UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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 incorporation or organization)		(IRS Employer Identification No.)

400 North Ashley Drive, Tampa, FL 33602
(Address of principal executive offices) (Zip Code)

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.

Yes þ       No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o       No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

Yes o       No þ

As of October 22, 2009, there were 41,366,049 outstanding shares of common stock.

 

 

Sykes Enterprises, Incorporated and Subsidiaries

INDEX

		Page
		No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets September 30, 2009 and December 31, 2008 (Unaudited)			3
Condensed Consolidated Statements of Operations Three and nine months ended September 30, 2009 and 2008 (Unaudited)			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity Nine months ended September 30, 2008, three months ended December 31, 2008 and nine months ended September 30, 2009 (Unaudited)			5
Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2009 and 2008 (Unaudited)			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Report of Independent Registered Public Accounting Firm			43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			44
Item 3. Quantitative and Qualitative Disclosures About Market Risk			60
Item 4. Controls and Procedures			61
Part II. Other Information
Item 1. Legal Proceedings			62
Item 1A. Risk Factors			62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			65
Item 6. Exhibits			66
Signature			67
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands, except per share data)		September 30, 2009				December 31, 2008
Assets
Current assets:
Cash and cash equivalents		$	270,638			$	219,050
Receivables, net			178,985				157,067
Prepaid expenses			10,375				7,084
Other current assets			12,094				13,317
Total current assets			472,092				396,518
Property and equipment, net			80,680				80,390
Goodwill			21,120				23,191
Intangibles, net			2,308				4,586
Deferred charges and other assets			26,249				24,857
		$	602,449			$	529,542
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	20,105			$	26,419
Accrued employee compensation and benefits			55,944				47,194
Income taxes payable			4,049				4,485
Deferred revenue			33,064				26,955
Other accrued expenses and current liabilities			16,295				21,057
Total current liabilities			129,457				126,110
Deferred grants			11,539				9,340
Long-term income tax liabilities			5,104				5,077
Other long-term liabilities			4,814				4,985
Total liabilities			150,914				145,512
Commitments and loss contingency (Note 14)
Shareholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued and outstanding			—				—
Common stock, $0.01 par value, 200,000 shares authorized; 41,635 and 41,271 shares issued			416				413
Additional paid-in capital			163,124				158,216
Retained earnings			285,088				237,188
Accumulated other comprehensive income (loss)			7,367				(10,683	)
Treasury stock at cost: 329 shares and 96 shares			(4,460	)			(1,104	)
Total shareholders’ equity			451,535				384,030
		$	602,449			$	529,542

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Operations
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share data)		2009				2008				2009				2008
Revenues		$	213,494			$	207,066			$	625,574			$	618,416
Operating expenses:
Direct salaries and related costs			134,429				130,509				398,409				395,197
General and administrative			58,047				57,304				170,011				171,083
Impairment loss on goodwill and intangibles			324				—				1,908				—
Total operating expenses			192,800				187,813				570,328				566,280
Income from operations			20,694				19,253				55,246				52,136
Other income (expense):
Interest income			495				1,274				1,951				4,354
Interest (expense)			(138	)			(47	)			(490	)			(274	)
Impairment (loss) on investment in SHPS			—				—				(2,089	)			—
Other income			119				2,737				1,214				7,001
Total other income (expense)			476				3,964				586				11,081
Income before provision for income taxes			21,170				23,217				55,832				63,217
Provision for income taxes			2,388				3,725				7,932				10,286
Net income		$	18,782			$	19,492			$	47,900			$	52,931
Net income per share:
Basic		$	0.46			$	0.48			$	1.18			$	1.30
Diluted		$	0.46			$	0.47			$	1.17			$	1.29
Weighted average shares:
Basic			40,743				40,678				40,662				40,590
Diluted			41,097				41,070				41,011				40,928

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity
Nine months Ended September 30, 2008, Three months Ended December 31, 2008 and
Nine months Ended September 30, 2009
(Unaudited)

																		Accumulated
		Common Stock								Additional								Other
		Shares								Paid-in				Retained				Comprehensive				Treasury
(In thousands)		Issued				Amount				Capital				Earnings				Income (Loss)				Stock				Total
Balance at January 1, 2008			45,537			$	455			$	184,184			$	195,203			$	37,457			$	(51,978	)		$	365,321
Adjustment upon adoption of ASC 715-60			—				—				—				(482	)			—				—				(482	)
Issuance of common stock			105				1				1,173				—				—				—				1,174
Stock-based compensation expense			—				—				3,554				—				—				—				3,554
Excess tax benefit from stock- based compensation			—				—				688				—				—				—				688
Issuance of common stock and restricted stock under equity award plans			233				3				93				—				—				(132	)			(36	)
Retirement of treasury stock			(4,644	)			(46	)			(33,346	)			(18,094	)			—				51,486				—
Issuance of common stock for business acquisition			37				—				676				—				—				—				676
Comprehensive income (loss)			—				—				—				52,931				(35,340	)			—				17,591
Balance at September 30, 2008			41,268				413				157,022				229,558				2,117				(624	)			388,486
Stock-based compensation expense			—				—				1,202				—				—				—				1,202
Excess tax benefit from stock- based compensation			—				—				24				—				—				—				24
Issuance of common stock and restricted stock under equity award plans			3				—				(32	)			—				—				32				—
Repurchase of common stock			—				—				—				—				—				(512	)			(512	)
Comprehensive income (loss)			—				—				—				7,630				(12,800	)			—				(5,170	)
Balance at December 31, 2008			41,271				413				158,216				237,188				(10,683	)			(1,104	)			384,030
Issuance of common stock			112				1				1,599				—				—				—				1,600
Stock-based compensation expense			—				—				3,981				—				—				—				3,981
Excess tax benefit from stock- based compensation			—				—				247				—				—				—				247
Issuance of common stock and restricted stock under equity award plans			252				2				(919	)			—				—				(163	)			(1,080	)
Repurchase of common stock			—				—				—				—				—				(3,193	)			(3,193	)
Comprehensive income			—				—				—				47,900				18,050				—				65,950
Balance at September 30, 2009			41,635			$	416			$	163,124			$	285,088			$	7,367			$	(4,460	)		$	451,535

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2009 and 2008
(Unaudited)

(in thousands)		2009				2008
Cash flows from operating activities:
Net income		$	47,900			$	52,931
Depreciation and amortization, net			20,917				21,125
Impairment losses			3,997				—
Unrealized foreign currency transaction (gains), net			(2,632	)			(6,524	)
Stock-based compensation expense			3,981				3,554
Excess tax benefit from stock-based compensation			(247	)			(688	)
Deferred income tax provision (benefit)			(2,015	)			219
Net loss on disposal of property and equipment			129				—
Bad debt expense			1,147				457
Write down of value added tax credit receivables			414				482
Unrealized loss on financial instruments, net			973				1,108
Amortization of discount on short-term investments			—				(173	)
Amortization of actuarial gains on pension			(46	)			(49	)
Foreign exchange (gain) loss on liquidation of foreign entities			(5	)			3
Release of valuation allowance on deferred tax assets			(2,285	)			(6,121	)
Amortization of unrealized (gain) on post retirement obligation			(28	)			—
Changes in assets and liabilities:
Receivables			(19,488	)			(17,679	)
Prepaid expenses			(2,582	)			(2,455	)
Other current assets			(1,203	)			369
Deferred charges and other assets			(809	)			(759	)
Accounts payable			(3,173	)			1,789
Income taxes receivable / payable			2,993				1,600
Accrued employee compensation and benefits			7,564				3,984
Other accrued expenses and current liabilities			1,711				128
Deferred revenue			2,662				2,379
Other long-term liabilities			(41	)			750
Net cash provided by operating activities			59,834				56,430
Cash flows from investing activities:
Capital expenditures			(23,207	)			(25,730	)
Cash paid for business acquisitions, net of cash aquired			—				(2,400	)
Proceeds from sale of property and equipment			170				167
Sale of short-term investments			—				17,535
Investment in restricted cash			—				(997	)
Proceeds from release of restricted cash			839				855
Other			—				(130	)
Net cash (used for) investing activities			(22,198	)			(10,700	)

Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2009 and 2008
(Unaudited)

(continued)

(in thousands)		2009				2008
Cash flows from financing activities:
Proceeds from issuance of stock			1,600				1,174
Excess tax benefit from stock-based compensation			247				688
Cash paid for repurchase of common stock			(3,193	)			—
Proceeds from grants			3,491				—
Shares repurchased for minimum tax withholding on restricted stock			(1,080	)			—
Net cash provided by financing activities			1,065				1,862
Effects of exchange rates on cash			12,887				(5,223	)
Net increase in cash and cash equivalents			51,588				42,369
Cash and cash equivalents – beginning			219,050				177,682
Cash and cash equivalents – ending		$	270,638			$	220,051
Supplemental disclosures of cash flow information:
Cash paid during period for interest		$	752			$	277
Cash paid during period for income taxes		$	11,522			$	13,702
Non-cash transactions:
Property and equipment additions in accounts payable		$	2,035			$	2,562
Unrealized gain on post retirement obligation in accumulated other comprehensive income (loss)		$	342			$	—
Issuance of common stock for business acquisition		$	—			$	676

See accompanying notes to condensed consolidated financial statements

Sykes Enterprises, Incorporated and Subsidiaries

Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

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

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2009. For further information, refer to the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission (“SEC”). Subsequent events have been evaluated through the date and time the condensed consolidated financial statements were issued on November 3, 2009. See Note 16 Subsequent Event.

Recognition of Revenue — Revenue is recognized pursuant to Accounting Standards Codification (“ASC”) 605 “Revenue Recognition.” The Company primarily recognizes its revenue from services as those services are performed, which is based on either a per minute, per call or per transaction basis, under a fully executed contractual agreement and records reductions to revenue for contractual penalties and holdbacks for failure to meet specified minimum service levels and other performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of any future product or service or meeting other specified performance conditions. Product sales, accounted for within fulfillment services, are recognized upon shipment to the customer and satisfaction of all obligations.

In accordance with ASC 605-25, “Revenue Recognition- Multiple-Element Arrangements”, revenue from contracts with multiple-deliverables is allocated to separate units of accounting based on their relative fair value, if the deliverables in the contract(s) meet the criteria for such treatment. Certain fulfillment services contracts contain multiple-deliverables. Additionally, the Company had a contract containing multiple-deliverables for customer contact management services and fulfillment services that ended during 2008. Separation criteria included whether a delivered item has value to the customer on a standalone basis, whether there is objective and reliable evidence of the fair value of the undelivered items and, if the arrangement includes a general right of return related to a delivered item, whether delivery of the undelivered item is considered probable and in the Company’s control. Fair value is the price of a deliverable when it is regularly sold on a standalone basis, which generally consists of vendor-specific objective evidence of fair value. If there is no evidence of the fair value for a delivered product or service, revenue is allocated first to the fair value of the undelivered product or service and then the residual revenue is allocated to the delivered product or service. If there is no evidence of the fair value for an undelivered product or service, the contract(s) is accounted for as a single unit of accounting, resulting in delay of revenue recognition for the delivered

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Recognition of Revenue — (continued)

product or service until the undelivered product or service portion of the contract is complete. The Company recognizes revenue for delivered elements only when the fair values of undelivered elements are known, uncertainties regarding client acceptance are resolved, and there are no client-negotiated refund or return rights affecting the revenue recognized for delivered elements. Once the Company determines the allocation of revenue between deliverable elements, there are no further changes in the revenue allocation. If the separation criteria are met, revenue from these services is recognized as the services are performed under a fully executed contractual agreement. If the separation criteria are not met because there is insufficient evidence to determine fair value of one of the deliverables, all of the services are accounted for as a single combined unit of accounting. For these deliverables with insufficient evidence to determine fair value, revenue is recognized on the proportional performance method using the straight-line basis over the contract period, or the actual number of operational seats used to serve the client, as appropriate.

Property and Equipment — The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360 “Property, Plant and Equipment.” For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets. Occasionally, the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the carrying amount of these assets. The Company determined that its property and equipment was not impaired as of September 30, 2009.

Investment in SHPS — The Company held a noncontrolling interest in SHPS, Inc. (“SHPS”), which was accounted for at cost of approximately $2.1 million as of December 31, 2008 and was included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. In June 2009, the Company received notice from SHPS that the shareholders of SHPS had approved a merger agreement between SHPS and SHPS Acquisition, Inc., pursuant to which the common stock of SHPS, including the common stock owned by the Company, would be converted into the right to receive $0.000001 per share in cash. SHPS informed the Company that it believed the estimated fair value of the SHPS common stock to be equal to such per share amount. As a result of this transaction and evaluation of the Company’s legal options, the Company believed it was more likely than not that it would not be able to recover the $2.1 million carrying value of the investment in SHPS. Therefore, due to the decline in value that is other than temporary, management recorded a non-cash impairment loss of $2.1 million included in “Impairment loss on investment in SHPS” during the second quarter ended June 30, 2009. Subsequent to the recording of the impairment loss, the Company liquidated its noncontrolling interest in SHPS by converting its SHPS common stock into cash for $0.000001 per share during the three months ended September 30, 2009. See Note 2 for further information.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Goodwill - The Company accounts for goodwill and other intangible assets under ASC 350 (“ASC 350”) “Intangibles – Goodwill and Other.” Goodwill and other intangible assets with indefinite lives are not subject to amortization, but instead must be reviewed at least annually, and more frequently in the presence of certain circumstances, for impairment by applying a fair value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350, the carrying value of assets is calculated at the lowest levels for which there are identifiable cash flows (the “reporting unit”). If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. During the second quarter of 2009, based on the presence of certain circumstances, the Company recorded an impairment loss on the goodwill related to the March 2005 acquisition of Kelly, Luttmer & Associates Limited (“KLA”). See Note 2 for further information.

During the third quarter of 2009, the Company completed its annual goodwill impairment test, which included the consideration of recent economic developments, and determined that the carrying amount of goodwill was not impaired as of September 30, 2009. The Company expects to receive future benefits from the remaining previously acquired goodwill over an indefinite period of time.

Intangible Assets - Intangible assets, primarily customer relationships, existing technologies and covenants not to compete, are amortized using the straight-line method over their estimated useful lives which approximates the pattern in which the economic benefits of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that an impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or appraised values as appropriate. The Company does not have intangible assets with indefinite lives. During the three and nine months ended September 30, 2009, based on changes in circumstances, the Company recorded an impairment loss on intangible assets related to the KLA acquisition mentioned above. See Note 2 for further information.

Value Added Tax Credit Receivables — The Philippine operations are subject to Value Added Tax (“VAT”), which is usually applied to all goods and services purchased throughout the Philippines. Upon validation and certification of the VAT credit receivables by the Philippine government, the VAT credit receivables are held for sale through third-party brokers. The Company sells VAT credits to others due to its current tax holiday status in the Philippines and resulting inability to fully utilize these credits. This process through collection typically takes three to five years. The VAT credit receivables balance recorded at net realizable value, which approximates fair value, is approximately $6.5 million and $7.5 million as of September 30, 2009 and December 31, 2008, respectively. See “Fair Value Measurements” in this Note 1 for further information. As of September 30, 2009 and December 31, 2008, the VAT credit receivables of $5.1 million and $4.9 million, respectively, are included in “Deferred Charges and Other Assets”, $1.4 million and $1.1 million, respectively, are included in “Other Current Assets” and $0.0 million and $1.5 million, respectively, are included in “Receivables, net” in the accompanying Condensed Consolidated Financial Statements. During the three and nine months ended September 30, 2009, the Company determined that a portion of the VAT credit receivable balance was not recoverable and wrote down the balance by $0.1 million and $0.4 million, respectively. During the comparable 2008 periods, the Company wrote down the balance by $0.1 million and $0.5 million, respectively.

Stock-Based Compensation – The Company has three stock-based compensation plans: the 2001 Equity Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees).

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Stock-Based Compensation — (continued)

All of these plans are discussed more fully in Note 12. Stock-based awards under these plans may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and treasury stock to satisfy stock option exercises or vesting of stock awards.

The Company recognizes in its statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is measured to fair-value at each balance sheet date until the award is settled.

Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

•

Cash, Accounts Receivable, Value Added Tax Credit Receivables, Short-term and Other Investments, Investments Held in Rabbi Trust and Accounts Payable. The carrying values reported in the balance sheet for cash, accounts receivable, value added tax credit receivables, short-term investments, investments held in rabbi trust and accounts payable approximate their fair values.

•

Foreign currency forward contracts. Foreign currency forward contracts are recognized in the balance sheet at fair value based on quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions.

•

Long-Term Debt. The fair value of long-term debt, including the current portion thereof, is estimated based on the quoted market price for the same or similar types of borrowing arrangements. As of September 30, 2009 and December 31, 2008, the Company had no outstanding long-term debt.

Fair Value Measurements - Effective January 1, 2008, the Company adopted the provisions of ASC 820 (“ASC 820”) “Fair Value Measurements and Disclosures” and ASC 825 (“ASC 825”) “Financial Instruments”. ASC 820, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820-10-20 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

ASC 825 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. Since the date of adoption on January 1, 2008, the Company has not elected to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are not already recorded at fair value.

A description of the Company’s policies regarding fair value measurement is summarized below.

Fair Value Hierarchy - ASC 820-10-35 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair-value hierarchy:

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Fair Value Measurements — (continued)

		•		Level 1 – Quoted prices for identical instruments in active markets.
		•		Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
		•		Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Determination of Fair Value - The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

The following section describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

Money Market Funds and Open-end Mutual Funds — The Company uses quoted market prices in active markets to determine the fair value of money market funds and open-end mutual funds, which are classified in Level 1 of the fair value hierarchy.

Foreign Currency Forward Contracts — The Company enters into foreign currency forward contracts over the counter and values such contracts based on quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions. The key inputs include forward foreign currency exchange rates and interest rates. The item is classified in Level 2 of the fair value hierarchy.

Investments Held in Rabbi Trust — The Company maintains a non-qualified deferred compensation plan structured as a rabbi trust for certain eligible employees. The investment assets of the rabbi trust are valued using quoted market prices multiplied by the number of shares held in the trust, which are classified in Level 1 of the fair value hierarchy. For additional information about our deferred compensation plan, see Notes 5 and 12.

Guaranteed Investment Certificates — Guaranteed investment certificates, with variable interest rates linked to the prime rate, approximate fair value due to the automatic ability to reprice with changes in the market; such items are classified in Level 2 of the fair value hierarchy.

Value Added Tax Credit Receivables — The VAT credit receivables are recorded at net realizable value, which approximates fair value. The Company determines the net realizable value based on estimated discounted future cash flows using such factors as historical sales experience and current market conditions. Such items are classified in Level 3 of the fair value hierarchy.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

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

Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under ASC 815 (“ASC 815”) “Derivatives and Hedging”. The Company generally utilizes non-deliverable forward contracts expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional foreign currencies. Upon proper qualification, these contracts are accounted for as cash-flow hedges, as defined by ASC 815. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates. In using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.

All derivatives, including foreign currency forward contracts, are recognized in the balance sheet at fair value. On the date the derivative contract is entered into, the Company determines whether the derivative contract should be designated as a cash flow hedge. Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)”, until the forecasted underlying transactions occur. Any realized gains or losses resulting from the cash flow hedges are recognized together with the hedged transaction within “Revenues”. Cash flows from the derivative contracts are classified within “Cash flows from operating activities” in the accompanying Condensed Consolidated Statement of Cash Flows. Ineffectiveness is measured based on the change in fair value of the forward contracts and the fair value of the hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is recognized within “Revenues”.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging activities. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring, the Company discontinues hedge accounting prospectively. At September 30, 2009, all hedges were determined to be highly effective.

The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to reduce the effects on its operating results and cash flows from fluctuations caused by volatility in currency exchange rates. The Company records changes in the fair value of these derivative instruments within “Revenues” or “Other income”, depending on the purpose of the transaction, in the accompanying Condensed Consolidated Statements of Operations. See Note 4 for further information on financial derivative instruments.

Recent Accounting Pronouncements - In September 2006, the Financial Accounting Standards Board (“FASB”) issued ASC 820 (“ASC 820”) “Fair Value Measurements and Disclosures”, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The Company adopted the provisions of ASC 820 on January 1, 2008. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 2 — Fair Value for further information.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Recent Accounting Pronouncements — (continued)

In March 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on ASC 715-60 (“ASC 715-60”) “Topic 715 Compensation – Retirement Benefits — Subtopic 60 Defined Benefits Plans – Other Postretirement” ASC 715-60 provides guidance on the employer’s recognition of assets, liabilities and related compensation costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an employee that extends into postretirement periods. The Company adopted the provisions of ASC 715-60 on January 1, 2008. As a result of the implementation of ASC 715-60, the Company recognized a $0.5 million liability for a postretirement benefit obligation related to a split dollar arrangement on behalf of its founder and former Chairman and Chief Executive Officer which was accounted for as a reduction to the January 1, 2008 balance of retained earnings. See Note 13 – Defined Benefit Pension Plan and Post-Retirement Benefits for further information.

In December 2007, the FASB issued ASC 805 (“ASC 805”) “Business Combinations” and modifications to ASC 810 (“ASC 810”) “Consolidation”. ASC 805 changes how business acquisitions are accounted for and impacts financial statements both on the acquisition date and in subsequent periods. ASC 810 includes changes to the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of shareholders’ equity. On January 1, 2009, the Company adopted the provisions of ASC 805 and the modifications to ASC 810, relating to noncontrolling interests. ASC 805 will be applied prospectively for all business combinations entered into after January 1, 2009, the date of adoption. The modified provisions of ASC 810 will also be applied prospectively to all noncontrolling interests, except for the presentation and disclosure provisions which are applied retrospectively to any noncontrolling interests that arose before January 1, 2009. The adoption of these standards did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In March 2008, the FASB issued modifications to ASC 815 (“ASC 815”) “Derivatives and Hedging”, requiring increased qualitative, quantitative, and credit-risk disclosures about an entity’s derivative instruments and hedging activities. On January 1, 2009, the Company adopted the modifications to ASC 815. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 4 – Financial Derivatives for further information.

In April 2008, the FASB issued modifications to ASC 350 (“ASC 350”) “Intangibles – Goodwill and Other”. The modifications to ASC 350 amended the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. On January 1, 2009, the Company adopted the modifications to ASC 350. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In December 2008, the FASB issued modifications to ASC 715-20 (“ASC 715-20”) “Topic 715 Compensation – Retirement Benefits — Subtopic 20 Defined Benefits Plans — General”, which provides additional guidance on an employers’ disclosures about plan assets of a defined benefit pension or other postretirement plan. The modifications to ASC 715-20 are effective for financial statements issued for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact of adopting the modifications to ASC 715-20 on its financial condition, results of operations and cash flows.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Recent Accounting Pronouncements — (continued)

In April 2009, the FASB issued modifications to ASC 805-20 (“ASC 805-20”) “Topic 805 Business Combinations – Subtopic 20 Identifiable Assets and Liabilities, and Any Noncontrolling Interests,” which requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC 450 (“ASC 450”) “Contingencies”. Further, ASC 805-20 requires that a systematic and rational basis for subsequently measuring and accounting for the assets or liabilities arising from contingencies be developed based on their nature. The modifications to ASC 805-20 are effective for assets or liabilities arising from contingencies in business combinations whose acquisition date is on or after January 1, 2009. The adoption of these modifications to ASC 805-20 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2009, the FASB issued modifications to ASC 825 (“ASC 825”) “Financial Instruments”, to extend the annual disclosures about fair value of financial instruments to interim reporting periods. The modifications to ASC 825 is effective for interim reporting periods ending after June 15, 2009, and were adopted on April 1, 2009. The adoption of these modifications to ASC 825 did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 1- Basis of Presentation and Summary of Significant Accounting Policies – Fair Value Measurements for further information.

In April 2009, the FASB issued modifications to ASC 820. The modifications to ASC 820 provide additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability. The modifications to ASC 820 also provide guidance on circumstances that may indicate a transaction is not orderly (that is, distressed or forced). The modifications to ASC 820 are effective on a prospective basis for interim and annual reporting periods ending after June 15, 2009, and were adopted on April 1, 2009. The adoption of these modifications to ASC 820 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2009, the FASB issued modifications to ASC 320 (“ASC 320”) “Investments—Debt and Equity Securities”, which amends the recognition and presentation of other-than-temporary impairments for debt securities and provides new disclosure requirements for both debt and equity securities. Upon adoption of the modifications to ASC 320, the non-credit component of previously recognized other-than-temporary impairment on debt securities held on that date is reclassified from Retained Earnings to Accumulated Other Comprehensive Income and reported as a cumulative-effect adjustment as of the beginning of the period of adoption, if the entity does not intend to sell the security and it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis. The modifications to ASC 320 are effective for interim and annual reporting periods ending after June 15, 2009, and were adopted on April 1, 2009. The adoption of these ASC 320 modifications did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 5 – Investments Held in Rabbi Trust for further information.

In May 2009, the FASB issued ASC 855 (“ASC 855”) “Subsequent Events”, which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. ASC 855 is effective on a prospective basis for interim or annual periods ending after June 15, 2009, and was adopted on April 1, 2009. This standard did not have a material impact on the Company’s financial condition, results of operations and cash flows.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Recent Accounting Pronouncements — (continued)

In June 2009, the FASB issued ASC 105 (“ASC 105”) “Generally Accepted Accounting Principles”. ASC 105 states that the FASB Accounting Standards Codification (“Codification”) will become the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB. The Codification and all of its contents, which changes the referencing of financial standards, will carry the same level of authority. In other words, the GAAP hierarchy will be modified to include only two levels of GAAP, authoritative and nonauthoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009, and was adopted July 1, 2009. Therefore, all references to GAAP use the new Codification numbering system prescribed by the FASB. As the Codification is not intended to change or alter existing GAAP, it did not have an impact on the Company’s financial condition, results of operations and cash flows.

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05 (“ASU 2009-05”), “Measuring Liabilities at Fair Value”, which provides clarification for the fair value measurement of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available. ASU 2009-05 is effective for the first interim period ending after December 15, 2009, and was adopted on October 1, 2009. This standard did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In September 2009, the FASB issued ASU No. 2009-12 (“ASU 2009-12”), “Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”, which provides guidance on measuring the fair value of certain alternative investments. ASU 2009-12 amends ASC 820 to offer investors a practical expedient for measuring the fair value of investments in certain entities that calculate net asset value per share. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. The Company is currently evaluating the impact of adopting this standard on its financial condition, results of operations and cash flows.

In October 2009, the FASB issued ASU No. 2009-13 (“ASU 2009-13”), “Multiple-Deliverable Revenue Arrangements”, which amends ASC 605, “Revenue Recognition”. ASU 2009-13 provides guidance related to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modifies the manner in which the transaction consideration is allocated across the individual deliverables. Also, the standard expands the disclosure requirements for revenue arrangements with multiple deliverables. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact of adopting this standard on its financial condition, results of operations and cash flows.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 2 — Fair Value

The Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2009 subject to the requirements of ASC 820 consist of the following (in thousands):

		Fair Value Measurments at September 30, 2009 Using:
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets For				Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
		September 30, 2009				Level (1)				Level (2)				Level (3)
Assets:
Money Market Funds and Open-end Mutual Funds (1)		$	86,168			$	86,168			$	—			$	—
Foreign Currency Forward Contracts (2)			1,136				—				1,136				—
Investments held in Rabbi Trust for the Deferred Compensation Plan (3)			2,250				2,250				—				—
Guaranteed Investment Certificates (4)			47				—				47				—
Value Added Tax Credit Receivables (5)			6,485				—				—				6,485
Total Assets		$	96,086			$	88,418			$	1,183			$	6,485
Liabilities:
Foreign Currency Forward Contracts (6)		$	3,934			$	—			$	3,934			$	—
Total Liabilities		$	3,934			$	—			$	3,934			$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 2 — Fair Value — (continued)

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 subject to the requirements of ASC 820 consist of the following (in thousands):

		Fair Value Measurments at December 31, 2008 Using:
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets For				Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
		December 31, 2008				Level (1)				Level (2)				Level (3)
Assets:
Money Market Funds and Open-end Mutual Funds (1)		$	111,423			$	111,423			$	—			$	—
Investments held in Rabbi Trust for the Deferred Compensation Plan (2)			1,386				1,386				—				—
Guaranteed Investment Certificates (3)			858				—				858				—
Value Added Tax Credit Receivables (4)			7,501				—				—				7,501
Total Assets		$	121,168			$	112,809			$	858			$	7,501
Liabilities:
Foreign Currency Forward Contracts (5)		$	11,654			$	—			$	11,654			$	—
Total Liabilities		$	11,654			$	—			$	11,654			$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 2 — Fair Value — (continued)

The following table presents a reconciliation of the beginning and ending balances for the Company’s value added tax credit receivables measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2009 and 2008 (in thousands):

		Three Months Ended September 30,
Description		2009				2008
Beginning Balance, July 1		$	7,062			$	7,238
Included in earnings (1)			(94	)			(121	)
Purchases, issuances and settlements			(483	)			33
Ending Balance, September 30		$	6,485			$	7,150

		Nine Months Ended September 30,
Description		2009				2008
Beginning Balance, January 1		$	7,501			$	8,247
Included in earnings (1)			(414	)			(482	)
Purchases, issuances and settlements			(602	)			(615	)
Ending Balance, September 30		$	6,485			$	7,150
		2009				2008
Unrealized Gains (Losses) Included in Earnings Above
For the three months ended September 30		$	—			$	—
For the nine months ended September 30		$	—			$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 2 — Fair Value — (continued)

Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as described in Note 1, like those associated with acquired businesses, including goodwill and other intangible assets, investments at cost and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more of these assets are determined to be impaired. The Company’s assets measured at fair value on a nonrecurring basis (no liabilities) as of September 30, 2009 subject to the requirements of ASC 820 consist of the following (in thousands):

						Level (3) Fair Value Measurments
						at September 30, 2009:
						Three Months				Nine Months
						Ended				Ended
						September 30,				September 30,
		Balance at				2009				2009
		September 30,				Total Gains				Total Gains
		2009				(Losses)				(Losses)
Assets:
KLA assets:
Goodwill		$	—			$	—			$	(629	)
Intangibles, net			—				(324	)			(1,279	)
			—				(324	)			(1,908	)
Investment in SHPS (1)			—				—				(2,089	)
Total Assets		$	—			$	(324	)		$	(3,997	)

On June 30, 2009, the Company committed to a plan to sell or close its Employee Assistance and Occupational Health operations in Calgary, Alberta, Canada, which was originally acquired on March 1, 2005 when the Company purchased the shares of KLA. As a result of KLA’s actual and forecasted operating results for 2009, deterioration of the KLA customer base and loss of key employees, the Company determined to sell or close the Calgary operations on or before December 31, 2009 for less than its current carrying value. This decline in value was other than temporary, therefore, the Company recorded a non-cash impairment loss of $1.0 million related to intangible assets (primarily customer relationships) and $0.6 million related to goodwill included in “Impairment loss on goodwill and intangibles” during the three months ended June 30, 2009. Subsequently, the Company determined to close the Calgary operations and wrote off the remaining balance of the intangible assets of $0.3 million during the three months ended September 30, 2009. The accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 includes “Impairment loss on goodwill and intangibles” of $0.3 million and $1.9 million, respectively, related to the Calgary operations (none in the comparable 2008 period). In addition, the Company estimates $0.6 million to $1.0 million of cash expenditures for the Calgary closing, including facility-related costs of $0.5 million to $0.9 million to be paid through the remainder of the lease term ending July 2012 and $0.1 million in one-time employee termination benefits. The exact timing and actual amounts of the facility-related payments are dependent upon the Company’s ability to sublease these facilities. If the events and circumstances regarding the Company’s ability to sublease the facilities change, these estimates would change. Income (loss) from operations for KLA for the three and nine months ended September 2009 and 2008 were not material to the consolidated income from operations; therefore, the results of operations of KLA have not been presented as discontinued operations in the accompanying Condensed Consolidated Statement of Operations.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 3 — Goodwill and Intangible Assets

The following table presents the Company’s purchased intangible assets (in thousands) as of September 30, 2009:

														Weighted
														Average
		Gross				Accumulated				Net				Amortization
		Intangibles				Amortization				Intangibles				Period (years)
Customer relationships		$	4,421			$	2,395			$	2,026				6
Trade name			804				522				282				5
Non-compete agreement			161				161				—				2
Other			133				133				—				3
		$	5,519			$	3,211			$	2,308				6

The following table presents the Company’s purchased intangible assets (in thousands) as of December 31, 2008:

														Weighted
														Average
		Gross				Accumulated				Net				Amortization
		Intangibles				Amortization				Intangibles				Period (years)
Customer relationships		$	6,711			$	2,596			$	4,115				7
Trade name			892				446				446				5
Non-compete agreement			610				610				—				2
Other			237				212				25				3
		$	8,450			$	3,864			$	4,586				6

Amortization expense, related to the purchased intangible assets resulting from acquisitions (other than goodwill), of $0.2 million and $0.8 million for the three and nine months ended September 30, 2009, respectively, is included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations. In the comparable 2008 periods, the Company recognized amortization expense of $0.4 million and $1.1 million, respectively.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 3 — Goodwill and Intangible Assets — (continued)

The Company’s estimated future amortization expense for the five succeeding years is as follows (in thousands):

Years Ending December 31,		Amount
2009 (remaining three months)		$	225
2010		$	898
2011		$	817
2012		$	368
2013		$	—

Changes in goodwill, within the America’s segment, consist of the following (in thousands):

Years Ending December 31,		Amount
Balance at December 31, 2007		$	22,468
Contingent payment for Apex acquisition			3,076
Foreign currency translation			(2,353	)
Balance at December 31, 2008			23,191
Impairment on KLA goodwill (see Note 2)			(629	)
Foreign currency translation			(1,442	)
Balance at September 30, 2009		$	21,120

Note 4 — Financial Derivatives

The Company had derivative assets and liabilities relating to outstanding forward contracts, designated as cash flow hedges, as defined under ASC 815, consisting of Philippine peso (“PHP”) contracts, maturing within 15 months with a notional value of $66.4 million and $107.0 million as of September 30, 2009 and December 31, 2008, respectively. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.

The Company had a total of $0.4 million and $7.8 million of deferred losses, net of taxes of $0.4 million and $3.3 million, on these derivative instruments as of September 30, 2009 and December 31, 2008, respectively, recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) in the accompanying Condensed Consolidated Balance Sheets. The deferred losses expected to be reclassified to “Revenues” from AOCI during the next twelve months is $1.0 million. However, this amount and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts.

In October 2009, the Company entered into forward contracts to sell U.S. dollars of $5.1 million at fixed prices of 5.5 million Canadian dollars to hedge intercompany forecasted cash outflows through June 2010.

The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to reduce the effects on its operating results and cash flows from fluctuations caused by volatility in currency exchange rates, primarily related to intercompany loan payments. During the nine months ended September 30, 2009, the Company entered into and settled forward contracts to sell $0.9 million U.S. dollars at fixed prices of 1.1 million Canadian dollars as well as forward contracts to sell PHP 175.0 million at fixed prices of Euro 2.8 million. During the nine months ended September 30, 2008, the Company entered into a forward contract to sell 25.0 million Canadian dollars at fixed prices of Euro 14.6 million through December 2009. See Note 1 for further information on foreign currency and derivative instruments.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 4 — Financial Derivatives — (continued)

The Company had the following outstanding foreign currency forward contracts (in thousands):

As of September 30, 2009				As of December 31, 2008
Foreign		Currency		Foreign		Currency
Currency		Denomination		Currency		Denomination
U.S. Dollars		Philippine Pesos 3,164,419		U.S. Dollars		Philippine Pesos 4,645,715
Canadian Dollars		Euros 14,641		Canadian Dollars		Euros 14,641

As of September 30, 2009, the maximum amount of loss due to credit risk that, based on the gross fair value of the financial instruments, the Company would incur if parties to the financial instruments that make up the concentration failed to perform according to the terms of the contracts is $1.1 million.

The following tables present the fair value of the Company’s derivative instruments as of September 30, 2009 and December 31, 2008 included in the accompanying Condensed Consolidated Balance Sheets (in thousands):

		Derivative Assets
		September 30, 2009								December 31, 2008
		Balance Sheet								Balance Sheet
		Location				Fair Value				Location				Fair Value
Derivatives designated as hedging instruments under ASC 815:
		Other current
Foreign currency forward contracts		assets				$	971				—			$	—
		Deferred
		charges and
Foreign currency forward contracts		other assets					165				—				—
Total derivative assets						$	1,136							$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 4 — Financial Derivatives — (continued)

Derivative Liabilities

September 30, 2009

December 31, 2008

Location

Fair Value

Location

Fair Value

Derivatives designated as hedging instruments under ASC 815:

Other accrued

Other accrued

expenses and

expenses and

Foreign currency forward contracts

current liabilities

$

1,992

current liabilities

$

11,377

Derivatives not designated as hedging instruments under ASC 815(1):

Other accrued

Other accrued

expenses and

expenses and

Foreign currency forward contracts

current liabilities

1,942

current liabilities

277

Total derivative liabilities

$

3,934

$

11,654

The following tables present the effect of the Company’s derivative instruments for the three months ended September 30, 2009 and 2008 in the accompanying Condensed Consolidated Financial Statements (in thousands):

														Gain (Loss)
		Gain (Loss)												Reclassified From								Gain (Loss)
		Recognized in AOCI												Accumulated AOCI								Recognized in Income
		on Derivative								Statement				Into Income (Effective								on Derivative
Derivatives in ASC 815		(Effective Portion)								of				Portion)								(Ineffective Portion)
cash flow hedging		September 30,								Operations				September 30,								September 30,
relationships:		2009				2008				Location				2009				2008				2009				2008
Foreign currency forward contracts		$	1,528			$	(1,964	)		Revenues				$	(2,291	)		$	(1,621	)		$	—			$	(5	)
		$	1,528			$	(1,964	)						$	(2,291	)		$	(1,621	)		$	—			$	(5	)

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2009 and 2008
(Unaudited)

Note 4 — Financial Derivatives — (continued)

				Gain (Loss) Recognized
		Statement of		in Income on Derivative
Derivatives not designated as hedging		Operations		September 30,
instruments under ASC 815:		Location		2009				2008
Foreign currency forward contracts		Revenues		$	—			$	—
Foreign currency forward contracts		Other income and (expense)			(877	)			—
				$	(877	)		$	—

The following tables present the effect of the Company’s derivative instruments for the nine months ended September 30, 2009 and 2008 in the accompanying Condensed Consolidated Financial Statements (in thousands):

														Gain (Loss)
		Gain (Loss)												Reclassified From								Gain (Loss)
		Recognized in AOCI												Accumulated AOCI								Recognized in Income
		on Derivative								Statement				Into Income (Effective								on Derivative
Derivatives in ASC 815		(Effective Portion)								of				Portion)								(Ineffective Portion)
cash flow hedging		September 30,								Operations				September 30,								September 30,
relationships:		2009				2008				Location				2009				2008				2009				2008
Foreign currency forward contracts		$	2,331			$	(20,016	)		Revenues				$	(7,837	)		$	1,841			$	—			$	(488	)
		$	2,331			$	(20,016	)						$	(7,837	)		$	1,841			$	—			$	(488	)

				Gain (Loss) Recognized
		Statement of		in Income on Derivative
Derivatives not designated as hedging		Operations		September 30,
instruments under ASC 815:		Location		2009				2008
Foreign currency forward contracts		Revenues		$	(53	)		$	6
Foreign currency forward contracts		Other income and (expense)			(1,393	)			—
				$	(1,446	)		$	6