1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period
from ___________________ to _________________
Commission File No. __________________________0-28274___________________________
SYKES ENTERPRISES, INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Florida 56-1383460
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 North Tampa Street, Suite 3900, Tampa, FL 33602
Registrant's telephone number, including area code: (813) 274-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $0.01 Par Value, 42,307,237 shares as of August 10, 1999
Page 1 of 18
The Exhibit Index appears on Page 17
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PART I
ITEM 1 - FINANCIAL STATEMENTS
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1998 1999
------------- -------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents ................................... $ 36,348,863 $ 32,283,256
Restricted cash ............................................. 11,090,890 9,389,887
Receivables ................................................. 113,840,262 111,366,507
Prepaid expenses and other current assets ................... 15,861,742 18,451,662
------------- -------------
Total current assets ...................................... 177,141,757 171,491,312
Property and equipment, net ................................... 99,176,512 117,355,063
Marketable securities ......................................... 199,875 497,474
Intangible assets, net ........................................ 75,132,011 71,245,128
Deferred charges and other assets ............................. 13,484,146 14,939,097
------------- -------------
$ 365,134,301 $ 375,528,074
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt ...................... $ 3,983,239 $ 945,612
Accounts payable ............................................ 30,086,549 24,165,195
Income taxes payable ........................................ 10,549,623 12,443,142
Accrued employee compensation and benefits .................. 19,144,242 22,110,528
Customer deposits ........................................... 10,978,868 7,000,814
Other accrued expenses and current liabilities .............. 17,194,752 16,306,371
------------- -------------
Total current liabilities ................................. 91,937,273 82,971,662
Long-term debt ................................................ 75,448,202 75,288,157
Deferred grants ............................................... 15,434,676 19,557,582
Deferred revenue .............................................. 14,707,773 19,165,485
Other long-term liabilities ................................... 2,668,895 1,863,491
------------- -------------
Total liabilities ......................................... 200,196,819 198,846,377
Commitments and contingencies
Shareholders' equity
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding .............. -- --
Common stock, $0.01 par value, 200,000,000 shares
authorized; 41,451,905 and 42,281,197 issued and
outstanding ............................................... 414,519 422,812
Additional paid-in capital .................................. 136,199,748 139,086,388
Retained earnings ........................................... 29,730,975 43,719,537
Accumulated other comprehensive income ...................... (1,407,760) (6,547,040)
------------- -------------
Total shareholders' equity ................................ 164,937,482 176,681,697
------------- -------------
$ 365,134,301 $ 375,528,074
============= =============
See accompanying notes to consolidated financial statements.
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SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1999
(Unaudited)
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
Revenues ......................... $ 208,754,967 $ 270,485,530 $ 110,667,010 $ 134,107,625
------------- ------------- ------------- -------------
Operating expenses
Direct salaries and
related costs ................ 129,928,228 172,184,824 68,767,861 88,937,915
General and
administrative ............... 55,108,246 74,043,367 28,789,269 37,766,576
------------- ------------- ------------- -------------
Total operating expenses ..... 185,036,474 246,228,191 97,557,130 126,704,491
------------- ------------- ------------- -------------
Income from operations ........... 23,718,493 24,257,339 13,109,880 7,403,134
Other income (expense)
Interest, net .................. 219,012 (1,535,254) 184,339 (876,410)
Net income (loss) from
joint venture ................ (3,845,149) -- 20,000 --
Other .......................... (24,585) 97,080 (16,124) 13,128
------------- ------------- ------------- -------------
Total other expense .......... (3,650,722) (1,438,174) 188,215 (863,282)
------------- ------------- ------------- -------------
Income before income taxes ....... 20,067,771 22,819,165 13,298,095 6,539,852
Provision for income taxes ....... 8,864,116 8,830,603 4,997,106 2,530,509
------------- ------------- ------------- -------------
Net income ....................... $ 11,203,655 $ 13,988,562 $ 8,300,989 $ 4,009,343
============= ============= ============= =============
Net income per share
Basic .......................... $ 0.27 $ 0.33 $ 0.20 $ 0.10
============= ============= ============= =============
Diluted ........................ $ 0.27 $ 0.33 $ 0.20 $ 0.09
============= ============= ============= =============
Shares outstanding
Basic .......................... 41,156,997 41,770,792 41,193,572 42,082,738
Diluted ........................ 42,219,645 42,960,598 42,220,479 43,096,854
See accompanying notes to consolidated financial statements.
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SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Common Common Additional Other
Stock Stock Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
-------------------------------------------------------------------------------------------
Balance at January 1, 1998 41,119,626 $411,196 $133,592,337 $22,151,352 $(3,594,665) $152,560,220
Issuance of common stock 216,586 2,166 804,599 - - 806,765
Tax effect of non-qualified
exercise of stock options - - 1,150,500 - - 1,150,500
Distributions - - - (351,268) - (351,268)
Net income - - - 11,203,655 - 11,203,655
Unrealized loss on securities - - - - (2,340,847) (2,340,847)
Foreign currency translation
adjustment - - - - (1,575,155) (1,575,155)
------------
Comprehensive income 7,287,653
------------
-------------------------------------------------------------------------------------------
Balance at June 30, 1998 (unaudited) 41,336,212 413,362 135,547,436 33,003,739 (7,510,667) 161,453,870
Issuance of common stock 115,693 1,157 268,812 - - 269,969
Tax-effect of non-qualified
exercise of stock options - - 383,500 - - 383,500
Distributions - - - (347,108) - (347,108)
Net loss - - - (2,925,656) - (2,925,656)
Recognition of write-down on
marketable securities - - - - 3,075,365 3,075,365
Foreign currency translation
adjustment - - - - 3,027,542 3,027,542
------------
Comprehensive income 3,177,251
------------
-------------------------------------------------------------------------------------------
Balance at December 31, 1998 41,451,905 414,519 136,199,748 29,730,975 (1,407,760) 164,937,482
Issuance of common stock 829,292 8,293 2,886,640 - - 2,894,933
Net income - - - 13,988,562 - 13,988,562
Foreign currency translation
adjustment - - - - (5,139,280) (5,139,280)
------------
Comprehensive income 8,849,282
------------
-------------------------------------------------------------------------------------------
Balance at June 30, 1999 (unaudited) 42,281,197 $422,812 $139,086,388 $43,719,537 $(6,547,040) $176,681,697
===========================================================================================
See accompanying notes to consolidated financial statements.
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SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(Unaudited)
1998 1999
------------ ------------
Cash flows from operating activities
Net income .................................................... $ 11,203,655 $ 13,988,562
Depreciation and amortization ................................. 7,478,212 16,388,254
Acquired in-process research and development cost ............. 3,845,149 --
Deferred income taxes ......................................... (284,956) (1,589,808)
Gain on disposal of property and equipment .................... (86,738) --
Changes in assets and liabilities
Receivables ................................................... (15,814,085) 2,192,779
Prepaid expenses and other current assets ..................... (1,600,204) (2,730,341)
Deferred charges and other assets ............................. (2,419,675) 748,544
Accounts payable .............................................. 3,235,683 (5,920,941)
Income taxes payable .......................................... 4,263,284 1,893,106
Accrued employee compensation and benefits .................... 6,339,718 2,966,286
Customer deposits, net of restricted cash ..................... -- (2,277,051)
Other accrued expenses and current liabilities ................ 1,252,518 (886,283)
Deferred revenue .............................................. -- 4,457,712
Other long-term liabilities ................................... -- (805,407)
------------ ------------
Net cash provided by operating activities ................... 17,412,561 28,425,412
------------ ------------
Cash flows from investing activities
Capital expenditures .......................................... (12,464,312) (30,949,736)
Investment in joint venture ................................... (10,387,208) --
Proceeds from sale (purchase of) of marketable
securities .................................................. 1,000,000 (297,599)
Proceeds from sale of property and equipment .................. 37,406 --
------------ ------------
Net cash used for investing activities ...................... (21,814,114) (31,247,335)
------------ ------------
Cash flows from financing activities
Paydowns under revolving line of credit agreements ............ (654,016) (40,000,000)
Borrowings under revolving line of credit agreements .......... 713,638 40,000,000
Proceeds from issuance of stock ............................... 1,957,265 2,894,933
Proceeds from grants .......................................... 89,585 4,198,335
Payment of long-term debt ..................................... (35,852,141) (3,197,672)
Distributions ................................................. (698,374) --
------------ ------------
Net cash provided by (used for) financing activities ........ (34,444,043) 3,895,596
------------ ------------
Adjustments for foreign currency translation .................... (1,575,155) (5,139,280)
Net decrease in cash and cash equivalents ....................... (40,420,751) (4,065,607)
Cash and cash equivalents - beginning ........................... 75,308,505 36,348,863
------------ ------------
Cash and cash equivalents - ending .............................. $ 34,887,754 $ 32,283,256
============ ============
See accompanying notes to consolidated financial statements.
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SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
(Unaudited)
Sykes Enterprises, Incorporated and consolidated subsidiaries (the "Company")
provides integrated information technology outsourcing services including
information technology support services, information technology development
services and solutions, on-line clinical managed care services, medical protocol
products, employee benefit administration and support services, and customer
product services. The Company's services are provided to a wide variety of
industries.
This Form 10-Q/A is being filed to restate the Company's consolidated financial
statements as of June 30, 1999, and for the periods then ended. The restatement
of the Company's financial position and results of operations is the result of
the timing of revenue recognition related to the licensing of software under an
arrangement to periods subsequent to 1999 that was identified after the original
filing of the Form 10-Q on August 13, 1999.
Sykes' recognizes revenue from software and contractually provided
rights in accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"), as amended by Statement of Position 98-4, "Deferral of the Executive
Date of a Provision of SOP 97-2" ("SOP 98-4"), Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"), as well as Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 is to be
applied no later than the first quarter after December 15, 1999. Revenue is
recognized from licenses of the Company's software products and rights when the
agreement has been executed, the product or right has been delivered or
provided, collectibility is probable and the software license fees or rights are
fixed and determinable. Contracts that provide for multiple elements are
accounted for pursuant to the above standards. If any portion of the license
fees or rights is subject to forfeiture, refund or other contractual
contingencies, the Company will postpone revenue recognition until these
contingencies have been removed. Sykes' generally accounts for consulting
services separate from software license fees for those multi-element
arrangements where consulting services are a separate element and are not
essential to the customer's functionality requirements and there is
vendor-specific objective evidence of fair value for these services. Consulting
revenue is recognized as the services are performed. Revenue from support and
maintenance activities is recognized ratably over the term of the maintenance
period and the unrecognized portion is recorded as deferred revenue.
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1999
------------ ------------
Originally reported:
Revenues................................................ $282,485,530 $146,107,625
Net income.............................................. $ 21,476,810 $ 11,497,591
Basic net income per share.............................. $ 0.51 $ 0.27
Diluted net income per share............................ $ 0.50 $ 0.27
As revised:
Revenues................................................ $270,485,530 $134,107,625
Net income.............................................. $ 13,988,562 $ 4,009,343
Basic net income per share.............................. $ 0.33 $ 0.10
Diluted net income per share............................ $ 0.33 $ 0.09
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial 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
six and three-month periods ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999. For
further information, refer to the consolidated financial statements and notes
thereto as of and for the year ended December 31, 1998 included in the Company's
Form 10-K dated December 31, 1998 as filed with the United States Securities and
Exchange Commission ("SEC") on March 29, 1999.
NOTE 1 - ACQUISITIONS AND MERGERS
Effective September 1, 1998 the Company acquired the remaining 50% of
outstanding common stock of SHPS, Incorporated ("SHPS") (formally known as Sykes
HealthPlan Services, Inc.) for approximately $28.1 million plus the assumption
of SHPS' debt. This purchase price was primarily financed through borrowings
under the Company's credit facility.
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SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Unaudited)
NOTE 1 - ACQUISITIONS AND MERGERS, continued
This acquisition was accounted for utilizing the purchase method of accounting
and accordingly, SHPS' results of operations for the six and three months ended
June 30, 1999 have been included in the accompanying financial statements. The
purchase price has been allocated to the assets and liabilities of SHPS based
upon fair values at the date of acquisition. The allocations were based on
appraisals, evaluations, estimations and other studies.
The Company adjusted the amounts originally allocated to net loss from joint
venture to reflect the methodology set forth in the September 15, 1998 letter
from the SEC Staff to the American Institute of Certified Public Accountants
("AICPA"). The letter sets forth the SEC's views regarding the valuation
methodology to be used in allocating a portion of the purchase price to acquired
in-process research and development at the date of acquisition. As a result of
the revised valuation, the Company's financial statements for the six months
ended June 30, 1998 have been restated to reduce the amount of acquired
in-process research and development charges incurred by SHPS and the resulting
impact on the Company's proportionate share of the adjustment.
On November 27, 1998, the Company acquired all of the stock of TAS GmbH Nord
Telemarketing und Vertriebsberatung ("TAS III") of Hannover, Germany, in
exchange for 587,000 shares of the Company's common stock. The Company accounted
for the acquisition utilizing the pooling-of-interests method of accounting. TAS
III provides technical call center support and customer care services, database
development and consulting services to customers in Germany.
On December 29, 1998, the Company acquired all of the stock of Oracle Service
Networks Corporation ("Oracle") in exchange for 1,475,000 shares of the
Company's common stock. The Company accounted for the acquisition utilizing the
pooling-of-interests method of accounting. Oracle provides call center support
and customer care services to various customers in North America, as well as
demand management services for the Canadian provincial health care system.
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SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Unaudited)
NOTE 1 - ACQUISITIONS AND MERGERS, continued
The above transactions, excluding SHPS, have been accounted for as
pooling-of-interests and, accordingly, the consolidated financial statements for
the periods presented have been restated to include the accounts of TAS III and
Oracle. Separate results of operations for the period prior to the mergers with
TAS III and Oracle are outlined below.
Six months ended Three months ended
June 30, June 30,
1998 1998
---------------- ------------------
Revenues:
Sykes.................................................... $189,961,220 $100,811,896
TAS III.................................................. 3,564,788 1,800,474
Oracle................................................... 15,228,959 8,054,640
------------ ------------
Combined ................................................. $208,754,967 $110,667,010
============ ============
Net income:
Sykes (1)................................................ $ 10,590,938 $ 7,912,595
TAS III.................................................. 141,329 70,624
Oracle................................................... 471,388 317,770
------------ ------------
Combined ................................................. $ 11,203,655 $ 8,300,989
============ ============
Other changes in shareholders' equity:
Sykes.................................................... $ (3,517,071) $ 31,572
TAS III ................................................. - -
Oracle................................................... (351,268) (351,268)
------------ ------------
Combined.................................................. $ (3,868,339) $ (319,696)
============ ============
(1) The Company has restated its financial statements for the three-month period
ended March 31, 1998 to reflect the methodology as set forth in the
September 15, 1998 letter from the SEC Staff to the AICPA regarding acquired
in-process research and development charges.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management believes
that it has adequate legal defenses and/or provided adequate accruals for
related costs such that the ultimate outcome will not have a material adverse
effect on the Company's future financial position.
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SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Unaudited)
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Effective January 1, 1998 the Company adopted Statement of Financial Accounting
Standard No. 130 "Reporting Comprehensive Income" which requires all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in the financial statements. The components of
other comprehensive income are as follows:
Accumulated
Foreign Other
Currency Comprehensive
Translation Income
----------- -------------
Balance at December 31, 1998 ..................... $(1,407,760) $(1,407,760)
Foreign currency translation adjustment .......... (5,139,280) (5,139,280)
----------- -----------
Balance at June 30, 1999 (unaudited) ............. $(6,547,040) $(6,547,040)
=========== ===========
Earnings associated with the Company's investment in its foreign subsidiaries
are considered to be permanently invested and no provision for United States
federal and state income taxes on those earnings or translation adjustments has
been provided.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding during the periods. Diluted earnings per share includes the
weighted average number of common shares outstanding during the respective
periods and the further dilution, if not anti-dilutive, from stock options using
the treasury stock method.
The numbers of shares used in the earnings per share computation are as follows:
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------- ---------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
Basic:
Weighted average common outstanding .... 41,156,997 41,770,792 41,193,572 42,082,738
---------- ---------- ---------- ----------
Total basic. shares outstanding
41,156,997 41,770,792 41,193,572 42,082,738
Diluted:
Dilution of stock options .............. 1,062,648 1,189,806 1,026,907 1,014,116
---------- ---------- ---------- ----------
Total diluted. shares outstanding .... 42,219,645 42,960,598 42,220,479 43,096,854
========== ========== ========== ==========
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Sykes Enterprises,
Incorporated (the "Company") December 31, 1998 Consolidated Financial
Statements, including the notes thereto. The following discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Future
events and the Company's actual results could differ materially from the results
reflected in these forward-looking statements as a result of certain of the
factors set forth below and elsewhere in this analysis.
FINANCIAL CONDITION
The Company's primary sources of liquidity are equity offerings, cash flows from
operations and available borrowings under its credit facility. The Company has
utilized these sources to make additional capital expenditures associated
primarily with its technical support services, to repay debt associated with
entities it has acquired subsequent to the public offerings, and for working
capital and general corporate purposes. In addition, the Company intends future
uses of its sources of liquidity to include the aforementioned and possible
additional acquisitions. The Company invests any excess funds in short-term,
investment-grade securities or money market instruments.
During the six-month period ended June 30, 1999, the Company generated
approximately $28.4 million in cash from operations. The Company utilized these
funds and certain of its available cash and credit facility to fund $3.2 million
of debt repayment, net of additional borrowings, and $30.9 million of capital
expenditures. The debt repayments were associated with assumed debt levels
resulting from an acquisition the Company completed during 1998. The capital
expenditures were predominately the result of the Company's continued expansion,
both domestically and internationally, in providing technical product support
services. The Company has recently announced the construction of additional call
centers in Pikesville and Hazard, Kentucky and has ongoing construction in
Scottsbluff, Nebraska, and Ed, Sweden, and anticipates that these new facilities
will become operational during 1999.
The Company believes that its accessible funds under its credit facilities and
cash flows from operations will be adequate to meet its continued expansion
objectives, anticipated levels of capital expenditures and debt repayment
requirements, including those that may be required pursuant to the integration
of its acquisitions, for the foreseeable future.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
For the six months ended June 30, 1999, the Company recorded consolidated
revenues of $270.5 million, an increase of $61.7 million or 29.6%, from the
$208.8 million of consolidated revenues for the comparable period during 1998.
This growth in revenue was the result of a $84.5 million or 73.7% increase in
technical support services, an increase of $1.5 million from customer product
services, offset by a decrease of $24.3 million from information technology
services and solutions.
The increase in information technology support services revenues was primarily
attributable to an increase in the number of IT call centers providing services
throughout the period and the resultant increase in call volumes from clients,
and the inclusion of SHPS' revenue generated for the first half of 1999.
Subsequent to the first six months of 1998, the Company opened four domestic and
one international IT call centers, and expanded its call center in Sveg, Sweden.
The increase in customer product services revenue for the six months ended June
30, 1999 was primarily attributable to the Company's e-commerce initiatives. The
decrease in information technology services and
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, continued
solutions revenues was attributable to a decrease in license fees and royalties
associated with the Company's technology applications, and to a decline in
language translation and localization services, when compared to the comparable
period in 1998.
Direct salaries and related costs increased approximately $42.3 million or 32.5%
to $172.2 million for the six-month period in 1999 from the comparable period in
1998. As a percentage of revenues, direct salaries and related costs increased
to approximately 63.7% in 1999 from approximately 62.2% for the comparable
period in 1998. The increase in both the dollar amount and percentage of direct
salaries and related costs as a percentage of revenue was primarily attributable
to the addition of personnel to support revenue growth and associated employee
benefit and training costs.
General and administrative expenses increased approximately $18.9 million or
34.4% to $74.0 million for the six-month period in 1999 from the comparable
period in 1998. As a percentage of revenues, general and administrative expenses
increased to 27.4% in 1999 from 26.4% for the comparable period in 1998. The
increase in the amount of general and administrative expenses was primarily
attributable to an increase in depreciation expenses associated with facility
and capital equipment expenditures incurred in connection with the integration
and expansion of the Company' technical support and e-commerce services, an
increase in amortization expense associated with the goodwill incurred as part
of the SHPS acquisition and the addition of sales and administrative personnel
to support the Company's growth.
Interest and other expense was $1.4 million during the first six months of 1999,
compared to $3.7 million during the comparable 1998 period, inclusive of a $3.8
million net loss from joint venture. The net loss from the joint venture was
attributable to acquisition-related in-process research and development costs
associated with acquisitions completed by the joint venture, which was recorded
as other expense. The increase in interest and other expense for the six-month
period exclusive of the net loss from joint venture was primarily attributable
to an increase in the Company's debt position as a result of the acquisition of
SHPS completed during 1998.
The provision for income taxes decreased slightly to $8.8 million for the
six-month period in 1999 from the comparable period in 1998. As a percentage of
revenues, the provision for income taxes decreased to 3.3% during the 1999
period when contrasted to approximately 4.2% for the comparable 1998 period. The
Company's effective tax rate was 38.7% for 1999 compared to 37.1% for the
comparable 1998 period, excluding the effect of one-time charges, primarily as a
result of non-deductible expenses which consisted primarily of goodwill
amortization.
THREE MONTHS ENDED JUNE 30, 1999, COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
For the three months ended June 30, 1999, the Company recorded consolidated
revenues of $134.1 million, an increase of $23.4 million or 21.2%, from the
$110.7 million of consolidated revenues for the comparable period during 1998.
This growth in revenue was the result of a $38.7 million or 63.8% increase in
technical support services, and an increase of $3.3 million from customer
product services, offset by a decrease of $18.6 million from information
technology services and solutions.
The increase in information technology support services revenues was primarily
attributable to an increase in the number of IT call centers providing services
throughout the period and the resultant increase in call volumes from clients,
and the inclusion of SHPS' revenue generated for the second quarter of 1999.
Subsequent to the
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, continued
second quarter of 1998, the Company opened four domestic and one international
IT call centers, and expanded its call center in Sveg, Sweden. The increase in
customer product services revenue for the three months ended June 30, 1999 was
primarily attributable to the Company's e-commerce initiatives. The decrease in
information technology services and solutions revenues was attributable to a
decrease in license fees and royalties associated with the Company's technology
applications, and to a decline in language translation and localization
services, when compared to the comparable period in 1998.
Direct salaries and related costs increased approximately $20.2 million or 29.3%
to $88.9 million for the three-month period in 1999 from the comparable period
in 1998. As a percentage of revenues, however, direct salaries and related costs
increased to approximately 66.3% in 1999 from approximately 62.1% for the
comparable period in 1998. The increase in both the dollar amount and percentage
of direct salaries and related costs as a percentage of revenue was primarily
attributable to the addition of personnel to support revenue growth and
associated employee benefit and training costs.
General and administrative expenses increased approximately $9.0 million or
31.2% to $37.8 million for the three-month period in 1999 from the comparable
period in 1998. As a percentage of revenues, however, general and administrative
expenses increased to 28.2% in 1999 from 26.0% for the comparable period in
1998. The increase in the amount of general and administrative expenses was
primarily attributable to an increase in depreciation expenses associated with
facility and capital equipment expenditures incurred in connection with the
integration and expansion of the Company' technical support and e-commerce
services, an increase in amortization expense associated with the goodwill
incurred as part of the SHPS acquisition and the addition of sales and
administrative personnel to support the Company's growth.
Interest and other expense was $0.9 million during the three-month period of
1999, compared to interest and other income of $0.2 million during the
comparable 1998 period. The increase in interest and other expense for the
three-month period was primarily attributable to an increase in the Company's
debt position as a result of the acquisition of SHPS completed during 1998.
The provision for income taxes decreased $2.5 million to $2.5 million for the
three-month period in 1999 from the comparable period in 1998. As a percentage
of revenues, the provision for income taxes decreased to 1.9% during the 1999
period when contrasted to approximately 4.5% for the comparable 1998 period. The
decrease in the provision for income taxes was attributable to a decrease in
reported income before income taxes and to a decrease in income before income
taxes as a percentage of revenues. The Company's effective tax rate was 38.7%
for 1999 compared to 37.6% for the comparable 1998 period, primarily as a result
of non-deductible expenses which consisted primarily of goodwill amortization.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
The Company's earnings and cash flows are subject to fluctuations due to changes
in foreign currency exchange rates. Movements in foreign currency exchange rates
may affect the Company's competitive position, as exchange rate changes may
affect business practices and/or pricing strategies of non-United States based
competitors. Under its current policy, the Company does not use foreign exchange
derivative instruments to manage its exposure to changes in foreign currency
exchange rates.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, continued
YEAR 2000
Introduction
The Year 2000 issue is the result of computer software programs being written
using two digits rather than four to define the applicable year. Therefore,
these computer programs do not properly recognize a year that begins with "20"
instead of the familiar "19". To the extent the Company's software applications
contain source codes that are unable to appropriately interpret the calendar
year 2000, some level of modification or even possibly replacement of such
applications may be necessary.
Description of Areas of Impact and Risk
During late 1997, the Company initiated the process of reviewing its existing
software programs to determine the potential exposure and amount of resources
that may be needed to become Year 2000 compliant. Based on this review, the
Company has experienced very few problems related to Year 2000 testing and those
identified have been resolved in the Company's day-to-day operations.
The Company initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. In the event any third parties cannot timely provide
the Company with contents, products, services or systems that meet Year 2000
requirements, the Company's services could be materially adversely affected. The
Company continues to solicit, receive and renew responses to surveys sent to
those third parties determined to be material to the operations of the Company
to determine their Year 2000 readiness. For those critical third parties that
fail to respond to the Company's survey, the Company is pursuing alternative
means of obtaining Y2K readiness information and is conducting reviews of
publicly available information published by such third parties.
The Company has and will continue to utilize both internal and external
resources to reprogram, or replace, and test its internal use software for Year
2000 modifications. The Company anticipates completing its Year 2000 testing and
modifications no later than August 1999, which is prior to any anticipated
impact on its operating systems.
Cost of Project
The total cost of the Year 2000 project is estimated at approximately $1.2
million and is being funded through operating cash flows. To date, the Company
has incurred approximately $0.8 million related to this project. Such cost is
not expected to have a material effect on the Company's results of operations.
The remaining costs to become Year 2000 compliant and the date on which the
Company believes it will complete all Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurance that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, availability of corrective software provided
by external suppliers, the ability to locate and correct all relevant computer
codes and similar uncertainties.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, continued
Contingency Planning and Risks
In a recent Securities and Exchange Commission release regarding Year 2000
disclosure, the Securities and Exchange Commission stated that public companies
must disclose the most reasonable likely worst case Year 2000 scenario. Although
it is not possible to assess the likelihood of any of the following events, each
must be included in a consideration of worst case scenarios: widespread failure
of electrical and similar supplies serving the Company; widespread disruption of
the services provided by common communications' carriers; similar disruption to
the means and modes of transportation for the Company and its employees,
suppliers, and customers; significant disruption to the Company's ability to
gain access to, and remain working in, office buildings and other facilities;
the failure of substantial numbers of the Company's customers' and its
suppliers' critical computer hardware and software systems, and the failure of
outside entities' systems, including systems related to banking and finance.
Although the Company expects its systems to be Year 2000 compliant on or before
December 31, 1999, it cannot predict the outcome or the success of its efforts
to become Year 2000 compliant, or that third party systems are or will be Year
2000 compliant, or that the costs required to address the Year 2000 issue, or
that the impact of a failure to achieve substantial Year 2000 compliance, will
not have a material adverse effect on the Company's business, financial
condition or results of operations. The Company is in the process of developing
contingency plans to ensure continued operation of its systems.
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PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Annual Meeting of Shareholders was held on April 29, 1999.
b. The following members of the Board of Directors were elected to serve
until the 2002 Annual Meeting and until their successors are elected
and qualified:
For Against Abstained
---------- ------- ---------
Gordon H. Loetz 38,635,039 - 77,793
Ernest J. Milani 38,633,959 - 78,873
Iain A. Macdonald 38,635,039 - 77,793
The following members of the Board of Directors whose term of
office as a director continued after the meeting:
H. Parks Helms John H. Sykes
Adelaide A. Sink Furman P. Bodenheimer, Jr.
Linda McClinktock-Greco, M.D. R. James Stroker
c. The proposal to approve the adoption of the Sykes Enterprises,
Incorporated's 1999 Employees' Stock Purchase Plan was approved
as follows:
For Against Abstained
---------- ------- ---------
38,187,287 496,601 28,944
d. Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following document is filed as an exhibit to this Report:
Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
Date: March 23, 2000 By: /s/ Scott J. Bendert
- ------------------------ --------------------------------------------
Scott J. Bendert
Group Executive and Senior Vice President-
Operations Performance and Administration
(Principal Financial and Accounting Officer)
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SYKES ENTERPRISES, INCORPORATED
FORM 10-Q/A
(For the six months ended June 30, 1999)
EXHIBIT INDEX
Exhibit Page
Number Number
- ------- ------
27.1 Financial Data Schedule 18
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