<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or
[ X ] 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended November 30, 1996
Commission File Number 0-26152
SITEL CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 47-0684333
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13215 Birch Street
Omaha, Nebraska 68164
(402) 498-6810
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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 the past 90 days. YES X NO
As of January 10, 1997, the Company had 58,873,359 shares of Common Stock
outstanding.
This 10-Q consists of 21 pages. The Exhibit Index is on page 20.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
November 30, 1996 and May 31, 1996
<TABLE>
<CAPTION> November 30, May 31,
1996 1996
(unaudited) (restated)
ASSETS ------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.....................................$ 11,898,731 $ 5,796,646
Trade accounts receivable (net of allowance for doubtful
accounts of $ 1,297,370 and $1,072,241 respectively)........ 80,168,700 41,240,780
Marketable securities......................................... 1,075,061 42,569,744
Prepaid expenses.............................................. 3,050,464 2,341,808
Other......................................................... 1,752,891 2,151,801
Deferred income taxes......................................... 508,500 557,700
------------ ------------
Total current assets....................................... 98,454,347 94,658,479
------------ ------------
Property and equipment, net................................... 52,518,771 30,709,017
Deposits and other assets... ................................. 2,297,886 2,497,185
Loans receivable from related parties......................... 414,534 339,963
Goodwill...................................................... 39,311,315 10,415,133
Deferred income taxes......................................... 11,592,034 12,808,305
------------ ------------
Total assets....................................................$ 204,588,887 $ 151,428,082
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable bank.............................................$ 6,007,000 $ 2,227,500
Current portion of long-term debt and capitalized
lease obligations........................................... 2,633,406 2,425,086
Trade accounts payable........................................ 11,808,997 7,691,577
Income taxes payable.......................................... 3,403,594 1,398,095
Accrued wages, salaries and bonuses........................... 11,344,990 8,456,982
Accrued operating expenses.................................... 15,548,911 4,354,922
Deferred revenue.............................................. 6,216,000 1,312,000
Customer deposits and other................................... 111,549 111,510
----------- -----------
Total current liabilities................................... 57,074,447 27,977,672
----------- -----------
Long-term debt and capitalized lease obligations,
net of current portion...................................... 10,200,942 4,298,973
Note payable to related party................................. 9,599,785 ---
Deferred revenue ............................................. 583,035 500,000
Deferred compensation......................................... 1,446,274 970,753
Redeemable preference shares.................................. --- 2,302,000
Commitments and contingencies
Minority interest............................................. 188,291 ---
Stockholders' equity:----
Common stock, voting, $.001 par value 200,000,000 shares
authorized, 58,870,060 and 58,045,774 shares issued
and outstanding, respectively............................... 58,870 58,046
Paid-in capital............................................... 117,780,961 114,123,519
Currency exchange adjustment.................................. 1,183,282 (104,277)
Retained earnings ............................................ 6,473,000 1,301,396
Total stockholders' equity.................................... 125,496,113 115,378,684
------------- -----------
Total liabilities and stockholders' equity......................$ 204,588,887 $ 151,428,082
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
2
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
for the three and six months ended November 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended November 30, ended November 30,
1996 1995 1996 1995
(restated) (restated)
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues............................$ 96,109,067 $ 49,237,410 $ 177,598,941 $ 92,731,153
------------- ------------- ------------- ------------
Operating expenses:
Cost of services.................. 49,147,127 26,593,223 92,157,429 49,545,449
Division selling, general
and administrative expenses..... 32,455,234 15,834,451 60,596,192 29,884,465
Corporate general and
administrative expenses......... 4,010,768 2,177,062 7,111,001 4,310,073
------------- ------------- ------------- ------------
Total operating expenses............. 85,613,129 44,604,736 159,864,622 83,739,987
------------- ------------- ------------- ------------
Operating income................ 10,495,938 4,632,674 17,734,319 8,991,166
------------- ------------- ------------- ------------
Other income (expense)
Transaction related expenses ...... (5,700,000) --- (6,867,670) ---
Other income (expense)............. 188,853 (37,857) 19,108 (8,242)
------------- ------------- ------------- ------------
Total other income (expense)..... (5,511,147) (37,857) (6,848,562) (8,242)
Income before income taxes
and minority interest.............. 4,984,791 4,594,817 10,885,757 8,982,924
------------- ------------- ------------- ------------
Income tax expense................... 3,802,278 1,517,954 6,043,747 2,962,416
------------- ------------- ------------- ------------
Minority interest.................... 37,310 296,000 41,888 663,000
------------- ------------- ------------- ------------
Net income........................... $ 1,145,203 $ 2,780,863 $ 4,800,122 $ 5,357,508
============= ============= ============= ============
Per share amounts:
Earnings per common and common
equivalent shares................ $ 0.02 $ 0.04 $ 0.07 $ 0.09
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding.... 66,579,146 63,100,250 66,473,371 62,601,418
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
for the six months ended November 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Six months ended
November 30, November 30,
1996 1995
(restated)
------------- -----------
<S> <C> <C>
Net cash provided by operating activities.......................... $ 13,084,699 $ 9,922,552
Cash flows from investing activities:
Purchases of property and equipment........................... (23,981,327) (6,359,531)
Acquisition of subsidiary..................................... (25,135,056) 0
Investments in marketable securities.......................... 0 (17,913,553)
Sale of marketable securities................................. 41,494,683 4,850,000
Advances on loans receivable from related parties............. (74,571) (108,443)
Changes in other assets....................................... (247,047) 399,140
-------------- ------------
Net cash used in investing activities............... (7,943,318) (19,132,387)
-------------- ------------
Cash flows from financing activities:
Borrowings on note payable - bank............................. 32,413,000 2,822,000
Repayments of note payable - bank............................. (29,554,500) (5,835,589)
Borrowing of long-term debt.... ............................. 0 513,000
Repayment of long-term debt and capitalized lease obligations. (686,747) (7,342,650)
Repayment of note payable to related party.................... 0 (492,388)
Repayment of redeemable preference shares.................... (2,131,000) (118,000)
State incentive credits received.............................. 0 800,000
Common stock issued for option exercises and
in public offerings, net of expenses...... 98,413 23,171,030
------------ -----------
Net cash provided by financing activities........... 139,166 13,517,403
------------ -----------
Effect of exchange rates on cash 821,538 (58,000)
------------ -----------
Net increase in cash................................ 6,102,085 4,249,568
------------ -----------
Cash and cash equivalents, beginning of period..................... 5,796,646 2,349,194
Cash and cash equivalents, end of period........................... $ 11,898,731 $ 6,598,762
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
4
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL:
The consolidated condensed financial statements at November 30, 1996 and 1995
and for the six months then ended are unaudited and reflect all normal and
recurring adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial position, operating results, and cash flows
for the interim periods. The consolidated condensed financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Form 10-K for
the year ended May 31, 1996. The results of operations for the six months
ended November 30, 1996 are not necessarily indicative of the results for the
entire fiscal year ending May 31, 1997.
The Company's National Action Financial Services, Inc. ("NAFS") subsidiary
(see Note 3) and Mitre plc ("Mitre") subsidiary (see Note 3) changed their
fiscal year-end in 1996 from December 31 to May 31 in order to be consistent
with the Company's year-end. In accordance with guidelines of the Securities
and Exchange Commission, only three and six months of income and expense for
the affected companies were included in the Consolidated Statements of Income
for the three and six months ended November 30, 1996 and 1995. Results of
operations associated with the additional months were recorded directly to
retained earnings, and cash flow activity for the same period was reflected
in the operating activities section of the Consolidated Statement of Cash Flows.
Where appropriate, items within the consolidated condensed financial statements
have been reclassified from the previous periods to conform to the current
year's presentation.
2. EARNINGS PER SHARE:
Earnings per share attributable to common shareholders has been computed using
the weighted average number of common and common equivalent shares outstanding:
Six Months Ended
--------------------------------
(unaudited)
11/30/96 11/30/95
----------- -----------
(Restated)
Common stock 58,531,905 50,675,438
Common stock equivalents--stock options 7,941,466 11,925,980
----------- -----------
66,473,371 62,601,418
=========== ===========
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
options to purchase common stock granted with exercise prices below the initial
public offering price per share during the 12 months preceding the date of the
initial filing of the Registration Statement for the Company's initial public
offering are included in the calculation of common equivalent shares, using
the treasury stock method, as if they were outstanding for all periods
presented.
3. ACQUISITIONS:
In June 1996, the Company completed the acquisition of NAFS, a credit
collections and accounts receivable management company. The Company issued
approximately 2.7 million common shares in exchange for all
5
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS (continued):
of the outstanding NAFS common stock and incurred $545,670 of merger
transaction costs. The transaction was accounted for as a pooling of
interests. As a result, the condensed financial statements for all prior
periods have been restated as if the acquisition took place at the beginning
of such periods.
In September 1996, the Company purchased Mitre, an English telemarketing
company. The Company issued approximately 18.3 million shares of common stock
in exchange for all the outstanding Mitre common stock. The Company incurred
$6,322,000 of merger transaction costs. The transaction was accounted for as
a pooling of interests. As a result, the condensed financial statements for
all prior periods have been restated as if the acquisition took place at the
beginning of such periods.
Prior to their acquisition by the Company, NAFS and Mitre used a fiscal year
ending December 31. Accordingly, the consolidated condensed financial
statements combine the December 31, 1995 and June 30, 1995 financial statements
of NAFS and Mitre with the May 31, 1996 and November 30, 1995 financial
statements of the Company, respectively, as previously reported. Results of
operations associated with the five-month period ended May 31, 1996 for NAFS
and Mitre were recorded directly to retained earnings, and cash flow activity
for the same period was reflected in the operating activities section of the
consolidated Condensed Statement of Cash Flows. Revenues and net income
(loss) for the five-month period ended May 31, 1996 were $6,217,798 and
$(1,015,519) for NAFS and $31,628,000 and $1,387,000 for Mitre, respectively.
The following table presents summary information regarding the separate results
of operations of the Company, NAFS and Mitre for periods previously reported.
November 30, 1995
------------------------------
(unaudited)
Three Months Six Months
Ended Ended
-------------- ------------
REVENUES
SITEL (as previously reported) $33,015,881 $63,761,094
NAFS 2,072,529 3,215,059
Mitre 14,149,000 25,755,000
----------- -----------
Combined $49,237,410 $92,731,153
=========== ===========
NET INCOME
SITEL (as previously reported) $1,954,044 $3,859,838
NAFS 374,819 535,670
Mitre 452,000 962,000
---------- -----------
Combined $2,780,863 $5,357,508
========== ===========
EARNINGS PER SHARE
SITEL (as previously reported) $.03 $.06
==== ====
Combined $.04 $.09
==== ====
6
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS (continued):
In June 1996, the Company completed the acquisition of a 69.2% interest in
Teleaction, S.A. ("Teleaction") a Spanish teleservicing company. The Company
paid approximately $25 million in cash for a 69.2% interest and will acquire
the remaining 30.8% of Teleaction in 1998 for a minimum purchase price of
approximately $11 million and an additional contingent purchase price which
is based upon Teleaction's profitability in 1996 and 1997. The Company has
accounted for the acquisition as a purchase, has recorded the minimum
obligation, as well as a current estimate of the contingent purchase price,
and consolidated 100% of Teleaction's operations since the date of acquisition.
The excess purchase price over the fair values of the net assets acquired was
$29.2 million which is being amortized over 25 years. The unpaid portion of the
purchase price that is owed to sellers remaining with the Company is included in
Note Payable to Related Party and the remainder is included in non-current
Long Term Debt.
The results of operations of Teleaction for the six months ended November 30,
1996 have been included in the condensed financial statements. The following
unaudited pro forma information shows the results of the Company as though
the Teleaction acquisition occurred on June 1, 1995. These results include
certain adjustments, and do not necessarily indicate future results, nor the
results of historical operations had the acquisitions actually occurred on
the assumed date.
November 30, 1995
--------------------------------------
(unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
Revenues $57,755,163 $107,242,153
Net Income $3,409,863 $6,165,508
Earnings per share $.05 $.10
4. STOCK SPLIT:
On October 21, 1996, the Company effected a two-for-one stock split of its
common stock to stockholders of record on October 14, 1996. All share and
per share information has been restated to reflect this split.
5. NOTE PAYABLE BANK:
In December 1996, the Company renewed their domestic revolving line of
credit through December 1997. The line provides for maximum borrowings
of $22 million. Interest, payable monthly, accrues on borrowings at 3/4% under
the bank's national prime lending rate. At November 30, 1996, there was
$450,000 outstanding against the line.
The Company also has several international lines of credit. These lines accrue
interest at 1.5% over the UK prime lending rate. The maximum borrowings under
these facilities is approximately $9.5 million. At November 30, 1996, there
was $5.6 million outstanding against these lines.
7
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INDUSTRY AND GEOGRAPHIC DATA:
The Company's operations are primarily conducted in one business segment
inbound, outbound and interactive teleservicing. A summary of the Company's
operations by geographic areas follows.
<TABLE>
<CAPTION>
Three months ended Six Months ended
November 30, November 30,
1996 1995 1996 1995
------------------------- ----------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
United States $47,803,582 $35,088,410 $ 94,493,377 $66,976,153
Europe 46,279,727 14,149,000 79,571,266 25,755,000
Other 2,025,758 --- 3,534,298 ---
----------- ----------- ------------- -----------
Total $96,109,067 $49,237,410 $ 177,598,941 $92,731,153
=========== =========== ============= ===========
Operating Earnings (Loss):
United States $ 3,646,968 $ 3,893,427 $ 8,660,385 $ 7,300,167
Europe 6,852,286 739,247 9,084,721 1,690,999
Other (3,316) --- (10,787) ---
----------- ----------- ------------ -----------
Total $10,495,938 $ 4,632,674 $ 17,734,319 $ 8,991,166
=========== =========== ============ ===========
</TABLE>
November 30, May 31,
1996 1996
(unaudited) (restated)
------------ -----------
Identifiable Assets:
United States $ 84,915,195 $113,165,267
Europe 111,721,512 31,539,000
Other 7,952,180 6,723,815
------------ -------------
Total $204,588,887 $151,428,082
============ ============
7. INCOME TAXES:
The difference between the Company's income tax expense as reported in the
accompanying financial statements and that which would be calculated using
the statutory income tax rate of 34% on income is primarily due to
nondeductible business expenses.
8. SUBSEQUENT EVENT:
On December 26, 1996, the Company granted approximately 4.5 million options
to employees with an exercise price equal to the market price on that date.
These options become vested and exercisable on May 12, 2006, but may become
vested and exercisable at an accelerated date if the Company achieves certain
business plan goals.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three and six months ended November 30, 1996 and 1995
(unaudited)
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated.
<TABLE>
<CAPTION>
Three months ended November 30, Six months ended November 30,
1996 1995 1996 1995
(restated) (restated)
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................................ $ 96,109 100.0% 49,237 100.0% $ 177,599 100.0% 92,731 100.0%
Operating expenses:
Cost of services............................... 49,147 51.1% 26,593 54.0% 92,157 51.9% 49,545 53.4%
Division selling, general and administrative
expenses.................................. 32,455 33.8% 15,834 32.2% 60,596 34.1% 29,884 32.2%
Corporate general and administrative
expenses.................................. 4,012 4.2% 2,178 4.4% 7,111 4.0% 4,311 4.6%
Total operating expenses........ 85,614 89.1% 44,605 90.6% 159,864 90.0% 83,740 90.2%
-------- ------ ------ ------ --------- ------ ------ ------
Operating income ............... 10,495 10.9% 4,632 9.4% 17,735 10.0% 8,991 9.8%
Other income (expense)
Transaction related expenses ................. (5,700) -5.9% 0 0.0% (6,868) -3.9% 0 0.0%
Other income (expense) ....................... 189 0.2% (38) -0.1% 19 0.0% (8) 0.0%
-------- ----- ------ ----- --------- ------ ------ ------
Other income (expense).............................. (5,511) -5.7% (38) -0.1% (6,849) -3.9% (8) 0.0%
Income before income taxes and minority interest .... 4,984 5.2% 4,594 9.3% 10,886 6.1% 8,983 9.8%
Income tax expense .................................. 3,802 4.0% 1,518 3.1% 6,044 3.4% 2,962 3.2%
Minority interest.................................... 37 0.0% 296 0.6% 42 0.0% 663 0.7%
------- ----- ----- ----- --------- ------ ------ ------
Net income........................................... $ 1,145 1.2% 2,780 5.6% $ 4,800 2.7% 5,358 5.9%
======= ===== ===== ===== ========= ====== ====== ======
</TABLE>
9
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months ended November 30, 1996 and 1995
Accounting Policies:
Under the pooling of interests method of accounting, the historical financial
statements of Mitre, plc ("Mitre") and National Action Financial Services, Inc.
("NAFS") have been consolidated with SITEL on a retroactive basis for all
periods presented as if the companies had always operated on a consolidated
basis. Prior to their acquisition, Mitre and NAFS operated on a fiscal year
ending December 31. As a result, the three months ended June 30, 1995 for
Mitre and NAFS have been consolidated with SITEL's three months ended
November 30, 1995. Beginning on June 1, 1996, results for Mitre and NAFS are
consolidated with SITEL's results on a consistent date basis. Under the
purchase method of accounting, the financial statements of Teleaction prior
to the date of acquisition have not been restated for that transaction.
Acquisitions:
In September 1996 the Company completed the acquisition of Mitre, plc ("Mitre"),
an English teleservicing company. The Company issued approximately 18.3
million shares of common stock in exchange for all the outstanding Mitre common
stock. The Company has accounted for the transaction as a pooling of interests.
Revenues:
Revenues increased $46.9 million, or 95.2%, to $96.1 million in the second
quarter of fiscal 1997 from $49.2 million in the comparable period of fiscal
1996. This increase would have been 77.7%, or $42.0 million, if the results
of Mitre and NAFS had been combined on a May fiscal year basis for the three
months ended November 30, 1995. Additionally on a pro forma basis, this
increase would have been $32.8 million, or 51.8%, if the results of all
entities acquired by SITEL during fiscal 1996 and the first six months of
fiscal 1997 had been consolidated as of the beginning of fiscal 1996.
Of the $46.9 million increase, $13.9 million was attributable to services
initiated for new clients, $17.8 million to higher revenues from existing
clients and $15.2 million attributable to revenues from acquisitions in Canada
and Spain consummated following the fiscal 1996 period that were accounted for
under the purchase method of accounting. The increase in revenues from
existing customers during the second quarter of fiscal year 1997 was primarily
the result of higher calling volumes rather than higher rates.
10
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Three months ended November 30, 1996 and 1995
Cost of Services:
Cost of services represents labor and telephone expenses directly related to
teleservicing activities. As a percentage of revenues, cost of services
decreased to 51.1% in the second quarter of fiscal 1997 from 54.0% in the
comparable period of fiscal 1996. The decrease was primarily attributable to
improved call center utilization.
Division Selling, General and Administrative Expenses:
Division selling, general and administrative expenses include all expenses which
directly support divisional operations such as each division's management,
facilities expenses including rent, utilities and taxes, equipment depreciation
and maintenance expenses, sales and marketing activities and client support
services. These expenses increased $16.6 million, or 105%, to $32.4 million
in the second quarter of fiscal 1997 from $15.8 million in the comparable
period of fiscal 1996. This increase was primarily a result of administrative
staff, systems and facilities expenses incurred to add new workstations during
the second quarter of fiscal 1997 in anticipation of higher calling volumes and
revenues.
Corporate General and Administrative Expenses:
Corporate general and administrative expenses represent the cost of central
services the Company provides to support and manage its divisions.
These expenses include senior corporate management, accounting and payroll,
general administration, human resources management and legal services. Also
included is the amortization of goodwill associated with completed acquisitions.
Corporate general and administrative expenses increased $1.8 million, or 84.2%
to $4.0 million in the second quarter of fiscal 1997 from $2.2 million in the
comparable period of fiscal 1996. As a percentage of revenues, these expenses
decreased to 4.2% in the second quarter of fiscal 1997 from 4.4% in the
comparable period of fiscal 1996. This percentage decrease was attributable to
the increase in revenues without a commensurate increase in corporate overhead
offset in part by the amortization of goodwill associated with recent
acquisitions.
Operating Income:
Operating income increased $5.9 million, or 127%, to $10.5 million in the second
quarter of fiscal 1997 from $4.6 million in the comparable period of fiscal
1996. As a percentage of revenues, operating income increased to 10.9 % in the
second quarter of fiscal 1997 from 9.4% in the comparable period of fiscal 1996
primarily due to the increase in revenues without a commensurate increase in
corporate overhead and the improvement in cost of services as a percentage
of revenues.
11
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Three months ended November 30, 1996 and 1995
Transaction Related Expense:
Transaction related expense includes legal, accounting and other non-recurring
expenses associated with acquisitions accounted for as poolings of interest.
During the second quarter of fiscal 1997, the Company incurred $5.7 million
of these expenses to consummate the Mitre acquisition.
Net Income:
Net income was $1.1 million, or 1.2% of revenues in the second quarter of
fiscal 1997 as compared to net income of $2.8 million, or 5.6% of revenues
in the comparable period of fiscal 1996. Net income per share decreased to
$0.02 in the second quarter of fiscal 1997 from $0.04 in the comparable
period of fiscal 1996. Excluding the non-recurring transaction related
expenses, net income would have increased 146% to $6.8 million, or 7.1% of
revenues, in the second quarter of fiscal 1997 and net income similarly would
have increased to $0.10. If the results of Mitre and NAFS had been
consolidated with SITEL's results on a May fiscal year basis for the three
months ended November 30, 1995 and excluding non-recurring expenses,
net income would have increased 129% in the second quarter of fiscal
1997 from $3.0 million in the second quarter of fiscal 1996.
12
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six months ended November 30, 1996 and 1995
Accounting Policies:
Under the pooling of interests method of accounting, the historical financial
statements of Mitre, plc ("Mitre") and National Action Financial Services, Inc.
("NAFS") have been consolidated with SITEL on a retroactive basis for all
periods presented as if the companies had always operated on a consolidated
basis. Prior to their acquisition, Mitre and NAFS operated on a fiscal year
ending December 31. As a result, the six months ended June 30, 1995 for Mitre
and NAFS have been consolidated with SITEL's six months ended November
30, 1995. Beginning on June 1, 1996 results for Mitre and NAFS are
consolidated with SITEL's results on a consistent date basis. Under the
purchase method of accounting, the financial statements of Teleaction S.A.
("Teleaction") prior to the date of acquisition have not been restated for that
transaction.
Acquisitions:
In June, 1996, the Company completed the acquisition of NAFS, a credit
collections and accounts receivable management company. The Company issued
approximately 2.7 million common shares in exchange for all of the outstanding
NAFS common stock. The transaction was accounted for as a pooling of
interests.
In June, 1996, the Company completed the acquisition of a 69.2% interest in
Teleaction, a Spanish teleservicing company. The Company paid approximately
$25 million in cash for a 69.2% interest and will acquire the remaining 30.8%
of Teleaction in 1998 for a minimum purchase price of approximately $11 million
and a contingent purchase based upon Teleaction's profitability in 1996 and
1997. The Company has accounted for the acquisition as a purchase.
In September, 1996 the Company completed the acquisition of Mitre , an English
teleservicing company. The Company issued approximately 18.3 million shares of
common stock in exchange for all the outstanding Mitre common stock. The
Company has accounted for the transaction as a pooling of interests.
Revenues:
Revenues increased $84.9 million, or 91.5%, to $177.6 million in the first six
months of fiscal 1997 from $92.7 million in the comparable period of fiscal
1996. On a pro forma basis, this increase would have been $77.0 million, or
76.6%, if the results of Mitre and NAFS had been consolidated with SITEL's on
a May fiscal year basis for the six months ended November 30, 1995.
Additionally, on a pro forma basis, this increase would have been $59.5
million, or 50.3%, if the results of all entities acquired by SITEL during
fiscal 1996 and the first six months of fiscal 1997 had been consolidated as of
the beginning of fiscal 1996.
13
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Six months ended November 30, 1996 and 1995
Revenues (continued):
Of the $84.9 million increase, $21.1 million was attributable to services
initiated for new clients and $37.2 million was attributable to higher revenues
from existing clients. The remaining $26.6 million of the increase was
attributable to revenues from acquisitions completed after the fiscal 1996
period which were accounted for under the purchase method of accounting. The
increase in revenues from existing clients during the first six months of
fiscal year 1997 was primarily the result of higher calling volumes rather than
higher rates.
Cost of Services:
Cost of services represents labor and telephone expenses directly related to
teleservicing activities. As a percentage of revenues, cost of services
decreased to 51.9% in the first six months of fiscal 1997 from 53.4% in the
comparable period of fiscal 1996. This decrease was primarily attributable to
improved call center utilization.
Division Selling, General and Administrative Expenses:
Division selling, general and administrative expenses include all expenses which
directly support divisional operations such as each division's management,
facilities expenses including rent, utilities and taxes, equipment depreciation
and maintenance expenses, sales and marketing activities and client support
services. These expenses increased $30.7 million, or 102.8%, to $60.6 million
in the first six months of fiscal 1997 from $29.9 million in the comparable
period of fiscal 1996. As a percentage of revenue, these expenses increased
to 34.1% in the first six months of fiscal year 1997 from 32.2% in the
comparable period of fiscal 1996. This increase was primarily the result of
administrative staff, systems and facilities expenses incurred to add new
workstations during the first six months of fiscal 1997 in anticipation of
higher calling volumes and revenues.
Corporate General and Administrative Expenses:
Corporate general and administrative expenses represent the cost of central
services the Company provides to support and manage its divisions.
These expenses include senior corporate management, accounting and payroll,
general administration, human resources management and legal services. Also
included is the amortization of goodwill associated with completed acquisitions
Corporate general and administrative expenses increased $2.8 million, or 65.0%
to $7.1 million in the first six months of fiscal 1997 from $4.3 million in the
comparable period of fiscal 1996.
14
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Six months ended November 30, 1996 and 1995
Corporate General and Administrative Expenses (continued):
As a percentage of revenues, these expenses decreased to 4.0% in the first six
months of fiscal 1997 from 4.6% in the comparable period of fiscal 1996. This
decrease was attributable to an increase in revenues without a commensurate
increase in corporate overhead offset in part by the amortization of goodwill
associated with recent acquisitions.
Operating Income:
Operating income increased $8.7 million, or 97.2% to $17.7 million in the first
six months of fiscal 1997 from $9.0 million in the comparable period of fiscal
1996. As a percentage of revenues, operating income increased to 10.0 % in the
first six months of fiscal 1997 from 9.8% in the comparable period of fiscal
1996 due to the increase in revenues without a commensurate increase in
corporate overhead and the improvement in cost of services as a percentage of
revenues.
Transaction Related Expense:
Transaction related expense includes legal, accounting and other non-recurring
expenses associated with acquisitions accounted for as poolings of interest.
During the first six months of fiscal 1997, the Company incurred $6.9 million
of these expenses to consummate the NAFS and Mitre acquisitions.
Net Income:
Net income was $4.8 million, or 2.7% of revenues, in the first six months of
fiscal 1997 as compared to net income of $5.4 million, or 5.9% of revenues in
the comparable period of fiscal 1996. Net income per share decreased to $0.07
in the first six months of fiscal 1997 from $0.09 in the comparable period of
fiscal 1996. Excluding the non-recurring transaction related expenses, net
income would have increased by 118.4% to $11.7 million, or 6.6% of revenues,
in the first six months of fiscal 1997, and net income per share similarly
would increased to $0.18. If the results of Mitre and NAFS had been
consolidated with SITEL's results on a May fiscal year basis for the first
six months of fiscal 1996, and excluding non-recurring expenses, net income
would have increased 121.3% in the first six months of fiscal 1997 from $5.3
million in the first six months of fiscal 1996.
15
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Six months ended November 30, 1996 and 1995
Liquidity:
Cash provided by operating activities was $13.1 million during the first six
months of fiscal 1997. This was the result of $12.8 million of net income
before depreciation and amortization and increased by a $0.3 million change
in operating assets and liabilities. Cash used by investing activities for
the first six months of fiscal 1997 was $<7.9> million primarily related to
capital expenditures and acquisitions offset by the sale of marketable
securities. Cash provided by financing activities for the first six months
of fiscal 1997 of $0.1 million primarily related to the payment of long-
term debt and capital lease obligations.
The Company believes that funds generated from operations, together with
existing cash and available credit under its revolving bank facility will be
sufficient to finance its current operations and planned capital expenditure
requirements and internal growth.
16
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of stockholders on October 29, 1996.
There were 26,357,072 shares of Common Stock represented at the meeting in
person or by proxy. Four proposals were presented to the stockholders and all
of the proposals were approved. The voting on the proposals was as follows:
Proposal 1 (to elect two directors for 3 year terms):
On the election of Bill L. Fairfield: 26,284,398 votes for
72,674 votes withheld
On the election of Henk P. Kruithof: 26,284,398 votes for
72,674 votes withheld
Proposal 2 (to ratify and approve the amendment to the corporation's 1995
Non-Employee Directors Option Plan):
23,782,411 votes for
2,049,877 votes against
8,870 abstained
Proposal 3 (to ratify and approve the amendment and restatement of the
corporation's 1995 Employee Stock Option Plan):
21,632,964 votes for
4,178,457 votes against
8,570 votes abstained
Proposal 4 (to ratify and approve the Board of Director's selection of
Coopers & Lybrand L.L.P. as the corporation's independent accountants):
26,262,572 votes for
836 votes against
1,970 votes abstained
Item 5. Other Information.
On December 31, 1996, the Company's Common Stock became traded on the
New York Stock Exchange under the symbol "SWW". Prior to December 31, 1996 and
since the Company's initial public offering, the Company's Common Stock has
been traded on the Nasdaq Stock Market.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(1) 2.4(a) Amended and Restated Share Purchase Agreement dated
June 6, 1996, regarding acquisition of Mitre, plc
(conformed copy including all amendments through closing).
(1) 2.4(b) Registration Rights Agreement dated September 3, 1996
between SITEL Corporation and certain stockholders of
SITEL (conformed copy).
(1) 2.4(c) Escrow Agreement dated September 3, 1996 between SITEL
Corporation, the Mitre selling stockholders, and Firstar
Trust Company, as Escrow Agent (conformed copy).
(1) 2.4(d) Form of Investor Letter (conformed copy).
(1) 2.4(e) Deed of Covenant dated September 3, 1996 between SITEL
Corporation and the Mitre selling stockholders (conformed
copy).
(2) 3.1(a) Articles of Amendment filed September 10, 1996 to the
Amended and Restated Articles of Incorporation..
27 Financial Data Schedule
_________________
(1) Incorporated by reference to the filing under the same exhibit number
with the Company's report on Form 8-K filed September 18, 1996.
(2) Incorporated by reference to the filing under exhibit number 4.1(a)
with the Company's registration statement on Form S-3 filed
October 3, 1996.
(b) Reports on Form 8-K. The Company filed two reports on Form 8-K and 8-K/A
during the quarter for which this report is filed. The Form 8-K was filed
on September 18, 1996 and reported the acquisition of all of the
outstanding stock of Mitre plc ("Mitre"), now known as SITEL Europe plc,
effective September 3, 1996, reported Items 2 (Acquisition of Assets) and
7 (Financial Statements and Exhibits), and incorporated by reference the
financial statements of Mitre contained in pages F-27 through F-49 of the
Company's Proxy Statement filed on July 29, 1996. The Form 8-K/A was
filed on October 1, 1996 and amended the foregoing Form 8-K to include
in Item 7 (Financial Statements and Exhibits) the required unaudited
financial statements of Mitre and unaudited pro forma and pro forma
combined financial statements.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: January 14, 1997 SITEL Corporation
By:/s/ James F. Lynch
-----------------------------
James F. Lynch
Chairman of the Board
and Chief Executive Officer
By:/s/ Barry S. Major
-----------------------------
Barry S. Major
Executive Vice-President
and Chief Financial Officer
(Principal Financial Officer)
19
<PAGE>
SITEL CORPORATION
EXHIBIT INDEX
Form 10-Q August 31, 1996
Page Number
In Sequential
Numbering
Exhibit System
No.
(1) 2.4(a) Amended and Restated Share Purchase Agreement N/A
dated June 6, 1996, regarding acquisition of
Mitre, plc (conformed copy including all
amendments through closing).
(1) 2.4(b) Registration Rights Agreement dated September 3, N/A
1996 between SITEL Corporation and certain
stockholders of SITEL (conformed copy).
(1) 2.4(c) Escrow Agreement dated September 3, 1996 between N/A
SITEL Corporation, the Mitre selling stockholders,
and Firstar Trust Company, as Escrow Agent
(conformed copy).
(1) 2.4(d) Form of Investor Letter (conformed copy). N/A
(1) 2.4(e) Deed of Covenant dated September 3, 1996 between N/A
SITEL Corporation and the Mitre selling stockholders
(conformed copy).
(2) 3.1(a) Articles of Amendment filed September 10, 1996 N/A
to the Amended and Restated Articles of
Incorporation.
27 Financial Data Schedule 21
______________________
(1) Incorporated by reference to the filing under the same exhibit number
with Company's report on Form 8-K filed on September 18, 1996.
(2) Incorporated by reference to the filing under exhibit number 4.1(a)
with the Company's registration statement on Form S-3 filed October 3,
1996.
20
<PAGE>
EXHIBIT 27
This Schedule contains summary financial information extracted from the
consolidated condensed balance sheets and consolidated condensed statements
of income found on pages 2 and 3 of the Company's Form 10-Q for the year-to-
date, and is qualified in its entirety by reference to such financial
statements.
Period 6-mos
Fiscal Year End May 31, 1997
Period End Nov 30, 1996
Cash 11,898,731
Securities 1,075,061
Receivables 81,466,070
Allowances 1,297,370
Inventory 0
Current Assets 98,454,347
PP&E 52,518,771
Depreciation 0
Total Assets 204,588,887
Current Liabilities 57,074,447
Bonds 0
Preferred-Mandatory 0
Preferred 0
Common 58,870
Other SE 125,496,113
Total Liability and Equity 204,588,887
Sales 96,109,067
Total Revenues 96,109,067
CGS 85,613,129
Total Costs 85,613,129
Other Expenses (5,511,147)
Loss Provision 0
Interest Expense 0
Income Pretax 4,984,791
Income Tax 3,802,278
Income Continuing 1,145,203
Discontinued 0
Extraordinary 0
Changes 0
Net Income 1,145,203
EPS - Primary .02
EPS Diluted .02
21
