On October 5, 2009, ICT Group entered into a merger agreement with Sykes Enterprises, Incorporated (Sykes) and two wholly owned subsidiaries of Sykes. Unless stated otherwise, all forward-looking information contained in this report does not take into account or give any effect to the impact of the proposed merger. For additional details regarding the proposed merger, see Note 12 to our consolidated financial statements, "Merger Agreement with Sykes Enterprises," contained in Part I, Item 1, of this report.

Overview

We are a leading global provider of outsourced customer management and business process outsourcing solutions. Our primary services include:

• Customer Care Services (including customer care/retention, and technical support);

• Marketing, Technology and Business Process Outsourcing (BPO) Solutions (including database marketing, data entry/management, e-mail response management, remittance processing and other back-office business processing services).

We also continue to provide telesales to our clients. However, as part of a realignment of our services we have limited our U.S. and Canadian telesales efforts to accommodate demand from large strategic clients. Also, we have ceased providing our market research service offerings as part of this realignment.

We provide our services through operations centers located throughout the world, including the U.S., Ireland, the U.K., Canada, Australia, Mexico, the Philippines, Costa Rica, India and Argentina. As of September 30, 2009, we had 38 operating centers from which we support clients primarily in the financial services, healthcare, telecommunications, information technology, business and consumer services, Government and energy services sectors.

Our domestic sales force is organized by specific industry verticals, which enables our sales personnel to develop in-depth industry and product knowledge. We also have sales operations in the U.K., Canada, Mexico, Australia and Argentina.

We invest in systems and software technologies designed to improve productivity in order to lower the effective cost per contact made or received. Our systems and software technologies are also designed to improve our effectiveness by providing our agents with real-time access to customer and product information. We currently offer and/or utilize a comprehensive suite of business process outsourcing (BPO) technologies, available on a hosted basis for use by clients at their own in-house facilities or on a co-sourced basis in conjunction with our fully integrated, Web-enabled centers. Our technologies include automatic call distribution (ACD) voice processing, interactive voice response (IVR), advanced speech recognition (ASR), Voice over Internet Protocol (VoIP), contact management, automated e-mail management and processing, sales force and marketing automation, alert notification and Web self-help.

We believe that we were one of the first fully automated outsourced customer management services companies, and we were among the first such companies to provide collaborative Web browsing services and utilize VoIP capabilities. Through our global implementation of VoIP, we have established a redundant voice and data network infrastructure that can seamlessly route voice traffic to our centers worldwide. We do not provide telecommunications or VoIP services to the general public.

Our clients typically enter into multi-year, contractual relationships with us that may contain provisions for early contract terminations. The pricing component of a contract is often comprised of a base service charge and separate charges for ancillary services. Our services are generally priced based upon per-minute or hourly rates. On occasion, we perform services for which we are paid incentives based on performance. The nature of our business is such that we generally compete with other outsourced service providers as well as the retained in-house operations of our customers. This can create pricing pressures and impact the rates we can charge in our contracts.

Revenue is recognized as the services are performed, and is generally based on hours or minutes of work performed; however, certain types of revenue relating to upfront project set-up costs are deferred and recognized over a period of time, typically the length of the customer contract. The incremental direct cost associated with this revenue is also deferred over the same period of time. Some of our client contracts have performance standards, which can result in service penalties and other adjustments to monthly billings if the standards are not met. Any required adjustments to our monthly billings are reflected in our revenue on an as-incurred basis.

We refer to our revenue as either Core revenue or Non-Core revenue. Core revenue encompasses customer care, help desk support, technical support, database marketing, lead qualification, technology hosting, data processing, data entry, receivables management and other BPO activities. Non-Core revenue includes financial telesales for U.S. and Canadian clients along with market research services. As of December 31, 2008, we decided no longer to provide market research services.

Results for the three and nine months ended September 30, 2009 reflect the following:

• Decreased revenue, which dropped 5% and 9%, respectively, compared to the three and nine months ended September 30, 2008.

• Core revenue increased in each period by 6% and 3%, respectively, while Non-core revenue decreased in each period by 79% and 77%, respectively.

• Our Core production volume increased in the three and nine months ended September 30, 2009 by 9% and 12%, respectively, as compared to the prior year.

• Our cost of services, as a percentage of revenue, declined to 59% for the three and nine months ended September 30, 2009 from 60% and 62%, respectively, in the prior year periods.

• Our Philippines operations handled approximately 45% of total production for the third quarter of 2009 as compared to 44% of total production for the third quarter of 2008.

• We recorded restructuring charges of $1.2 million, net of restructuring reversals, during the nine months ended September 30, 2009, none of which were incurred during the third quarter of 2009. The gross charges of $1.7 million for the nine months ended September 30, 2009 were partially offset by $497,000 of restructuring charge reversals in the first quarter of 2009.

• The impact of foreign exchange rates continues to be a factor in our operating results. Foreign exchange had a negative impact on the pretax net income of $400,000 and a positive impact of $3.5 million, respectively, for the three and nine months ended September 30, 2009.

• Costs incurred during the third quarter of 2009 for the proposed merger with Sykes Enterprises, Incorporated were $554,000 and included amounts for our legal and financial advisors as well as our tax and accounting advisors.

• We recorded $583,000 of asset impairments during the third quarter of 2009 as a result of Typhoon Ondoy, which damaged some of our fixed assets associated with leased office space in Manila. Because of the business interruption caused by the typhoon, we lost approximately 47,000 hours of production, which we estimated would have contributed approximately $600,000 in revenue and $400,000 in operating income to the third quarter of 2009.

From the third quarter of 2007 and continuing into 2009, our operations have been impacted by various adverse economic events including the current economic downturn as well as the consumer credit crisis and the mortgage crisis, both of which had a significant impact on the decline in our revenue. We do not believe that our operating results from this timeframe are indicative of our future operating results. We are beginning to see stability in the markets we serve, which is an improvement from the significant uncertainty that existed at the end of 2008. We are thus optimistic, subject to macroeconomic conditions, as to our prospects for improved profitability and liquidity, particularly with respect to our customer support services.

Our future profitability will be impacted by, among other things, our ability to expand our service offerings to existing customers as well as our ability to obtain new customers and grow new vertical markets. Our profitability is also impacted by our ability to manage our costs, perform in accordance with contract requirements to avoid service penalties and mitigate the effects of foreign currency exchange risk. Our business is very labor-intensive and consequently, in an effort to reduce costs and be as competitive as possible in the marketplace, we have been moving many of our domestic operations to near-shore and offshore operations centers, which typically have lower labor costs. Our success is dependent upon our ability to perform work in locations where we can find qualified labor at cost-effective rates and effectively manage that labor in the most profitable manner.

Some of these benefits, however, may be offset by the expanded training and associated costs we have incurred in the past and may continue to incur because of our service mix. Many of our customer service programs require more complex and costly training processes and to the extent we cannot bill these amounts to our clients, our profitability will be impacted. It is also important for us to manage our employee attrition relating to these programs due to the significant investment in training the employees for these programs.

We believe that our 2009 performance will be largely dependent on our ability to continue capturing new business, leveraging the investment we have made in our infrastructure and expanding our business service offerings. We believe that major corporations will continue to utilize the skills of companies like ours and that the services outsourced will continue to expand beyond the contact center services that currently comprise the large majority of our business. We plan to leverage our existing strength in the financial services, telecommunications and healthcare markets and provide additional business services to our customers.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. These generally accepted accounting principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates. Our significant accounting policies are described in Note 2 of our audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Our critical accounting policies are those that are most important to the portrayal of our financial condition and results and require our management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. The accounting policies we consider critical include revenue recognition; allowance for doubtful accounts; impairment of long-lived assets, goodwill and other intangible assets; accounting for income taxes; restructuring; accounting for contingencies; and share-based compensation.

During the nine months ended September 30, 2009, we did not make any material changes to our critical accounting policies. For additional discussion of our critical accounting policies, please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2008. We have included expanded disclosure of our critical accounting policy for the impairment of goodwill that was recorded during fiscal year 2008.

Impairment of Goodwill and Other Intangible Assets

Goodwill and other intangible assets are recorded as a result of business combinations. Prior to impairment, as of December 31, 2007, we had $13.1 million of goodwill. Although goodwill is no longer required to be amortized, we are required to perform an annual impairment review of our goodwill. This impairment review, which is performed in the fourth quarter of each year, is a discounted cash flow analysis using projected cash flows of the Company. On an interim basis, we also evaluate whether any events have occurred or whether any circumstances exist that could indicate an impairment of our goodwill. During the fourth quarter of 2008, we recorded an impairment charge of $12.2 million against our goodwill, which resulted in a full impairment of our goodwill. The primary driver behind this impairment was the significant decline in our market capitalization during the fourth quarter of 2008, which we believe was largely a result of the general economic conditions during that period, as well as the market's view of our operating results in light of the significant portion of our customer base that is associated with the financial services industry, as discussed below. The impairment was computed using a valuation of the Company that was performed in the fourth quarter of 2008. This valuation was based on a discounted cash flow analysis and resulted in a fair valuation of the Company that was significantly below the book value of our shareholders' equity at December 31, 2008. Our discounted cash flow analysis reflected a decline in management forecasts and assumptions from prior periods. As described in Note 15 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008, we had at the time of the impairment analysis and continue to have a significant concentration in the financial services industry. Almost 50% of our revenue is derived from mortgage companies and banking institutions. From the third quarter of 2007 and continuing into 2009, our operations were negatively impacted by various adverse economic events affecting this industry, including the credit crisis and the mortgage crisis. At the time of our year-end 2008 assessment of goodwill, our revenue forecasts and projected cash flow from this market segment were lower than amounts used in the preceding year and reflected a higher level of uncertainty and accordingly resulted in a lower valuation of the Company, which resulted in our recording an impairment charge against goodwill.

RESULTS OF OPERATIONS

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



                                       Three months ended                     Nine months ended
                                         September 30,                          September 30,
(dollars in thousands)                  2009        2008      % change        2009        2008      % change
Revenue:                             $  102,560   $ 108,296       -5.3 %    $ 296,968   $ 326,565       -9.1 %
Core                                     99,602      94,022        5.9 %      285,523     277,639        2.8 %
Non-Core                                  2,958      14,274      -79.3 %       11,445      48,926      -76.6 %
Core Production Hours (in
thousands)                                4,738       4,355                    13,998      12,449
Non-Core Production Hours (in
thousands)                                  183         805                       680       2,732
Average Number of Workstations           12,371      13,567                    12,443      13,667

There are two primary factors which have impacted our revenue during the three and nine months ended September 30, 2009, as compared to the three and nine months ended September 30, 2008. The first factor is the overall economic environment, which has had a significant impact on our Non-Core services. Our Non-Core production hours comprised approximately 4% and 5% of our total production hours for the three and nine months ended September 30, 2009, respectively, as compared to 16% and 18%, respectively, for the three and nine months ended September 30, 2008. Overall, our Non-Core production decreased by over 75% during the three and nine months ended September 30, 2009, over the comparable prior year periods. This reduction in non-core revenue is due to reduced production volumes associated with our clients in the financial services industry.

The other factor impacting our revenue is changes in foreign currency rates. The changes in foreign exchange rates during the three and nine months ended September 30, 2009 as compared to the foreign exchange rates during the comparable prior year period had a negative impact of $3.5 million and $16.3 million on total revenue, respectively. The impact was primarily due to changes in the Canadian dollar and the Mexican peso, which combined had a negative impact of $2.2 million and $12.4 million for the three and nine months ended September 30, 2009, respectively.

Total annualized revenue per average workstation for the three months ended September 30, 2009 increased to $33,160 as compared to $31,930 for the three months ended September 30, 2008, while total annualized revenue per average workstation for the nine months ended September 30, 2009 decreased to $31,820 as compared to $31,860 for the nine months ended September 30, 2008. Changes were primarily due to the impact of foreign exchange rates offset by an increase in production hours per average number of workstations. On an annualized basis, foreign exchange rates had a negative impact on our revenue per workstation of $1,120 for the three months ended September 30, 2009 and $1,750 for the nine months ended September 30, 2009.

                                           Three months ended                          Nine months ended
                                              September 30,                              September 30,
(dollars in thousands)                     2009           2008        % change        2009           2008         % change
Cost of Services:                        $  60,405      $ 65,103          -7.2 %    $ 175,968      $ 202,868         -13.3 %
Direct labor costs                          46,133        48,117          -4.1 %      133,199        150,957         -11.8 %
Telecom costs                                4,189         5,291         -20.8 %       12,186         15,491         -21.3 %
Other costs of services                     10,083        11,695         -13.8 %       30,583         36,420         -16.0 %
Total Cost of Services as a Percentage
of Revenue                                    58.9 %        60.1 %                       59.3 %         62.1 %
Production Hours (in thousands)              4,921         5,160                       14,678         15,181

Our cost of services consist primarily of direct labor costs associated with our customer service representatives and telecommunications costs. Other direct costs we incur for our client programs include information technology support, quality assurance costs, other support services costs and billable labor costs.

For the three and nine months ended September 30, 2009, the decline in our cost of services over the comparable periods in 2009 was driven primarily by the impact of changes in foreign currency exchange rates. Our labor costs are impacted by production hour volume, foreign exchange rates and changes in hourly payroll rates. Our direct labor cost per production hour for the three and nine months ended September 30, 2009 was $9.37 and $9.07, respectively, compared to $9.33 and $9.94, respectively, for the comparable periods in 2008. This significant drop for the nine months ended September 30, 2009 versus the nine months ended September 30, 2008 reflects the impact of foreign exchange rates, which we estimate to have reduced our labor costs by $11.9 million as compared to what the costs would have been by applying the foreign exchange rates in effect during nine months ended September 30, 2008. The production mix of hours in lower wage contact centers in the Philippines and Latin America versus higher cost centers in the U.S. and Canada also impacted our labor costs, as offshore production hours increased to 48% and 49% of total production hours during the three and nine months ended September 30, 2009, respectively, as compared to 46% and 45% in the comparable prior year periods.

The decrease in telecom costs for the three and nine months ended September 30, 2009 was primarily rate-driven as our telephony cost per production hour decreased by 17% and 19%, respectively, as compared to the comparable prior year periods. Our telecom costs are also impacted by the decrease in production hour volume.

Other costs of services include billable third party labor costs, training costs and our internal quality assurance costs. The decrease is primarily due to decreased internal quality assurance and billable third party labor costs, both of which are impacted by the decrease in production hour volume.

Overall, our cost of services will continue to be impacted by fluctuations in foreign currency exchange rates. The changes in foreign exchange rates during the three and nine months ended September 30, 2009 as compared to the foreign exchange rates during the comparable prior year periods reduced our total cost of services by $3.0 million and $15.7 million, respectively. The impact was primarily due to changes in the Philippine peso, Canadian dollar and the Mexican peso.

                                           Three months ended                          Nine months ended
                                              September 30,                              September 30,
(dollars in thousands)                     2009           2008        % change        2009           2008         % change
Selling, General and Administrative
Expenses:                                $  39,054      $ 42,110          -7.3 %    $ 116,849      $ 125,148          -6.6 %
Salaries, benefits and other
personnel-related costs                     17,180        17,879          -3.9 %       48,258         53,919         -10.5 %
Facilities and equipment costs              12,266        14,458         -15.2 %       37,906         44,792         -15.4 %
Depreciation and amortization                5,604         6,583         -14.9 %       17,304         20,013         -13.5 %
Other SG&A costs                             4,004         3,190          25.5 %       13,381          6,424         108.3 %
Total SG&A as a Percentage of Revenue         38.1 %        38.9 %                       39.3 %         38.3 %

Selling, general and administrative ("SG&A") expenses primarily are comprised of salaries and benefits, rental expenses relating to our facilities and some of our equipment, equipment maintenance and depreciation and amortization costs. Other SG&A costs includes gains or losses on our hedging instruments as well as expenses relating to the various forms of business-related insurance we maintain, the expenses we incur for third party service providers including our independent accountants, outside legal counsel, and payroll processing providers.

Our salaries, benefits and other personnel-related costs were lower during the three and nine months ended September 30, 2009, primarily as a result of our 2008 restructuring efforts undertaken to adapt to the current economic environment, which resulted in the elimination of various management personnel. Our facilities costs consist primarily of rental fees, which decreased, also as a result of the restructuring efforts undertaken in 2008. Our depreciation and amortization declines reflect a lower level of utilized assets, as a result of asset impairment charges recorded in December 2008.

Included within Other SG&A costs are gains and losses associated with our currency hedging programs and transactional gains and losses associated with foreign exchange. For the three and nine months ended September 30, 2009, we recognized $1.2 million and $3.3 million, respectively, of net losses from hedging activities and foreign exchange transactions as compared to $271,000 and $4.2 million of net gains for the three and nine months ended September 30, 2008, respectively.

As we continue to expand our operations outside of the United States, our SG&A expenses will continue to be impacted by fluctuations in foreign currency exchange rates. Approximately 42% and 44% of our SG&A expenses for the three and nine months ended September 30, 2009, respectively, were incurred in foreign locations, as compared to 48% and 49% in the comparable prior year periods. The changes in foreign exchange rates during the three and nine months ended September 30, 2009 as compared to the foreign exchange rates during the comparable prior year period had the effect of decreasing our SG&A costs by $1.3 million and $7.4 million. The impact was primarily due to changes in the Philippine peso, Canadian dollar and the British pound sterling.

                            Three months ended                      Nine months ended
                              September 30,                           September 30,
(dollars in thousands)     2009          2008       % change         2009        2008     % change
Asset Impairments:       $    583    $         -         N/A      $      583    $    -         N/A
Merger Costs:                 554              -         N/A             554         -         N/A
Restructuring Charge:          -            2,334     -100.0 %         1,234      2,334      -47.1 %

During the three and nine months ended September 30, 2009, we recorded $583,000 of asset impairments as a result of Typhoon Ondoy, which struck the Philippines during September 2009. The storm flooded a floor of one of our leased facilities in Manila and damaged communications and computer equipment, furniture and fixtures, and leasehold improvements to the space. This charge represents the fixed assets which we deemed to be unusable and unsalvageable.

During the three and nine months ended September 30, 2009, we recorded $554,000 in merger costs related to our proposed merger with Sykes Enterprises, Incorporated. These costs represent legal, accounting, and consulting costs borne by ICT for the merger incurred through September 30, 2009.

During the nine months ended September 30, 2009, we recorded $1.2 million of restructuring charges, net of restructuring reversals. The total charges for the nine months ended September 30, 2009 reflect $925,000 for lease obligations and other contractual obligations, $705,000 of severance charges and $101,000 of asset impairments. Of these total charges, $1.1 million related to our operations in the U.K and Ireland. Our results for the nine months ended September 30, 2009 also reflect restructuring charge reversals of $497,000, primarily the reversal of a facility lease accrual during the first quarter of 2009 for which we able to negotiate a lease termination for a facility that we had vacated in 2007.

At September 30, 2009, $4.3 million in restructuring liabilities remain outstanding. Of this, $2.3 million expects to be paid within one year, while the . . .