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 June 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. 1910
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 July 31, 1998, the Company had 64,050,109 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.......................... 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........ 21
Item 6. Exhibits and Reports on Form 8-K........................... 21
Signature........................................................... 22
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, 1997 and June 30, 1998
(dollars in thousands, except share data)
ASSETS December 31, June 30
1997 1998
____________ ___________
Current assets: (unaudited)
Cash and cash equivalents....................... $ 24,285 $ 28,697
Trade accounts receivable (net of allowance for
doubtful accounts of $ 5,099 and $5,375,
respectively) .................................. 107,697 129,148
Marketable securities .......................... 159 --
Prepaid expenses ............................... 3,916 6,307
Other assets ................................... 9,548 10,439
Deferred income taxes .......................... 3,153 1,443
____________ ___________
Total current assets ........................ 148,758 176,034
Property and equipment, net.................. 120,600 116,941
Deferred income taxes........................ 11,114 14,748
Goodwill, net................................ 94,381 94,344
Other assets................................. 11,027 12,907
____________ ___________
Total assets ................................ $ 385,880 $ 414,974
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank............................ $ 14,376 $ 25,437
Current portion of long-term debt.............. 10,793 7,821
Current portion of capitalized lease
obligations.................................... 4,934 3,620
Trade accounts payable......................... 27,322 22,257
Income taxes payable........................... 8,398 7,230
Accrued compensation........................... 14,120 25,960
Accrued operating expenses..................... 22,984 29,043
Deferred revenue and other..................... 6,286 6,956
____________ ___________
Total current liabilities................... 109,213 128,324
Long-term debt, excluding current portion... 102,505 107,540
Capitalized lease obligations, excluding
current portion............................. 12,983 11,010
Deferred compensation....................... 1,407 1,627
Minority interest........................... 1,384 9,560
Stockholders' equity:
Common stock, voting, $.001 par value
200,000,000 shares authorized, 63,099,597 and
64,046,613 shares issued and outstanding,
respectively.................................... 63 64
Paid-in capital................................. 155,326 157,879
Accumulated other comprehensive income.......... (6,415) (7,433)
Retained earnings............................... 9,414 6,403
Total stockholders' equity................... 158,388 156,913
____________ ___________
Total liabilities and stockholders' equity... $ 385,880 $ 414,974
============ ===========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(unaudited)
For The Three Months Ended For The Three Months Ended
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
<S> <C> <C> <C> <C>
_____________ _____________ _____________ _____________
(in thousands, except per share data)
Revenues........................................ $ 125,267 $ 147,307 $ 229,527 $ 285,055
_____________ _____________ _____________ _____________
Operating expenses:
Cost of services........................... 67,105 82,585 123,462 160,405
Selling, general and administrative
expenses.............................. 46,301 61,096 83,543 115,768
Restructuring expenses .................... -- 6,607 -- 6,607
_____________ _____________ _____________ _____________
Total operating expense...... 113,406 150,288 207,005 282,780
_____________ _____________ _____________ _____________
Operating income (loss)...... 11,861 (2,981) 22,522 2,275
Other income (expense):
Interest income (expense), net............. (1,153) (3,375) (1,687) (5,965)
Other income (expense) .................... (61) 34 (61) 169
_____________ _____________ _____________ _____________
Income (loss) before income taxes
and minority interest...................... 10,647 (6,322) 20,774 (3,521)
Income tax expense (benefit) ................... 3,995 (1,878) 7,638 (761)
Minority interest .............................. 46 31 76 (263)
_____________ _____________ _____________ _____________
Net income (loss) from continuing operations.... 6,606 (4,475) 13,060 (2,497)
Extraordinary loss on refinancing of debt, net
of taxes .................................. -- -- -- 514
_____________ _____________ _____________ _____________
Net income (loss) .............................. $ 6,606 $ (4,475) $ 13,060 $ (3,011)
============= ============= ============= =============
Income (loss) from continuing operations per
common share:
Basic......................................... $ 0.11 $ (0.07) $ 0.21 $ (0.04)
Diluted....................................... $ 0.10 $ (0.07) $ 0.19 $ (0.04)
Income (loss) per common share:
Basic......................................... $ 0.11 $ (0.07) $ 0.21 $ (0.05)
Diluted....................................... $ 0.10 $ (0.07) $ 0.19 $ (0.05)
Weighted average common shares outstanding:
Basic......................................... 61,622 63,871 60,753 63,584
Diluted....................................... 68,800 63,871 68,158 63,584
The accompanying notes are an integral part of the consolidated condensed
financial statements
</TABLE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
For Six Months Ended
(dollars in thousands) June 30, 1997 June 30, 1998
______________ _____________
Net income(loss)............................... $ 13,060 $ (3,011)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 12,450 19,551
Extraordinary loss on refinancing of debt... -- 792
Gain on marketable securities............... -- (208)
Restructuring provision..................... -- 6,607
Change in assets and liabilities:
Trade accounts receivable............... (21,247)
(28,706)
Other assets............................ (4,042) (1,400)
Trade accounts payable.................. 2,048 (4,969)
Other liabilities....................... 8,337 11,352
______________ _____________
Net cash provided by operating
activities............................ 3,147 7,467
______________ _____________
Cash flows from investing activities:
Purchases of property and equipment......... (42,533) (23,986)
Proceeds from sale-leasebacks of facilities. -- 9,397
Acquisition of businesses, net of cash
acquired.................................... (28,866) (2,355)
Sale of marketable securities............... -- 257
Changes in other assets, net................ (120) (209)
______________ _____________
Net cash used in investing activities. (71,519) (16,896)
______________ _____________
Cash flows from financing activities:
Borrowings on note payable.................. 75,577 13,664
Repayments of note payable.................. (43,763) (2,866)
Borrowings on long-term debt................ 18,411 127,339
Repayment of long-term debt and capitalized
lease obligations........................... (620) (131,541)
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.... 227 2
______________ _____________
Net cash provided by financing
activities............................ 50,732 14,539
______________ _____________
Effect of exchange rates on cash...... (1,773) (698)
______________ _____________
Net increase (decrease) in cash....... (19,413) 4,412
Cash and cash equivalents, beginning
pf period............................. 25,710 24,285
______________ _____________
Cash and cash equivalents, end of
period................................ $ 6,297 $ 28,697
============== =============
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
six months of 1997 and 1998, respectively.
The accompanying notes are an integral part of the consolidated
condensed financial statements.
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
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.
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
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 quarter of 1998, the Company
sought and obtained certain modifications to the Credit Facility to permit
continued availability of borrowing under such facility.
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.
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
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 $6,902,000 and $(4,170,000) for the three month periods ended June
30, 1997 and 1998, respectively, and $8,608,000 and $(4,029,000) for the six
month periods ended June 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 June 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. The amount of actual termination benefits paid and
actual losses charged against the liability for contractual obligations during
the six months ended June 30, 1998 was approximately $1.2 million and $0.5
million, respectively.
In the second quarter of 1998, the Company recorded a $6.6 million charge for
restructuring expenses related to it's European operations. Included in that
charge were $6.4 million related to termination benefits for approximately 250
employees. The restructuring expenses also include $0.2 million for the cost of
excess leased facilities. There were no amounts charged against these accruals
through June 30, 1998.
8. 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 June 30, 1998, and for the three and six months ended, June 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.
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Balance Sheet
December 31, 1997
(in thousands)
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
=========== ============ ============= ============ ============
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Balance Sheet
June 30, 1998
(in thousands)
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
___________ ____________ _____________ ____________ ____________
ASSETS
Current assets:
Cash and cash equivalents...... $ 10,559 $ 2,016 $ 16,122 $ - $ 28,697
Trade accounts receivable, net. 29,320 33,235 69,061 (2,468) 129,148
Prepaid expenses and other
current assets................. 5,292 9 12,888 - 18,189
___________ ____________ _____________ ____________ ____________
Total current assets......... 45,171 35,260 98,071 (2,468) 176,034
Property and equipment, net..... 31,603 21,452 63,886 - 116,941
Deferred income taxes........... 9,448 (244) 5,544 - 14,748
Goodwill, net................... 1,581 21,474 71,289 - 94,344
Other assets.................... 10,310 42 2,555 -- 12,907
Investments in subsidiaries..... 180,877 83,030 - (263,907) --
Notes receivable, intercompany.. - 30,419 - (30,419)
___________ ____________ _____________ ____________ ____________
Total assets.................. $ 278,990 $ 191,433 $ 241,345 $ (296,794) $ 414,974
=========== ============ ============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable................... $ -- $ -- $ 25,437 $ -- $ 25,437
Current portion of long-term
debt............................ 2,301 -- 5,520 -- 7,821
Current portion of capitalized
lease obligations............... 333 98 3,189 -- 3,620
Trade accounts payable.......... 1,668 2,480 20,577 (2,468) 22,257
Accrued expenses and other
current liabilities............. 15,065 7,886 46,238 - 69,189
___________ ____________ _____________ ___________ ____________
Total current liabilities..... 19,367 10,464 100,961 (2,468) 128,324
Long-term bebt, excluding current
portion............................ 100,930 - 6,610 - 107,540
Capitalized lease obligations,
excluding current portion.......... 153 92 10,765 - 11,010
Notes payable, intercompany........ - - 30,419 (30,419) --
Deferred compensation ............. 1,627 - - - 1,627
Minority interest.................. - - 9,560 - 9,560
Stockholders' equity............... 156,913 180,877 83,030 (263,907) 156,913
___________ ____________ _____________ ___________ ___________
Total liabilities and
stockholders' equity.......... $ 278,990 $ 191,433 $ 241,345 $ (296,794) $ 414,974
=========== ============ ============= =========== ============
</TABLE>
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income
For the three months ended June 30, 1997
(in thousands)
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
___________ ____________ _____________ ___________ ____________
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ 20,115 $ 43,311 $ 61,841 $ -- $ 125,267
___________ ____________ _____________ ___________ ____________
Operating expenses:
Cost of services............... 10,395 22,340 34,370 -- 67,105
Selling, general and
administrative expenses......... 10,027 14,831 21,443 -- 46,301
___________ ____________ _____________ ___________ ____________
Total operating expenses..... 20,422 37,171 55,813 -- 113,406
___________ ____________ _____________ ___________ ____________
Operating income (loss) ..... (307) 6,140 6,028 -- 11,861
Other income (expense):
Equity in earnings (losses) of
subsidiaries, net of tax....... 7,250 3,181 -- (10,431) --
Intercompany charges........... 167 228 (395) -- --
Interest expense, net.......... (428) 5 (730) -- (1,153)
Other income (expense)......... (61) -- -- -- (61)
___________ ____________ _____________ ____________ ____________
Total other income (expense). 6,928 3,414 (1,125) (10,431) (1,214)
___________ ____________ _____________ ____________ ____________
Income (loss) before income taxes
and minority interest........... 6,621 9,554 4,903 (10,431) 10,647
Income tax expense (benefit).... 15 2,304 1,676 -- 3,995
Minority interest................ -- -- 46 -- 46
___________ ____________ _____________ ____________ ____________
Net income (loss)........... $ 6,606 7,250 $ 3,181 $ (10,431) $ 6,606
=========== ============ ============= ============ ============
</TABLE>
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income (Loss)
For the three months ended June 30, 1998
(in thousands)
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
___________ ____________ _____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 36,259 $ 45,810 $ 65,238 $ -- $ 147,307
___________ ____________ _____________ ____________ ____________
Operating expenses:
Cost of services............... 18,932 25,001 38,652 -- 82,585
Selling, general and
administrative expenses........ 17,198 15,730 28,168 -- 61,096
Restructuring expenses......... -- -- 6,607 -- 6,607
___________ ____________ _____________ ____________ ____________
Total operating expenses..... 36,130 40,731 73,427 -- 150,288
___________ ____________ _____________ ____________ ____________
Operating income............. 129 5,079 (8,189) -- (2,981)
Other income (expense):
Equity in earnings (losses) of
subsidiaries, net of tax....... (3,111) (6,711) -- 9,822 --
Intercompany charges........... 65 440 (505) -- --
Interest expense, net.......... (2,467) 20 (928) -- (3,375)
Other income (expense) ........ 33 (1) 2 -- 34
___________ ____________ _____________ ____________ ____________
Total other income (expense). (5,480) (6,252) (1,431) 9,822 (3,341)
___________ ____________ _____________ ____________ ____________
Income (loss) before income taxes
and minority interest.......... (5,351) (1,173) (9,620) 9,822 (6,322)
Income tax expense (benefit)..... (876) 1,938 (2,940) -- (1,878)
Minority interest................ -- -- 31 -- 31
___________ ____________ _____________ ____________ ____________
Net income (loss) ........... $ (4,475) (3,111) $ (6,711) $ 9,822 $ (4,475)
=========== ============ ============= ============ ============
</TABLE>
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income
For the six months ended June 30, 1997
(in thousands)
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
___________ ____________ _____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 54,878 $ 60,766 $ 113,883 $ -- $ 229,527
___________ ____________ _____________ ____________ ____________
Operating expenses:
Cost of services............... 28,775 31,552 63,135 -- 123,462
Selling, general and
administrative expenses..... 23,749 20,869 38,925 -- 83,543
___________ ____________ _____________ ____________ ____________
Total operating expenses..... 52,524 52,421 102,060 -- 207,005
___________ ____________ _____________ ____________ ____________
Operating income............. 2,354 8,345 11,823 -- 22,522
___________ ____________ _____________ ____________ ____________
Other income (expense):
Equity in earnings of
subsidiaries, net of tax..... 11,447 6,153 -- (17,600) --
Intercompany charges........... 167 597 (764) -- --
Interest income (expense), net. 53 (566) (1,174) -- (1,687)
Other income (expense)......... (61) -- -- -- (61)
___________ ____________ _____________ ____________ ____________
Total other income (expense). 11,606 6,184 (1,938) (17,600) (1,748)
___________ ____________ _____________ ____________ ____________
Income (loss) before income taxes
and minority interest.......... 13,960 14,529 9,885 (17,600) 20,774
Income tax expense............... 900 3,082 3,656 -- 7,638
Minority interest................ -- -- 76 -- 76
___________ ____________ _____________ ____________ ____________
Net income.................. $ 13,060 $ 11,447 $ 6,153 $ (17,600) $ 13,060
=========== ============ ============= ============ ============
</TABLE>
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Income (Loss)
For the six months ended June 30, 1998
(in thousands)
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
___________ ____________ _____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 70,331 $ 86,816 $ 127,908 $ -- $ 285,055
___________ ____________ _____________ ____________ ____________
Operating expenses:
Cost of services............... 36,892 48,347 75,166 -- 160,405
Selling, general and
administrative expenses........ 32,322 30,056 53,390 -- 115,768
Restructuring expenses......... -- -- 6,607 -- 6,607
___________ ____________ _____________ ____________ ____________
Total operating expenses..... 69,214 78,403 135,163 -- 282,780
___________ ____________ _____________ ____________ ____________
Operating income (loss)...... 1,117 8,413 (7,255) 2,275
Other income (expense):
Equity in earnings (losses) of
subsidiaries, net of tax..... (1,330) (6,874) -- 8,204 --
Intercompany charges........... 121 876 (997) -- --
Interest expense, net.......... (3,580) (760) (1,625) (5,965)
Other income (expense)......... 168 (1) 2 169
___________ ____________ _____________ ____________ ____________
Total other income (expense). (4,621) (6,759) (2,620) 8,204 (5,796)
___________ ____________ _____________ ____________ ____________
Income (loss) before income taxes
and minority interest......... (3,504) 1,654 (9,875) 8,204 (3,521)
Income tax expense (benefit)..... (1,007) 2,984 (2,738) - (761)
Minority interest................ - - (263) - (263)
___________ ____________ _____________ ____________ ____________
Net income (loss) from
continuing operations..... (2,497) (1,330) (6,874) 8,204 (2,497)
Extraordinary loss on refinancing
of debt, net of taxes.......... 514 - - - 514
____________ ____________ _____________ ____________ ____________
Net income (loss) ........... $ (3,011) (1,330) $ (6,874) $ 8,204 $ (3,011)
============ ============ ============= ============ ============
</TABLE>
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 1997
(in thousands)
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
___________ ____________ _____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities......... $ (5,728) $ 3,753 $ 5,122 $ -- $ 3,147
operating activities......... ___________ ____________ _____________ ____________ ____________
Cash flows from investing activities:
Investments in subsidiaries.... (10,984) (10,224) -- 21,208 --
Purchases of property and
equipment.................... (19,756) (4,634) (18,143) -- (42,533)
Acquisitions of businesses,
net of cash acquired......... (19,922) -- (8,944) -- (28,866)
Changes in other assets,net.... -- -- (120) -- (120)
___________ ____________ _____________ ____________ ____________
Net cash used in investing
activities................... (50,662) (14,858) (27,207) 21,208 (71,519)
___________ ____________ _____________ ____________ ____________
Cash flows from financing activities:
Borrowings on notes
payable...................... 68,291 -- 7,286 -- 75,577
Repayments of notes
payable...................... (43,614) -- (149) -- (43,763)
Borrowings on long-term
debt......................... 15,808 -- 2,603 -- 18,411
Repayment of long-term debt and
capital lease obligations.... (163) (25) (432) -- (620)
Net capital contribution from
parent....................... -- 10,984 10,224 (21,208) --
State incentive credits
received..................... 900 -- -- -- 900
Common stock issued for option
exercises.................... 227 -- -- -- 227
exercises.................... ___________ ____________ _____________ ____________ ____________
Net cash provided by financing
activities..................... 41,449 10,959 19,532 (21,208) 50,732
___________ ____________ _____________ ____________ ____________
Effect of exchange rates on
cash........................... -- -- (1,773) -- (1,773)
___________ ____________ _____________ ____________ ____________
Net decrease in cash........... (14,941) (146) (4,326) -- (19,413)
Cash and cash equivalents,
beginning of period......... 13,302 1,859 10,549 -- 25,710
___________ ____________ _____________ ____________ ____________
Cash and equivalents, end of
period......................... $ (1,639) $ 1,713 $ 6,223 $ -- $ 6,297
=========== ============ ============= ============ ============
</TABLE>
<TABLE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued):
Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 1998
(in thousands)
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
___________ ____________ _____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.......... $ (2,010) $ 10,570 $ (1,093) $ -- $ 7,467
___________ ____________ _____________ ____________ ____________
Cash flows from investing activities:
Investments in subsidiaries.. 2,335 (5,924) -- 3,589 --
Dividend on common stock..... -- 10,000 -- (10,000) --
Purchases of property and
equipment.................. (7,290) (5,075) (11,621) -- (23,986)
Acquisition of subsidiary.... -- -- (2,355) -- (2,355)
Proceeds from sales of property
and equipment.............. 9,397 -- -- -- 9,397
Sale of marketable
securities................. 257 -- -- -- 257
Changes in other assets...... -- -- (209) -- (209)
___________ ____________ _____________ ____________ ____________
Net cash provided by (used in)
investing activities......... 4,699 (999) (14,185) (6,411) (16,896)
___________ ____________ _____________ ____________ ____________
Cash flows from financing activities:
Borrowings on notes payable.... -- -- 13,664 -- 13,664
Repayments of notes payable.... (2,866) (2,866)
Borrowings on long-term
debt......................... 124,478 -- 2,861 -- 127,339
Repayment of long-term debt and
capital lease obligations... (128,124) -- (3,417) -- (131,541)
Net capital contribution from
parent....................... -- (2,335) 5,924 (3,589) --
Net borrowings and payments on
note to parent............... -- (7,295) 7,295 -- --
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
Other........................ 2 -- -- -- 2
___________ ____________ _____________ ____________ ____________
Net cash provided by (used in)
financing activities........ (3,644) (9,630) 21,402 6,411 14,539
___________ ____________ _____________ ____________ ____________
Effect of exchange rates on
cash......................... -- -- (698) -- (698)
___________ ____________ _____________ ____________ ____________
Net decrease in cash......... (955) (59) 5,426 -- 4,412
Cash and cash equivalents,
beginning of period......... 11,514 2,075 10,696 -- 24,285
___________ ____________ _____________ ____________ ____________
Cash and equivalents, end of
period....................... $ 10,559 $ 2,016 $ 16,122 $ -- $ 28,697
=========== ============ ============= ============ ============
</TABLE>
<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>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 (1) 1997 1998 (1)
________________ ________________ ________________ ________________
<S> <C> <C> <C> <C>
Revenues........................ $ 125,267 100% $ 147,307 100% $ 229,527 100% $ 285,055 100%
Operating expenses:
Cost of services............. 67,105 53.6% 82,585 56.1% 123,462 53.8% 160,405 56.3%
Selling, general, and
administrative expenses.... 46,301 37.0% 61,096 41.5% 83,543 36.4% 115,768 40.6%
Restructuring expenses....... - 0.0% 6,607 2.3%
6,607 4.4% - 0.0%
Total operating expenses.. 113,406 90.5% 150,288 102.0% 207,005 90.2% 282,780 99.2%
Operating income (loss)... 11,861 9.5% (2,981) (2.0)% 22,522 9.8% 2,275 0.8%
Interest income (expense), net.. (1,153) 1.0)% (3,375) (2.3)% (1,687) (0.8)% (5,965) (2.1)%
Other income (expense).......... (61) 0.0% 34 (0.0)% (61) 0.0% 169 0.1%
Income (loss) before income
taxes and minority interest..... 10,647 8.5% (6,322) (4.3)% 20,774 9.0% (3,521) (1.2)%
Income tax expense (benefit).... 3,995 3.2% (1,878) (1.3)% 7,638 3.3% (761) (0.2)%
Minority interest............... 46 0.0% 31 0.0% 76 0.0% (263) (0.1)%
Net income (loss) from
continuing operations........... 6,606 5.3% (4,475) (3.0)% 13,060 5.7% (2,497) (0.9)%
Extraordinary loss on
refinancing of debt, net of 514 0.2%
taxes........................... - 0.0% - 0.0% - 0.0%
Net income (loss)............... $ 6,066 5.3% $ (4,475) (3.0)% $ 13,060 (5.7)% $ (3,011) (1.1)%
(1) Includes non-recurring restructuring expenses. Excluding those expenses,
operating income, net income, basic income per share and diluted income per
share were $3.6 million, $84,000, $0.00 and $0.00 for the three month period
ended June 30, 1998 and $8.9 million, $1.5 million, $0.03 and $0.02 for the six
month period ended June 30, 1998.
</TABLE>
SITEL CORPORATION AND SUBSIDIARIES
THREE MONTHS ENDED JUNE 30, 1998 VS. THREE MONTHS ENDED JUNE 30, 1997
REVENUES:
Revenues increased $22.0 million, or 17.6%, to $147.3 million in the three
months ended June 30, 1998 from $125.3 million in the three months ended June
30, 1997. Of this increase, $13.5 million was attributable to services
initiated for new clients and increased revenues from existing clients and $8.5
million was attributable to increased 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.
COST OF SERVICES:
Cost of services represents primarily labor and telephone expenses directly
related to teleservicing activities. Cost of services increased $15.5 million,
or 23.1%, to $82.6 million in the three months ended June 30, 1998 from $67.1
million in the three months ended June 30, 1997. As a percentage of revenues,
cost of services increased to 56.1% in the second quarter of 1998 from 53.6% in
the second quarter of 1997. The increase in cost of services as a percentage of
revenues 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 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 $14.8 million, or 32.0%, to $61.1 million
in the three months ended June 30, 1998 from $46.3 million in the three months
ended June 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 41.5% in the
second quarter of 1998 from 37.0% in the second quarter 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 relate entirely to the
Company's European operations and 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 there for increasing amounts of outsourcing business.
OPERATING INCOME(LOSS):
Operating income (loss) decreased to a $3.0 million loss in the three months
ended June 30, 1998 from $11.9 million of income in the three months ended June
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 $3.6 million for the second quarter of 1998.
<PAGE>
INTEREST EXPENSE, NET:
Interest expense, net of interest income, increased to $3.4 million of interest
expense in the three months ended June 30, 1998 from $1.2 million of interest
expense in the three months ended June 30, 1997. This increase was primarily
due to increased borrowings utilized to support the Company's growth, including
acquisitions.
INCOME TAX EXPENSE (BENEFIT):
Income taxes for the three months ended June 30, 1998 were a benefit of $1.9
million compared to $4.0 million of expense in the three months ended in June
30, 1997. Excluding the restructuring expenses, income tax expense was $0.2
million for the second quarter of 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 60.0% in the three months ended
June 30, 1998 from 37.5% in the three months ended June 30, 1997 primarily due
to the impact of nondeductible expenses associated with acquisitions combined
with lower operating income.
NET INCOME (LOSS):
For the reasons discussed above, net income decreased to a $4.5 million loss in
the three months ended June 30, 1998 from $6.6 million of income in the three
months ended June 30, 1997. Excluding the restructuring expenses and the
related tax effects, net income was $0.1 million in the second quarter of 1998.
SIX MONTHS ENDED JUNE 30, 1998 VS. SIX MONTHS ENDED JUNE 30, 1997
REVENUES:
Revenues increased $55.5 million, or 24.2%, to $285.1 million in the six months
ended June 30, 1998 from $229.5 million in the six months ended June 30, 1997.
Of this increase, $40.5 million was attributable to services initiated for new
clients and increased revenues from existing clients and $15.0 million was
attributable to increased 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.
COST OF SERVICES:
Cost of services increased $36.9 million, or 29.9%, to $160.4 million in the six
months ended June 30, 1998 from $123.5 million in the six months ended June 30,
1997. As a percentage of revenues, cost of services increased to 56.3% in the
first six months of 1998 from 53.8% in the first six 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 $32.2 million, or 38.6%,
to $115.8 million in the six months ended June 30, 1998 from $83.5 million in
the six months ended June 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 40.6% in the first six months of 1998 from 36.4% in the first six 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.
<PAGE>
OPERATING INCOME:
Operating income decreased to $2.3 million in the six months ended June 30, 1998
from $22.5 million income in the six months ended June 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 $8.9 million for the six months ended June 30, 1998.
INTEREST EXPENSE, NET:
Interest expense, net of interest income, increased to $6.0 million of interest
expense in the six months ended June 30, 1998 from $1.7 million of interest
expense in the six months ended June 30, 1997. This increase was primarily due
to increased borrowings utilized to support the Company's growth, including
acquisitions.
INCOME TAX EXPENSE (BENEFIT):
Income taxes for the six months ended June 30, 1998 were a benefit of $0.8
million compared to $7.6 million of expense in the six months ended June 30,
1997. Excluding the restructuring expenses, income tax expense was $1.3 million
for the six months ended June 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 41.7% in the six months ended
June 30, 1998 from 36.8% in the six months ended June 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 from continuing operations decreased
to a $2.5 million loss in the six months ended June 30, 1998 from $13.1 million
of income in the six months ended June 30, 1997. After the extraordinary loss
on refinancing of debt, net income decreased to a $3.0 million loss in the six
months ended June 30, 1998. Excluding the restructuring expenses and the
related tax effects, net income from continuing operations and net income for
the six months ended June 30, 1998, was $2.1 million and $1.5 million,
respectively.
LIQUIDITY AND CAPITAL RESOURCES:
On June 23, 1998, the Company issued a press release indicating that it expected
to record a restructuring charge of approximately $6.5 for the second quarter
ending June 30. The Company also indicated that it expected to record near
break-even results before the provision for income taxes, and the effect of the
restructuring charge, for the second quarter. With respect to the third and
fourth quarters of 1998, the Company indicated that it expects to report
improved overall results, as compared to the second quarter of 1998, excluding
the effects of the restructuring charge.
Cash provided by operating activities was approximately $7.5 million during the
six month period ended June 30, 1998. This was primarily the result of noncash
charges and an increase in accrued liabilities partially offset by an increase
in accounts receivable. 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 six months ended June 30, 1998 of
approximately $16.9 million was primarily related to capital expenditures
partially offset by the proceeds from sale-leasebacks of facilities. Cash
provided by financing activities in the six months ended June 30, 1998 of
approximately $14.5 million primarily related to borrowings on the Company's
notes payable and the sale of stock of subsidiaries. During the six months
ended June 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.
<PAGE>
At June 30, 1998, the Company had unused lines of credit totaling approximately
$48.1 million. In light of the Company's expectations with respect to its
operating results for the second quarter and the remainder of the year, 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.
YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Specifically, computational errors are
a known risk with respect to dates after December 31, 1999. SITEL has made a
preliminary assessment of its Year 2000 compliance issues, and is in the process
of developing a general plan to address such issues. Although the Company has
not yet completed its analysis of the estimated total costs needed for Year 2000
compliance, the Company currently believes it will be able to upgrade and
maintain its computer systems to recognize years beginning with 2000 and that
the cost to do so will not be material to its financial position or liquidity.
Such costs may, however, be material to the Company's results of operations,
particularly on a short-term basis.
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.
<PAGE>
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.
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," and "anticipated." 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. 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.
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Date and Type of Meeting. The Company held its Annual Meeting of
Stockholders on May 13, 1998.
(b) Matters Voted Upon and Number of Votes Cast. There were 47,839,994
shares of Common Stock represented at the meeting in person or by proxy.
Two proposals were presented to the stockholders and both were approved.
The voting on the proposals was as follows:
Proposal 1 (election of two directors for a three year term)
On the election of Phillip A. Clough: 45,873,168 votes for
1,966,826 votes withheld
On the election of James F. Lynch : 45,871,668 votes for
1,968,326 votes withheld
Proposal 2 (to ratify the Board of Directors' selection of KPMG Peat
Marwick LLP as the Corporation's independent accountants and to
examine the financial statements of the Corporation for the year
ending December 31, 1998):
47,781,313 votes for
24,860 votes against
32,821 abstained
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Separation Agreement dated May 12, 1998 with Michael P. May
(1)10.2 First Amendment dated as of June 19, 1998 to Credit Agreement
27 Financial Data Schedule
________________
(1) Previously filed as Exhibit 10.1 to Form 8-K filed on July 1, 1998 and
incorporated herein by reference.
(b) Reports on Form 8-K. The Company filed the following reports on Form
8-K during the quarter for which this report is filed:
(1) The Company filed a Form 8-K on May 4, 1998, reporting under Item 9
the issuance of certain shares of its Common Stock.
(2) The Company filed a Form 8-K on June 1, 1998, reporting under Item 9
the issuance of certain shares of its Common Stock.
(3) The Company filed a Form 8-K on July 1, 1998, reporting under Item 5
that it entered into the First Amendment to the Credit Agreement.
<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: August 14, 1998 SITEL Corporation
By: /s/ W. Gar Richlin
____________________________________________
W. Gar Richlin
Executive Vice-President and Chief Financial
Officer (Principal Financial Officer)
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
Exhibits Index: Page
____
10.1 Separation Agreement dated May 12, 1998 with Michael P. May 24
27 Financial Data Schedule 27
EXHIBIT 10.1
SEPARATION AGREEMENT AND GENERAL RELEASE
________________________________________
THIS SEPARATION AGREEMENT AND GENERAL RELEASE ("Agreement") is entered into
by and between MICHAEL P. MAY ("Employee") and SITEL CORPORATION ("Employer").
Employer and Employee have mutually agreed to end their employer-employee
relationship. This Agreement is intended to provide the terms of their mutual
separation.
1. NON-ADMISSION. This Agreement shall not in any way be construed as an
admission by Employer, its officers, agents, or employees, of any wrongful or
unlawful act or omission whatsoever against Employee or any other person.
Employer specifically disclaims any liability to, or wrongful or unlawful act or
omission against, Employee or any other person on the part of itself, its
officers, agents or employees.
2. WAIVER. As a material inducement to Employer to enter into this
Agreement, Employee represents that he has not filed any lawsuits, charges, or
complaints, of discrimination with any local, state or federal agency or court
of law arising from his relationship with Employer, including the mutual
termination of said relationship. Employee further represents that, subject to
Employer's compliance with the terms of this Agreement, he will not seek to
recover any monetary damages against Employer.
3. COMPENSATION. As a material inducement to Employee to enter into this
Agreement, Employer agrees to:
(a) pay Employee the equivalent of twelve (12) months of Employee's
regular salary in equal installments and on the dates which correspond to
Employer's regular paydays;
(b) purchase Employee's house in Baltimore, Maryland by June 30, 1998
for the purchase price paid by Employee therefor plus the costs paid by
Employee for renovations to such house; and pay or reimburse Employee for
costs incurred by Employee during the period from the date of this Agreement
through June 30, 1998 for mortgage payments, insurance, real estate taxes,
and utilities for such house;
(c) reimburse Employee for the $830 in non-refundable boarding school
enrollment fees paid by Employee;
(d) continue Employee's health insurance coverage until December 31,
1998 under the same terms and conditions as existed prior to Employee's
resignation;
(e) permit Employee's continued use and possession of the vehicle
presently being leased by Employer on behalf of Employee until December 31,
1998 under the same terms and conditions as existed prior to Employee's
resignation; and
(f) continue Employee's Omaha Country Club membership until December
31, 1998 under the same terms and conditions as existed prior to Employee's
resignation.
With respect to any other Employer benefit plans in which Employee participated
prior to his resignation, such as the Executive Wealth Accumulation Plan,
Employee's participation in such plans shall end as of his resignation and
Employee shall be entitled to such benefits as may be payable to him in
accordance with and subject to the terms and conditions of such plans as in
effect from time to time.
4. CONSIDERATION. Employee expressly acknowledges the above payment
includes consideration for the settlement, waiver, release, and discharge of any
and all claims arising under the common law or under federal state or local
statute, law or regulation, pertaining to employment discrimination based on
race/color, religion, sex, national origin, disability, or age (Age
Discrimination in Employment Act), wrongful discharge, breach of contract,
infliction of emotional distress, or any other reason established by the common
law or by federal, state or local laws.
5. EFFECT ON OPTIONS. Employee also specifically acknowledges that as of
the date of his mutual separation from Employer he shall accrue no additional
interest or vesting in any options to purchase stock of Employer and shall be
limited in his rights to exercise stock options to only those options which have
fully vested prior to the date of Employee's resignation. For clarity,
Employee's fully vested options are 410,724 options with an exercise price of
$.0025 each remaining from the February 28, 1995 grant to Employee (the "penny
options"). Such penny options shall remain outstanding and exercisable in
accordance with and subject to their terms and conditions as existed prior to
Employee's resignation. Employee's non-vested options, which by their terms and
conditions shall terminate upon the effective date of Employee's resignation,
are the 175,000 options with an exercise price of $15.50 each granted to
Employee on December 26, 1996. The Voting Agreement, Irrevocable Proxy and
Right of First Refusal applicable to Employee's shares of SITEL Common Stock
acquired directly from the Company (and to shares acquired in the future
pursuant to exercises of the penny options) shall continue in effect after the
date hereof according to their existing terms and conditions.
6. RESIGNATION. Employee hereby resigns effective immediately from all
positions he holds as a director or officer of SITEL Corporation or any of its
subsidiaries and as a trustee of any of SITEL Corporation's benefit plans. In
view of his resignation, Employee confirms that he is unavailable for re-
election to the Board at the 1998 annual stockholders meeting.
7. INTENT. The parties understand and agree that the overriding and
controlling intent of this Agreement is to accomplish a full release of all
claims or actions Employee has or might have against Employer, as well as any
parent, subsidiary or affiliated company, its and their officers, agents, and
employees, for any wrongful, unlawful or unfair act or omission up to and
including the date of the execution of this Agreement.
8. RELEASE. Employee, for himself and his successors and assigns, does
hereby release, settle, acquit and forever discharge Employer, as well as any
parent, subsidiary, or affiliated company, its and their officers, agents and
employees, or and from any and all claims, actions, causes of action, rights,
demands, debts, damages, or any action of whatever nature arising from or during
Employee's relationship with Employer, including the mutual termination thereof.
9. KNOWING AND VOLUNTARY. Employee expressly acknowledges that he
understands all the provisions of this Agreement and that he is knowingly and
voluntarily entering into this Agreement. Employee further acknowledges that
Employer has encouraged and given him the opportunity to thoroughly discuss all
aspects of this Agreement with his attorney and other advisor before signing
this Agreement.
10. GOVERNING LAW. This Agreement is made and entered into in the State
of Nebraska and shall in all respects be interpreted, enforced, and governed
under the laws of said State. The language of all parts of this Agreement shall
in all cases be construed as a whole, according to its fair meaning, and not
strictly for or against any of the parties hereto.
11. EFFECT OF INVALIDITY. Should any provision of this Agreement be
declared or be determined by any court of competent jurisdiction to be illegal,
invalid, void, or unenforceable, the legality, validity and enforceability of
the remaining parts, terms, or provisions shall not be affected thereby, and any
said illegal, unenforceable or invalid part, term or provision shall be deemed
not a part of this Agreement.
12. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties and, unless otherwise specified herein, fully supersedes any
and all prior agreements or understandings between the parties as to Employee's
employment, except as expressly provided in Paragraph 5 and as provided below in
this Paragraph 12: (a) Employee acknowledges his continuing obligations to
comply with the provisions of the Confidentiality and Non-Competition Agreement
between Employer and Employee dated February 27, 1995 (the "February 1995 Non-
Compete"), which agreement remains in full force and effect. Employer agrees
that the 18 month period specified in Section 2 of the February 1995 Non-Compete
shall commence with the date of Employee's resignation. Employer and Employee
agree that the non-competition and confidentiality provisions found in
paragraphs 8 and 9 of that certain Employment Agreement dated September 25, 1992
(the "Superseded Non-Compete") are expressly superseded at this time by the
February 1995 Non-Compete but acknowledge that the consideration received by
Employee for the February 1995 Non-Compete shall be deemed to include not only
the consideration recited therein and the additional consideration stated in
Paragraph 3 of this Agreement but also the consideration Employee received for
the Superseded Non-Compete. (b) Employer and Employee specifically acknowledge
that the Indemnification Agreement dated in September 1995 relating to
Employee's service as an officer and director remains in effect according to its
existing terms and conditions.
13. OPPORTUNITY TO REVIEW. Employee expressly acknowledges that Employer
has advised him that he may take up to twenty-one (21) days in which to review
the terms of this Agreement, and that following his execution of this Agreement,
he has an additional seven (7) days in which to revoke his agreement. Any such
revocation shall not affect the resignations tendered by Employee pursuant to
Paragraph 6, which shall remain in full force and effect from the date thereof.
[Signature page follows]
<PAGE>
SIGNATURE PAGE TO
_________________
SEPARATION AGREEMENT AND GENERAL RELEASE
EXECUTED effective the 12th day of May, 1998.
Employee:
/S/ MICHAEL P. MAY-------------------------
___________________________________________
MICHAEL P. MAY
Employer:
SITEL CORPORATION
By: /S/ JAMES F. LYNCH---------------------
_______________________________________
James F. Lynch
Title: Chairman
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,697
<SECURITIES> 0
<RECEIVABLES> 134,523
<ALLOWANCES> 5,375
<INVENTORY> 0
<CURRENT-ASSETS> 176,034
<PP&E> 183,528
<DEPRECIATION> 66,587
<TOTAL-ASSETS> 414,974
<CURRENT-LIABILITIES> 128,324
<BONDS> 100,000
0
0
<COMMON> 64
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 414,974
<SALES> 285,055
<TOTAL-REVENUES> 285,055
<CGS> 160,405
<TOTAL-COSTS> 282,780
<OTHER-EXPENSES> (169)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,965
<INCOME-PRETAX> (3,521)
<INCOME-TAX> (761)
<INCOME-CONTINUING> (2,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 514
<CHANGES> 0
<NET-INCOME> (3,011)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
