UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File No. 0-28274

Sykes Enterprises, Incorporated

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

Registrant’s telephone number, including area code: (813) 274-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.

Yes þ                     No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes þ                     No o

As of April 25, 2005, there were 39,196,635 outstanding shares of common stock.

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Sykes Enterprises, Incorporated and Subsidiaries

INDEX

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PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements and Report of Independent Registered Public Accounting Firm.

Sykes Enterprises, Incorporated and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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Sykes Enterprises, Incorporated and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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Sykes Enterprises, Incorporated and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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Sykes Enterprises, Incorporated and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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Sykes Enterprises, Incorporated and Subsidiaries

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, technology/consumer, financial services, healthcare, and transportation and leisure industries. Sykes provides flexible, high quality outsourced customer contact management services with an emphasis on inbound technical support and customer service. 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, 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. In addition, certain reclassifications have been made for consistent presentation. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2005. 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, 2004, as filed with the Securities and Exchange Commission (“SEC”).

Stock-Based Compensation - The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Under SFAS No. 123, companies have the option to measure compensation costs for stock options using the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under APB No. 25, compensation expense is generally not recognized when both the exercise price is the same as the market price and the number of shares to be issued is set on the date the employee stock option is granted. Since employee stock options are granted on this basis and the Company has chosen to use the intrinsic value method, no compensation expense is recognized for stock option grants.

In accordance with APB No. 25, the Company applies variable plan accounting for grants of common stock units (“CSUs”) issued under the 2004 Non-Employee Director Fee Plan (the “Plan”) and recognizes compensation cost over the vesting period. During the year ended December 31, 2004, the Board awarded an aggregate of 55.6 thousand CSUs to the non-employee directors totaling $0.3 million with a weighted average fair value of $5.94 per common stock unit. Since the Plan is subject to shareholder approval, the CSUs are not considered to be granted and therefore no compensation cost will be recognized until the shareholders approve the Plan at the 2005 Annual Shareholders’ Meeting. At that time, the Company will recognize compensation cost for the CSUs over the vesting periods at the then current market price.

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Sykes Enterprises, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
Three months ended March 31, 2005 and 2004
(Unaudited)

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

Stock-Based Compensation (continued)

If the Company had elected to recognize compensation expense for the issuance of options to employees of the Company based on the fair value method of accounting prescribed by SFAS No. 123, net income and earnings per share would have been changed to the pro forma amounts as follows (in thousands except per share amounts):

The Company has not issued any stock options since January 1, 2004. For options issued before this date, the Company used the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant using various assumptions.

On February 1, 2005, the Compensation Committee of the Board of Directors approved accelerating the vesting of most out-of-the-money, unvested stock options held by current employees, including executive officers and certain employee directors. An option was considered out-of-the-money if the stated option exercise price was greater than the closing price, $7.23, of the Company’s common stock on the day the Compensation Committee approved the acceleration. The accelerated vesting was effective as of February 1, 2005; however, holders of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended) to purchase 59,000 shares of common stock and holders of certain stock options issued to certain foreign employees, have the opportunity to decline the accelerated vesting in order to prevent changing the status of the incentive stock option for federal income tax purposes to a non-qualified stock option or the restriction of the availability of favorable tax treatment under applicable foreign law.

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Sykes Enterprises, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
Three months ended March 31, 2005 and 2004
(Unaudited)

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

Stock-Based Compensation (continued)

The following table summarizes the options subject to acceleration:

The decision to accelerate vesting of these options and eliminate future compensation expense was based on a review of the Company’s long-term incentive programs in light of current market conditions and changing accounting rules regarding stock option expensing that the Company must follow beginning January 1, 2006. This accounting rule, entitled “Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment” (“SFAS No. 123R”), will require that compensation cost related to share-based payment transactions, including stock options, be recognized in the financial statements. Excluding holders of incentive stock options or the referenced foreign stock options that elected to decline the accelerated vesting, it is estimated that the maximum future compensation expense that would have been charged to earnings, absent the acceleration of these options, based on the Company’s implementation date for SFAS No. 123R as of January 1, 2006, was less than $0.1 million. The Company will report this future compensation expense in the 2006 financial statements as pro forma footnote disclosures, as permitted under the transition guidance provided by the Financial Accounting Standards Board.

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 SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the difference between the net book value of the asset and 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 has closed several customer contact management centers, which are held for sale, and expects it may close additional centers in the future as a result of the client migration of call volumes from the U.S.

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Sykes Enterprises, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
Three months ended March 31, 2005 and 2004
(Unaudited)

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

Property and Equipment (continued)

to the Company’s offshore operations, including Latin America and the Asia Pacific Rim, and the overall reduction in customer call volumes in the United States and Europe. As of March 31, 2005, the Company determined that its property and equipment, including those at the closed customer contact management centers, were not impaired. Certain assets of these closed centers, with a carrying value of $6.4 million as of March 31, 2005, are included in “Assets held for sale” in the accompanying Condensed Consolidated Balance Sheet. The carrying value of these assets is offset by the related deferred grants of $4.4 million as of March 31, 2005 and included in “Deferred grants related to assets held for sale” in the accompanying Condensed Consolidated Balance Sheet. Upon reclassification as held for sale, the Company discontinued depreciating these assets and amortizing the related deferred grants. Property and equipment is classified as held for sale in the period in which management commits to a plan to sell the asset, the asset is available for immediate sale in its present condition, an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated, the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, it is probable that the asset will be sold in a reasonable period of time, and it is unlikely that significant changes to the plan to sell the asset will be made or that the plan will be withdrawn.

In April 2005, the Company leased the land, building and its contents related to its Palatka, Florida facility to an unrelated third party effective May 1, 2005 for a period of 5 years cancelable by the lessee at the end of the third or fourth years at varying penalties not exceeding one year’s rent. As a result, the net carrying value of $3.3 million of land, building and equipment related to this site was reclassified from “Assets held for sale” to “Property and Equipment” as of March 31, 2005. The net carrying value of $3.3 million is offset by a related deferred grant in the amount of $2.3 million as of March 31, 2005.

The Company has also leased properties in Manhattan, Kansas and Pikeville, Kentucky. The leases are for a period of one to five years and may or may not be cancelable by the lessee at the end of each year for varying penalties not exceeding one year’s rent. As of March 31, 2005, the leased properties in Manhattan, Pikeville and Palatka consist of the following (in thousands):

Future minimum rental payments, including penalties for failure to renew, to be received on non-cancelable operating leases are contractually due as follows as of March 31, 2005 (in thousands):

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Sykes Enterprises, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
Three months ended March 31, 2005 and 2004
(Unaudited)

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

Property and Equipment (continued)

On April 1, 2005, the Company sold the land and building related to its Greeley, Colorado facility for net cash proceeds of $2.3 million, resulting in an estimated net gain of $1.6 million. The net book value of the facilities of $1.4 million was offset by the related deferred grants of $0.7&