Sykes Enterprises, Incorporated and Subsidiaries Form 10-Q For the Quarter Ended September 30, 2009 obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Pending Merger
On October 5, 2009, Sykes, SH Merger Subsidiary I, Inc., a direct wholly-owned subsidiary of Sykes ("Merger Sub"), SH Merger Subsidiary II, LLC, a direct wholly-owned subsidiary of Sykes ("Merger Sub II"), and ICT entered into a merger agreement. Subject to the terms and conditions of the merger agreement, Merger Sub will be merged with and into ICT, with ICT continuing as the interim surviving corporation, which activity we refer to as the merger. Immediately following the effectiveness of the merger, the interim surviving corporation will be merged with and into Merger Sub II, with Merger Sub II surviving and continuing as a wholly owned subsidiary of Sykes, which activity we refer to as the upstream merger. The merger and the upstream merger, together, are referred to herein as the transaction. Under the merger agreement, each share of ICT common stock held by an ICT shareholders will be converted into the right to receive consideration valued at $15.38, subject to adjustment as described below. The consideration is payable (i) in cash, without interest, in the amount of $7.69 per share of ICT common stock, and (ii) the remainder payable in shares of our common stock equal to the exchange ratio described below divided by two
(2). Except as described below, the exchange ratio will be the quotient determined by dividing $15.38 by the volume weighted average of the per share prices of our common stock for the ten consecutive trading days ending on (and including) the third trading day immediately prior to the effective time of the merger (the "measurement value"). The exchange ratio is subject to a symmetrical collar of 7.5% above and 7.5% below $20.8979, which is the volume weighted average of the per share price of our common stock for the ten consecutive trading days ending on October 2, 2009, the last trading day immediately prior to the date of the merger agreement. Within this collar, the exchange ratio will be determined pursuant to the calculation described above. If, however, the measurement value is equal to or less than $19.3306, then the exchange ratio will be 0.7956 and 0.3978 shares of our common stock will be issued for each share of ICT common stock. If the measurement value is equal to or greater than $22.4652, then the exchange ratio will be 0.6846 and 0.3423 shares of our common stock will be issued for each share of ICT common stock. Each outstanding option to acquire ICT common stock granted under ICT's stock incentive plans, whether or not then vested and exercisable, will become fully vested and exercisable immediately prior to, and then will be canceled at, the effective time of the merger, and the holder of such option will be entitled to receive as soon as practicable after the effective time of the merger but in no event later than ten business days following the effective time of the merger an amount in cash, without interest and less any applicable tax to be withheld, equal to (i) the excess, if any, of $15.38 over the per share exercise price of such ICT stock option multiplied by (ii) the total number of shares of ICT common stock underlying such ICT stock option, with the aggregate amount of such payment rounded up to the nearest cent. If the per share exercise price of any ICT stock option is equal to or greater than $15.38, then the stock option will be canceled without any payment to the stock option holder. Also at the effective time of the merger, each outstanding restricted stock unit award ("RSU"), will become fully vested and then will be canceled and the holder of such vested awards will be entitled to receive $15.38 in cash, without interest and less any applicable tax to be withheld, in respect of each share of ICT common stock into which the RSU would otherwise be convertible. These cash amounts will be paid out as soon as practicable after the effective time of the merger but in no event later than ten business days following the effective time of the merger. We intend to finance the merger, the costs and expenses related to the merger and our ongoing working capital with two $75 million term loans. One $75 million term loan will be part of a $150 million senior credit facility, which also will include a $75 million revolving facility. Pursuant to a commitment letter dated October 2, 2009, our existing senior lender, KeyBank National Association ("Key"), has, subject to certain conditions, agreed to serve as lead arranger, sole book runner and administrative agent with respect to the $150 million facility and has committed to provide up to $90 million of the principal amount of the $150 million facility ($75 million of the term loan and $15 million of the revolving facility). Key intends to arrange a syndicate of lenders to provide the balance of the $150 million facility. The commitment letter will expire on January 31, 2010, if the merger has not been consummated.

Sykes Enterprises, Incorporated and Subsidiaries Form 10-Q For the Quarter Ended September 30, 2009 The $150 million facility will replace our existing senior revolving credit facility provided by Key, the balance of which was $0 as of September 30, 2009. Additionally, pursuant to a commitment letter dated October 2, 2009, Key has committed to provide an additional $75 million short-term loan to one of our wholly-owned subsidiaries, which loan is not contingent on the closing of the merger. The commitment letter for this loan will expire on December 31, 2009, and this loan is expected to close in December 2009, prior to the consummation of the merger.
The final terms of the $150 million facility and the $75 million short-term loan are subject to negotiation and to customary closing conditions. We may not be able to successfully close either loan, and Key may not be able to fully syndicate the $150 million facility, in which event we may need to seek alternative or additional financing or fund the merger using its and its subsidiaries' cash and cash equivalents, which may increase the expense of the merger. The merger is not contingent on the closing of either the $150 million facility or the $75 million short-term loan.
The merger is subject to ICT shareholder approval, governmental and regulatory approvals, and other usual and customary closing conditions. The merger is currently expected to be completed at the end of the fourth quarter of 2009 or the beginning of the first quarter of 2010, subject to receipt of ICT shareholder approval, governmental and regulatory approvals, and other usual and customary closing conditions.
Results of Operations
The following table sets forth, for the periods indicated, certain data derived from our Condensed Consolidated Statements of Operations and certain of such data expressed as a percentage of revenues (in thousands, except percentage amounts):

                                                        Three Months Ended                    Nine Months Ended
                                                          September 30,                         September 30,
                                                     2009               2008               2009               2008

Revenues                                          $ 213,494          $ 207,066          $ 625,574          $ 618,416
Percentage of revenues                                100.0 %            100.0 %            100.0 %            100.0 %

Direct salaries and related costs                 $ 134,429          $ 130,509          $ 398,409          $ 395,197
Percentage of revenues                                 63.0 %             63.0 %             63.7 %             63.9 %

General and administrative                        $  58,047          $  57,304          $ 170,011          $ 171,083
Percentage of revenues                                 27.2 %             27.7 %             27.2 %             27.7 %

Impairment loss on goodwill and intangibles       $     324          $       -          $   1,908          $       -
Percentage of revenues                                  0.2 %              0.0 %              0.3 %              0.0 %

Income from operations                            $  20,694          $  19,253          $  55,246          $  52,136
Percentage of revenues                                  9.7 %              9.3 %              8.8 %              8.4 %

                Sykes Enterprises, Incorporated and Subsidiaries
                                   Form 10-Q
                    For the Quarter Ended September 30, 2009
The following table summarizes our revenues, for the periods indicated, by
geographic region (in thousands):

                              Three Months Ended                                   Nine Months Ended
                                 September 30,                                       September 30,
                        2009                      2008                      2009                      2008
Americas       $ 152,940        71.6 %   $ 138,573        66.9 %   $ 444,682        71.1 %   $ 413,469        66.9 %
EMEA              60,554        28.4 %      68,493        33.1 %     180,892        28.9 %     204,947        33.1 %

Consolidated   $ 213,494       100.0 %   $ 207,066       100.0 %   $ 625,574       100.0 %   $ 618,416       100.0 %

The following table summarizes the amounts and percentage of revenue for direct salaries and related costs and general and administrative costs for the periods indicated, by geographic region (in thousands):

                                                 Three Months Ended                                            Nine Months Ended
                                                   September 30,                                                 September 30,
                                        2009                           2008                           2009                           2008
Direct salaries and
related costs:
Americas                      $  92,348          60.4 %      $  85,311          61.6 %      $ 271,112          61.0 %      $ 255,300          61.7 %
EMEA                             42,081          69.5 %         45,198          66.0 %        127,297          70.4 %        139,897          68.3 %

Consolidated                  $ 134,429          63.0 %      $ 130,509          63.0 %      $ 398,409          63.7 %      $ 395,197          63.9 %


General and
administrative:
Americas                      $  32,438          21.2 %      $  31,025          22.4 %      $  95,455          21.5 %      $  91,991          22.2 %
EMEA                             14,574          24.1 %         16,216          23.7 %         43,285          23.9 %         49,286          24.0 %
Corporate                        11,035             -           10,063             -           31,271             -           29,806             -

Consolidated                  $  58,047          27.2 %      $  57,304          27.7 %      $ 170,011          27.2 %      $ 171,083          27.7 %


Impairment loss on
goodwill and intangibles:
Americas                      $     324           0.2 %      $       -           0.0 %      $   1,908           0.4 %      $       -           0.0 %
EMEA                                  -           0.0 %              -           0.0 %              -           0.0 %              -           0.0 %

Consolidated                  $     324           0.2 %      $       -           0.0 %      $   1,908           0.3 %      $       -           0.0 %

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Revenues
For the three months ended September 30, 2009, we recognized consolidated revenues of $213.5 million, an increase of $6.4 million, or 3.1%, from $207.1 million of consolidated revenues for the comparable 2008 period. On a geographic segmentation basis, revenues from the Americas region, including the United States, Canada, Latin America, India and the Asia Pacific Rim, represented 71.6%, or $152.9 million, for the three months ended September 30, 2009, compared to 66.9%, or $138.6 million, for the comparable 2008 period. Revenues from the EMEA region, including Europe, the Middle East and Africa, represented 28.4%, or $60.6 million, for the three months ended September 30, 2009, compared to 33.1%, or $68.5 million, for the comparable 2008 period.

Sykes Enterprises, Incorporated and Subsidiaries Form 10-Q For the Quarter Ended September 30, 2009 The increase in the Americas' revenue of $14.3 million, or 10.4%, for the three months ended September 30, 2009, compared to the same period in 2008, reflects an $18.3 million increase in client demand, partially offset by a negative foreign currency impact of $4.0 million. Excluding this $4.0 million foreign currency impact, Americas' revenue increased 13.2% for the three months ended September 30, 2009, compared to the same period in 2008. The $18.3 million increase includes new and existing client relationships, primarily due to a combination of new programs with existing clients, expansion of existing programs and new client relationships. New client relationships represented 24.8% of the increase in the Americas' revenue over the comparable 2008 period. Revenues from our offshore operations represented 60.5% of Americas' revenues for the three months ended September 30, 2009, compared to 62.1% for the comparable 2008 period. The trend of generating more of our revenues in our offshore operations is likely to continue in 2009 although we are experiencing increasing demand for our domestic operations. While operating margins generated offshore are generally comparable to those in the United States, our ability to maintain these offshore operating margins longer term is difficult to predict due to potential increased competition for the available workforce, the trend of higher occupancy costs and costs of functional currency fluctuations in offshore markets. We weight these factors in our focus to re-price or replace marginally profitable target client programs. Americas' revenues for the three months ended September 30, 2009 and 2008 also included a $2.4 million and a $1.6 million net loss on foreign currency hedges, respectively. Excluding the effect of this $0.8 million foreign currency hedging fluctuation, the Americas' revenue increased $15.1 million compared with the same period last year.
The decrease in EMEA revenues of $7.9 million, or 11.6%, for the three months ended September 30, 2009, compared to the same period in 2008, reflects a $4.9 million negative foreign currency impact and a decrease of $3.0 million in client demand. This $3.0 million decrease in client demand includes a $3.8 million reduction in existing client programs offset by a $0.8 million increase in new client relationships. Excluding the $4.9 million foreign currency impact, EMEA's revenue decreased 4.5% for the three months ended September 30, 2009 compared to the same period in 2008. Direct Salaries and Related Costs
Direct salaries and related costs increased $3.9 million, or 3.0%, to $134.4 million for the three months ended September 30, 2009, from $130.5 million in the comparable 2008 period.
On a reporting segment basis, direct salaries and related costs from the Americas segment increased $7.0 million, or 8.2%, to $92.3 million for the three months ended September 30, 2009 from $85.3 million for the comparable 2008 period. Direct salaries and related costs from the EMEA segment decreased $3.1 million, or 6.9%, to $42.1 million for the three months ended September 30, 2009 from $45.2 million for the comparable 2008 period. While changes in foreign currency exchange rates negatively impacted revenues in the Americas and EMEA, they positively impacted direct salaries and related costs in 2009 compared to the same period in 2008 by $5.1 million and $3.2 million, respectively. In the America's segment, as a percentage of revenues, direct salaries and related costs decreased to 60.4% for the three months ended September 30, 2009 from 61.6% in the comparable 2008 period. This decrease of 1.2%, as a percentage of revenues, was primarily attributable to lower auto tow claim costs of 0.5%, lower compensation costs of 0.3%, lower recruiting costs of 0.2%, and lower other costs of 0.2%.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs increased to 69.5% for the three months ended September 30, 2009 from 66% in the comparable 2008 period. This increase of 3.5%, as a percentage of revenues, was primarily attributable to higher compensation costs of 3.4%, higher fulfillment material costs of 0.2%, higher billable supply costs of 0.2%, higher seminar costs of 0.1% and higher other costs of 0.4%, partially offset by lower recruiting costs of 0.6% and lower travel costs of 0.2%. General and Administrative
General and administrative expenses increased $0.8 million, or 1.3%, to $58.1 million for the three months ended September 30, 2009, from $57.3 million in the comparable 2008 period.

Sykes Enterprises, Incorporated and Subsidiaries Form 10-Q For the Quarter Ended September 30, 2009 On a reporting segment basis, general and administrative expenses from the Americas segment increased $1.5 million, or 4.6%, to $32.5 million for the three months ended September 30, 2009 from $31.0 million for the comparable 2008 period. General and administrative expenses from the EMEA segment decreased $1.6 million, or 10.1%, to $14.6 million for the three months ended September 30, 2009 from $16.2 million for the comparable 2008 period. While changes in foreign currency exchange rates negatively impacted revenues in the Americas and EMEA, they positively impacted general and administrative expenses in 2009 compared to the same period in 2008 by approximately $1.5 million and $1.3 million, respectively. Corporate general and administrative expenses increased $0.9 million, or 9.7%, to $11.0 million for the three months ended September 30, 2009 from $10.1 million in the comparable 2008 period. This increase of $0.9 million was primarily attributable to higher legal and professional fees of $1.1 million (primarily related to the pending ICT merger) and higher compensation costs of $0.7 million, partially offset by lower travel costs of $0.4 million, lower charitable contributions of $0.2 million, lower seminar costs of $0.2 million and lower other costs of $0.1 million. In the America's segment, as a percentage of revenues, general and administrative expenses decreased to 21.2% for the three months ended September 30, 2009 from 22.4% in the comparable 2008 period. This decrease of 1.2%, as a percentage of revenues, was primarily attributable to lower depreciation and amortization costs of 0.4%, lower recruiting costs of 0.2% and lower other costs of 0.9%, partially offset by higher bad debt expense of 0.2% and higher legal and professional fees of 0.1%.
In the EMEA segment, as a percentage of revenues, general and administrative expenses increased to 24.1% for the three months ended September 30, 2009 from 23.7% in the comparable 2008 period. This increase of 0.4%, as a percentage of revenues, was primarily attributable to higher compensation costs of 0.7%, higher communication costs of 0.3%, higher legal and professional fees of 0.2%, higher depreciation and amortization costs of 0.2% and higher net asset disposal costs of 0.1%, partially offset by lower travel costs of 0.5%, lower bad debt expense of 0.2%, lower recruiting costs of 0.3% and lower other costs of 0.1%. Impairment Loss on Intangibles
We make certain estimates and assumptions, including, among other things, an assessment of market conditions and projections of cash flows, investment rates and cost of capital and growth rates when estimating the value of our intangibles. Based on actual and forecasted operating results, deterioration of the related customer base and loss of key employees, the Americas' segment recorded an impairment loss of $0.3 million on the intangibles during the three months ended September 30, 2009 (none in the comparable 2008 period) related to the March 2005 acquisition of Kelly, Luttmer & Associates Limited ("KLA"). Interest Income
Interest income was $0.5 million for the three months ended September 30, 2009, compared to $1.3 million for the comparable 2008 period reflecting lower average rates earned on higher average balances of interest bearing investments in cash and cash equivalents.
Interest Expense
Interest expense was $0.1 million for the three months ended September 30, 2009 (not material in the comparable 2008 period). Other Income (Expense)
Other income, net, was $0.2 million for the three months ended September 30, 2009 compared to other income, net, of $2.7 million for the comparable 2008 period. The net decrease of $2.5 million was primarily attributable to a decrease of $2.3 million in unrealized and realized foreign currency transaction gains, net of losses. Other income (expense) excludes the cumulative translation effects and unrealized gains (losses) on financial derivatives that are included in Accumulated Other Comprehensive Income in shareholders' equity in the accompanying Condensed Consolidated Balance Sheets.

Sykes Enterprises, Incorporated and Subsidiaries Form 10-Q For the Quarter Ended September 30, 2009 Provision for Income Taxes
The provision for income taxes of $2.4 million for the three months ended September 30, 2009, was based upon pre-tax book income of $21.2 million, compared to a provision of $3.7 million for the three months ended September 30, 2008 based upon pre-tax book income of $23.2 million. The effective tax rate for the three months ended September 30, 2009 was 11.3% compared to an effective tax rate of 16.0% for the comparable 2008 period. The decrease in the effective tax . . .