable
period in 1999. As a percentage of revenue, the provision for income taxes
decreased to 2.6% during the 2000 period when contrasted to approximately 4.6%
for the comparable 1999 period. The decrease in the provision for income taxes
was attributable to the $4.7 million decrease in earnings from operations and
the $0.6 million increase in interest expense. The Company's effective tax rate
was 38.8% for 2000 compared to 38.7% for the comparable 1999 period.
10
<PAGE> 11
SYKES ENTERPRISES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations and
available borrowings under its credit facilities. The Company has utilized its
capital resources to make capital expenditures associated primarily with its
technical support services, invest in technology applications and tools to
further develop and transition the Company's service offerings, and for working
capital and other general corporate purposes. In addition, the Company intends
future uses of its sources of liquidity to include the aforementioned and
possible acquisitions.
During the three-month period ended March 31, 2000, the Company generated
approximately $19.1 million in cash from operations. The Company utilized these
funds and certain of its available cash and borrowings under its credit
facility to fund the purchase of $16.2 million of common stock to be held in
treasury and $19.6 million of capital expenditures. The purchase of the shares
of the Company's common stock was in connection with a stock repurchase program
announced in February 2000, in order to enhance shareholder value. The capital
expenditures were predominately the result of the Company's enhancement of its
e-commerce initiatives including the integration of its e-business distribution
centers with its technical support centers.
Effective May 2, 2000, the Company amended and restated its existing syndicated
credit facility with a syndicate of lenders for which Bank of America, N.A. and
SunTrust Bank serve as agents (the "Amended Credit Facility"). Pursuant to the
terms of the Amended Credit Facility, the amount of the Company's revolving
credit facility was maintained at $150.0 million. The $150.0 million Amended
Credit Facility includes a $10.0 million swingline loan to be used for working
capital purposes. In addition, the Company amended and restated its $15.0
million multi-currency credit facility that provides for multi-currency
lending. Borrowings under the Amended Credit Facility bear interest, at the
Company's option, at (a) the lender's base rate plus an applicable margin of up
to .25% or (b) a Eurodollar rate plus an applicable margin of up to 1.75 %.
Borrowings under the $10.0 million swingline loan bear interest, at the
Company's option, at (a) the lender's base rate plus an applicable margin of up
to .25% or (b) a Quoted Rate for swingline loans. Borrowings under the $15.0
million multi-currency facility bear interest, at the Company's option, at (a)
the lender's base rate plus an applicable margin of up to .25% or (b) a quoted
Euro rate for swingline loans. The Company paid aggregate financing fees of
approximately $0.3 million, which have been deferred and will be amortized over
the term of the Amended Credit Agreement. In addition, a commitment fee up to
.375% will be charged on the unused portion of the Amended Credit Facility on a
quarterly basis. The Amended Credit Facility matures on February 28, 2003, and
the multi-currency facility matures on February 28, 2002.
The Company believes that its current cash levels, accessible funds under its
credit facilities and cash flows from future operations will be adequate to
meet its working capital needs, 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations due to
changes in non-U.S. currency exchange rates. The Company is exposed to non-U.S.
exchange rate fluctuations as the financial results of non-U.S. subsidiaries
are translated into U.S. dollars in consolidation. As exchange rates vary,
those results, when translated, may vary from expectations and adversely impact
overall expected profitability. The cumulative translation effects for
subsidiaries using functional currencies other than the U.S. dollar are
included in accumulated other comprehensive income in shareholders' equity.
Movements in non-U.S. currency exchange rates may affect the Company's
competitive position, as exchange rate changes may affect business practices
and/or pricing strategies of non-United States based competitors. Under its
current policy, the Company does not use non-U.S. exchange derivative
instruments to manage its exposure to changes in non-U.S. currency exchange
rates.
11
<PAGE> 12
SYKES ENTERPRISES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (CONTINUED)
The Company's exposure to interest rate risk results from its variable rate
debt outstanding under its credit facilities. At March 31, 2000, the Company
had $84.0 million in debt outstanding at variable interest rates, which is
generally equal to the Eurodollar rate plus an applicable margin. Based on the
Company's level of variable rate debt in the first quarter of 2000, a one point
increase in the weighted average interest rate would increase the Company's
annual interest expense by approximately $0.8 million. Under its current
policy, the Company does not use derivative instruments to manage its exposure
to changes in interest rates.
IMPACT OF YEAR 2000
In prior periods, the Company discussed the nature and progress of its plans to
become Year 2000 compliant. During September 1999, the Company completed its
remediation and testing of its systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change.
Sykes is not aware of any material problems resulting from Year 2000 issues,
either with its products and services, its internal systems, or those products
or services of third parties. Sykes will continue to monitor its critical
computer applications and those of its suppliers and vendors throughout the
year 2000 to ensure that any delayed Year 2000 matters that may arise are
addressed promptly.
FLUCTUATIONS IN QUARTERLY RESULTS
For the year ended December 31, 1999, quarterly revenues as a percentage of
total annual revenues were approximately 24%, 23%, 25% and 28%, respectively,
for the first through fourth quarters of the year. The Company has experienced
and anticipates that in the future it will continue to experience variations in
quarterly revenue. The variations are due to the timing of new contracts and
renewal of existing contracts, the timing of expenses incurred to support new
business, the timing and frequency of client spending for e-commerce and
e-business activities, non-U.S. currency fluctuations, and the seasonal pattern
of technical support and e-business distribution services.
12
<PAGE> 13
SYKES ENTERPRISES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Part I, Item 3 "Legal Proceedings" of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999, filed March
29, 2000. Since March 29, 2000, the Company has not been named as a defendant
in any action which, to the best of the Company's knowledge, could have a
material adverse effect on the financial condition or results of operations of
the Company other than the action described below.
As of May 5, 2000, the Company is aware of 14 purported class action lawsuits
that have been filed against Sykes and certain of its executive officers
alleging violations of federal securities law. All of the actions were filed in
the United States District court for the Middle District of Florida, and all of
the actions have been consolidated into one action. Although the Company
intends to defend this lawsuit vigorously, the Company cannot predict the
outcome of this lawsuit or the impact that this lawsuit or any other suits,
claims, or investigations relating to the same subject matter may have on the
Company's liquidity or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Annual Meeting of Shareholders was held on April 27, 2000.
b. The following members of the Board of Directors were elected to serve
until the 2003 Annual Meeting and until their successors are elected
and qualified:
For Against Abstained
---------- ---------- -------
John H. Sykes 34,679,029 - 411,857
Furman P. Bodenheimer, Jr 34,747,880 - 343,006
David L. Grimes 34,680,498 - 410,388
The following members of the Board of Directors whose term of office
as a director continued after the meeting:
H. Parks Helms Gordon H. Loetz
Adelaide A. Sink Ernest J. Milani
Linda McClintock-Greco Iain A. Macdonald
c. The proposal to approve the adoption of the Sykes Enterprises,
Incorporated's 2000 Stock Option Plan was approved as follows:
For Against Abstained
---------- ---------- -------
25,367,254 2,862,648 59,765
d. Not applicable
ITEM 5 - OTHER INFORMATION
None
13
<PAGE> 14
SYKES ENTERPRISES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following document is filed as an exhibit to this Report:
Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the three months
ended March 31, 2000.
14
<PAGE> 15
SYKES ENTERPRISES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
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: May 12, 2000 By: /s/ W. Michael Kipphut
- --------------------------- ----------------------------------
W. Michael Kipphut
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE> 16
SYKES ENTERPRISES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
- ------ ------
27.1 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FORM 10-Q FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 27,531,677
<SECURITIES> 0
<RECEIVABLES> 152,748,817
<ALLOWANCES> 2,651,770
<INVENTORY> 0
<CURRENT-ASSETS> 213,857,419
<PP&E> 258,130,119
<DEPRECIATION> 111,760,093
<TOTAL-ASSETS> 457,058,364
<CURRENT-LIABILITIES> 103,931,951
<BONDS> 0
0
0
<COMMON> 430,091
<OTHER-SE> 189,647,072
<TOTAL-LIABILITY-AND-EQUITY> 457,058,364
<SALES> 161,311,916
<TOTAL-REVENUES> 161,311,916
<CGS> 0
<TOTAL-COSTS> 102,211,246
<OTHER-EXPENSES> 46,915,076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,235,732
<INCOME-PRETAX> 10,948,962
<INCOME-TAX> 4,248,000
<INCOME-CONTINUING> 6,700,962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,700,962
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
