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 “accelerated filer”, “large 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 July 23, 2010, there were 47,398,340 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 June 30, 2010 and December 31, 2009 (Unaudited)			3
Condensed Consolidated Statements of Operations Three and six months ended June 30, 2010 and 2009 (Unaudited)			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity Six months ended June 30, 2009, six months ended December 31, 2009 and six months ended June 30, 2010 (Unaudited)			5
Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2010 and 2009 (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			58
Item 4. Controls and Procedures			59
Part II. Other Information
Item 1. Legal Proceedings			60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			60
Item 6. Exhibits			61
Signature			62
EX-10.1
EX-10.2
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

(Unaudited)

(in thousands, except per share data)		June 30, 2010				December 31, 2009
Assets
Current assets:
Cash and cash equivalents		$	224,779			$	279,853
Restricted cash			448				80,342
Receivables, net			236,023				167,666
Prepaid expenses			14,717				9,419
Other current assets			17,643				10,574
Total current assets			493,610				547,854
Property and equipment, net			126,019				80,264
Goodwill			111,129				21,209
Intangibles, net			58,315				2,091
Deferred charges and other assets			44,173				21,053
		$	833,246			$	672,471
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt		$	—			$	75,000
Current portion of long-term debt			12,500				—
Accounts payable			31,041				21,725
Accrued employee compensation and benefits			75,739				51,127
Current deferred income tax liabilities			10,390				6,453
Income taxes payable			2,939				3,341
Deferred revenue			29,893				30,083
Other accrued expenses and current liabilities			19,080				12,689
Total current liabilities			181,582				200,418
Deferred grants			11,187				11,005
Long-term debt			40,000				—
Long-term income tax liabilities			9,423				5,376
Other long-term liabilities			29,605				4,998
Total liabilities			271,797				221,797
Commitments and loss contingency (Note 15)
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; 47,621 and 41,817 shares issued			476				418
Additional paid-in capital			305,293				166,514
Retained earnings			273,431				280,399
Accumulated other comprehensive income (loss)			(7,915	)			7,819
Treasury stock at cost: 637 shares and 329 shares			(9,836	)			(4,476	)
Total shareholders’ equity			561,449				450,674
		$	833,246			$	672,471

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except per share data)		2010				2009				2010				2009
Revenues		$	299,177			$	208,839			$	574,394			$	412,080
Operating expenses:
Direct salaries and related costs			197,244				133,727				375,765				263,980
General and administrative			93,287				56,477				196,140				111,965
Impairment loss on goodwill and intangibles			—				1,584				—				1,584
Total operating expenses			290,531				191,788				571,905				377,529
Income from operations			8,646				17,051				2,489				34,551
Other income (expense):
Interest income			269				605				508				1,456
Interest (expense)			(1,587	)			(237	)			(3,998	)			(351	)
Impairment (loss) on investment in SHPS			—				(2,089	)			—				(2,089	)
Other income (expense)			(3,817	)			275				(5,468	)			1,095
Total other income (expense)			(5,135	)			(1,446	)			(8,958	)			111
Income (loss) before provision for income taxes			3,511				15,605				(6,469	)			34,662
Provision for income taxes			966				1,257				499				5,544
Net income (loss)		$	2,545			$	14,348			$	(6,968	)		$	29,118
Net income (loss) per share:
Basic		$	0.05			$	0.35			$	(0.15	)		$	0.72
Diluted		$	0.05			$	0.35			$	(0.15	)		$	0.71
Weighted average shares:
Basic			46,601				40,654				45,604				40,632
Diluted			46,648				40,953				45,712				40,999

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

(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, 2009			41,271			$	413			$	158,216			$	237,188			$	(10,683	)		$	(1,104	)		$	384,030
Issuance of common stock			14				—				71				—				—				—				71
Stock-based compensation expense			—				—				2,800				—				—				—				2,800
Excess tax benefit from stock- based compensation			—				—				123				—				—				—				123
Issuance of common stock and restricted stock under equity award plans			245				2				(937	)			—				—				(145	)			(1,080	)
Repurchase of common stock			—				—				—				—				—				(3,193	)			(3,193	)
Comprehensive income			—				—				—				29,118				6,565				—				35,683
Balance at June 30, 2009			41,530				415				160,273				266,306				(4,118	)			(4,442	)			418,434
Issuance of common stock			277				2				3,095				—				—				—				3,097
Stock-based compensation expense			—				—				2,358				—				—				—				2,358
Excess tax benefit from stock- based compensation			—				—				755				—				—				—				755
Issuance of common stock and restricted stock under equity award plans			10				1				33				—				—				(34	)			—
Comprehensive income			—				—				—				14,093				11,937				—				26,030
Balance at December 31, 2009			41,817				418				166,514				280,399				7,819				(4,476	)			450,674
Issuance of common stock			—				—				29				—				—				—				29
Stock-based compensation expense			—				—				2,909				—				—				—				2,909
Excess tax benefit from stock- based compensation			—				—				360				—				—				—				360
Issuance of common stock and restricted stock under equity award plans			203				1				(1,135	)			—				—				(148	)			(1,282	)
Repurchase of common stock			—				—				—				—				—				(5,212	)			(5,212	)
Issuance of common stock for business acquisition			5,601				57				136,616				—				—				—				136,673
Comprehensive (loss)			—				—				—				(6,968	)			(15,734	)			—				(22,702	)
Balance at June 30, 2010			47,621			$	476			$	305,293			$	273,431			$	(7,915	)		$	(9,836	)		$	561,449

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

(Unaudited)

(in thousands)		2010				2009
Cash flows from operating activities:
Net income (loss)		$	(6,968	)		$	29,118
Depreciation and amortization, net			28,015				13,938
Impairment losses			—				3,673
Unrealized foreign currency transaction gains (losses), net			19				(1,538	)
Stock-based compensation expense			2,909				2,800
Excess tax benefit from stock-based compensation			(360	)			(123	)
Deferred income tax provision (benefit)			(3,981	)			330
Net loss on disposal of property and equipment			84				36
Bad debt expense			36				774
Write down of value added tax receivables			300				320
Unrealized loss on financial instruments, net			2,580				349
Amortization of actuarial (gains) on pension			(26	)			(30	)
Foreign exchange (gain) loss on liquidation of foreign entities			12				(1	)
Increase in valuation allowance on deferred tax assets			1,588				—
Amortization of unrealized (gain) on post retirement obligation			(13	)			(19	)
Amortization of deferred loan fees			1,750				—
Purchases of foreign currency option contracts			(3,610	)			—
Changes in assets and liabilities:
Receivables			6,327				(9,007	)
Prepaid expenses			(1,581	)			(2,205	)
Other current assets			(7,013	)			(588	)
Deferred charges and other assets			(714	)			(1,507	)
Accounts payable			(2,394	)			(4,295	)
Income taxes receivable / payable			(5,876	)			(2,682	)
Accrued employee compensation and benefits			2,870				2,649
Other accrued expenses and current liabilities			(3,806	)			(434	)
Deferred revenue			314				1,941
Other long-term liabilities			(142	)			(10	)
Net cash provided by operating activities			10,320				33,489
Cash flows from investing activities:
Capital expenditures			(13,470	)			(18,308	)
Cash paid for business acquisition, net of cash aquired			(77,174	)			—
Proceeds from sale of property and equipment			41				162
Investment in restricted cash			(108	)			—
Release of restricted cash			80,000				839
Other			—				(2	)
Net cash (used for) investing activities			(10,711	)			(17,309	)

Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2010 and 2009
(Unaudited)

(continued)

(in thousands)		2010				2009
Cash flows from financing activities:
Payment of long term debt			(22,500	)			—
Proceeds from issuance of long term debt			75,000				—
Proceeds from issuance of stock			29				71
Excess tax benefit from stock-based compensation			360				123
Cash paid for repurchase of common stock			(5,212	)			(3,193	)
Proceeds from grants			15				3,440
Payments on short-term debt			(85,000	)			—
Shares repurchased for minimum tax withholding on equity awards			(1,282	)			(1,080	)
Cash paid for loan fees related to debt			(3,035	)			—
Net cash (used for) financing activities			(41,625	)			(639	)
Effects of exchange rates on cash			(13,058	)			4,313
Net increase (decrease) in cash and cash equivalents			(55,074	)			19,854
Cash and cash equivalents — beginning			279,853				219,050
Cash and cash equivalents — ending		$	224,779			$	238,904
Supplemental disclosures of cash flow information:
Cash paid during period for interest		$	1,968			$	630
Cash paid during period for income taxes		$	13,107			$	6,274
Non-cash transactions:
Property and equipment additions in accounts payable		$	1,672			$	1,338
Unrealized gain on post retirement obligation in accumulated other comprehensive income (loss)		$	119			$	461
Issuance of common stock for business acquisition		$	136,673			$	—

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

(Unaudited)

Note 1 — Significant Accounting Policies

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 communication 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 reportable segments 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.

Basis of Presentation — 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 six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2010. 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, 2009, as filed with the Securities and Exchange Commission (“SEC”). Subsequent events or transactions have been evaluated through the date and time of issuance of the condensed consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the condensed consolidated financial statements.

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 hour, 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. Separation criteria includes 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
Six months ended June 30, 2010 and 2009
(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. Currently, the Company has no contracts containing multiple-deliverables for customer contact management services and fulfillment services.

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 June 30, 2010.

Investments Held in Rabbi Trust for Former ICT Chief Executive Officer — Securities held in a rabbi trust for a nonqualified plan trust agreement dated February 1, 2010 (the “Trust Agreement”) with respect to severance payable to John J. Brennan, the former chief executive officer of ICT Group, Inc. (“ICT”), include the fair market value of debt securities, primarily U.S. Treasury bills. See Note 6 for further information. The fair market value of these debt securities, classified as trading securities in accordance with ASC 320 (“ASC 320”) “Investment — Debt and Equity Securities”, is determined by quoted market prices and is adjusted to the current market price at the end of each reporting period. The net realized and unrealized gains and losses on trading securities, which are included in “Other income and expense” in the accompanying Condensed Consolidated Statements of Operations, are not material for the three and six months ended June 30, 2010. For purposes of determining realized gains and losses, the cost of securities sold is based on specific identification.

The “Accrued employee compensation and benefits” in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2010 includes a $4.5 million obligation for severance payable to the former executive due in varying installments over the next eight months in accordance with the Trust Agreement.

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

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

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

Goodwill — (continued)

goodwill within the reporting unit is less than its carrying value. The Company completed its annual goodwill impairment test during the third quarter of 2009, which included the consideration of certain economic factors and determined that the carrying amount of goodwill was not impaired as of September 30, 2009. As part of the ICT acquisition, in February 2010, additional goodwill was recorded. As of June 30, 2010, there were no indications of impairment. The Company expects to receive future benefits from previously acquired goodwill over an indefinite period of time.

Intangible Assets — Intangible assets, primarily customer relationships, trade name, existing technologies and covenants not to compete, are amortized using the straight-line method over their estimated useful lives which approximate 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 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.

Value Added Tax 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 receivables by the Philippine government, the VAT 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 receivables balance, which is recorded at net realizable value, is approximately $6.6 million and $6.2 million as of June 30, 2010 and December 31, 2009, respectively. As of June 30, 2010 and December 31, 2009, the VAT receivables of $6.6 million and $5.6 million, respectively, are included in “Deferred charges and other assets” and $0.0 million and $0.6 million, respectively, are included in “Receivables” in the accompanying Condensed Consolidated Balance Sheets. During the three and six months ended June 30, 2010 the Company recognized losses on the VAT receivables balance of $0.1 million and $0.3 million, respectively. During the comparable 2009 periods, the Company recognized losses on the VAT receivables balance of $0.1 million and $0.3 million, respectively.

Deferred Grants — The Company receives government employment grants, primarily in the U.S., Ireland and Canada, as an incentive to create and maintain permanent employment positions for a specified time period. The grants are repayable, under certain terms and conditions, if the Company’s relevant employment levels do not meet or exceed the employment levels set forth in the grant agreements. Accordingly, grant monies received are deferred and amortized using the proportionate performance model over the required employment period. As of June 30, 2010 and December 31, 2009, employment deferred grants totaled $12.7 million, of which $1.5 million is included in total current liabilities, and $11.9 million, of which $0.9 million is included in total current liabilities, respectively. Amortization of these grants, recorded as a reduction to “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations, was $0.3 million and $0.5 million for the three and six months ended June 30, 2010, respectively, and $0.3 million and $0.6 million for the comparable 2009 period, 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). All of these plans are discussed more fully in Note 13. 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.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

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

Stock-Based Compensation — (continued)

In accordance with ASC 718 (“ASC 718”) “Compensation — Stock Compensation”, the Company recognizes in its Condensed Consolidated 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 re-measured to fair-value at each balance sheet date until the awards are 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, Short-term and Other Investments, Investments Held in Rabbi Trust, Short-term Debt and Accounts Payable. The carrying values for cash, short-term and other investments, investments held in rabbi trust, short-term debt and accounts payable approximate their fair values.
	•		Forward currency forward contracts and options. Forward currency forward contracts and options are recognized 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, including adjustments for credit risk.
	•		Long-Term Debt. The carrying value of long-term debt, including the current portion thereof, approximates its estimated fair value as it reprices at varying interest rates.

Fair Value Measurements — The provisions of ASC 820 (“ASC 820”) “Fair Value Measurements and Disclosures” 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 (“ASC 825”) “Financial Instruments” permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. 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 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:

	•		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.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

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

Fair Value Measurements — (continued)

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 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 and Options — The Company enters into foreign currency forward contracts and options over the counter and values such contracts using quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk.. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.

Investments Held in Rabbi Trusts — The investment assets of the rabbi trusts are valued using quoted market prices in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information, refer to Notes 6 and 13.

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.

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)” (AOCI), 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 and options 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 and net investments in foreign operations. In using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

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

Foreign Currency and Derivative Instruments — (continued)

All derivatives, including foreign currency forward contracts and options, are recognized in the balance sheet at fair value. Derivatives are recorded either as assets, within “Other current assets,” or “Deferred charges and other assets,” or as liabilities, within “Other accrued expenses and current liabilities,” or “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets.

The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net investment in a foreign operation; or (3) a derivative that does not qualify for hedge accounting. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge.

Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in AOCI, 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”. Changes in the fair value of derivatives that are highly effective and designated as a net investment hedge are recorded in cumulative translation adjustment in AOCI, offsetting the change in cumulative translation adjustment attributable to the hedged portion of the Company’s net investment in the foreign operation. Any realized gains and losses from settlements of the net investment hedge remain in AOCI until partial or complete liquidation of the net investment. Ineffectiveness is measured based on the change in fair value of the forward contracts and options 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” for cash flow hedges and within “Other income (expense)” for net investment hedges. Cash flows from the derivative contracts are classified within the operating section in the accompanying Condensed Consolidated Statements of Cash Flows.

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. Hedges of a net investment in a foreign operation are linked to the specific foreign operation. 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 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 June 30, 2010, 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 from fluctuations caused by volatility in currency exchange rates on the Company’s operating results and cash flows. All changes in the fair value of the derivative instruments are included in “Other income (expense)”. See Note 5 — Financial Derivatives for further information on financial derivative instruments.

New Accounting Standards — Unless needed to clarify a point to readers, the Company will refrain from citing specific section references when discussing application of accounting principles or addressing new or pending accounting rule changes. There are no recently issued accounting standards that are expected to have a material effect on the Company’s financial condition, results of operations or cash flows.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 2 — Acquisition of ICT

On February 2, 2010, the Company acquired 100% of the outstanding common shares and voting interest of ICT through a merger of ICT with and into a subsidiary of the Company. ICT provides outsourced customer management and business process outsourcing solutions with its operations located in the United States, Canada, Europe, Latin America, India, Australia and the Philippines. The results of ICT’s operations have been included in the Company’s consolidated financial statements since its acquisition on February 2, 2010. The Company acquired ICT to expand and complement its global footprint, provide entry into additional vertical markets, and increase revenues to enhance its ability to leverage the Company’s infrastructure to produce improved sustainable operating margins. This resulted in the Company paying a substantial premium for ICT resulting in recognition of goodwill.

The acquisition date fair value of the consideration transferred totaled $277.8 million, which consisted of the following:

		Amount
Form		(in thousands)
Cash		$	141,161
Common stock			136,673
Total consideration		$	277,834

The fair value of the 5.6 million common shares issued was determined based on the Company’s closing share price of $24.40 on the acquisition date.

The cash portion of the acquisition was funded through borrowings consisting of a $75.0 million short-term loan from Key Bank and a $75 million Term Loan. See Note 8 for further information.

The Company accounted for the acquisition in accordance with ASC 805 (“ASC 805”) “Business Combinations”, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from ICT based on their estimated fair values as of the closing date. Certain amounts are provisional and are subject to change, including the following items:

	•		Amounts for property and equipment, pending completion of certain physical counts and the confirmation of the condition of certain property and equipment.
	•		Tax entries required cannot be estimated until the Company completes its tax analysis of the assets acquired and liabilities assumed in connection with the acquisition of ICT. Additionally, as of February 2, 2010, the date of the ICT acquisition, the Company determined that it intends to distribute all of the accumulated and undistributed earnings of the ICT Philippine subsidiary and its direct parent, ICT Group Netherlands B.V., to Sykes Enterprises, Incorporated, its ultimate U.S. parent. Tax adjustments required to reflect this intent, which could be significant, cannot be estimated until the Company completes its tax analysis. The Company asserts its intention that all other ICT past and current earnings are permanently reinvested in foreign business operations in accordance with ASC 740-30 (“ASC 740-30”) “Income Taxes — Other Considerations or Special Areas”.
	•		The amount and allocation of goodwill among reporting units.

The Company expects to complete its analysis of the purchase price allocation during the fourth quarter of 2010. As of June 30, 2010, there were no changes in the recognized amounts of goodwill resulting from the acquisition of ICT.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 2 — Acquisition of ICT — (continued)

The following table summarizes the estimated acquisition date fair values of the assets acquired and liabilities assumed (in thousands):

		Amount
Cash and cash equivalents		$	63,987
Receivables			75,890
Income tax receivable			2,844
Prepaid expenses			4,846
Other current assets			4,950
Total current assets			152,517
Property and equipment			57,910
Goodwill			90,123
Intangibles			60,310
Deferred charges and other assets			7,978
Short-term debt			(10,000	)
Accounts payable			(12,412	)
Accrued employee compensation and benefits			(23,873	)
Income taxes payable			(2,451	)
Other accrued expenses and current liabilities			(10,951	)
Total current liabilities			(59,687	)
Deferred grants			(706	)
Long-term income tax liabilities			(5,573	)
Other long-term liabilities			(25,038	)
Purchase price		$	277,834

Total net assets acquired by operating segment as of February 2, 2010, the acquisition date, were as follows (in thousands):

														Consolidated
		Americas				EMEA				Other				Total
Net assets		$	273,748			$	4,086			$	—			$	277,834

Fair values are based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach. The following table presents the Company’s purchased intangibles assets as of February 2, 2010, the acquisition date (in thousands):

						Weighted
						Average
						Amortization
Purchased intangible Assets		Amount Assigned				Period (years)
Customer relationships		$	57,900				8
Trade name			1,000				3
Proprietary Software			850				2
Non-compete agreements			560				1
		$	60,310				8

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 2 — Acquisition of ICT — (continued)

The $90.1 million of goodwill was assigned to the Company’s Americas and EMEA operating segments in the amount of $90.0 million and $0.1 million, respectively. The goodwill recognized is attributable primarily to synergies the Company expects to achieve as the acquisition increases the opportunity for sustained long-term operating margin expansion by leveraging general and administrative expenses over a larger revenue base. Pursuant to Federal income tax regulations, the ICT acquisition was considered to be a non-taxable transaction; therefore, no amount of intangibles or goodwill from this acquisition will be deductible for tax purposes. The fair value of receivables acquired is $75.9 million, with the gross contractual amount being $76.4 million, of which $0.5 million was not expected to be collected.

After the ICT acquisition in February, 2010, the Company paid off the $10.0 million outstanding balance plus accrued interest of the ICT short-term debt assumed upon acquisition. The related interest expense included in “Interest expense” in the accompanying Condensed Statement of Operations for the three and six months ended June 30, 2010 were not material.

The amount of ICT’s revenues and net loss since the February 2, 2010 acquisition date, included in the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2010, are $98.5 million and $(2.4) million and $163.8 million and $(15.8) million, respectively. The following table presents the unaudited pro forma combined revenues and net earnings as if ICT had been included in the consolidated results of the Company for the entire three and six month periods ended June 30, 2010 and 2009. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2010 and 2009 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Revenues		$	299,177			$	307,189			$	615,328			$	606,488
Net income		$	4,433			$	11,831			$	13,309			$	25,089
Net income per basic share		$	0.10			$	0.26			$	0.29			$	0.54
Net income per diluted share		$	0.10			$	0.25			$	0.29			$	0.54

These amounts have been calculated to reflect the additional depreciation, amortization, and interest expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2010 and January 1, 2009, together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies operating results. Included in these costs are severance, advisory and legal costs, net of the consequential tax effects.

Acquisition-related costs of $6.0 million, comprised of $1.7 million in severance costs ($1.4 million in Corporate and $0.3 million in the Americas), $1.0 million in transaction and integration costs, and $3.3 million in additional depreciation related to the increase in fair values of the acquired property and equipment and amortization of the fair values of the acquired intangibles, are included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations for the three months ended June 30, 2010. Acquisition-related costs of $29.3 million, comprised of $15.2 million in severance costs ($14.0 million in Corporate and $1.2 million in the Americas), $8.7 million in transaction and integration costs, and $5.4 million in additional depreciation related to the increase in fair values of the acquired property and equipment and amortization of the fair values of the acquired intangibles, are included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations for the six months ended June 30, 2010.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 3 — Fair Value

The Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 subject to the requirements of ASC 820 consist of the following (in thousands):

		Fair Value Measurements at June 30, 2010 Using:
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets For				Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
		June 30, 2010				Level (1)				Level (2)				Level (3)
Assets:
Money Market Funds and Open-end Mutual Funds (1)		$	54,495			$	54,495			$	—			$	—
Foreign Currency Forward Contracts (2)			3,158				—				3,158				—
Foreign Currency Option Contracts (3)			1,568				—				1,568				—
Investments held in a Rabbi Trust for the Deferred Compensation Plan (4)			2,710				2,710				—				—
U.S. Treasury Bills held in a Rabbi Trust for the former ICT chief executive officer (4)			4,452				4,452				—				—
Guaranteed Investment Certificates (5)			53				—				53				—
Total Assets		$	66,436			$	61,657			$	4,779			$	—
Liabilities:
Foreign Currency Forward Contracts (6)		$	2,155			$	—			$	2,155			$	—
Total Liabilities		$	2,155			$	—			$	2,155			$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 3 — Fair Value — (continued)

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 subject to the requirements of ASC 820 consist of the following (in thousands):

		Fair Value Measurements at December 31, 2009 Using:
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets For				Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
		December 31, 2009				Level (1)				Level (2)				Level (3)
Assets:
Money Market Funds and Open-end Mutual Funds (1)		$	234,659			$	234,659			$	—			$	—
Foreign Currency Forward Contracts (2)			2,866				—				2,866				—
Investments held in a Rabbi Trust for the Deferred Compensation Plan (3)			2,437				2,437				—				—
Guaranteed Investment Certificates (4)			46				—				46				—
Total Assets		$	240,008			$	237,096			$	2,912			$	—
Liabilities:
Foreign Currency Forward Contracts (5)		$	326			$	—			$	326			$	—
Total Liabilities		$	326			$	—			$	326			$	—

Certain assets, under certain conditions, are measured at fair value on a non-recurring basis utilizing Level 3 inputs as described in Note 1, like those associated with acquired businesses, including goodwill and other intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if one or more of these assets was determined to be impaired. During the three and six months ended June 30, 2010, no impairment losses have occurred relative to any of these assets. During the three and six months ended June 30, 2009, due to the decline in value that is other than temporary, the Company recorded impairment losses of $1.6 million on its investment of goodwill and intangible assets related to the March 2005 acquisition of Kelly, Luttmer & Associates Limited (“KLA”) and $2.1 million on its investment in SHPS.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 4 — Goodwill and Intangible Assets

The following table presents the Company’s purchased intangible assets (in thousands) as of June 30, 2010 (including the ICT acquisition described in Note 2):

														Weighted
														Average
		Gross				Accumulated				Net				Amortization
		Intangibles				Amortization				Intangibles				Period (years)
Customer relationships		$	62,215			$	(5,881	)		$	56,334				8
Trade name			1,784				(766	)			1,018				4
Non-compete agreements			717				(390	)			327				1
Proprietary software			850				(214	)			636				2
Other			129				(129	)			—				3
		$	65,695			$	(7,380	)		$	58,315				8

The following table presents the Company’s purchased intangible assets (in thousands) as of December 31, 2009:

														Weighted
														Average
		Gross				Accumulated				Net				Amortization
		Intangibles				Amortization				Intangibles				Period (years)
Customer relationships		$	4,437			$	(2,588	)		$	1,849				6
Trade name			807				(565	)			242				5
Non-compete agreements			161				(161	)			—				2
Other			133				(133	)			—				3
		$	5,538			$	(3,447	)		$	2,091				6

Amortization expense, related to the purchased intangible assets resulting from acquisitions (other than goodwill), of $2.4 million and $4.1 million for the three and six months ended June 30, 2010, respectively, is included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations. In the comparable 2009 periods, the Company recognized amortization expense of $0.3 million and $0.6 million, respectively.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 4 — 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
2010 (remaining six months)		$	4,772
2011		$	8,654
2012		$	8,030
2013		$	7,303
2014		$	7,240
2015		$	7,238
2016 and thereafter		$	15,078

Changes in goodwill consist of the following (in thousands):

						Accumulated
		Gross				Impairment
		Amount				Losses				Net Amount
Americas:
Balance at January 1, 2010		$	21,838			$	(629	)		$	21,209
Acquisition of ICT (See Note 2)			90,036				—				90,036
Foreign currency translation			(197	)			—				(197	)
Balance at June 30, 2010			111,677				(629	)			111,048
EMEA:
Balance at January 1, 2010			—				—				—
Acquisition of ICT (See Note 2)			87				—				87
Foreign currency translation			(6	)			—				(6	)
Balance at June 30, 2010			81				—				81
		$	111,758			$	(629	)		$	111,129

Note 5 — Financial Derivatives

Cash Flow Hedges — The Company had derivative assets and liabilities relating to outstanding forward contracts and options, 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 $121.0 million and $39.4 million as of June 30, 2010 and December 31, 2009, respectively, and Canadian dollar contracts maturing within 6 months with a notional value of $5.1 million and $3.8 million as of June 30, 2010 and December 31, 2009, 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 ($0.8) million and $2.0 million of deferred (losses) gains, net of taxes of ($0.4) million and $0.8 million, on these derivative instruments as of June 30, 2010 and December 31, 2009, respectively, recorded in AOCI in the accompanying Condensed Consolidated Balance Sheets. The deferred gains expected to be reclassified to “Revenues” from AOCI during the next twelve months is $1.2 million. However, this amount and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 5 — Financial Derivatives — (continued)

Net Investment Hedge — During the three months ended June 30, 2010, the Company entered into a foreign exchange forward contract to hedge its net investment in a foreign operation, as defined under ASC 815. The aggregate notional value of this hedge was $49.2 million as of June 30, 2010. The Company recorded deferred gains of $0.9 million, net of taxes, for the three and six month periods ended June 30, 2010 as a currency translation adjustment, a component of AOCI, offsetting foreign exchange losses attributable to the translation of the net investment. The Company did not hedge net investments in foreign operations during the comparable 2009 period.

Other Hedges — The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to reduce the effects on the Company’s operating results and cash flows from fluctuations caused by volatility in currency exchange rates, primarily related to intercompany loan payments and cash held in non-functional currencies. As of June 30, 2010, these contracts include a forward contract to sell 12.5 million Canadian dollars at fixed prices of 8.1 million Euro to settle in August 2010, a forward contract to sell 9.8 million Euros at fixed prices of 12.5 million Canadian dollars to settle in August 2010, a forward contract to sell 9.5 million Euro at fixed prices of U.S. $11.7 million to settle in July 2010, forward contracts to sell 5.5 million Canadian dollars at fixed prices of U.S. $5.3 million to settle in July 2010, and forward contracts to sell 702.0 million PHP at fixed prices of U.S. $15.2 million to settle in July 2010. As of December 31, 2009, the Company had forward contracts to sell 12.5 million Canadian dollars at fixed prices of Euro 8.1 million, which will settle in August 2010.

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

As of June 30, 2010				As of December 31, 2009
Foreign Currency		Currency Denomination		Foreign Currency		Currency Denomination
U.S. Dollars 23,600		Philippine Pesos 1,172,023		U.S. Dollars 39,400		Philippine Pesos 1,970,189
U.S. Dollars 97,400		Philippine Pesos 4,505,090
U.S. Dollars 5,060		Canadian Dollars 5,350		U.S. Dollars 3,800		Canadian Dollars 4,050
Euros 39,000		U.S. Dollars 49,166
U.S. Dollars 11,676		Euros 9,500
Canadian Dollars 12,500		Euros 8,066		Canadian Dollars 12,500		Euros 8,066
Euros 9,810		Canadian Dollars 12,500
Canadian Dollars 5,500		U.S. Dollars 5,333
Philippine Pesos 702,030		U.S. Dollars 15,192

See Note 1 for additional information on the Company’s purpose for entering into these derivatives and its overall risk management strategies.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 5 — Financial Derivatives — (continued)

In July 2010 to hedge intercompany forecasted cash outflows, the Company entered into forward contracts to sell 5.5 million Canadian dollars at fixed prices of U.S. $5.3 million to settle in August 2010, to sell 9.5 million Euro at fixed prices of U.S. $12.1 million to settle in August 2010 and to sell 702.0 million PHP at fixed prices of U.S. $15.2 million to settle in August 2010.

As of June 30, 2010, 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 $4.7 million.

The following tables present the fair value of the Company’s derivative instruments as of June 30, 2010 and December 31, 2009 included in the accompanying Condensed Consolidated Balance Sheets (in thousands):

		Derivative Assets
		June 30, 2010						December 31, 2009
		Balance Sheet						Balance Sheet
		Location		Fair Value				Location		Fair Value
Derivatives designated as cash flow hedging instruments under ASC 815:
Foreign currency forward contracts		Other current assets		$	1,246			Other current assets		$	2,866
Foreign currency option contracts		Other current assets			1,568			—			—
Foreign currency forward contracts		Deferred charges and other assets			166			—			—
					2,980						2,866
Derivatives designated as a net investment hedge under ASC 815:
Foreign currency forward contracts		Other current assets			1,432			—			—
					4,412						2,866
Derivatives not designated as hedging instruments under ASC 815:
Foreign currency forward contracts		Other current assets			314			—			—
Total derivative assets				$	4,726					$	2,866

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2010 and 2009
(Unaudited)

Note 5 — Financial Derivatives — (continued)

		Derivative Liabilities
		June 30, 2010								December 31, 2009
		Location				Fair Value				Location				Fair Value
Derivatives designated as cash flow hedging instruments under ASC 815:
Foreign currency forward contracts		Other accrued expenses and current liabilities				$	35			Other accrued expenses and current liabilities				$	—
Derivatives not designated as hedging instruments under ASC 815:
Foreign currency forward contracts		Other accrued expenses and current liabilities				$	2,120			Other accrued expenses and current liabilities				$	326
Total derivative liabilities						$	2,155							$	326

The following tables present the effect of the Company’s derivative instruments for the three months ended June 30, 2010 and 2009 in the accompanying Condensed Consolidated Financial Statements (in thousands):

														Gain (Loss)
		Gain (Loss)								Statement				Reclassified From								Gain (Loss)
		Recognized in AOCI								of				Accumulated AOCI								Recognized in Income
		on Derivative								Operations				Into Income (Effective								on Derivative
		(Effective Portion)								Location				Portion)								(Ineffective Portion)
		June 30,												June 30,								June 30,
		2010				2009								2010				2009				2010				2009
Derivatives designated as cash flow hedging instruments under ASC 815:
Foreign currency forward contracts		$	(884	)		$	1,371			Revenues				$	1,107			$	(2,525	)		$	—			$	—
Foreign currency option contracts			(1,879	)			—			Revenues					(142	)			—				—				—
Total cash flow hedges			(2,763	)			1,371								965				(2,525	)			—				—
Derivatives designated as a net investment hedge under ASC 815 — Foreign currency forward contracts			1,432				—								—				—				—				—
		$	(1,331	)		$	1,371							$	965			$	(2,525	)		$	—			$	—