SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of
1934.
For the transition period _____ to ______
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.)
111 SOUTH CALVERT, STE. 1900
BALTIMORE, MD 21202
(410) 246-1505
(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 October 31,1998, the Company had 64,223,565 shares of Common Stock
outstanding.
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets.............................. 1
Consolidated Condensed Statements of Income (Loss)................. 2
Consolidated Condensed Statements of Cash Flows.................... 3
Notes to Consolidated Condensed Financial Statements............... 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................. 16
PART II - OTHER INFORMATION
Item 5. Other Information................................................... 24
Item 6. Exhibits and Reports on Form 8-K.................................... 24
Signature.................................................................... 25
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, 1997 and September 30, 1998
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Current assets: ..................................................... (unaudited)
Cash and cash equivalents ...................................... $ 24,285 $ 22,485
Trade accounts receivable (net of allowance for doubtful
accounts of $5,099 and $4,483, respectively) ................. 107,697 119,905
Marketable securities .......................................... 159 --
Prepaid expenses ............................................... 3,916 5,734
Other assets ................................................... 9,548 11,700
Deferred income taxes .......................................... 3,153 1,394
--------- ---------
Total current assets ............................ 148,758 161,218
Property and equipment, net ......................................... 120,600 117,972
Deferred income taxes ............................................... 11,114 14,167
Goodwill, net ....................................................... 94,381 94,444
Other assets ........................................................ 11,027 13,760
--------- ---------
Total assets .................................... $ 385,880 $ 401,561
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank ............................................ $ 14,376 $ 27,872
Current portion of long-term debt .............................. 10,793 3,390
Current portion of capitalized lease obligations ............... 4,934 2,843
Trade accounts payable ......................................... 27,322 21,177
Income taxes payable ........................................... 8,398 5,905
Accrued compensation ........................................... 14,120 19,522
Accrued operating expenses ..................................... 22,984 24,307
Deferred revenue and other ..................................... 6,286 7,042
--------- ---------
Total current liabilities ....................... 109,213 112,058
Long-term debt, excluding current portion ........................... 102,505 105,025
Capitalized lease obligations, excluding current portion ............ 12,983 11,099
Deferred compensation ............................................... 1,407 1,645
Minority interest ................................................... 1,384 10,934
Stockholders' equity:
Common stock, voting, $.001 par value 200,000,000 shares
authorized, 63,099,597 and 64,183,659 shares issued
and outstanding, respectively ................................ 63 64
Paid-in capital ................................................ 155,326 157,895
Accumulated other comprehensive income ......................... (6,415) (4,349)
Retained earnings .............................................. 9,414 7,190
--------- ---------
Total stockholders' equity ...................... 158,388 160,800
--------- ---------
Total liabilities and stockholders' equity ...... $ 385,880 $ 401,561
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
1
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
------------- ------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues ................................................. $ 120,248 $ 146,755 $ 349,775 $ 431,810
-------- -------- -------- --------
Operating expenses:
Cost of services .................................... 67,913 82,636 191,376 243,041
Selling, general and administrative
expenses ....................................... 49,471 59,045 133,013 174,813
Restructuring expenses .............................. -- -- -- 6,607
--------- --------- --------- ---------
Total operating expense .............. 117,384 141,681 324,389 424,461
--------- --------- --------- ---------
Operating income ...................... 2,864 5,074 25,386 7,349
Other income (expense):
Interest expense, net ............................... (1,512) (3,457) (3,199) (9,422)
Other income, net ................................... 123 19 62 188
--------- --------- --------- ---------
Income (loss) before income taxes
and minority interest ............................... 1,475 1,636 22,249 (1,885)
Income tax expense ....................................... 739 836 8,377 75
Minority interest ........................................ 10 13 86 (250)
--------- --------- --------- ---------
Net income (loss) from continuing operations ............. 726 787 13,786 (1,710)
Extraordinary loss on refinancing of debt,
net of taxes ........................................... -- -- -- 514
--------- --------- --------- ---------
Net income (loss) ........................................ $ 726 $ 787 $ 13,786 $ (2,224)
========= ========= ========= =========
Income (loss) from continuing operations
per common share:
Basic .................................................. $ 0.01 $ 0.01 $ 0.22 $ (0.03)
Diluted ................................................ $ 0.01 $ 0.01 $ 0.20 $ (0.03)
Income (loss) per common share:
Basic .................................................. $ 0.01 $ 0.01 $ 0.22 $ (0.03)
Diluted ................................................ $ 0.01 $ 0.01 $ 0.20 $ (0.03)
Weighted average common shares
outstanding:
Basic .................................................. 62,484 64,081 61,336 63,752
Diluted ................................................ 69,327 70,640 68,552 63,752
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
2
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For Nine Months Ended
(dollars in thousands) September 30, September 30,
1997 1998
------------- -------------
<S> <C> <C>
Net income (loss) ................................................... $ 13,786 $ (2,224)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 21,117 29,261
Extraordinary loss on refinancing of debt ......................... -- 792
Gain on marketable securities ..................................... -- (208)
Restructuring provision ........................................... -- 5,029
Change in assets and liabilities:
Trade accounts receivable ....................................... (32,440) (9,843)
Other assets .................................................... (6,150) (4,037)
Trade accounts payable .......................................... 2,750 (6,424)
Other liabilities ............................................... 7,290 1,364
--------- ---------
Net cash provided by operating activities .................. 6,353 13,710
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............................ (62,569) (32,456)
Proceeds from sale-leasebacks of facilities .................... -- 9,397
Acquisition of businesses, net of cash acquired ................ (35,017) (2,406)
Acquisition of minority interest ............................... -- (628)
Sale of marketable securities .................................. -- 257
Changes in other assets, net ................................... (127) (438)
--------- ---------
Net cash used in investing activities ...................... (97,713) (26,274)
--------- ---------
Cash flows from financing activities:
Borrowings on note payable ..................................... 77,060 15,504
Repayments of note payable ..................................... (68,440) (2,866)
Borrowings on long-term debt ................................... 96,862 126,533
Repayment of long-term debt and capitalized lease obligations .. (14,913) (135,797)
State incentive credits received ............................... 900 --
Capital contribution from subsidiary shareholder ............... -- 1,400
Sale of stock of subsidiaries .................................. -- 6,541
Common stock issued for option exercises and other ............. 227 (7)
--------- ---------
Net cash provided by financing activities .................. 91,696 11,308
--------- ---------
Effect of exchange rates on cash .................................... (2,545) (544)
--------- ---------
Net decrease in cash ....................................... (2,209) (1,800)
Cash and cash equivalents, beginning of period ...................... 25,710 24,285
--------- ---------
Cash and cash equivalents, end of period ............................ $ 23,501 $ 22,485
========= =========
</TABLE>
Supplemental schedule of non-cash financing and investing activities:
The Company issued approximately 2,100,000 and 41,000 shares of the Company's
common stock in connection with acquisitions in the first nine months of 1997
and 1998, respectively.
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated condensed balance sheet of SITEL Corporation and Subsidiaries
(the "Company") at December 31, 1997 was obtained from the Company's audited
balance sheet as of that date. All other financial statements contained herein
are unaudited and, in the opinion of management, contain all adjustments
necessary for a fair presentation of the financial position, operating results,
and cash flows for the periods presented. Such adjustments consist only of
normal recurring items. 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 December 31, 1997.
2. SALE OF STOCK OF SUBSIDIARIES:
During the first quarter of 1998 the Company sold newly issued stock of certain
subsidiaries located in the Asia Pacific region to Lend Lease Corporation
Limited, Sydney, Australia and certain of its subsidiaries ("Lend Lease"). Lend
Lease paid approximately $6.6 million for a 20% interest in these subsidiaries,
which provide outsourced call center solutions throughout the region.
Lend Lease has several options to increase its ownership percentage in amounts
up to a total of 49% which, subject to meeting certain conditions, expire at
various times through on or about March 2004. The option exercise prices are
intended to approximate fair value through formulas tied to the subsidiary's
revenue levels for certain prior periods. The Company also has an option to
reacquire the original shares sold to Lend Lease at an agreed formula price from
on or about March 2000 through on or about March 2001 so long as Lend Lease has
not exercised its option to increase its ownership percentage. Lend Lease also
has an option to sell its shares back to the Company at an agreed formula price
(the "put option"). The put option expires upon the earlier of Lend Lease
exercising its option to increase its ownership percentage or on or about March
2001.
Operations of these subsidiaries are controlled by a management committee on
which Lend Lease and the Company have equal representation. The Company,
however, effectively controls the operations of these subsidiaries through
certain dispute resolution processes that are included in the shareholder
agreements. Should the Company exercise its control through these dispute
resolution processes, Lend Lease has the option to sell its shares back to the
Company at an agreed formula price which is intended to approximate fair value.
Although the purchase price paid by Lend Lease exceeds the book value of the 20%
ownership that they acquired, due to the put option the Company has included the
entire amount of the stock purchase price as minority interest. The Company will
accrete to the put option formula price if earnings credited to the minority
interest are not sufficient to record the amount that would be required to be
paid to Lend Lease upon their exercise of the put option.
3. 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 Federal income tax rate of 34% on income is primarily due to
non-deductible business acquisition expenses and international, state and local
income taxes.
4
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4. LONG TERM DEBT AND NOTES PAYABLE:
On March 10, 1998, the Company completed the private placement of $100 million
of 9.25% Senior Subordinated Notes due 2006 (the "Notes"). The proceeds from the
offering were used to repay borrowings outstanding under the Company's long term
revolving credit facility (the "Credit Facility"), which was also amended on
that date.
The Notes, which include interest payable semiannually, are general unsecured
obligations of the Company and will be subordinated in right of payment to all
existing and future senior debt of the Company. The Notes are guaranteed by
certain of the Company's subsidiaries and contain certain covenants that limit
the ability of the Company and certain of its subsidiaries to, among other
things, incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur liens, merge or consolidate with another
company and sell or otherwise dispose of all or substantially all of the assets
of the Company.
The Notes are redeemable, at the Company's option, in whole or in part from time
to time on or after March 15, 2002. If redeemed during the twelve-month period
commencing on March 15 of the year set forth below, the redemption prices are as
follows, plus in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
Year Percentage
---- ----------
2002 ................................ 104.625%
2003 ................................ 103.083%
2004 ................................ 101.542%
2005 and thereafter ..................... 100.000%
In addition, the Company may redeem up to 35% of the aggregate principal amount
of the Notes at any time on or prior to March 15, 2001 at 109.25% of the
principal amount thereof, plus accrued interest to the date of redemption, from
the net proceeds of one or more public equity offerings, as defined. Also, upon
a change of control of the Company, as defined, the Company may be required to
repurchase the Notes at a price equal to 101% of the principal amount thereof,
plus accrued interest to the date of repurchase.
In connection with the repayment of the amounts due under the existing Credit
Facility from the proceeds of the Notes, the Company also reached an agreement
with a syndicate of commercial banks to amend the Company's existing Credit
Facility to limit borrowings under the Credit Facility to an amount based upon a
percentage of the Company's eligible domestic accounts receivable, as defined,
up to $75 million. Certain of the financial covenants and restrictions were
amended and the Company's eligible domestic accounts receivable were pledged as
security. As a result of the amendment the Company recognized an extraordinary
charge of $514,000, net of tax, to write off the deferred costs of the original
Credit Agreement. Additionally, in the second and third quarters of 1998, the
Company sought and obtained certain modifications to the Credit Facility to
permit continued availability of borrowing under such facility. In connection
with the modification in the third quarter the total Credit Facility was reduced
to $50 million.
5. EMPLOYEE STOCK PURCHASE PLAN:
During the first quarter of 1998, the Company implemented an Employee Stock
Purchase Plan ("ESPP" or the "Plan"). The Plan enables eligible employees to
purchase the Company's stock at 85% of the current market value on a quarterly
basis.
5
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6. ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standard ("SFAS") 130, Reporting Comprehensive
Income establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The standard also requires disclosure of the total of comprehensive income
(loss) in interim financial statements. The Company's comprehensive income
(loss) was $(2,226) and $3,871 for the three month periods ended September 30,
1997 and 1998, respectively, and $6,382 and $(158) for the nine month periods
ended September 30, 1997 and 1998, respectively. The difference between the
Company's reported net income (loss) and comprehensive income (loss) for those
periods is primarily due to the change in the currency exchange adjustment. The
accumulated other comprehensive income included in the Company's Consolidated
Condensed Balance Sheet at December 31, 1997 and September 30, 1998 is primarily
the accumulated currency exchange adjustment.
7. RESTRUCTURING:
In the fourth quarter of 1997, the Company recorded a $15.7 million charge for
restructuring expenses. Included in that charge were severance and other costs
of $3.6 million, of which $3.4 million was recorded as a liability at December
31, 1997, as well as $1.1 million of liabilities related to losses on
contractual obligations. In the second quarter of 1998, the Company recorded a
$6.6 million charge for restructuring expenses primarily related to its European
operations. Included in that charge were $6.4 million of costs related to
termination benefits for approximately 250 employees. The restructuring expenses
also included $0.2 million for the cost of excess leased facilities. The amount
of actual termination benefits paid and actual losses charged against the
liabilities for contractual obligations during the nine months ended September
30, 1998 was approximately $2.9 million and $.6 million, respectively.
8. SHAREHOLDER RIGHTS PLAN:
In August 1998, the Company's Board of Directors adopted a Shareholder Rights
Plan (the "Rights Plan") that provides for the issuance of preferred share
purchase rights that expire in August, 2008. The rights generally will be
exercisable and transferable apart from the common stock only after the tenth
day following public disclosure that a person or group of affiliated or
associated persons has acquired 20% or more of the outstanding shares of common
stock (thereby becoming an "Acquiring Person"). The rights will also be
exercisable on such date as the Board of Directors determines after the
commencement or announcement of a tender or exchange offer by a person or group
for 20% or more of the outstanding shares of common stock.
If any person or group of affiliated or associated persons acquires 20% or more
of the outstanding shares of common stock and the Company's redemption right has
expired, each holder of a right (except those held by the Acquiring Person) will
have the right to purchase shares of the Company's common stock (or in certain
circumstances, share of preferred stock or similar securities of the Company)
having a value equal to two times the exercise price of the right.
Alternatively, if, in a transaction not approved by the Board of Directors, the
Company is acquired in a merger or other business combination or 50% or more of
its assets or earnings power are sold, and the Company's redemption right has
expired, each holder of a right will have the right to purchase that number of
shares of common stock of the acquiring company having the market value of two
times the exercise price of the right. The rights may not be exercisable while
they are redeemable. The rights, which have a $30 exercise price, are redeemable
by the Company at a price of $.001 per right at any time until up to and
including the 10th day after the time that a person or group has become an
Acquiring Person.
6
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION:
The Notes are guaranteed, on a full, unconditional and joint and several basis,
by all wholly-owned domestic subsidiaries of the Company. Separate financial
statements of the guarantor subsidiaries are not presented because management
has determined that they would not be material to investors. However, the
following condensed consolidating information presents:
(1) Condensed consolidating financial statements as of December 31, 1997
and September 30, 1998, and for the three and nine months ended,
September 30, 1997 and 1998 of (a) SITEL Corporation, the parent, (b)
the guarantor subsidiaries, (c) the nonguarantor subsidiaries and (d)
SITEL Corporation on a consolidated basis,
(2) SITEL Corporation, the parent, with the investments in all
subsidiaries accounted for on the equity method, and the guarantor
subsidiaries with the nonguarantor subsidiaries accounted for on the
equity method (one of the guarantor subsidiaries is the parent of the
nonguarantor subsidiaries), and
(3) Elimination entries necessary to consolidate SITEL Corporation, the
parent, with all subsidiaries.
7
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Balance Sheet
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ 11,514 $ 2,075 $ 10,696 $ -- $ 24,285
Trade accounts receivable, net ............... 21,832 22,167 65,313 (1,615) 107,697
Marketable securities ........................ 159 -- -- -- 159
Prepaid expenses and other
current assets ............................ 6,523 264 9,830 -- 16,617
--------- --------- --------- --------- ---------
Total current assets ...................... 40,028 24,506 85,839 (1,615) 148,758
Property and equipment, net .................... 37,585 24,251 58,764 -- 120,600
Deferred income taxes .......................... 11,070 -- 44 -- 11,114
Goodwill, net .................................. 1,627 21,926 70,828 -- 94,381
Other assets ................................... 7,532 121 3,374 -- 11,027
Investments in subsidiaries .................... 180,112 94,999 -- (275,111) --
Notes receivable, intercompany ................. -- 22,203 -- (22,203) --
--------- --------- --------- --------- ---------
Total assets .............................. $ 277,954 $ 188,006 $ 218,849 $(298,929) $ 385,880
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ................................ $ -- $ -- $ 14,376 $ -- $ 14,376
Current portion of long-term debt ............ 2,026 -- 8,767 -- 10,793
Current portion of capitalized
lease obligations .......................... 308 98 4,528 -- 4,934
Trade accounts payable ....................... 2,841 1,202 24,894 (1,615) 27,322
Accrued expenses and other
current liabilities ....................... 11,168 6,210 34,410 -- 51,788
--------- --------- --------- --------- ---------
Total current liabilities ................. 16,343 7,510 86,975 (1,615) 109,213
Long-term debt, excluding
current portion ........................... 101,488 -- 1,017 -- 102,505
Capitalized lease obligations,
excluding current portion ................. 328 140 12,515 -- 12,983
Notes payable, intercompany and other ........ -- 244 21,959 (22,203) --
Deferred compensation ........................ 1,407 -- -- -- 1,407
Minority interest ............................ -- -- 1,384 -- 1,384
Stockholders' equity ......................... 158,388 180,112 94,999 (275,111) 158,388
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity ...................... $ 277,954 $ 188,006 $ 218,849 $(298,929) $ 385,880
========= ========= ========= ========= =========
</TABLE>
8
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Balance Sheet
September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 6,401 $ 3,165 $ 12,919 $ -- $ 22,485
Trade accounts receivable, net ................. 30,950 28,032 69,408 (8,485) 119,905
Prepaid expenses and other current assets ...... 4,785 (65) 14,108 -- 18,828
--------- --------- --------- --------- ---------
Total current assets ........................ 42,136 31,132 96,435 (8,485) 161,218
Property and equipment, net ...................... 26,709 24,700 66,563 -- 117,972
Deferred income taxes ............................ 8,995 (244) 5,416 -- 14,167
Goodwill, net .................................... 1,560 21,247 71,637 -- 94,444
Other assets ..................................... 10,706 81 2,973 -- 13,760
Investments in subsidiaries ...................... 185,722 86,224 -- (271,946) --
Notes receivable, intercompany ................... -- 30,857 -- (30,857) --
--------- --------- --------- --------- ---------
Total assets ................................ $ 275,828 $ 193,997 $ 243,024 $(311,288) $ 401,561
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable .................................. $ -- $ -- $ 27,872 $ -- $ 27,872
Current portion of long-term debt .............. 2,056 -- 1,334 -- 3,390
Current portion of capitalized lease
obligations ................................. 315 98 2,430 -- 2,843
Trade accounts payable ......................... 2,267 1,670 25,725 (8,485) 21,177
Accrued expenses and other current liabilities . 8,156 6,440 42,180 -- 56,776
--------- --------- --------- --------- ---------
Total current liabilities ................... 12,794 8,208 99,541 (8,485) 112,058
Long-term debt, excluding current portion ........ 100,496 -- 4,529 -- 105,025
Capitalized lease obligations, excluding current
portion ........................................ 93 67 10,939 -- 11,099
Notes payable, intercompany ...................... -- -- 30,857 (30,857) --
Deferred compensation ............................ 1,645 -- -- -- 1,645
Minority interest ................................ -- -- 10,934 -- 10,934
Stockholders' equity ............................. 160,800 185,722 86,224 (271,946) 160,800
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity .. $ 275,828 $ 193,997 $ 243,024 $(311,288) $ 401,561
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income (Loss)
For the three months ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 28,487 $ 34,465 $ 57,296 $ -- $ 120,248
--------- --------- --------- ----------- -----------
Operating expenses:
Cost of services ............................. 14,517 18,833 34,563 -- 67,913
Selling, general and
administrative expenses ................... 14,475 12,867 22,129 -- 49,471
--------- --------- --------- ----------- -----------
Total operating expenses ..................... 28,992 31,700 56,692 -- 117,384
--------- --------- --------- ----------- -----------
Operating income (loss) ...................... (505) 2,765 604 -- 2,864
--------- --------- --------- ----------- -----------
Other income (expense):
Equity in earnings (losses) of
subsidiaries, net of tax .................. 1,310 (493) -- (817) --
Intercompany charges ......................... 409 347 (756) -- --
Interest expense, net ........................ (947) (294) (271) -- (1,512)
Other income (expense) ....................... 155 (35) 3 -- 123
--------- --------- --------- ----------- -----------
Total other income (expense) ................... 927 (475) (1,024) (817) (1,389)
--------- --------- --------- ----------- -----------
Income (loss) before income
taxes and minority interest ............... 422 2,290 (420) (817) 1,475
Income tax expense (benefit) ................... (304) 980 63 -- 739
Minority interest .............................. -- -- 10 -- 10
--------- --------- --------- ----------- -----------
Net income (loss) ......................... $ 726 $ 1,310 $ (493) $ (817) $ 726
========= ========= ========= =========== ===========
</TABLE>
10
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income (Loss)
For the three months ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 32,921 $ 46,295 $ 67,539 $ -- $ 146,755
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services ......................... 17,793 25,306 39,537 -- 82,636
Selling, general and
administrative expenses ............... 16,656 15,281 27,108 -- 59,045
--------- --------- --------- --------- ---------
Total operating expenses .............. 34,449 40,587 66,645 -- 141,681
--------- --------- --------- --------- ---------
Operating income ......................... (1,528) 5,708 894 -- 5,074
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earnings (losses)
of subsidiaries, net of tax ........... 3,255 (704) -- (2,551) --
Intercompany charges ..................... 82 503 (585) -- --
Interest expense, net .................... (2,362) (120) (975) -- (3,457)
Other income (expense) ................... (173) 1 191 -- 19
--------- --------- --------- --------- ---------
Total other income (expense)........... 802 (320) (1,369) (2,551) (3,438)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority interest ........... (726) 5,388 (475) (2,551) 1,636
Income tax expense (benefit) ............... (1,513) 2,133 216 -- 836
Minority interest .......................... -- -- 13 -- 13
--------- --------- --------- --------- ---------
Net income (loss) ..................... $ 787 $ 3,255 $ (704) $ (2,551) $ 787
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income
For the nine months ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 83,365 $ 95,231 $ 171,179 $ -- $ 349,775
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services .......................... 43,293 50,385 97,698 -- 191,376
Selling, general and
administrative expenses ............... 38,223 33,736 61,054 -- 133,013
--------- --------- --------- --------- ---------
Total operating expenses .................. 81,516 84,121 158,752 -- 324,389
--------- --------- --------- --------- ---------
Operating income .......................... 1,849 11,110 12,427 -- 25,386
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earning (losses) of
subsidiaries, net of taxes ............. 12,757 5,660 -- (18,417) --
Intercompany charges ...................... 576 944 (1,520) -- --
Interest income (expense), net ............ (894) (860) (1,445) -- (3,199)
Other income (expense) .................... 94 (35) 3 -- 62
--------- --------- --------- --------- ---------
Total other income (expense) ............ 12,533 5,709 (2,962) (18,417) (3,137)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority interest ............ 14,382 16,819 9,465 (18,417) 22,249
Income tax expense .......................... 596 4,062 3,719 -- 8,377
Minority interest ........................... -- 86 -- 86
--------- --------- --------- --------- ---------
Net income ............................. $ 13,786 $ 12,757 $ 5,660 $ (18,417) $ 13,786
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income (Loss)
For the nine months ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ..................................... $ 103,252 $ 133,111 $ 195,447 $ -- $ 431,810
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services ........................... 54,685 73,653 114,703 -- 243,041
Selling, general and
administrative expenses ................. 48,978 45,337 80,498 -- 174,813
Restructuring expenses ..................... -- -- 6,607 -- 6,607
--------- --------- --------- --------- ---------
Total operating expenses ................ 103,663 118,990 201,808 -- 424,461
--------- --------- --------- --------- ---------
Operating income (loss) ................. (411) 14,121 (6,361) -- 7,349
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earnings (losses)
of subsidiaries, net of tax ............. 1,925 (7,578) -- 5,653 --
Intercompany charges ....................... 203 1,379 (1,582) -- --
Interest expense, net ...................... (5,942) (880) (2,600) -- (9,422)
Other income (expense) ..................... (5) -- 193 -- 188
--------- --------- --------- --------- ---------
Total other income (expense) ............ (3,819) (7,079) (3,989) 5,653 (9,234)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority interest ............. (4,230) 7,042 (10,350) 5,653 (1,885)
Income tax expense (benefit) ................. (2,520) 5,117 (2,522) -- 75
Minority interest ............................ -- -- (250) -- (250)
--------- --------- --------- --------- ---------
Net income (loss) from
continuing operations ................. (1,710) 1,925 (7,578) 5,653 (1,710)
Extraordinary loss on
refinancing of debt, net of taxes ....... 514 -- -- -- 514
--------- --------- --------- --------- ---------
Net income (loss) ....................... $ (2,224) $ 1,925 $ (7,578) 5,653 (2,224)
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ...................... $ 6,891 $ (7,377) $ 6,839 $ -- $ 6,353
-------- -------- -------- -------- --------
Cash flows from investing activities:
Investments in subsidiaries .................. (54,539) (36,764) -- 91,303 --
Purchases of property and equipment .......... (25,403) (10,591) (26,575) -- (62,569)
Acquisitions of businesses,
net of cash acquired ...................... (19,921) -- (15,096) -- (35,017)
Changes in other assets ...................... -- -- (127) -- (127)
-------- -------- -------- -------- --------
Net cash used in investing
activities ................................ (99,863) (47,355) (41,798) 91,303 (97,713)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Borrowings on notes payable .................. 68,291 -- 8,769 -- 77,060
Repayments of notes payable .................. (68,291) -- (149) -- (68,440)
Borrowings on long-term debt ................. 92,483 -- 4,379 -- 96,862
Repayment of long-term debt
and capital lease obligations ............. (14,549) -- (364) -- (14,913)
Net capital contribution
from parent ............................... -- 54,539 36,764 (91,303) --
State incentive credits received ............. 900 -- -- -- 900
Common stock issued for
option exercises .......................... 227 -- -- -- 227
-------- -------- -------- -------- --------
Net cash provided by financing activities ...... 79,061 54,539 49,399 (91,303) 91,696
-------- -------- -------- -------- --------
Effect of exchange rates on cash ............... -- -- (2,545) -- (2,545)
-------- -------- -------- -------- --------
Net increase (decrease) in cash ................ (13,911) (193) 11,895 -- (2,209)
Cash and cash equivalents,
beginning of period ....................... 13,302 1,859 10,549 -- 25,710
-------- -------- -------- -------- --------
Cash and equivalents, end of period ............ $ (609) $ 1,666 $ 22,444 $ -- $ 23,501
======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ...................... $ (7,627) $ 18,205 $ 3,132 $ -- $ 13,710
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Investments in subsidiaries .................. 6,692 (6,637) -- (55) --
Dividend on common stock ..................... -- 10,000 -- (10,000) --
Purchases of property and equipment .......... (9,302) (6,489) (16,665) -- (32,456)
Proceeds from sale-lease
backs of facility ......................... 9,397 -- -- 9,397
Acquisition of subsidiary .................... -- -- (2,406) -- (2,406)
Acquisition of minority interest ............. -- -- (628) -- (628)
Sale of marketable securities ................ 257 -- -- -- 257
Changes in other assets ...................... -- -- (438) -- (438)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities ...................... 7,044 (3,126) (20,137) (10,055) (26,274)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable .................. -- -- 15,504 -- 15,504
Repayments of notes payable .................. -- -- (2,866) -- (2,866)
Borrowings on long-term debt ................. 124,383 -- 2,150 -- 126,533
Repayment of long-term debt
and capital lease obligations ............. (128,906) -- (6,891) -- (135,797)
Net capital contribution from parent ......... -- (6,692) 6,637 55 --
Net borrowings and payments
on note to parent ......................... -- (7,297) 7,297 -- --
Dividend on common stock ..................... -- -- (10,000) 10,000 --
Capital contribution from
subsidiary shareholder ..................... -- -- 1,400 -- 1,400
Sale of stock of subsidiaries ................ -- -- 6,541 -- 6,541
Common stock issued for
option exercises and other ................. (7) -- -- -- (7)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ...................... (4,530) (13,989) 19,772 10,055 11,308
--------- --------- --------- --------- ---------
Effect of exchange rates on cash ............. -- -- (544) -- (544)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash ................ (5,113) 1,090 2,223 -- (1,800)
Cash and cash equivalents,
beginning of period ....................... 11,514 2,075 10,696 -- 24,285
--------- --------- --------- --------- ---------
Cash and equivalents, end of period ............ $ 6,401 $ 3,165 $ 12,919 $ -- $ 22,485
========= ========= ========= ========= =========
</TABLE>
15
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of Operation and
Financial Condition.
Overview
SITEL Corporation and subsidiaries (the "Company") are engaged primarily in
inbound, outbound, and interactive teleservicing activities, servicing the
telecommunications, financial services, insurance, technology, utilities, media
and entertainment, consumer, automotive and travel and hospitality industries.
Operations are primarily located in North America, Europe, the Asia Pacific
region, and Latin America.
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated. All amounts are in
thousands.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 1998 1997 1998 (1)
---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 120,248 100% $ 146,755 100% $ 349,775 100% $ 431,810 100%
------------------ ------------------ ------------------ ------------------
Operating expenses:
Cost of services................ 67,913 56.5% 82,636 56.3% 191,376 54.7% 243,041 56.3%
Selling, general, and
administrative expenses......... 49,471 41.1% 59,045 40.2% 133,013 38.0% 174,813 40.5%
Restructuring expenses ........ -- 0.0% -- 0.0% -- 0.0% 6,607 1.5%
------------------ ------------------ ------------------ ------------------
Total operating expenses .. 117,384 97.6% 141,681 96.5% 324,389 92.7% 424,461 98.3%
------------------ ------------------ ------------------ ------------------
Operating income........... 2,864 2.4% 5,074 3.5% 25,386 7.3% 7,349 1.7%
Interest expense, net.............. (1,512) (1.2)% (3,457) (2.4%) (3,199) (0.9)% (9,422) (2.2)%
Other income....................... 123 0.0% 19 0.0% 62 0.0% 188 0.0%
------------------ ------------------ ------------------ ------------------
Income (loss) before income
taxes and minority interest ..... 1,475 1.2% 1,636 1.1% 22,249 6.4% (1,885) (0.4)%
Income tax expense ................ 739 0.6% 836 0.6% 8,377 2.4% 75 0.0%
Minority interest ................. 10 0.0% 13 0.0% 86 0.0% (250) (0.1)%
------------------ ------------------ ------------------ ------------------
Net income (loss) from
continuing operations ........... 726 0.6% 787 0.5% 13,786 3.9% (1,710) (0.4%)
Extraordinary loss on
refinancing of debt, net of
taxes ........................... -- 0.0% -- 0.0% -- 0.0% 514 0.1%
------------------ ------------------ ------------------ ------------------
Net income (loss).................. $ 726 0.6% $ 787 0.5% $ 13,786 3.9% $ (2,224) (0.5%)
================== ================== ================== ==================
<FN>
(1) Includes non-recurring restructuring expenses. Excluding those expenses,
operating income, net income from continuing operations, and basic and diluted
income per share were $14.0 million, $2.8 million, and $0.04 respectively for
the nine month period ended September 30, 1998.
</FN>
</TABLE>
16
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
Three Months Ended September 30, 1998 vs. Three Months Ended September 30, 1997
Revenues:
Revenues increased $26.5 million, or 22.0%, to $146.8 million in the three
months ended September 30, 1998 from $120.2 million in the three months ended
September 30, 1997. Of this increase, $20.0 million was attributable to services
initiated for new clients and $6.5 million was attributable to revenues from
businesses acquired under the purchase method of accounting. Revenues from North
American operations represented approximately 56% of total revenues in the three
months ended September 30, 1998, revenues from European operations represented
approximately 35%, revenues from Asia Pacific operations represented
approximately 6% and revenues from Latin America operations represented
approximately 3%.
Cost of Services:
Cost of services represents primarily labor and telephone expenses directly
related to teleservicing activities. Cost of services increased $14.7 million,
or 21.7%, to $82.6 million in the three months ended September 30, 1998 from
$67.9 million in the three months ended September 30, 1997. As a percentage of
revenues, cost of services decreased to 56.3% in the third quarter of 1998 from
56.5% in the third quarter of 1997. The decrease in cost of services as a
percentage of revenues was primarily attributable to decreases in Latin America
and Asia Pacific operations, which were sufficient to offset increases in costs
of services as a percentage of revenue in European and North American
operations. The increase in European operations was attributable to lower
utilization of labor resources in Europe, which costs were incurred in
anticipation of higher teleservicing campaign revenues, which did not
materialize. The increase in the North America operations was attributable to an
increasing percentage of revenues being realized from lower gross margin sectors
of the Company's industry focused teleservicing activities, primarily the
financial and insurance industries.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses represent expenses incurred to
directly support and manage the operations including costs of management,
administration, facilities expenses, depreciation and amortization, maintenance,
sales and marketing activities, and client support services. Selling, general
and administrative expenses increased $9.6 million, or 19.4%, to $59.0 million
in the three months ended September 30, 1998 from $49.5 million in the three
months ended September 30, 1997. This increase was primarily a result of the
Company's continued growth both internally and through acquisition. As a
percentage of revenues, selling, general and administrative expenses decreased
to 40.2% in the third quarter of 1998 from 41.1% in the third quarter of 1997.
This decrease was primarily due to higher than normal costs associated with
start up operations in Asia Pacific in 1997.
Operating Income:
Operating income increased to $5.1 million in the three months ended September
30, 1998 from $2.9 million in the three months ended September 30, 1997. This
increase was primarily due to the decreases in both cost of services and
selling, general and administrative expenses as a percentage of revenues as
noted above.
Interest Expense, Net:
Interest expense, net of interest income, increased to $3.5 million in the three
months ended September 30, 1998 from $1.5 million in the three months ended
September 30, 1997. This increase was primarily due to increased borrowings
utilized to support the Company's growth, including acquisitions.
17
<PAGE>
Income Tax Expense:
Income tax expense for the three months ended September 30, 1998 was $0.8
million compared to $0.7 million in the three months ended September 30, 1997.
The income tax expense as a percent of income before income taxes and minority
interest increased to 51.1% in the three months ended September 30, 1998 from
50.1% in the three months ended September 30, 1997. The difference between the
Company's income tax expense and that which would be calculated using the
statutory Federal income tax rate of 34% on income is primarily due to
non-deductible business acquisition expenses and international, state and local
income taxes.
Net Income:
For the reasons discussed above, net income increased to $0.8 million in the
three months ended September 30, 1998 from $0.7 million in the three months
ended September 30, 1997.
Nine Months Ended September 30, 1998 vs. Nine Months Ended September 30, 1997
Revenues:
Revenues increased $82.0 million, or 23.5%, to $431.8 million in the nine months
ended September 30, 1998 from $349.8 million in the nine months ended September
30, 1997. Of this increase, $65.6 million was attributable to services initiated
for new clients and increased revenues from existing clients and $16.4 million
was attributable to revenues from businesses acquired under the purchase method
of accounting. The increase in revenues from existing clients was primarily the
result of higher calling volumes rather than higher rates. Revenues from North
American operations represented approximately 58% of total revenue in the nine
months ended September 30, 1998, revenues from European operation represented
approximately 34%, revenues from Asia Pacific operations represented
approximately 5% and revenues from Latin America operations represented
approximately 3%.
Cost of Services:
Cost of services increased $51.7 million, or 27.0%, to $243.0 million in the
nine months ended September 30, 1998 from $191.4 million in the nine months
ended September 30, 1997. As a percentage of revenues, cost of services
increased to 56.3% in the first nine months of 1998 from 54.7% in the first nine
months of 1997. The overall increase in cost of services was primarily
attributable to lower utilization of labor resources in Europe, which costs were
incurred in anticipation of higher teleservicing campaign revenues, which did
not materialize. The increase also relates to lower margins in the North America
region caused by an increasing percentage of revenues being realized from lower
gross margin sectors of the Company's industry focused teleservicing activities,
primarily the financial and insurance industries.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased $41.8 million, or 31.4%,
to $174.8 million in the nine months ended September 30, 1998 from $133.0
million in the nine months ended September 30, 1997. This increase was primarily
a result of the Company's continued growth both internally and through
acquisition. As a percentage of revenues, selling, general and administrative
expenses increased to 40.5% in the first nine months of 1998 from 38.0% in the
first nine months of 1997. This increase was primarily due to lower than
anticipated revenues from European operations and costs associated with start up
operations in Asia Pacific and Latin America.
Restructuring Expense:
The Company recorded non-recurring restructuring expenses of $6.6 million in the
second quarter of 1998. The restructuring expenses primarily represent expenses
associated with severance arrangements. The charge was driven by two principal
factors, a lower level of campaign business, which historically has represented
a large portion of the Company's business in Europe, and the need to reposition
the Company's infrastructure for increasing amounts of outsourcing business.
18
<PAGE>
Operating Income:
Operating income decreased to $7.3 million in the nine months ended September
30, 1998 from $25.4 million in the nine months ended September 30, 1997. This
decrease was primarily due to the restructuring expenses and the increase in
both cost of services and selling, general and administrative expenses as a
percentage of revenue as noted above. Excluding the restructuring expense,
operating income was $14.0 million for the nine months ended September 30, 1998.
Interest Expense, Net:
Interest expense, net of interest income, increased to $9.4 million of interest
expense in the nine months ended September 30, 1998 from $3.2 million of
interest expense in the nine months ended September 30, 1997. This increase was
primarily due to increased borrowings utilized to support the Company's growth,
including acquisitions.
Income Tax Expense:
Income tax expense decreased to $0.1 million in the nine months ended September
30, 1998 compared to $8.4 million in the nine months ended September 30, 1997.
Excluding the restructuring expenses, income tax expense was $2.1 million for
the nine months ended September 30, 1998. The income tax expense as a percent of
income before income taxes and minority interest, excluding restructuring
expenses and related tax effects, increased to 45.0% in the nine months ended
September 30, 1998 from 37.7% in the nine months ended September 30, 1997
primarily due to the impact of nondeductible expenses associated with
acquisitions combined with lower operating income.
Net Income (Loss) From Continuing Operations and Net Income (Loss):
For the reasons discussed above, net income (loss) from continuing operations
decreased to a $1.7 million loss in the nine months ended September 30, 1998
from $13.8 million of income in the nine months ended September 30, 1997. After
the extraordinary loss on refinancing of debt, net income (loss) decreased to a
$2.2 million loss in the nine months ended September 30, 1998. Excluding the
restructuring expenses and the related tax effects, net income from continuing
operations and net income for the nine months ended September 30, 1998, was $2.8
million and $2.3 million, respectively.
Liquidity and Capital Resources:
Cash provided by operating activities was approximately $13.7 million during the
nine month period ended September 30, 1998. This was primarily the result of
noncash charges partially offset by increases in accounts receivable and other
assets and a decrease in accounts payable. The Company anticipates that the
accounts receivable will continue to grow, using working capital, as the Company
continues to grow. Cash used in investing activities in the nine months ended
September 30, 1998 of approximately $26.3 million was primarily related to
capital expenditures partially offset by the proceeds from sale-leasebacks of
facilities. Cash provided by financing activities in the nine months ended
September 30, 1998 of approximately $11.3 million primarily related to
borrowings on the Company's notes payable and the sale of stock of subsidiaries.
During the nine months ended September 30, 1998, the Company also completed the
private placement of $100 million of 9.25% Senior Subordinated Notes due 2006.
The proceeds from the offering were used to repay borrowings outstanding under
the Company's long term revolving credit facility.
At September 30, 1998, the Company had unused lines of credit totaling
approximately $43.1 million. In the second and third quarter, the Company sought
and obtained certain modifications to its existing credit facility to permit
continued availability of borrowing under such facility. The Company believes
that funds generated from operations, existing cash and the funds available
under the credit facility, as modified, will be sufficient to finance its
current operations, planned capital expenditures and internal growth for the
foreseeable future.
19
<PAGE>
Year 2000 Issue
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software and embedded system failures. Specifically,
computational errors and system failures are a known risk with respect to dates
after December 31, 1999. The Company has established a central Y2K compliance
office that reports directly to the Chief Technical Officer. Each of the
Company's operating units have also designated IT personnel to address the
issues that the unit faces and to report to the central Y2K compliance office.
The Company has implemented a system which allows it to track all IT and non-IT
systems and facility functions for compliance with industry Y2K standards. This
tracking system allows the Company to monitor and track each functional point as
a single item grouped by how critical the item is in the Company's ability to
perform its daily functions. Based on the output from these data and an analysis
of the system reports, the Company believes that all functional points which are
critical to the Company's functions have been identified and assessed. Further,
the Company has developed a remediation plan for each item in this critical
list. Part of the Company's remediation strategy is in concert with its efforts
to develop new and innovative systems for its internal operations.
IT issues - The Company is moving all of its IT systems into a state of
readiness for the year 2000. The Company believes that it is making satisfactory
progress to ensure that it will be ready with all critical IT systems by the end
of June 1999. The functional points that are defined as critical IT issues
include internal and external computer systems for revenue generating
applications. The Company has developed a strategy for its mission critical
internal systems designed to have every functional point year 2000 compliant by
the end of June 1999. These internal systems represent approximately 28% of the
overall effort in the IT applications area. The remaining 72% of the overall
effort in the IT area is in the interface and integration of external client and
vendor application systems. The Company has implemented a three-step process of
contacting significant vendors and clients to request information about the
status of their Y2K compliance efforts. In addition to communicating with
significant vendors, the Company is testing certain critical vendor application
systems for Y2K compliance and expects to document its contingency plans for
those systems by January 1, 1999. In addition to communicating with significant
clients, the Company's strategy to deal with non-compliant external client
customer data is a windowing technique which will enable such data to be used by
the Company's systems.
Non IT issues (facilities) - Non-IT issues, with few exceptions, have been
classified into a non-critical category. The few exceptions include dial tone
for the Company's telephony and power from the Company's energy providers. The
Company has included these functional points in the critical category for
purposes of scheduling. Based on communications with providers of these
services, the Company believes that these services will not be interrupted by
Year 2000 failures. The Company's contingency plan for the loss of power
includes generator systems in the Company's major facilities. The Company's
contingency plan for loss of dial tone includes the distribution of network
services across several providers. This will allow the Company to minimally
maintain its service levels in the event of a failure. The Company believes that
it is making satisfactory progress to ensure that all facility related issues
that are material to operations will be compliant by the end of June 1999.
Phases - The Company is employing a four-phase, nine-process step Project
Methodology that covers each aspect of Y2K compliance. The four phases are:
* Phase 1 Assessment
* Phase 2 Remediation
* Phase 3 Verification and Testing
* Phase 4 Implementation
20
<PAGE>
Each process step is necessary within the framework and provides clear
management checkpoints for gauging the progress of activity during execution of
the project plan. The following table outlines the phases and process steps:
Phase 1 Phase 2 Phase 3 Phase 4
Verification/
Process Steps Assessment Remediation Testing Implementation
- --------------------------------------------------------------------------------
1. Recognition/Awareness X X X X
2. Inventory X
3. Evaluation X
4. Determination X
5. Remediation X
6. Re-engineering X
7. Multi-level testing X X X X
8. Implementation X
9. Post-implementation X
The Company has clearly defined each of the process steps in the Project
Methodology. The Recognition/Awareness step included communication of the Y2K
issues and their importance throughout the Company. The Inventory step included
the identification and cataloging of each item that must be verified for
compliance with Y2K processing. The Evaluation step involves the evaluation and
categorization of the critical nature of each item based on established
criteria. The Determination step includes making informed management decisions
regarding the strategy to be taken for each individual item. The Remediation
step involves repair of all components of a process that could improperly
process dates. The Re-engineering step consists of rewriting and/or replacing
whole units of software code. The Multi-level testing step involves the
development of detailed testing criteria and the implementation of those testing
plans. The Implementation step involves the coordination of the release of
applications/systems into the live systems environment. The Post-implementation
step will include the on-going monitoring of applications/systems that have been
repaired and placed into the live systems environment.
The Company has completed the Recognition /Awareness and Inventory process steps
and nearly completed the Evaluation process step. Approximately 30% of the items
that the Company believes it needs to complete to be Y2K compliant are in
process steps within Phase 2 - Remediation, and a small number of items are in
Phase's 3 and 4.
Costs of Y2K Compliance - The Company currently estimates that the costs to
become Y2K compliant will approximate $18-22 million. The Company currently
anticipates that approximately 50% of these costs will be for hardware and
software and the remainder will be primarily internal personnel costs. The
Company estimates that it has incurred less than $5 million of these costs
through September 30, 1998. The estimated hardware and software costs are
included in the Company's definition of Y2K costs in cases where such
expenditures have been accelerated in order to address Y2K issues. These are the
Company's current cost estimates and it is expected that they may change,
perhaps materially.
Risks - There are many risks associated with the Year 2000 issue, including
without limitation the possibility that the Company will be unable to receive
client phone calls or that the Company will be unable to initiate phone calls on
behalf of its clients. Such possibilities could have a material adverse effect
on the Company depending on the nature of the cause and the speed with which it
could be corrected or an alternative implemented. If the Company's service
providers are unable to provide network switching capability, the Company will
be unable to perform its revenue-producing activities. If the Company's client
customer data does not have Year 2000 compliant dates, additional processing
will be required before revenue-producing activities using these data can be
performed. If internal systems or vendor application systems fail, the Company
will be unable to perform revenue-producing activities until such time as the
problem can be isolated and repaired
The Company believes that its critical internal systems and procedures will be
ready and tested before the year 2000. The Company believes that its reasonably
likely worst case scenarios will revolve around external factors including
vendors and clients. Although the Company expects to focus approximately 72% of
its efforts in the IT area on this external exposure, the Company has far less
control over these issues. It is reasonably likely that not all of the Company's
clients will have all of their internal systems year 2000 compliant before
January 1, 2000.
21
<PAGE>
The costs of the project and the dates on which the Company plans to complete
the Y2K modifications are based on management's best estimates, which were
derived using numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans, the Company's
ability to implement compliance in certain critical areas and other factors.
However, there can be no assurance that these estimates will be achieved, and
actual results could differ materially from those plans. The severity of
problems to be confronted by the Company for partial or complete non-compliance
will depend on a variety of factors (such as the nature of the resulting problem
and the speed with which it could be corrected or an alternative implemented)
which are currently unknown. Due to the general uncertainty inherent in the Year
2000 problem, resulting in part from the uncertainty of the Year 2000 readiness
of vendors and clients, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition.
Euro
On January 1, 1999, eleven European Union member states will adopt the Euro as
their common national currency. Thereafter, until January 1, 2002, (the
transition period), either the Euro or a participating country's present
currency will be accepted as legal tender. Beginning January 1, 2002,
Euro-denominated bills and coins will be issued, and by July 1, 2002, only the
Euro will be used. Management is addressing the strategic, financial, and legal
issues related to the conversion process and is currently upgrading its business
systems to allow for transactions in the Euro at the Company's European
facilities. These systems updates are expected to be completed and tested before
the end of the year. The Company does not anticipate any material impact to its
revenues, expenses or results of operations as a result of the adoption of the
Euro.
Quarterly Results and Seasonality
The Company has experienced and expects to continue to experience quarterly
variations in its results of operations principally due to the timing of
clients' teleservicing campaigns and the commencement of new contracts, revenue
mix, and the timing of additional selling, general and administrative expenses
to support new business. The Company experiences periodic fluctuations related
to both the start-up costs associated with expansion into a new region and the
implementation of clients' teleservicing activities. In addition, the Company's
business tends to be slower in the third quarter due to summer holidays in
Europe and, to a lesser degree, in the first quarter due to the changeover of
client marketing strategies which often occurs at the beginning of the year.
Effects of Inflation
Inflation has not had a significant effect on the Company's operations. However,
there can be no assurance that inflation will not have a material effect on the
Company's operations in the future.
Accounting Pronouncements
Statement of Financial Accounting Standard ("SFAS") 131, Disclosures about
Segments of an Enterprise and Related Information, was issued in June, 1997.
SFAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in annual financial reports issued to shareholders. It also established
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. The Company anticipates adopting this accounting
pronouncement in 1998; however, management believes that it will not have a
significant impact on the Company's annual consolidated financial statements.
SFAS 133, Accounting for Derivative Investments and Hedging Activities, was
issued in June 1998. SFAS 133 establishes accounting standards for derivative
instruments and for hedging activities. The standard is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company anticipates
adopting this accounting pronouncement in the third quarter of 1999; however,
management believes that it will not have a significant impact on the Company's
consolidated financial statements.
22
<PAGE>
Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Such statements
are identified by the use of forward-looking words or phrases which may include
but are not limited to, "intended," "will be positioned," "expects," "expected,"
"anticipates," "anticipated," "believes" and similar expressions. The
forward-looking statements are based on the Company's current expectations. All
statements other than statements of historical facts included in this Form 10-Q,
including those regarding the Company's financial position, business strategy,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to be correct. Because
forward-looking statements involve risks and uncertainties, the Company's actual
results could differ materially. Important factors that could cause actual
results to differ materially from the Company's expectations may include, but
are not limited to, the effects of leverage, restrictions imposed by the terms
of indebtedness, reliance on major clients, risks associated with managing a
global business, fluctuations in operating results, reliance on
telecommunications and computer technology, risks associated with the Company's
acquisition strategy, the dependence on telephone service, the competitive
industry, dependence on labor force, foreign currency risks, the effects of
business regulation, dependence on key personnel and control by management, and
risks associated with Year 2000 failures (see discussion above under the caption
"Year 2000 Issue"). All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by this paragraph. The Company disclaims,
however, any intent or obligation to update its forward-looking statements.
23
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 5. Other Information.
Effective June 29, 1998, the Securities and Exchange Commission adopted
an amendment to Rule 14a-4 under the Securities Exchange Act of 1934.
As amended, Rule 14a-4(c)(1) relates to the Company's use of its
discretionary proxy voting authority with respect to a shareholder
proposal which the shareholder has not sought to include in the
Company's proxy statement. Under amended Rule 14a-4(c)(1), if the
proponent of the proposal fails to notify the Company at least 45 days
prior to the month and day of mailing of the prior year's proxy
statement (or such other date as is specified by an advance notice
provision), management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
The Board of Directors has amended the Company's Bylaws to include
advance notice provisions. These advance notice provisions apply to
shareholder nominations for director as well as shareholder proposals
of business for the annual meeting of shareholders. If these advance
notice provisions are not complied with, the shareholder's nomination
for director or proposed business cannot be considered at the meeting
and therefore the above rule on discretionary voting authority will be
inapplicable.
The Company's advance notice provisions require that the Company be
provided notice of shareholder nominations for director and shareholder
proposals of business, in accordance with the procedures in the advance
notice provisions, for the 1999 annual meeting of shareholders by
January 3, 1999 and for subsequent annual meetings of shareholders by
at least 120 days prior to the month and day of the prior year's proxy
statement. The Bylaws amendment which sets forth these advance notice
provisions is included in Exhibit 3.2 to this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(1) 3.1 Certificate of Designation of Series A Participating Preferred
Stock
3.2 Amendment to Amended and Restated Bylaws
(2) 4.1 Rights Agreement
10.1 Second Amendment dated September 30, 1998 to Credit Agreement
27 Financial Data Schedule
----------------
(1) Previously filed as Exhibit A to the Rights Agreement described in
footnote (2) and incorporated herein by reference.
(2) Previously filed as Exhibit 1 to Form 8-A filed on August 24, 1998 and
incorporated herein by reference.
(b) Reports on Form 8-K. The Company filed the following report on Form
8-K during the quarter for which this report is filed:
(1) The Company filed a Form 8-K on August 24, 1998 reporting under
Item 5 that it adopted a Shareholder Rights Plan.
24
<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: November 12, 1998 SITEL Corporation
By: /s/ W. Gar Richlin
---------------------------------------
W. Gar Richlin
Executive Vice-President and Chief
Financial Officer
(Principal Financial Officer)
25
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
Exhibits Index: Page
----
(1) 3.1 Certificate of Designation of Series A
Participating Preferred Stock
3.2 Amendment to Amended and Restated Bylaws 27
(2) 4.1 Rights Agreement
10.1 Second Amendment dated September 30, 1998 to Credit
Agreement 29
27 Financial Data Schedule 35
----------------------------------
(1) Previously filed as Exhibit A to the Rights Agreement
described in footnote (2) and incorporated herein
by reference
(2) Previously filed as Exhibit 1 to Form 8-A filed on
August 24, 1998 and incorporated herein by reference.
26
Exhibit 3.2
Amendment to
Amended and Restated Bylaws of SITEL Corporation
Effective as of November 6, 1998
(the following new sections are added at the end of
Article II. MEETINGS OF SHAREHOLDERS)
Section 9. Advance Notice of Shareholder Nominees
Nominations of persons for election to the board of directors may be made at a
meeting of shareholders either (a) by or at the direction of the board of
directors or (b) by any shareholder entitled to vote on the election of
directors at the meeting who has complied with the notice procedures set forth
in this Section.
A shareholder who desires to nominate a person for election to the board of
directors at a meeting of shareholders must give timely written notice of the
proposed nomination (a "Shareholder's Nominee Notice") to the secretary of the
corporation. To be timely, a Shareholder's Nominee Notice must be received at
the principal executive offices of the corporation not later than one hundred
twenty (120) calendar days in advance of the date (month and day) of the
previous year's annual proxy statement; provided, however, that in the event the
date of the forthcoming annual meeting of shareholders has been changed by more
than thirty (30) days from the date contemplated at the time of the previous
year's proxy statement, a Shareholder's Nominee Notice must be received not
later than the close of business on the tenth (10th) day following the earlier
of (a) the day on which notice of the date of the forthcoming meeting was mailed
or given to shareholders or (b) the day on which public disclosure of the date
of the forthcoming meeting was made; and provided however, that in respect of
the 1999 annual meeting of shareholders, a Shareholder's Nominee Notice must be
received no later than January 3, 1999.
A Shareholder's Nominee Notice shall set forth as to each person, if any, whom
the shareholder proposes to nominate for election or re-election as a director
(a) the name, age, business address, and residence address of such person, (b)
the principal occupation or employment of such person, (c) the class and number
of shares of capital stock of the corporation which are beneficially owned by
such person, (d) any other information relating to such person that is required
by law or regulation to be disclosed in solicitations of proxies for the
election of directors, and (e) such person's written consent to being named as a
nominee and to serve as a director if elected. A Shareholder's Nominee Notice
shall also set forth as to the shareholder giving the notice (a) the name and
address, as they appear on the books of the corporation, of such shareholder,
(b) the class and number of shares of capital stock of the corporation which are
beneficially owned by such shareholder, (c) a description of all arrangements or
understandings between such shareholder and each nominee and any other person or
persons (naming such person or persons) relating to the nomination proposed to
be made by such shareholder, and (d) any other information required by law or
regulation to be provided by a shareholder intending to nominate a person for
election as a director of the corporation.
No person shall be eligible for election as a director of the corporation unless
nominated in compliance with the procedures set forth in this Section. The
chairman of the meeting shall, if the facts warrant, determine and declare at
the meeting that a nomination was not made in compliance with the procedures
prescribed by this Section; any nomination which the chairman so determines and
declares to be non-compliant with the procedures in this Section shall be
disregarded.
Section 10. Advance Notice of Shareholder Business
At an annual meeting of shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting of shareholders, business must be (a) as specified in
the notice of the meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a shareholder.
27
<PAGE>
Business to be brought before an annual meeting by a shareholder shall not be
considered properly brought if the shareholder has not given timely notice
thereof in writing to the secretary of the corporation (a "Shareholder's
Proposal Notice"). To be timely, a Shareholder's Proposal Notice must be
received at the principal executive offices of the corporation not later than
one hundred twenty (120) calendar days in advance of the date (month and day) of
the previous year's annual proxy statement; provided, however, that in the event
the date of the forthcoming annual meeting of shareholders has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, a Shareholder's Proposal Notice must be
received not later than the close of business on the tenth (10th) day following
the earlier of (a) the day on which notice of the date of the forthcoming annual
meeting was mailed or given to shareholders or (b) the date on which public
disclosure of the date of the forthcoming annual meeting was made; and provided
however, that in respect of the 1999 annual meeting of shareholders, a
Shareholder's Proposal Notice must be received no later than January 3, 1999.
A Shareholder's Proposal Notice shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address of
the shareholder proposing such business, (c) the class and number of shares of
capital stock of the corporation which are beneficially owned by the
shareholder, (d) any material interest of the shareholder in such business, and
(e) any other information that is required by law or regulation to be provided
by the shareholder in its capacity as a proponent of a shareholder proposal.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting of shareholders except in compliance with the
procedures set forth in this Section. The chairman of the annual meeting of
stockholders shall, if the facts warrant, determine and declare at the meeting
that business was not properly brought before the meeting in compliance with the
provisions of this Section; any such business which the chairman determines and
declares was not properly brought before the meeting shall not be transacted.
28
Exhibit 10.1
SECOND AMENDMENT TO CREDIT AGREEMENT
SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of September
30, 1998, among SITEL CORPORATION, a corporation organized and existing under
the laws of the State of Minnesota (the "Borrower"), the lenders party to the
Credit Agreement referred to below (the "Banks"), U.S. BANK NATIONAL
ASSOCIATION, as Syndication Agent, FIRST UNION NATIONAL BANK, as Documentation
Agent, and BANKERS TRUST COMPANY, as Agent. Unless otherwise defined herein,
capitalized terms used herein and defined in the Credit Agreement referred to
below are used herein as so defined.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Documentation Agent, the Syndication Agent
and the Agent have entered into a Credit Agreement, dated as of July 24, 1997
and amended and restated as of March 10, 1998 (as amended, modified or
supplemented through, but not including, the date hereof, the "Credit
Agreement"); and
WHEREAS, subject to the terms and conditions set forth below, the parties hereto
wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed;
1. Section 1.08(a) of the Credit Agreement is hereby amended by inserting the
text "the sum of the Applicable Base Rate Margin plus" immediately prior to the
text "the Base Rate in effect from time to time" appearing therein.
2. Section 2.05(a) of the Credit Agreement is hereby amended by inserting the
text "the sum of the Applicable Base Rate Margin plus" immediately prior to the
text "the Base Rate in effect from time to time" both times such text appears
therein.
3. Section 8.01(e) of the Credit Agreement is hereby amended by inserting the
text "and the Applicable Base Rate Margin" immediately following the text "the
Applicable Eurodollar Rate Margin" appearing therein.
4. Section 9.08 of the Credit Agreement is hereby amended by deleting the table
contained therein in its entirety and inserting in lieu thereof the following
new table:
29
<PAGE>
"Fiscal Quarter Ending Ratio
---------------------- -----
December 31, 1997 4.00:1.00
March 31, 1998 4.00:1.00
June 30, 1998 4.00:1.00
September 30, 1998 3.90:1.00
December 31, 1998 3.90:1.00
March 31, 1999 4.00:1.00
June 30, 1999 4.00:1.00
September 30, 1999 4.00:1.00
December 31, 1999 4.00:1.00
March 31, 2000 5.00:1.00
June 30, 2000 5.00:1.00
September 30, 2000 5.50:1.00
December 31, 2000 5.50:1.00
March 31, 2001 5.50:1.00
June 30, 2001 5.50:1.00
September 30, 2001 and
the last day of each fiscal
quarter thereafter 6.00:1.00".
5. Section 9.10 of the Credit Agreement is hereby amended by deleting the table
contained therein in its entirety and inserting in lieu thereof the following
new table:
"Fiscal Quarter Ending Amount
---------------------- ------
December 31, 1997 $50,000,000
March 31, 1998 $50,000,000
June 30, 1998 $45,000,000
September 30, 1998 $50,000,000
December 31, 1998 $55,000,000
March 31, 1999 $58,000,000
June 30, 1999 $60,000,000
September 30, 1999 $70,000,000
December 31, 1999
and the last day of
each fiscal quarter thereafter $75,000,000".
6. The definition of "Applicable Eurodollar Rate Margin" appearing in Section
11.01 of the Credit Agreement is amended by deleting the text "1%" appearing
therein and inserting the text "1.25%" in lieu thereof.
7. Section 11.01 of the Credit Agreement is hereby amended by inserting in the
appropriate alphabetical order the following new definition:
"Applicable Base Rate Margin" shall mean 1/4 of 1% less the then
applicable Interest Reduction Discount, if any. Notwithstanding the
foregoing or anything else to the contrary contained herein, in no
event shall the Applicable Base Rate Margin be less than zero.
8. On the Second Amendment Effective Date (as defined below), the Borrower and
the Banks hereby acknowledge and agree that the Total Revolving Loan Commitment
shall be reduced from $75,000,000 to $50,000,000. In that connection, Schedule I
to the Credit Agreement is hereby replaced in its entirety with Schedule I
attached hereto.
30
<PAGE>
9. In order to induce the Banks to enter into this Amendment, the Borrower
hereby represents and warrants that (i) the representations, warranties and
agreements contained in Section 7 of the Credit Agreement are true and correct
in all material respects on and as of the Second Amendment Effective Date
(except with respect to any representations and warranties limited by their
terms to a specific date, which shall be true and correct in all material
respects as of such date) and (ii) there exists no Default or Event of Default
on the Second Amendment Effective Date, in each case after giving effect to this
Amendment.
10. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
11. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Agent.
12. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW
YORK.
13. This Amendment shall become effective as of September 30, 1998 on the date
(the "Second Amendment Effective Date") when (i) the Borrower and the Required
Banks shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of telecopier) the same
to the Agent at the Notice Office and (ii) the Borrower shall have paid to each
of the Banks which has signed a counterpart of this Amendment and delivered the
same to the Agent on or before 5:30 p.m. (New York time) on October __, 1998 an
amendment fee equal to the product of (x) 1/10 of 1% and (y) the Revolving Loan
Commitment of each such Bank on the Second Amendment Effective Date before
giving effect to this Amendment.
14. From and after the Second Amendment Effective Date, all references in the
Credit Agreement and the other Credit Documents to the Credit Agreement shall be
deemed to be references to the Credit Agreement as modified hereby.
* * * *
31
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed and delivered as of the date first above written.
SITEL CORPORATION
By: ______________________________
Title:
BANKERS TRUST COMPANY,
Individually and as Agent
By: ______________________________
Title:
U.S. BANK NATIONAL ASSOCIATION,
Individually and as Syndication Agent
By: ______________________________
Title:
FIRST UNION NATIONAL BANK,
Individually and as Documentation Agent
By: ______________________________
Title:
THE BANK OF NEW YORK
By: ______________________________
Title:
32
<PAGE>
THE BANK OF NOVA SCOTIA
By: ______________________________
Title:
COMERICA BANK
By: ______________________________
Title:
CREDIT AGRICOLE INDOSUEZ
By: ______________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By: ______________________________
Title:
WACHOVIA BANK, N.A.
By: _______________________________
Title:
33
<PAGE>
SCHEDULE I
REVOLVING LOAN COMMITMENTS
Revolving Loan
Bank Commitment
- ---- ----------
Bankers Trust Company $6,666,666.67
U.S. Bank National Association $6,666,666.67
First Union National Bank $6,666,666.66
The Bank of New York $6,000,000.00
The First National Bank of Chicago $6,000,000.00
Comerica Bank $4,666,666.67
Credit Agricole Indosuez $4,666,666.67
The Bank of Nova Scotia $4,666,666.66
Wachovia Bank, N.A. $4,000,000.00
-------------
TOTAL: $50,000,000.00
=============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form 10Q and
is qualified in its entirety by reference to such form 10Q.
</LEGEND>
<CIK> 0000943820
<NAME> Sitel Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 22,485
<SECURITIES> 0
<RECEIVABLES> 124,388
<ALLOWANCES> 4,483
<INVENTORY> 0
<CURRENT-ASSETS> 161,218
<PP&E> 194,633
<DEPRECIATION> 76,661
<TOTAL-ASSETS> 401,561
<CURRENT-LIABILITIES> 112,058
<BONDS> 100,000
0
0
<COMMON> 64
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 401,561
<SALES> 431,810
<TOTAL-REVENUES> 431,810
<CGS> 243,041
<TOTAL-COSTS> 424,461
<OTHER-EXPENSES> (188)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,422
<INCOME-PRETAX> (1,885)
<INCOME-TAX> 95
<INCOME-CONTINUING> (1,710)
<DISCONTINUED> 0
<EXTRAORDINARY> 514
<CHANGES> 0
<NET-INCOME> (2,234)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
