<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
(Mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to_________
Commission File Number 1-12577
SITEL CORPORATION
(Exact name of registrant as specified)
MINNESOTA 47-0684333
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13215 BIRCH STREET
OMAHA, NEBRASKA 68164
(402) 963-6810
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
____________________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
Common Stock, $.001 Par Value The New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
____________________________________________
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1997, was $443,551,166 based upon the closing
price of $13.375 for such stock as reported by the New York Stock Exchange on
such date. Solely for purposes of this calculation, persons holding of record
more than 5% of the Company's stock have been included as "affiliates".
As of March 31, 1997, the Company had 60,888,798 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive
proxy statement for the annual meeting of stockholders to be held on June 6,
1997, are incorporated into Part III.
This 10-K consists 29 of pages.
<PAGE>
PART I
______
The registrant hereby amends Part 1, Item 8 of its Form 10-K/A for year ended
December 31, 1996 to correctly tag certain columns.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
____________________________________________
The information called for by this item (other than selected quarterly
information, which is set forth below) is incorporated by reference from the
Company's Consolidated Financial Statements set forth on pages F-1 through
F-20 hereof.
The following table sets forth statement of operations data for
each of the four quarters of 1996 and 1995. This quarterly information is
unaudited but has been prepared on a basis consistent with the Company's audited
financial statements presented elsewhere herein and, in the Company's opinion,
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the quarters presented.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
(in thousands, except per share data)
FOR THE THREE MONTHS ENDED
__________________________
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
________ ________ _____________ ___________
<S> <C> <C> <C> <C>
Revenues......................................... $59,519 $69,266 $85,144 $98,821
Operating expenses:
Cost of services.............................. 31,593 36,746 44,433 50,945
Selling, general and administrative
expenses.................................... 22,010 27,267 33,040 38,378
________ ________ _____________ ___________
Operating income (loss)................. 5,916 5,253(a) 7,671(b) 9,498
Transaction related expenses..................... --- 666 6,322 ---
Interest income (expense), net .................. 101 25 (130) (223)
Other income (expense), net...................... --- --- (19) 51
_________ _________ _____________ ___________
Income before income taxes and
minority interest.......................... 6,017 4,612 1,200 9,326
Income tax expense............................... 2,211 2,271 2,514 3,225
Minority Interest................................ --- 18 23 36
_________ _________ _____________ ___________
Net income (loss)................................ $3,806 $2,323(a) $(1,337)(b) $ 6,065
========= ========= ============= ===========
Net income (loss) per share...................... $ 0.06 $ 0.03(a) $ (0.02)(b) $ 0.09
========= ========= ============= ===========
Weighted average common and common
equivalent shares................................ 64,262 66,406 58,441 66,922
========= ========= ============= ===========
</TABLE>
a) Includes non-recurring operating expenses related to the acquisition of
National Action Financial services, Inc. (NAFS). Excluding those one-
time operating expenses and the transaction related expenses, operating
income, net income, and net income per share were $6.9 million, $4.3
million and $0.06 per share, respectively, for the second quarter of 1996.
b) Includes non-recurring operating expenses related to the merger with Mitre
plc and the acquisition of National Action Financial Services, Inc.
(NAFS). Excluding those one-time operating expenses and the transaction
related expenses, operating income, net income, and net income per share
were $8.2 million, $5.4 million and $.08 per share, respectively, for
the third quarter of 1996.
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except per share data)
For The Three Months Ended
__________________________
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
_________ __________ _____________ ____________
<S> <C> <C> <C> <C>
Revenues............................ $39,174 $46,201 $45,548 $56,292
Operating expenses:
Cost of services.................. 21,504 24,747 24,334 31,032
Selling, general and administrative
expenses........................... 14,565 17,273 17,265 20,110
Special compensation expense....... 34,585 (a) --- --- ---
_________ ___________ _____________ ____________
Operating income, net....... (31,480)(b) 4,181 3,949 5,150
Interest income expense, net......... (206) (358) (78) (60)
Other income (expense), net........... 90 50 29 (51)
_________ ___________ _____________ ____________
Income (loss) before income taxes
and minority interest........... (31,596) 3,873 3,900 5,039
Income tax expense (benefit).......... (11,062) 1,283 1,401 1,785
Minority interest..................... 257 320 310 375
_________ ___________ _____________ ____________
Net income (loss)..................... ($20,791)(b) $2,270 $2,189 $2,879
========= =========== ============= ============
Net income (loss) per share.......... ($0.46)(b) $0.05 $0.04 $0.05
========= =========== ============= ============
Weighted average common and common
equivalent shares................... 45,364 48,060 55,214 55,021
========= =========== ============= ============
</TABLE>
a) Represents a non-recurring, non-cash compensation expense incurred in
February 1995 resulting from the grant of stock options with an exercise
price of $.0025 per share to 265 employees of the Company to replace
stock appreciation rights previously granted under the Company's
Employee Equity Benefit Plan and previously granted stock options.
b) Excluding the special compensation expense and a one-time foregiveness
of debt of $0.5 million owed by two stockholders, operating income,
net income, and net income per share would have been $3.6 million,
$2.4 million and $0.05, respectively, for the first quarter of 1995.
<PAGE>
PART IV
_______
The registrant hereby amends Part IV, Item 14(a)3, of its Form 10-K for the
year ended December 31, 1996, to include a new consent from KPMG Peat Marwick
LLP as Exhibit 23.1.
3. EXHIBITS. The following Exhibits are filed as part of, or are incorporated
by reference into, this Form 10-K/A:
Exhibit No.
(1) 3.1 Amended and Restated Articles of Incorporation.
(2) 3.1(a) Articles of Amendment filed September 10, 1996 to the
Amended and Restated Articles of Incorporation
(1) 3.4 Amended and Restated Bylaws.
* 4.2 Specimen Common Stock Certificate.
(1) 9.1 Form of General Voting Agreement.
(1) 9.2 Form of Voting Agreement with World Investments, Inc.
(1) 10.1 SITEL Corporation Stock Option Plan for Replacement of
Existing Options.
* 10.1(a) Amendment No. 1 to SITEL Corporation Stock Option Plan for
Replacement of Existing Options.
(1) 10.2 SITEL Corporation Stock Option Plan for Replacement of EEBs.
* 10.2(a) Amendment No. 1 to SITEL Corporation Stock Option Plan for
Replacement of EEBs.
(3) 10.3 Amended and Restated SITEL Corporation 1995 Employee Stock
Option Plan.
* 10.3(a) Amendment No. 1 to Amended and Restated SITEL Corporation
1995 Employee Stock Option Plan.
(1) 10.4 SITEL Corporation 1995 Non-Employee Directors Stock Option
Plan.
* 10.4(a) Amendment No. 1 to SITEL Corporation Non-Employee Directors
Stock Option Plan.
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan.
(1) 10.6 Employment Agreement with James F. Lynch.
(1) 10.7 Employment Agreement with Michael P. May.
(1) 10.8 Form of Right of First Refusal.
(4) 10.9 Form of Indemnification Agreement with Outside Directors.
(5) 10.10 Form of Indemnification Agreement with Executive Officers.
(6) 16.1 Letter from Coopers & Lybrand L.L.P. dated February 6, 1997
* 21 Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP
* 24.1 Power of Attorney (included on signature page).
* 27 Financial Data Schedule.
______________________________
* Previously filed.
(1) Previously filed as an exhibit to Registration Statement
of SITEL Corporation on Form S1 (Registration No. 3391092) and
incorporated herein by this reference.
(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.
(3) Previously filed as Exhibit B to the Company's Notice
of Annual Meeting of Stockholders and Proxy Statement dated
September 27, 1996.
(4) Previously filed as an exhibit under the same exhibit
number to the Company's Form 10-Q for the quarter ended August
31, 1995.
(5) Previously filed as an exhibit under the same exhibit
number to the Company's Registration Statement on S-8 (33-99434).
(6) Previously filed as an exhibit under the same exhibit
number to the Company's Form 8-K filed on February 6, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: November 19, 1997 SITEL Corporation
By: /s/Michael P. May
-----------------------
Michael P.May
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
amendment to this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
James F. Lynch*
______________________ Chairman of the Board November 19, 1997
James F. Lynch and Director
/s/ Michael P. May
______________________ Chief Executive Officer November 19, 1997
Michael P. May
Barry S. Major*
______________________ Executive Vice President-Finance November 19, 1997
Barry S. Major Chief Financial Officer
(Principal Financial Officer)
/s/ Alan G. Siemek
_______________________ Corporate Controller November 19, 1997
Alan G. Siemek (Principal Accounting Officer)
Henk P. Kruithof*
_______________________ Executive Vice Chairman November 19, 1997
Henk P. Kruithof and Director
Bill L. Fairfield*
_______________________ Director November 19, 1997
Bill L. Fairfield
Kelvin C. Berens*
_______________________ Director November 19, 1997
Kelvin C. Berens
George J. Kubat*
_______________________ Director November 19, 1997
George J. Kubat
*By: /s/Michael P. May
_________________
Michael P. May
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Page Number
In Sequential
Numbering
Exhibit System
_______ _____________
(1) 3.1 Amended and Restated Articles of Incorporation. N/A
(2) 3.1(a) Articles of Amendment filed September 10, 1996 to the Amended
and Restated Articles of Incorporation N/A
(1) 3.4 Amended and Restated Bylaws. N/A
* 4.2 Specimen Common Stock Certificate. N/A
(1) 9.1 Form of General Voting Agreement. N/A
(1) 9.2 Form of Voting Agreement with World Investments, Inc. N/A
(1) 10.1 SITEL Corporation Stock Option Plan for Replacement of
Existing Options. N/A
* 10.1(a) Amendment No. 1 to SITEL Corporation Stock Option Plan for
Replacement of Existing Options. N/A
(1) 10.2 SITEL Corporation Stock Option Plan for Replacement of
EEBs. N/A
* 10.2(a) Amendment No. 1 to SITEL Corporation Stock Option Plan
for Replacement of EEBs. N/A
(3) 10.3 Amended and Restated SITEL Corporation 1995 Employee
Stock Option Plan. N/A
* 10.3(a) Amendment No. 1 to Amended and Restated SITEL Corporation 1995
Employee Stock Option Plan. N/A
(1) 10.4 SITEL Corporation 1995 Non-Employee Directors Stock
Option Plan. N/A
* 10.4(a) Amendment No. 1 to Amended and Restated SITEL Corporation N/A
Non-Employee Directors Stock Option Plan.
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan. N/A
(1) 10.6 Employment Agreement with James F. Lynch. N/A
(1) 10.7 Employment Agreement with Michael P. May. N/A
(1) 10.8 Form of Right of First Refusal. N/A
(4) 10.9 Form of Indemnification Agreement with Outside Directors. N/A
(5) 10.10 Form of Indemnification Agreement with Executive Officers. N/A
(6) 16.1 Letter from Coopers & Lybrand L.L.P. dated February 6, 1997 N/A
* 21 Subsidiaries. N/A
23.1 Consent of KPMG Peat Marwick LLP 29
* 24.1 Power of Attorney (included on signature page). N/A
* 27 Financial Data Schedule. N/A
_________________________
* Previously filed.
(1) Previously filed as an exhibit to Registration Statement of
SITEL Corporation on Form S-1 (Registration No. 33-91092) and
incorporated herein by this reference.
(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.
(3) Previously filed as Exhibit B to the Company's Notice of Annual
Meeting of Stockholders and Proxy Statement dated September 27,
1996.
(4) Previously filed as an exhibit under the same exhibit number to
the Company's Form 10-Q for the quarter ended August 31, 1995.
(5) Previously filed as an exhibit under the same exhibit number to
the Company's Registration Statement on S-8 (33-99434).
(6) Previously filed as an exhibit under the same exhibit number to
the Company's Form 8-K filed on February 6, 1997
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATMENTS
________________________________
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996............. F-3
Consolidated Statements of Income (Loss) For The Years Ended
December 31, 1994, 1995, and 1996..................................... F-4
Consolidated Statements of Stockholders' Equity For
The Years Ended December 31, 1994, 1995, and 1996..................... F-5
Consolidated Statements of Cash Flows For The Years Ended December 31,
1994, 1995, and 1996.................................................. F-6
Notes to Consolidated Financial Statements............................ F-7
FINANCIAL STATEMENT SCHEDULE
____________________________
Independent Auditors' Report.......................................... S-1
Schedule II - Valuation and Qualifying Accounts....................... S-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
____________________________
The Board of Directors
SITEL Corporation:
We have audited the accompanying consolidated balance sheets of SITEL
Corporation and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income (loss), stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SITEL
Corporation and subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Omaha, Nebraska KPMG Peat Marwick LLP
April 4, 1997
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS Decembe 31,
_________________________
1995 1996
__________ ____________
<S> <C> <C>
Current assets:
Cash and cash equivalents............... ....... ....... ....... ............. $ 4,531 $ 25,710
Trade accounts receivable (net of allowance for doubtful accounts of
$937 and $3,188, in 1995 and 1996, respectively)........................ 31,440 65,477
Marketable securities......................................................... 13,046 1,740
Prepaid expenses........ ..................................................... 2,036 3,007
Other assets.................................................................. 753 2,907
Deferred income taxes......................................................... 445 512
__________ ____________
Total current assets........................................... 52,251 99,353
__________ ____________
Property and equipment, net.................................................... ... 25,015 59,109
Deferred income taxes ............................................................. 14,434 11,187
Goodwill, net.................................................................. ... 6,315 40,110
Other assets....................................................................... 2,945 1,925
__________ ____________
Total assets................................................... $ 100,960 $ 211,684
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.............................................................. .. $ 2,212 $ 3,638
Current portion of long-term debt ........................................... 871 759
Current portion of capitalized lease obligations.............................. 1,569 3,032
Trade accounts payable........................................................ 9,517 18,775
Income taxes payable.......................................................... 1,548 3,815
Accrued wages, salaries and bonuses........................................... 6,825 14,812
Accrued operating expenses..................................... .............. 3,690 9,026
Deferred revenue.............................................................. 1,812 7,632
Customer deposits and other................................................... 25 1,028
___________ __________
Total current liabilities...................................... 28,069 62,517
__________ __________
Long-term debt, excluding current portion.......................................... 2,882 1,720
Capitalized lease obligations, excluding current portion........................... 1,423 3,141
Purchase price payable (Note 2).................................................... --- 15,928
Deferred compensation ............................................................. 904 1,461
Redeemable preference shares ...................................................... 2,302 ---
Minority interest ........................................ ........................ --- 192
Commitments and contingencies
Stockholders' equity:
Common stock, voting, $.001 par value 200,000,000 shares authorized,
50,841,602 and 58,875,660 shares issued and outstanding in 1995
and 1996, respectively...................................................... 51 59
Paid-in capital.................................................................... 69,530 117,736
Currency exchange adjustment.................................................. 54 1,311
Unrealized gain on marketable securities, net of taxes........................ --- 1,017
Retained earnings (deficit)................................................... (4,255) 6,602
___________ ___________
Total stockholders' equity..................................... 65,380 126,725
__________ ____________
Total liabilities and stockholders' equity..................... $ 100,960 $ 211,684
========== ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For The Years Ended December 31,
_________________________________
1994 1995 1996
______________ _____________ _____________
<S> <C> <C> <C>
Revenues................................................... $ 116,757 $ 187,215 $ 312,750
______________ _____________ _____________
Operating expenses:
Cost of services...................................... 63,268 101,617 163,717
Selling, general and administrative expenses.......... 48,254 69,213 120,695
Special compensation expense.......................... --- 34,585 ---
______________ _____________ _____________
Total operating expenses............... 111,522 205,415 284,412
______________ _____________ _____________
Operating income(loss) ................. 5,235 (18,200) 28,338
______________ _____________ _____________
Other income (expense):
Transaction related expenses......................... --- --- (6,988)
Interest income....................................... 47 613 1,108
Interest expense...................................... (881) (1,315) (1,335)
Other................................................. 1,443 118 32
______________ _____________ _____________
Total other income (expense)........... 609 (584) (7,183)
______________ _____________ _____________
Income (loss) before income taxes and minority interest..... 5,844 (18,784) 21,155
Income tax expense (benefit)................................ 1,526 (6,593) 10,221
Minority interest........................................... 383 1,262 77
______________ _____________ _____________
Net income (loss) ..................... $ 3,935 $ (13,453) $ 10,857
============== ============= =============
Per share amounts:
Income (loss) per common and common equivalent share.. $ 0.09 $ (0.29) $ 0.16
============== ============= =============
Weighted average common and common
equivalent shares outstanding......................... 44,770 45,952 66,011
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1994, 1995, and 1996
(dollars in thousands)
Class A Class B Class C Options Less
Common Common Common Common Deferred
Stock Stock Stock Stock Compensation
_______ _______ ________ _______ ____________
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993............................................... $ 18 11 1 -- 27
Common stock options less deferred compensation........................ -- -- -- -- 55
Accretion of put option................................................ -- -- -- -- --
Currency exchange adjustment........................................... -- -- -- -- --
Transactions by pooled companies:
Issuance of 2,389,563 shares of common stock.......................... 2 -- -- -- --
Net income............................................................. -- -- -- -- --
_______ ______ ________ _______ ____________
Balance December 31, 1994................................................ 20 11 1 -- 82
Issuance of 100,592 shares of Class C common stock less 80,472 shares
subject to put option................................................. -- -- -- -- --
Special compensation - option issues................................... -- -- -- -- (82)
Accretion of put option................................................ -- -- -- -- --
Conversion of 20,263,458 shares of Class A, 10,660,000 shares of
Class B, and 739,652 shares of Class C common into a single
class of common stock due to reincorporation........................ (20) (11) (1) 32 --
Issuance of 7,600,000 shares of common stock, net of offering expenses. -- -- -- 8 --
Cancellation of the put option on 3,070,584 shares..................... -- -- -- 3 --
Transaction by pooled companies:
Issuance of 8,507,904 shares of common stock........................ -- -- -- 8 --
Currency exchange adjustment........................................... -- -- -- -- --
Net loss............................................................... -- -- -- -- --
_______ _______ ________ _______ ____________
Balance , December 31,1995............................................... -- -- -- 51 --
Issuance of 5,982,220 shares of common stock, net of offering expenses. -- -- -- 6 --
Issuance of 1,719,654 shares of common stock for options exercised..... -- -- -- 2 --
Tax benefit of stock options exercised................................. -- -- -- -- --
Transactions by pooled companies:
Issuance of 332,196 shares of common stock............................. -- -- -- -- --
Currency exchange adjustment........................................... -- -- -- -- --
Unrealized gain on marketable securities, net of taxes................. -- -- -- -- --
Net income............................................................. -- -- -- -- --
_______ _______ ________ _______ ____________
Balance, december 31, 1996............................................... $ -- $ -- $ -- $ 59 $ --
======= ======= ======== ======= ============
Currency Unrealized Retained Total
Paid-in Exchange Gain on Earnings Stockholders'
Capital Adjustment Marketable (Deficit) Equity
Securities
_______ _______ ________ _______ ____________
Balance , December 31, 1993.............................................. $ 2,239 $ 316 $ -- $ 5,587 $ 8,199
Common stock options less deferred compensation........................ -- -- -- -- 55
Accretion of put option................................................ -- -- -- (111) (111)
Currency exchange adjustment........................................... -- (274) -- -- (274)
Transactions by pooled companies:
Issuance of 2,389,563 shares of common stock........................ 1,046 -- -- -- 1,048
Net income............................................................. -- -- -- 3,935 3,935
_______ _______ ________ ________ ____________
Balance December 31, 1994................................................ 3,285 42 -- 9,411 12,852
Issuance of 100,592 shares of Class C common stock less 80,472 shares
subject to put option................................................ 59 -- -- -- 59
Special compensation - option issues................................... 34,707 -- -- -- 34,625
Accretion of put option................................................ -- -- -- (213) (213)
Conversion of 20,263,458 shares of Class A, 10,660,000 shares of Class
B, and 739,656 shares of Class C common into a single class of
common stock due to reincorporation.................................. -- -- -- -- --
Issuance of 7,600,000 share of common stock, net of offering expenses.. 23,163 -- -- -- 23,171
Cancellation of the put option on 3,070,584 shares..................... 2,797 -- -- -- 2,800
Transaction by pooled companies:
Issuance of 8,507,904 shares of common stock......................... 5,519 -- -- -- 5,527
Currency exchange adjustment........................................... -- 12 -- -- 12
Net loss............................................................... -- -- -- (13,453) (13,453)
______ _______ ________ _________ ___________
Balance , December 31,1995............................................... 69,530 54 -- (4,255) 65,380
Issuance of 5,982,220 shares of common stock, net of offering expenses. 42,239 -- -- -- 42,245
Issuance of 1,719,642 shares of common stock for options exercised..... 92 -- -- -- 94
Tax benefit of stock options exercised................................. 5,040 -- -- -- 5,040
Transactions by pooled companies:
Issuance of 332,196 shares of common stock........................... 835 -- -- -- 835
Currency exchange adjustment........................................... -- 1,257 -- -- 1,257
Unrealized gain on marketable securities, net of taxes................. -- -- 1,017 -- 1,017
Net income............................................................. -- -- -- 10,857 10,857
________ ________ _______ ________ ____________
Balance, December 31, 1996............................................... $117,736 $1,311 $1,017 $ 6,602 $126,725
======== ======== ======= ======== ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For The Years Ended December 31,
________________________________
1994 1995 1996
__________ ____________ ___________
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $ 3,935 $ (13,453) $ 10,857
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Special compensation expense................................. -- 34,585 --
Depreciation and amortization................................ 5,341 7,090 13,256
Provision for deferred income tax............................ (818) (12,219) 1,823
Deferred compensation........................................ 804 70 557
Loss (gain) on sale of property and equipment................ 44 53 (37)
Forgiveness of loans receivable from related parties......... -- 449 --
Change in assets and liabilities:
Trade accounts receivable................................. (9,623) (9,408) (17,083)
Other assets.............................................. (1,518) (769) 4,097
Trade accounts payable.................................... 746 4,302 6,662
Other liabilities......................................... 2,304 4,573 15,711
___________ ____________ ___________
Net cash provided by operating activities........... 1,215 15,273 35,843
__________ ____________ ___________
Cash flows from investing activities:
Purchases of property and equipment............................... (9,415) (13,279) (39,954)
Proceeds from sales of property and equipment..................... 43 126 199
Acquisition of Teleaction, net of cash acquired................... -- -- (23,720)
Acquisition of CTC, net of cash acquired.......................... -- -- (4,216)
Investments in marketable securities.............................. -- (22,196) (63,793)
Sale of marketable securities..................................... -- 9,150 76,840
Changes in other assets, net...................................... (373) (349) (380)
___________ _____________ ___________
Net cash used in investing activities............... (9,745) (26,548) (55,024)
___________ _____________ ___________
Cash flows from financing activities:
Borrowings on notes payable....................................... 60,049 21,929 17,169
Repayments of notes payable....................................... (59,043) (21,429) (16,026)
Borrowings on long-term debt...................................... 8,079 7,319 500
Repayment of long-term debt....................................... (1,764) (13,237) (2,048)
Repayment of note payable to related party........................ -- (492) --
Issuance of redeemable preference shares......................... 2,571 -- --
Repayment of redeemable preference shares........................ (230) (464) (2,075)
State incentive credits received.................................. -- 800 --
Common stock issued, net of expenses.............................. 1,048 23,171 42,339
Payments on capital lease obligations............................. (771) (2,449) (259)
___________ _____________ ____________
Net cash provided by financing activities.......... 9,939 15,148 39,600
___________ _____________ ____________
Effect of exchange rates on cash.................................. (101) (104) 760
___________ _____________ ____________
Net increase in cash................................ 1,308 3,769 21,179
Cash and cash equivalents, beginning of year......................... (546) 762 4,531
___________ _____________ ____________
Cash and cash equivalents, end of year............................... $ 762 $ 4,531 $ 25,710
=========== ============= ============
Supplemental disclosures of cash flow information:
Interest paid..................................................... $ 1,071 $ 1,212 $ 846
Income taxes...................................................... $ 2,080 $ 4,170 $ 4,311
Supplemental disclosures of non-cash investing and financing activities
In 1995, upon completion of the IPO, the put option on common stock was canceled causing a reclassification of $2,800
to stockholders' equity.
In 1996, the tax benefit of stock options exercised was $5,040.
The Company capitalized leases of $2,218, $2,960, and $2,101,in 1994, 1995 and 1996, respectively.
The Company issued stock in connection with the acquisition of businesses with a value of $28 and $5,498 in 1995
and 1996, respectively.
</TABLE>
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:
(a) DESCRIPTION OF BUSINESS. SITEL Corporation ("SITEL") and subsidiaries
(collectively, the "Company") are engaged in inbound, outbound, and interactive
teleservicing activities, servicing the insurance, financial services,
telecommunications, media and entertainment, technology, utilities, consumer,
automotive, and travel industries. Operations are primarily located in North
America and Europe.
(b) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the financial statements of SITEL Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
During 1996, the Company acquired all of the outstanding common stock of
National Action Financial Services, Inc. ("NAFS") by issuing 2,742,452 shares of
its common stock and all of the outstanding common stock of Mitre plc ("Mitre")
by issuing 18,341,106 shares of its common stock in two separate business
combinations accounted for using the pooling-of-interests method of accounting.
Accordingly, the consolidated financial statements for periods prior to each
business combination have been restated to include the accounts and results of
operations of NAFS and Mitre. No significant adjustments were required to
conform the accounting policies of the combining enterprises.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below:
(in thousands)
1994 1995 1996
________ ___________ __________
Revenues:
SITEL $86,262 $120,617 $ 196,279
NAFS 593 8,258 15,685
Mitre 29,902 58,340 100,786
________ ___________ ___________
$116,757 $187,215 $ 312,750
Combined ======== =========== ===========
Net income(loss):
SITEL $ 3,827 $ (16,349) $6,016
NAFS (236) 773 (1,132)
Mitre 344 2,123 5,973
________ ___________ ___________
Combined $ 3,935 $ (13,453) $ 10,857
======== =========== ===========
Transaction related expenses of approximately $0.7 million and $6.3 million
for the combinations with NAFS and Mitre, respectively, were expensed during
1996 at the closing of each transaction.
(c) TRANSLATION OF FOREIGN CURRENCIES. The translation of the applicable
foreign currencies into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date.
Revenue and expense accounts are translated using average exchange rates
prevailing during the year. Gains or losses resulting from currency translation
are included in stockholders' equity.
<PAGE>
(d) REVENUE RECOGNITION. The Company recognizes revenues as services
are performed for its clients. Specific set up costs incurred in respect of
major long-term contracts to provide services to clients are carried forward
against the future contractual revenues relating to those costs.
(e) CASH EQUIVALENTS. Cash equivalents generally consist of highly
liquid debt instruments purchased with an original maturity of three months or
less.
(f) PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Equipment under capital leases is stated at the present value of minimum lease
payments. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets which range from 3 to 20 years. Assets
recorded under capital leases are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
(g) INVESTMENTS IN MARKETABLE SECURITIES. All marketable securities held
by the Company at December 31, 1995 and 1996, were classified as available-for
sale and recorded at fair value. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
income and are reported as a separate component of stockholders' equity until
realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis. Fair values are
estimated based upon quoted market values.
(h) INCOME TAXES. Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances, if any, are established when
necessary to reduce deferred tax assets to the amount that is more likely than
not to be realized. Income taxes are not accrued for unremitted earnings of
international operations that have been, or are intended to be, reinvested
indefinitely.
(i) GOODWILL. Goodwill consists of the difference between the purchase
price incurred in acquisitions using the purchase method of accounting and the
fair value of net assets acquired and is being amortized using the straight-line
method over 25 years. Accumulated amortization of goodwill at December 31, 1995
and 1996 was $0.7 million and $1.4 million, respectively. The Company monitors
events and changes in circumstances which may require a review of the carrying
value of goodwill at each consolidated balance sheet date to assess
recoverability based on estimated undiscounted future operating cash flows.
Impairments would be recognized in operating results if a permanent diminution
in value were to occur based on fair value. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
(j) INCOME (LOSS) PER SHARE. Income (loss) per share attributable to
common shareholders has been computed using the weighted average number of
common and common equivalent shares outstanding (see Note 9) and after giving
retroactive effect to the stock splits (see Note 6) and business combinations
accounted for using the pooling-of-interests method of accounting.
<PAGE>
A summary of common stock and common stock equivalents used to calculate
income (loss) per share is as follows:
(in thousands)
For The Years Ended December 31,
________________________________
1994 1995 1996
_______ _______ ________
Common stock.............. 33,906 40,565 57,746
Common stock equivalents -
stock options......... 10,864 5,387 8,265
_______ _______ ________
Total............... 44,770 45,952 66,011
======= ======= ========
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, options to purchase common stock granted with exercise prices below the
assumed initial public offering price per share during the 12 months preceding
the date of the 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.
(k) USE OF ESTIMATES. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(l) STOCK COMPENSATION. Prior to January 1, 1996, the Company accounted
for its stock option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income (loss) and
pro forma net income (loss) per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(m) FAIR VALUES OF FINANCIAL INSTRUMENTS. Fair values of cash and cash
equivalents, receivables, accounts payable, marketable securities, notes
payable, and redeemable preference shares are estimated to approximate carrying
values due to the short maturities of these financial instruments.
<PAGE>
2. ACQUISITIONS:
On December 21, 1995, the Company acquired all stock held by minority
stockholders in three subsidiaries of Mitre by issuing Mitre stock with a value
of approximately $5.5 million. The acquisition of the minority holdings was
accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated based on estimated fair values at the date of
acquisition. The excess of purchase price over the fair value of the net assets
acquired was approximately $4.8 million and is being amortized over a period of
25 years.
On February 9, 1996, the Company acquired the teleservicing businesses of
C.T.C. Canadian Telephone Corporation and 2965496 Canada, Inc. (collectively,
"CTC") through purchases of certain assets and the assumption of certain
liabilities of each business for a purchase price of approximately $4.2 million,
including acquisition costs. The acquisition of CTC has been accounted for as a
purchase. Accordingly, the purchase price has been allocated to the assets and
liabilities acquired based upon their fair values at the date of acquisition and
the results of operations of CTC have been included in the consolidated results
of operations since the date of acquisition. Goodwill of approximately $4.2
million was recorded for the excess of purchase price over the fair value of net
assets acquired and is being amortized over an estimated useful life of 25
years. Prior to the acquisition date, the results of operation of CTC were not
significant.
On June 12, 1996, the Company acquired Teleaction S.A. ("Teleaction"), a
Spanish teleservicing company, through the payment of approximately $25 million
for 69.2% of the capital stock, and an unconditional commitment (the "purchase
price payable") to close the purchase of the remaining 30.8% in June 1998. The
purchase price payable includes an unconditional commitment to pay a minimum of
1.4 billion Spanish pesetas (approximately $10.8 million US at acquisition) plus
additional amounts of contingent consideration based upon the attainment of
specified levels of earnings before interest, depreciation, and income taxes, as
defined in the acquisition agreement. The Company has accounted for the
transaction as an acquisition of all of the outstanding capital stock of
Teleaction because the Company has acquired the risks and rewards of ownership
except for the contingent consideration, which has been accounted for as
additional purchase price paid.
Due solely to the contingent consideration provisions of the purchase
agreement, the company granted certain protective rights to the holders of the
remaining 30.8% of the capital stock of Teleaction (the "remaining
shareholders") through the end of the contingency period in June 1998. Those
protective rights require approval by five of the six board members (two of the
Board members are appointed by the remaining shareholders) or approval by the
holders of 85% of the shares of Teleaction (which percentage would necessarily
include some of the shares held by the ramaining shareholders) in order to take
certain actions. Those actions include approval of the annual budget,
declaration of dividends, prosecution of material litigation, entering into
contracts outside the ordinary course of business, investing in other entities,
licensing technology, issuing corporate guarantees and bonds, declaring
bankruptcy, and changing auditors, among other actions. The Company believes
that these protective rights do not prevent the Company from exercising
unilateral control over all significant aspects of the operation of Teleaction.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to assets and liabilities acquired
based on their estimated fair values at the date of acquisition and the results
of operation of Teleaction have been included in the consolidated results of
operation since the date of acquisition. The Company has recorded goodwill of
approximately $30.2 million for the excess of purchase price over net assets
acquired as of December 31, 1996, including the additional acrual of contingent
purchase price payable, which will be amortized over a period of 25 years.
The following unaudited pro forma information shows the results of the
Company as though the Teleaction acquisition occurred on January 1, 1995. These
results include certain adjustments, and do not necessarily indicate future
results, nor the results of historical operations had the acquisition actually
occurred on the assumed date.
(in thousands, except per share data)
For the Years Ended December 31,
_________________________________
1995 1996
__________ _________
(unaudited)
Revenues $ 217,731 $ 327,666
Net income (loss) $ (12,193) $ 10,862
Income (loss) per share $ (0.27) $ 0 .16
<PAGE>
In January 1997, the Company acquired all of the outstanding capital stock
of Telebusiness Holdings, a systems integration company based in Australia and
New Zealand. In February 1997, the Company completed the acquisition of
substantially all of the assets of Exton Technology Group, a teleservicing
technical support company based in Madison, Wisconsin. Additionally, in March
of 1997, the Company acquired all of the outstanding stock of Levita Group Pty
Ltd., an Australian based teleservicing company, and L&R Group Limited, a United
Kingdom based teleservicing consulting firm. The aggregate purchase price of
these acquisitions was approximately $47 million of which approximately $36
million will be recognized as goodwill.
3. INVESTMENTS IN MARKETABLE SECURITIES:
The amortized cost, gross unrealized holding gains and fair value for
available-for-sale securities by major security type at December 31, 1995 and
1996 were as follows:
(in thousands)
Gross
Unrealized
Amortized Holding Fair
Cost Gains Value
_________ ________ ________
December 31, 1995
U.S. Treasury securities $3,008 - $3,008
Municipal debt securities 7,888 - 7,888
Corporate debt securities 1,000 - 1,000
Equity securities 1,150 - 1,150
_________ _______ ________
Total $13,046 $ - $13,046
========= ======= ========
December 31, 1996
Equity securities $200 $1,540 $1,740
========= ======= ========
Proceeds from the sale of marketable securities available for sale were
$9.2 million and $76.8 million in 1995 and 1996, respectively. No gross
realized gains or losses resulted from the sale of marketable securities
available-for-sale in 1995 and 1996.
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1995 and 1996 consist of the
following:
(in thousands)
1995 1996
_________ _________
Telecommunications equipment $29,064 $57,320
Furniture and equipment 9,858 23,515
Leasehold improvements 5,882 8,675
Buildings 868 4,063
Automobiles 68 321
_________ _________
45,740 93,894
Less accumulated depreciation 20,725 34,785
_________ _________
$25,015 $59,109
========= =========
<PAGE>
5. LONG-TERM DEBT:
Long-term debt at December 31, 1995 and 1996, consisted of the following:
(in thousands)
For The Years Ended December 31,
________________________________
1995 1996
______ ______
8% note payable in monthly installments, including
interest, with final payment due May 2004; secured by
property............................................. $1,292 $1,270
Other notes payable with weighted-average interest
rates of 8.5% and 6.4% in 1995 and 1996, respectively;
secured by property and equipment.................... 2,461 1,209
______ ______
3,753 2,479
Less current portion.......................... 871 759
______ ______
Total.............................. $2,882 $1,720
====== ======
The Company has two revolving credit agreements with maximum borrowings
aggregating $22 million. The Company can borrow at .75% under the bank's
national prime lending rate. At December 31, 1996, the Company had no
borrowings under these agreements.
Additionally, several international lines of credit are available to fund
local working capital requirements. The maximum borrowings under these
facilities are approximately $15.2 million. At December 31, 1996, the total
amount of notes payable outstanding under these facilities approximated $3.6
million with a weighted-average interest rate of 7.6%.
The aggregate maturities of long-term debt for each of the five years
following December 31, 1996 are as follows:
(in thousands)
Maturities of
Year Ending December 31, Long-term Debt
________________________ _____________
1997 $759
1998 594
1999 317
2000 256
2001 and thereafter 553
Redeemable preference shares were issued by Mitre and certain subsidiaries
of Mitre prior to the acquisition by the Company. The shares were generally
redeemable at par in equal installments at the option of the holder, and paid
cumulative dividends of 7.5% to 10%. As a result of the acquisition of Mitre,
substantially all of the shares were redeemed.
<PAGE>
6. COMMON STOCK:
_____________
On May 13, 1996, the Company effected a two-for-one stock split to
shareholders of record on May 3, 1996. On October 21, 1996, the Company
effected a second two-for-one stock split to shareholders of record on October
14, 1996. Both of these stock splits have been given retroactive effect in the
accompanying consolidated financial statements.
In May 1995, the Company was reincorporated in the State of Minnesota. As
part of the reincorporation, each outstanding share of Class A, Class B, and
Class C common stock was converted automatically to 2.5 shares of new $.001 par
value common stock.
During June 1995, the Company completed an initial public offering ("IPO")
of its common stock. In that IPO, the Company issued 7,600,000 shares at a
price of $3.38 per share, as adjusted for subsequent stock splits. Net proceeds
of approximately $23.2 million were realized by the Company after deducting the
underwriting discount and offering costs.
Prior to its IPO, the Company's outstanding capital stock included
3,070,584 shares of Class C common stock that was issued with a put option in
connection with a previous acquisition of a business. The put option entitled
the shareholder to put those shares back to the Company between July 1, 1997 and
November 30, 1997 in exchange for a note payable of $4.5 million less the amount
of certain expenditures made by the stockholder relating to obligations not
assumed by the Company in that previous acquisition. The value of the put
option was being accreted by charges to retained earnings over the life of the
put option until its cancellation, which occurred concurrently with the
Company's IPO.
The Company completed an additional public offering of common stock in
February 1996. The Company sold 5,982,220 shares at a price of $7.50 per share,
as adjusted for the stock splits. Net proceeds of $42.3 million were realized
by the Company after deducting the underwriting discount and offering expenses.
7. INCOME TAXES:
_____________
For financial reporting purposes, income (loss) from continuing operations
before income taxes and minority interest includes the following components: (
(in thousands)
For The Years Ended December 31,
________________________________
1994 1995 1996
________ __________ __________
Pretax income:
United States $ 4,422 $ (23,834) $ 8,653
Foreign 1,422 5,050 12,502
________ __________ __________
Total $ 5,844 $ (18,784) $ 21,155
======== ========== ==========
<PAGE>
The components of the provision for income tax expense (benefit) consists
of:
(in thousands)
For The Years Ended December 31,
_________________________________
1994 1995 1996
_________ ___________ _________
Current:
Federal $1,560 3,804 $3,929
Foreign 719 1,681 4,529
State 65 141 (60)
_________ ___________ _________
2,344 5,626 8,398
Deferred:
Federal 325 (12,203) 1,521
Foreign (25) (16) 302
State (1,118) -- --
_________ _________ ________
(818) (12,219) 1,823
Provision for income
taxes $ 1,526 $ (6,593) $10,221
========= ========== =========
Certain of the income tax benefits related to the exercise of stock options
reduce taxes currently payable and are credited to paid-in capital. The amount
credited in 1996 was approximately $5,040.
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
(in thousands)
For The Years Ended December 31,
_________________________________
1995 1996
______ _______
Deferred tax assets:
Accrued compensation and other liabilities $ 12,345 $ 11,198
Net operating loss and other credit carryforwards 2,065 2,558
Depreciation and amortization 587 --
Deferred tax items related to international operations -- 320
Allowance for doubtful accounts 183 297
________ _______
Total deferred tax assets $ 15,180 $ 14,373
________ _______
Deferred tax liabilities:
Deferred tax items related to international operations 207 1,137
Leased assets and depreciation -- 640
Unrealized gain on marketable securities -- 523
Other 94 374
______ _______
Total deferred tax liabilities 301 2,674
______ _______
Net deferred tax asset $ 14,879 $ 11,699
====== =======
Based upon the Company's current and historical pretax earnings, adjusted
for significant deductions available from the exercise of nonqualified stock
options, management believes that it is more likely than not that the Company
will generate sufficient U.S. taxable income to fully realize the benefits of
its recorded deferred tax assets.
Undistributed earnings of international consolidated subsidiaries for which
no deferred income tax provision has been made for possible future remittances
totaled approximately $11 million at December 31, 1996. Substantially all of
this amount represents earnings reinvested as part of the Company's ongoing
business. It is not practical to estimate the amount of U.S. taxes that might
be payable on the eventual remittance of such earnings. On remittance, certain
countries impose withholding taxes that, subject to certain limitations, are
then available for use as tax credits against a U.S. tax liability, if any.
The Company estimates withholding taxes of approximately $1.0 million would be
payable upon remittance of those earnings. At December 31, 1996, the Company
had U.S. Federal net operating loss carryforwards of approximately $1.7 million
which will expire in 2004.
<PAGE>
The difference between the Company's income tax expense (benefit) as
reported in the accompanying consolidated financial statements and that which
would be calculated applying the U.S. Federal income tax rate of 34% on pretax
income, less minority interest, is as follows:
(in thousands)
For The Years Ended December 31,
________________________________
1994 1995 1996
________ ________ _______
Expected Federal income taxes $ 1,857 $(6,816) $ 7,166
State taxes, net of Federal effects (695) 93 (40)
Amortization 57 18 266
Impact of foreign operations 225 4 438
Merger related costs -- -- 2,257
Other 82 108 134
________ ________ _______
Total $ 1,526 $(6,593) $10,221
======== ======== =======
8. LEASE OBLIGATIONS:
The Company is obligated under various capital leases for property and
certain equipment that expire at various dates during the next four years.
Capitalized leased equipment included in property and equipment was
approximately $2.4 million and $7.3 million at December 31, 1995 and 1996,
respectively, net of accumulated amortization.
The Company also leases property and certain equipment under noncancelable
operating lease arrangements which expire at various dates through 2004. Rent
expense was approximately $2.9 million, $3.8 million, $6.7 million for the years
ended December 31, 1994, 1995 and 1996, respectively. Certain leases of real
property provide options to extend the lease terms.
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of December 31, 1996 are as follows:
(in thousands)
CAPITAL OPERATING
LEASES LEASES
_________ _________
Year ending December 31,
1997 $ 3,168 $ 10,690
1998 2,385 9,707
1999 1,107 8,719
2000 60 6,647
2001 and thereafter - 7,621
_________ _________
6,720 $ 43,384
=========
Less amount representing interest 547
_________
Present value of net minimum
lease obligations $ 6,173
=========
<PAGE>
9. STOCK OPTION PLANS:
The Company has four stock plans, all approved by shareholders in 1995,
described as follows:
a) STOCK PLAN FOR REPLACEMENT OF EXISTING OPTIONS ("REPLACEMENT PLAN").
Under this plan, options for 4,541,780 shares were granted, with an
option price of $.0025 per share, as replacements for 3,110,000 options
outstanding at December 31,1994.
b) STOCK OPTION PLAN ("EEB REPLACEMENT PLAN"). Under this plan, options
for 7,381,720 shares were granted in 1995, with an option price of
$.0025 per share, as replacements for the Company's employee equity
benefit plan ("EEB Plan").The EEB Plan had 12,655,500 units outstanding
with base values ranging from $.85 to $1.71. With respect to both the
Replacement Plan and the EEB Replacement Plan, the following applies:
Options are exercisable in five equal annual installments from January
1996 to May 2000. The Company recorded these options at the estimated
fair value at date of grant ($2.91), with a corresponding charge to
special compensation expense totaling $34.6 million. All options
granted were vested as of the date of grant. No further options will
be granted under these plans.
c) 1995 EMPLOYEE STOCK OPTION PLAN ("1995 PLAN"). The 1995 Plan provided
for the granting of options to purchase up to an aggregate of 2,800,000
shares. Shareholders authorized an additional 7,000,000 shares in 1996.
Options granted may be either nonqualified or incentive stock options.
Vesting terms vary with each grant, and option terms may not exceed ten
years. Option prices, set by the Compensation Committee of the Board of
Directors, may not be less than the fair market value at date of grant
for incentive stock options or less than par value for nonqualified
stock options. At December 31,1996, there were approximately 3,600,000
shares available for issuance pursuant to future grants under the 1995
Plan.
d) 1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN ("DIRECTORS PLAN"). The
Directors' Plan provides for automatic grants of nonqualified options to
each independent director of the Company. Each independent director
will be granted nonqualified options to purchase 4,000 shares of common
stock upon first being elected to the Board of Directors and on each
anniversary thereof. The exercise price for all Nonqualified Options
will equal the fair market value of the common stock on the date of
grant. The options vest one year after the date of grant. At December
31, 1996, there were 88,000 shares available for issuance pursuant to
future grants under the Directors' Plan.
<PAGE>
Additional information as to shares subject to options is as follows:
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
__________ __________
Balance January 1,1995 - -
Granted 12,539,500 $ .29
Exercised - -
Canceled - -
__________ ___________
Balance December 31,1995 12,539,500 $ .29
Granted 5,608,462 $15.39
Exercised (1,719,642) $ .05
Canceled ( 50,908) $15.75
___________ ____________
Balance December 31,1996 16,377,412 $ 5.44
========== ============
Exercisable at December 31,1996 809,058 $ 1.01
========== ============
The following table summarizes information about stock options outstanding
at December 31, 1996.
Options Outstanding Options Exercisable
_____________________ _______________________
Weighted-
Number Average Weighted- Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at 12/31/96 Contractual Exercise at 12/31/96 Exercise
Prices Life Price Price
___________________________________________________ _________________________
$.0025 10,209,458 3.41 $.0025 670,658 $.0025
$ 4.39 - $8.72 716,000 4.20 $ 6.28 136,000 $ 5.74
$10.75 - $19.50 5,451,954 9.02 $15.50 2,400 $15.75
The per share weighted-average fair value of stock options granted during
1995 and 1996 was $2.16 and $7.84, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected dividend yield 0.0%, expected volatility factor 30%, risk
free interest rate of 5.82% and 6.48% in 1995 and 1996, respectively, and an
expected life of 5 years and 8.62 years in 1995 and 1996, respectively.
<PAGE>
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
(loss) would have been reduced to the pro forma amounts indicated below:
(in thousands, except per share data)
For The Years Ended December 31,
________________________________
1995 1996
_________ _______
Net income (loss): As Reported $(13,453) $10,857
Pro Forma (13,493) 10,186
Income (loss) per share: As Reported $ (0.29) $ 0.16
Pro Forma (0.29) 0.15
In June 1995, NAFS entered into an agreement with one employee whereby the
Company committed to grant options amounting to 2% of the common stock of NAFS
to the employee in connection with his initial employment contract. In May
1996, NAFS fulfilled this commitment by issuing the options and recording
compensation expense, which has been classified as selling, general, and
administrative expense, of approximately $0.6 million.
10. RELATED PARTY TRANSACTIONS:
The Company leases certain property from related parties. Total rent
payments to related parties were $0.3, $0.3, and $0.1 million in the years ended
December 31, 1994, 1995, and 1996, respectively. The Company purchased this
property in 1996 for $1.5 million.
For the year ended December 1996, the Company purchased approximately $1.0
million of computer equipment from a company of which a Director is the Chief
Executive Officer and President. In addition, the Company utilized
approximately $0.2 million of legal services from a firm of which a Director is
the managing partner.
For the period of December 1994 to June 30, 1996, a common shareholder of
NAFS held 30,000 shares of Series A redeemable preference shares in the amount
of $0.3 million and earning dividends at a rate of 10% per annum, payable
quarterly. Each share of preference stock was convertible into shares of NAFS
common stock and was converted to common stock prior to the merger of SITEL and
NAFS. The same NAFS common shareholder held an installment note payable of $0.5
million, bearing interest at 10%, and secured by the assets subordinate to the
bank debt for the period of December 1994 to June 30, 1996. The debt included
contingent warrants that allowed for the issuance of stock to purchase a
percentage of the Company's outstanding common stock contingent upon the number
of months required to repay the note payable. In connection with the merger of
SITEL and NAFS, the note payable was repaid and the contingent warrants were
canceled.
In February 1995, the Company forgave $0.5 million of loans receivable and
accrued interest from two stockholders. This charge has been included in
selling, general, and administrative expenses.
<PAGE>
11. BENEFIT PLANS:
The Company's 401(k) plan, formed in January 1994, covers substantially all
employees who are 18 years of age with 60 days or more of service. Participants
may elect to contribute 1% to 15% of compensation. The Company may elect to
make a year end contribution to the 401(k) plan. Company contributions to the
plan were $50,000 in 1996. No contributions were made in 1994 and 1995.
Effective May 15, 1994, the Company adopted a deferred compensation plan
for certain executive employees, who elect to contribute to the Plan. The
Company may voluntarily match all or a portion of the participants'
contributions. Participants are 100% vested in their contributions and the
Company's contributions vest over a 15-year period. The Company made
contributions to the plan of $0.3 million for the year ended December 31, 1994.
No contributions were made to the plan in 1995 and 1996. The Company's
contributions are recognized as expense as the benefits vest.
12. SEGMENT DATA:
The Company's operations are primarily conducted in one business segment.
A summary of the Company's operations by geographic area follows.
(in thousands)
For The Years Ended December 31,
________________________________
1994 1995 1996
________ ________ ________
REVENUE:
North America $86,855 $128,875 $184,366
Europe 29,902 58,340 128,384
________ _________ ________
$116,757 $187,215 $312,750
======== ========= ========
OPERATING INCOME (LOSS):
North America $3,581 $(23,872) $14,455
Europe 1,654 5,672 13,883
________ _________ ________
$ 5,235 $(18,200) $28,338
======== ========== ========
IDENTIFIABLE ASSETS:
North America $29,985 $69,421 $96,440
Europe 18,192 31,539 115,244
________ _________ ________
$48,177 $100,960 $211,684
======== ========= ========
13. CONTINGENCIES:
From time to time, the Copmpany is involved in litigation incidental to its
business. In the opinion of management, no litigation to which the Company is
currently a party is likely to a materially adverse effect on the Company's
results of operations, financial condition, or cash flows, if decided adversely
to the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT ON THE
FINANCIAL STATEMENT SCHEDULE
The Board of Directors
SITEL Corporation:
The audits referred to in our report dated April 4, 1997 included the related
financial statement schedule as of December 31, 1996, and for each of the years
in the three-year period ended December 31, 1996 included herein and
incorporated by reference in the registration statement (No. 333-13403) filed on
Form S-3, registration statement (No. 033-99434) filed on Form S-8 and
registration statement (No. 333-19069) filed on Form S-8. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Omaha, Nebraska KPMG Peat Marwick LLP
April 4, 1997
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
ACCOUNTS
BEGINNING BAD DEBT CHARGED TO ENDING
DESCRIPTION BALANCE EXPENSE ALLOWANCE BALANCE
___________ _________ _________ ____________ ________
Allowance for doubtful accounts
for trade receivables
Year ended December 31, 1994 $505 509 168 $846
Allowance for doubtful accounts
for trade receivables
Year ended December 31, 1995 $846 422 331 $937
Allowance for doubtful accounts
for trade receivables
Year ended December 31, 1996 $937 2,845 594 $3,188
28
<PAGE>
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
SITEL Corporation:
We consent to the use of our reports incorporated by reference in the
Registration Statement (No. 333-13403) filed on Form S-3, Registration Statement
(No. 033-99434) filed on Form S-8, Registration Statement (No. 333-19069) filed
on Form S-8 and Registration Statement (No. 333-30635) filed on Form S-8 of
SITEL Corporation of our reports dated April 4, 1997 relating to the
consolidated balance sheets of SITEL Corporation and subsidiaries as of December
31, 1995 and 1996, and the related consolidated statements of income (loss),
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996 and the related schedule, which reports appear in
the December 31, 1996 annual report on Form 10-K/A of SITEL Corporation.
KPMG Peat Marwick LLP
Omaha, Nebraska
November 14, 1997
