<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
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 1-12577
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) 963-6810
(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/A consists of 18 pages.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Operations and Financial
Condition
The registrant hereby amends Part I, Items 1 and 2 of its Form 10-Q for the
period ended November 30, 1996 to provide amended comparative data for
the three and six month periods ended November 30,1995. This amended
comparative data consolidates the financial statements of NAFS and Mitre
for the three and six month periods ended November 30, 1995 with the
registrants financials statements for the same period. Previously, the
comparative data consolidated the financial statements of NAFS and
Mitre for the three and six months ended June 30, 1995 with the registrant's
financial statements for the three and six month periods ended November 30,
1995. The financial statements for the three and six month periods ended
November 30, 1996 have not changed, except to the extent the opening balance
sheets affected those financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
November 30, 1996 and May 31, 1996
(unaudited)
<TABLE>
<CAPTION> November 30, May 31,
1996 1996
(restated)
ASSETS ------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.....................................$ 11,898,731 $ 6,153,352
Trade accounts receivable (net of allowance for doubtful
accounts of $ 1,297,370 and $1,204,241 respectively)........ 80,168,700 48,622,731
Marketable securities......................................... 1,075,061 42,569,744
Prepaid expenses.............................................. 3,050,464 2,130,881
Other......................................................... 1,752,891 2,138,550
Deferred income taxes......................................... 508,500 557,700
------------ ------------
Total current assets....................................... 98,454,347 102,172,958
------------ ------------
Property and equipment, net................................... 52,518,771 32,223,612
Deposits and other assets... ................................. 2,297,886 2,407,138
Loans receivable from related parties......................... 414,534 339,963
Goodwill...................................................... 39,311,315 10,376,133
Deferred income taxes......................................... 11,592,034 12,762,305
------------ ------------
Total assets....................................................$ 204,588,887 $ 160,282,109
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable bank.............................................$ 6,007,000 $ 6,152,446
Current portion of long-term debt and capitalized
lease obligations........................................... 2,633,406 1,574,329
Note payable - related parties................................ --- 270,612
Trade accounts payable........................................ 11,808,997 9,281,980
Income taxes payable.......................................... 3,403,594 2,228,095
Accrued wages, salaries and bonuses........................... 11,344,990 9,061,217
Accrued operating expenses.................................... 15,548,911 4,524,501
Deferred revenue.............................................. 6,216,000 2,412,000
Customer deposits and other................................... 111,549 86,510
----------- -----------
Total current liabilities................................... 57,074,447 35,591,690
----------- -----------
Long-term debt and capitalized lease obligations,
net of current portion...................................... 10,200,942 4,487,571
Note payable to related party................................. 9,599,785 ---
Deferred revenue ............................................. 583,035 500,000
Deferred compensation......................................... 1,446,274 970,753
Redeemable preference shares.................................. --- 2,034,000
Commitments and contingencies
Minority interest............................................. 188,291 ---
Stockholders' equity:
Common stock, voting, $.001 par value 200,000,000 shares
authorized, 58,870,060 and 58,377,970 shares issued
and outstanding, respectively............................... 58,870 58,378
Paid-in capital............................................... 117,780,961 114,922,117
Currency exchange adjustment.................................. 1,264,283 125,723
Retained earnings ............................................ 6,391,999 1,591,877
Total stockholders' equity.................................... 125,496,113 116,698,095
------------- -------------
Total liabilities and stockholders' equity......................$ 204,588,887 $ 160,282,109
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
<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 $ 54,086,310 $ 177,598,941 $ 100,559,335
------------- ------------- ------------- ------------
Operating expenses:
Cost of services.................. 49,147,127 29,743,641 92,157,429 54,545,231
Division selling, general
and administrative expenses..... 32,455,234 16,968,192 60,596,192 32,408,575
Corporate general and
administrative expenses......... 4,010,768 2,201,062 7,111,001 4,403,073
------------ ------------- ------------- ------------
Total operating expenses............. 85,613,129 48,912,895 159,864,622 91,356,879
------------ ------------- ------------- ------------
Operating income................ 10,495,938 5,173,415 17,734,319 9,202,456
------------ ------------- ------------- ------------
Other income (expense)
Transaction related expense ...... (5,700,000) --- (6,867,670) ---
Other income (expense)............. 188,853 (77,632) 19,108 (132,961)
------------- ------------- ------------- ------------
Total other income (expense)..... (5,511,147) (77,632) (6,848,562) (132,961)
Income before income taxes
and minority interest.............. 4,984,791 5,095,783 10,885,757 9,069,495
------------ ------------- ------------- ------------
Income tax expense................... 3,802,278 1,721,172 6,043,747 3,090,130
------------ ------------- ------------- ------------
Minority interest.................... 37,310 423,000 41,888 722,000
------------ ------------- ------------- ------------
Net income........................... $ 1,145,203 $ 2,951,611 $ 4,800,122 $ 5,257,365
============ ============= ============= ============
Per share amounts:
Earnings per common and common
equivalent shares................ $ 0.02 $ 0.05 $ 0.07 $ 0.09
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding.... 66,579,146 55,150,295 66,473,371 54,872,364
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
4
<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.......................... $ 13,964,992 $ 7,302,477
Cash flows from investing activities:
Purchases of property and equipment........................... (21,578,327) (5,238,556)
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) 402,800
-------------- ------------
Net cash used in investing activities............... (5,540,318) (18,007,752)
-------------- ------------
Cash flows from financing activities:
Borrowings on note payable - bank............................. 28,877,000 4,174,000
Repayments of note payable - bank............................. (29,151,500) (5,815,000)
Repayment of long-term debt and capitalized lease obligations. (833,747) (7,382,876)
Repayment of note payable to related party.................... 0 (492,388)
Repayment of redeemable preference shares.................... (2,131,000) (109,000)
State incentive credits received.............................. 0 800,000
Common stock issued for option exercises and
in public offerings, net of expenses....................... 98,413 23,136,030
------------ -----------
Net cash provided by financing activities........... (3,140,843) 14,310,766
------------ -----------
Effect of exchange rates on cash................................... 461,539 (9,000)
------------ -----------
Net increase in cash................................ 5,745,379 3,596,491
------------ -----------
Cash and cash equivalents, beginning of period..................... 6,153,352 2,149,315
Cash and cash equivalents, end of period........................... $ 11,898,731 $ 5,745,806
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
5
<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 financial statements have been restated as
necessary to reflect the poolings of interest for Mitre and NAFS.
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.
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 44,822,260
Common stock equivalents--stock options 7,941,466 10,050,104
----------- -----------
66,473,371 54,872,364
=========== ===========
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
6
<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.
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 2,693,429 4,809,241
Mitre 18,377,000 31,989,000
----------- ------------
Combined $54,086,310 $100,559,335
=========== ============
NET INCOME
SITEL (as previously reported) $1,954,044 $3,859,838
NAFS 148,567 333,527
Mitre 849,000 1,064,000
---------- -----------
Combined $2,951,611 $5,257,365
========== ===========
EARNINGS PER SHARE
SITEL (as previously reported) $.04 $.07
==== ====
Combined $.05 $.10
==== ====
7
<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 $62,604,063 $115,070,335
Net Income $3,580,611 $6,065,365
Earnings per share $.06 $.11
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.
8
<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 and outbound 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 $35,709,310 $ 94,493,377 $ 68,570,335
Europe 46,279,727 18,377,000 79,571,266 31,989,000
Other 2,025,758 --- 3,534,298 ---
----------- ----------- ------------- ------------
Total $96,109,067 $54,086,310 $ 177,598,941 $100,559,335
=========== =========== ============= ============
Operating Earnings (Loss):
United States $ 3,646,968 $ 3,738,117 $ 8,660,385 $ 7,346,608
Europe 6,852,286 1,435,298 9,084,721 1,855,848
Other (3,316) --- (10,787) ---
----------- ----------- ------------ ------------
Total $10,495,938 $ 5,173,415 $ 17,734,319 $ 9,202,456
=========== =========== ============ ============
</TABLE>
November 30, May 31,
1996 1996
(unaudited) (restated)
------------ -----------
Identifiable Assets:
United States $ 84,915,195 $113,999,294
Europe 111,721,512 39,559,000
Other 7,952,180 6,723,815
------------ ------------
Total $204,588,887 $160,282,109
============ ============
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 acquisition 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.
9
<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% 54,086 100.0% $ 177,599 100.0% 100,559 100.0%
Operating expenses:
Cost of services............................... 49,147 51.1% 29,744 55.0% 92,157 51.9% 54,545 54.2%
Division selling, general and administrative
expenses.................................. 32,455 33.8% 16,968 31.4% 60,596 34.1% 32,409 32.2%
Corporate general and administrative
expenses.................................. 4,012 4.2% 2,201 4.1% 7,111 4.0% 4,403 4.4%
Total operating expenses........ 85,614 89.1% 48,913 90.5% 159,864 90.0% 91,357 90.8%
-------- ------ ------ ------ --------- ------ ------ ------
Operating income ............... 10,495 10.9% 5,173 9.5% 17,735 10.0% 9,202 9.2%
Other income (expense)
Transaction related expense................... (5,700) -5.9% 0 0.0% (6,868) -3.9% 0 0.0%
Other income (expense) ....................... 189 0.2% (77) -0.1% 19 0.0% (133) -0.1%
-------- ----- ------ ----- --------- ------ ------ ------
Other income (expense).............................. (5,511) -5.7% (77) -0.1% (6,849) -3.9% (133) -0.1%
Income before income taxes and minority interest .... 4,984 5.2% 5,096 9.4% 10,886 6.1% 9,069 9.1%
Income tax expense .................................. 3,802 4.0% 1,721 3.2% 6,044 3.4% 3,090 3.1%
Minority interest.................................... 37 0.0% 423 0.8% 42 0.0% 722 0.7%
------- ----- ----- ----- --------- ------ ------ ------
Net income........................................... $ 1,145 1.2% 2,952 5.4% $ 4,800 2.7% 5,257 5.3%
======= ===== ===== ===== ========= ====== ====== ======
</TABLE>
10
<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. Under the purchase method of accounting, the financial statements of
Teleaction prior to the date of the 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 $42.0 million, or 77.7%, to $96.1 million in the second
quarter of fiscal 1997 from $54.1 million in the comparable period of fiscal
1996. On a pro forma basis, thisincrease would have been $32.8 million, or
1997. 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 $42.0 million increase, $13.9 million was attributable to services
initiated for new clients, $12.9 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 was primarily the result of higher calling volumes rather
than higher rates.
11
<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 55.0% 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 $15.5 million, or 91.3%, to $32.5 million
in the second quarter of fiscal 1997 from $17.0 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 82.3%
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
increased to 4.2% in the second quarter of fiscal 1997 from 4.1% in the
comparable period of fiscal 1996. This percentage increase was primarily
attributable to goodwill amortization.
acquisitions.
Operating Income:
Operating income increased $5.3 million, or 103%, to $10.5 million in the second
quarter of fiscal 1997 from $5.2 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 9.5% 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.
12
<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 $3.0 million, or 5.4% 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 $0.05 in the comparable
period of fiscal 1996. Excluding the non-recurring transaction related
expenses, net income would have increased 132% to $6.8 million, or 7.1% of
revenues, in the second quarter of fiscal 1997 and net income would
have increased to $0.10.
13
<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. 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 $77 million, or 76.6%, to $177.6 million in the first six
months of fiscal 1997 from $100.6 million in the comparable period of fiscal
1996. 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.
14
<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 $77.0 million increase, $21.1 million was attributable to services
initiated for new clients and $29.3 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 54.2% 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 $28.2 million, or 87.0%, to $60.6 million
in the first six months of fiscal 1997 from $32.4 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 $2.7 million, or 61.5%
to $7.1 million in the first six months of fiscal 1997 from $4.4 million in the
comparable period 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
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 4.4% 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 goodwill amortization.
Operating Income:
Operating income increased $8.5 million, or 92.7% to $17.7 million in the first
six months of fiscal 1997 from $9.2 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 9.2% 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 $5.3 million, or 5.3% 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 $0.10 in the comparable period of
fiscal 1996. Excluding the non-recurring transaction related expense, net
income would have increased by 122.0% to $11.7 million, or 6.6% of revenues,
in the first six months of fiscal 1997, and net income per share would
increased to $0.18.
16
<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 $14.0 million during the first six
months of fiscal 1997. This was the result of $13.1 million of net income
before depreciation and amortization and other non-cash charges and increased
by a $0.9 million change in operating assets and liabilities. Cash used by
investing activities for the first six months of fiscal 1997 was $<5.5> 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 $<3.1> million primarily related to the payment of
long-term debt, redeemable preference shares, and capital lease obligations.
The Company believes that funds generated from operations, 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.
17
<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 31, 1997 SITEL Corporation
By:/s/ Michael P. May
-----------------------------
Michael P. May
Chief Executive Officer
By:/s/ Barry S. Major
-----------------------------
Barry S. Major
Executive Vice-President
and Chief Financial Officer
(Principal Financial Officer)
18
