SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number 1-12577
SITEL CORPORATION
(Exact name of registrant as specified
MINNESOTA 47-0684333
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 SOUTH CALVERT, STE. 1910
BALTIMORE, MD 21202
(410) 659-5700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
Common Stock, $.001 Par Value The New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
--------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 16, 1998 was $411,569,556 based upon the closing
price of $10.125 for such stock as reported by the New York Stock Exchange on
such date. Solely for purposes of this calculation, persons holding of record
more than 5% of the Company's stock have been included as "affiliates". As of
March 16, 1998, the Company had 63,309,055 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive
proxy statement for the annual meeting of stockholders to be held on May 13,
1998, are incorporated into Part III. This 10-K/A consists of 31 pages.
<PAGE>
PART II.
The registrant hereby amends Part II, Item 8 of its Form 10-K for the year
ended December 31, 1997 to present comprehensive income (loss) within the
Consolidated Statements of Stockholders' Equity, to provide additional
disclosure regarding its restructuring and impairment of assets in Note #14 and
to provide additional disclosure regarding Supplemental Guarantor Financial
Information in Note #16 to its financial statements. The Consolidated Balance
Sheets, Statement of Income (Loss), and Statement of Cash Flows included in the
10-K are not changed by this amendment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item (other than selected quarterly
information, which is set forth below) is incorporated by reference from the
Company's Consolidated Financial Statements set forth on pages F-1 through F-23
hereof.
The following table sets forth statement of operations data for each of the
four quarters of 1997 and 1996. This quarterly information is unaudited but has
been prepared on a basis consistent with the Company's audited financial
statements presented elsewhere herein and, in the Company's opinion, includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
(in thousands, except per share data) Three Months Ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
---------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues .................................. $ 104,260 $ 125,267 $ 120,248 $ 141,699
Operating expenses:
Cost of services ................... 56,357 67,105 67,913 79,566
Selling, general and administrative
expenses ......................... 37,242 46,301 49,471 52,576
Restructuring expenses ............. -- -- -- 15,681
-------- -------- -------- --------
Operating income (loss) 10,661 11,861 2,864 (6,124)(a)
Interest income (expense), net ............ (534) (1,153) (1,512) (1,897)
Other income (expense), net ............... -- (61) 123 64
-------- -------- -------- --------
Income (loss) before income taxes
and minority interest ........... 10,127 10,647 1,475 (7,957)
Income tax expense ........................ 3,643 3,995 739 2,929
Minority interest ......................... 30 46 10 88
-------- -------- -------- --------
Net income (loss) ......................... 6,454 6,606 726 (10,974)(a)
======== ======== ======== ========
Net income (loss) per share:
Basic .............................. $ 0.11 $ 0.11 $ 0.01 $ (0.17)(a)
Diluted ............................ 0.10 0.10 0.01 (0.17)(a)
Weighted average common shares outstanding:
Basic .............................. 59,875 61,622 62,484 63,031
Diluted ............................ 67,509 68,800 69,327 63,031
<FN>
(a) Includes non-recurring restructuring expenses and a write down of SITEL's Telebusiness
business of $5.2 million and $10.5 million, respectively. Excluding those non-recurring
operating expenses, operating income, net income, basic income per share and diluted
income per share were $9.6 million, $4.7 million, $0.07 and $0.07 respectively, for the
fourth quarter of 1997.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except per share data) Three Months Ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues .................................. $ 59,519 $ 69,266 $85,144 $ 98,821
Operating expenses:
Cost of services ....................... 31,593 36,746 44,433 50,945
Selling, general and administrative
expenses ....................... 22,010 27,267 33,040 38,378
-------- -------- ------- --------
Operating income ................. 5,916 5,253 (a) 7,671 (b) 9,498
Transaction related expenses .............. -- 666 6,322 --
Interest income (expense), net ............ 101 25 (130) (223)
Other income (expense), net ............... -- -- (19) 51
-------- -------- ------- --------
Income before income taxes and
minority interest ........... 6,017 4,612 1,200 9,326
Income tax expense ........................ 2,211 2,271 2,514 3,225
Minority Interest ......................... -- 18 23 36
-------- ------- -------- --------
Net income (loss) ......................... $ 3,806 $ 2,323 (a) $ (1,337)(b) $ 6,065
======== ======== ======== ========
Net income (loss) per share:
Basic ............................ $ 0.07 $ 0.04 (a) $ (0.02)(b) $ 0.10
Diluted .......................... 0.06 0.03 (a) (0.02)(b) 0.09
Weighted average common shares outstanding:
Basic ............................ 55,502 58,326 58,503 58,823
Diluted .......................... 64,252 66,403 58,503 66,607
<FN>
(a) Includes non-recurring operating expenses related to the acquisition of National Action
Financial Services, Inc. (NAFS). Excluding those one-time operating expenses and the
transaction related expenses, operating income, net income, basic income per share and
diluted income per share were $6.9 million, $4.3 million, $0.07 and $0.06, respectively,
for the second quarter of 1996.
(b) Includes non-recurring operating expenses related to the merger with Mitre plc and the
acquisition of NAFS. Excluding those one-time operating expenses and the transaction
related expenses, operating income, net income, basic income per share and diluted income
per share were $8.2 million, $5.4 million, $0.09 and $0.08, respectively, for the third
quarter of 1996.
</FN>
</TABLE>
3
<PAGE>
PART IV
The registrant hereby amends Part IV, Item 14(a)(3), of its Form 10-K for the
year ended December 31, 1997, to include a new consent from KPMG Peat Marwick
LLP as Exhibit 23.1 and to modify or add references to Exhibits 3.4, 10.3(b),
10.4, and 10.11.
3. Exhibits. The following Exhibits are filed as part of, or are
incorporated by reference into, this Form 10-K:
Exhibit
No
- ---------------
(1) 3.1 Amended and Restated Articles of Incorporation
(2) 3.1(a) Articles of Amendment filed September 10, 1996 to the Amended
and Restated Articles of Incorporation
(9) 3.4 Amended and Restated Bylaws.
(7) 4.2 Specimen Common Stock Certificate.
(1) 9.1 Form of General Voting Agreement.
(1) 9.2 Form of Voting Agreement with World Investments, Inc.
(1) 10.1 SITEL Corporation Stock Option Plan for Replacement of
Existing Options.
(7) 10.1(a) Amendment No. 1 to SITEL Corporation Stock Option Plan for
Replacement of Existing Options
(1) 10.2 SITEL Corporation Stock Option Plan for Replacement of EEBs.
(7) 10.2(a) Amendment No. 1 to SITEL Corporation Stock Option Plan for
Replacement of EEBs.
(3) 10.3 Amended and Restated SITEL Corporation 1995 Employee Stock
Option Plan.
(7) 10.3(a) Amendment No. 1 to Amended and Restated SITEL Corporation
1995 Employee Stock Option Plan.
(10) 10.3(b) Amendment No. 2 to Amended and Restated SITEL Corporation
1995 Employee Stock Option Plan
(11) 10.4 Amended and Restated SITEL Corporation 1995 Non-Employee
Directors Stock Option Plan.
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan.
(1) 10.6 Employment Agreement with James F. Lynch.
(1) 10.7 Employment Agreement with Michael P. May.
(1) 10.8 Form of Right of First Refusal.
(4) 10.9 Form of Indemnification Agreement with Outside Directors.
(5) 10.10 Form of Indemnification Agreement with Executive Officers.
(12) 10.11 Credit Agreement with Bankers Trust Company as Agent
(6) 16.1 Letter from Coopers & Lybrand L.L.P. dated February 6, 1997.
(8) 21 Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP
(8) 27 Financial Data Schedule.
- --------------------------------------
4
<PAGE>
(1) Previously filed as an exhibit under the same exhibit
number to the Company's Registration Statement on Form
S-1 (Registration No. 33-91092).
(2) Previously filed as Exhibit 4.1(a) to the Company's
Registration Statement on Form S-3 (Registration
No. 333-13403).
(3) Previously filed as Exhibit B to the Company's
definitive Proxy Statement for the Annual Meeting of
Stockholders, filed on September 27, 1996.
(4) Previously filed as an exhibit under the same exhibit
number to the Company's Form 10-Q for the quarter ended
August 31, 1995.
(5) Previously filed as an exhibit under the same exhibit
number to the Company's Registration Statement on Form
S-8 (Registration No. 33-99434).
(6) Previously filed as an exhibit under the same exhibit
number to the Company's Form 8-K filed on February 6,
1997.
(7) Previously filed as an exhibit under the same exhibit
number to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(8) Previously filed herewith.
(9) Previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (Registration No.
333-28131).
(10) Previously filed as Appendix C to the Company's
definitive Proxy Statement for the Annual Meeting of
Stockholders, filed on April 30, 1997.
(11) Previously filed as Appendix B to the Company's
definitive Proxy Statement for the Annual Meeting of
Stockholders, filed on April 30, 1997.
(12) Previously filed as an exhibit under the same exhibit
number to the Company's Form 10-Q for the quarter ended
September 30, 1997.
5
<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 17, 1998 SITEL Corporation
By: /s/ W. Gar Richlin
-----------------------------------------------
W. Gar Richlin
Executive Vice-President and Chief Financial
Officer (Principal Financial Officer)
6
<PAGE>
EXHIBIT INDEX
Exhibit
No
- ---------------
(1) 3.1 Amended and Restated Articles of Incorporation
(2) 3.1(a) Articles of Amendment filed September 10, 1996 to the Amended
and Restated Articles of Incorporation
(9) 3.4 Amended and Restated Bylaws.
(7) 4.2 Specimen Common Stock Certificate.
(1) 9.1 Form of General Voting Agreement.
(1) 9.2 Form of Voting Agreement with World Investments, Inc.
(1) 10.1 SITEL Corporation Stock Option Plan for Replacement of
Existing Options.
(7) 10.1(a) Amendment No. 1 to SITEL Corporation Stock Option Plan for
Replacement of Existing Options
(1) 10.2 SITEL Corporation Stock Option Plan for Replacement of EEBs.
(7) 10.2(a) Amendment No. 1 to SITEL Corporation Stock Option Plan for
Replacement of EEBs.
(3) 10.3 Amended and Restated SITEL Corporation 1995 Employee Stock
Option Plan.
(7) 10.3(a) Amendment No. 1 to Amended and Restated SITEL Corporation
1995 Employee Stock Option Plan.
(10) 10.3(b) Amendment No. 2 to Amended and Restated SITEL Corporation
1995 Employee Stock Option Plan
(11) 10.4 Amended and Restated SITEL Corporation 1995 Non-Employee
Directors Stock Option Plan.
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan.
(1) 10.6 Employment Agreement with James F. Lynch.
(1) 10.7 Employment Agreement with Michael P. May.
(1) 10.8 Form of Right of First Refusal.
(4) 10.9 Form of Indemnification Agreement with Outside Directors.
(5) 10.10 Form of Indemnification Agreement with Executive Officers.
(12) 10.11 Credit Agreement with Bankers Trust Company as Agent
(6) 16.1 Letter from Coopers & Lybrand L.L.P. dated February 6, 1997.
(8) 21 Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP
(8) 27 Financial Data Schedule.
- --------------------------------------
<PAGE>
(1) Previously filed as an exhibit under the same exhibit
number to the Company's Registration Statement on Form
S-1 (Registration No. 33-91092).
(2) Previously filed as Exhibit 4.1(a) to the Company's
Registration Statement on Form S-3 (Registration
No. 333-13403).
(3) Previously filed as Exhibit B to the Company's
definitive Proxy Statement for the Annual Meeting of
Stockholders, filed on September 27, 1996.
(4) Previously filed as an exhibit under the same exhibit
number to the Company's Form 10-Q for the quarter ended
August 31, 1995.
(5) Previously filed as an exhibit under the same exhibit
number to the Company's Registration Statement on Form
S-8 (Registration No. 33-99434).
(6) Previously filed as an exhibit under the same exhibit
number to the Company's Form 8-K filed on February 6,
1997.
(7) Previously filed as an exhibit under the same exhibit
number to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(8) Previously filed herewith.
(9) Previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (Registration No.
333-28131).
(10) Previously filed as Appendix C to the Company's
definitive Proxy Statement for the Annual Meeting of
Stockholders, filed on April 30, 1997.
(11) Previously filed as Appendix B to the Company's
definitive Proxy Statement for the Annual Meeting of
Stockholders, filed on April 30, 1997.
(12) Previously filed as an exhibit under the same exhibit
number to the Company's Form 10-Q for the quarter ended
September 30, 1997.
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Financial Statement Schedules
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997.............. F-3
Consolidated Statements of Income (Loss) For the Years Ended
December 31, 1995, 1996 and 1997....................................... F-4
Consolidated Statements of Stockholders' Equity For
the Years Ended December 31, 1995, 1996 and 1997....................... F-5
Consolidated Statements of Cash Flows For the Years Ended December 31,
1995,1996, and 1997.................................................... F-7
Notes to Consolidated Financial Statements............................. F-8
<PAGE>
Independent Auditors' Report
The Board of Directors
SITEL Corporation:
We have audited the accompanying consolidated balance sheets of SITEL
Corporation and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of income (loss), stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SITEL
Corporation and subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Omaha, Nebraska
February 17, 1998, except
Note 15 which is as of
March 10, 1998
F-2
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS December 31,
------------------------------
(in thousands, except share data) 1996 1997
------------- --------------
Current assets:
Cash and cash equivalents.................... $ 25,710 $ 24,285
Trade accounts receivable (net of allowance
for doubtful accounts of $3,188 and $5,099,
in 1996 and 1997, respectively)............ 65,477 107,697
Marketable securities........................ 1,740 159
Prepaid expenses............................. 3,007 3,916
Other assets................................. 2,907 9,548
Deferred income taxes........................ 512 3,153
------------- -------------
Total current assets..................... 99,353 148,758
------------- -------------
Property and equipment, net..................... 59,109 120,600
Deferred income taxes........................... 11,187 11,114
Goodwill, net................................... 40,110 94,381
Other assets.................................... 1,925 11,027
------------- -------------
Total assets............................ $ 211,684 $ 385,880
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................ $ 3,638 $ 14,376
Current portion of long-term debt............ 759 10,793
Current portion of capitalized lease
obligations............................... 3,032 4,934
Trade accounts payable....................... 18,775 27,322
Income taxes payable......................... 3,815 8,398
Accrued wages, salaries and bonuses.......... 14,812 14,120
Accrued operating expenses................... 9,026 22,984
Deferred revenue and other................... 8,660 6,286
------------- -------------
Total current liabilities............... 62,517 109,213
------------- -------------
Long-term debt, excluding current portion....... 1,720 102,505
Capitalized lease obligations, excluding current
portion...................................... 3,141 12,983
Purchase price payable.......................... 15,928 --
Deferred compensation .......................... 1,461 1,407
Minority interest............................... 192 1,384
Commitments and contingencies
Stockholders' equity:
Common stock, voting, $.001 par value 200,000,000
shares authorized, 58,875,660 and 63,099,597
shares issued and outstanding in 1996 and
1997, respectively......................... 59 63
Paid-in capital.............................. 117,736 155,326
Currency exchange adjustment................. 1,311 (6,487)
Unrealized gain on marketable securities, net
of taxes................................... 1,017 72
Retained earnings............................ 6,602 9,414
------------- -------------
Total stockholders' equity.............. 126,725 158,388
------------- -------------
Total liabilities and stockholders'
equity................................ $ 211,684 $ 385,880
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For The Years Ended December 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
(in thousands, except per share data)
Revenues............................ $ 187,215 $ 312,750 $ 491,474
---------- ---------- ----------
Operating expenses:
Cost of services................. 101,617 163,717 270,942
Selling, general an
administrative expenses........ 69,213 120,695 185,589
Special compensation expense..... 34,585 -- --
Restructuring expenses........... -- -- 15,681
---------- ---------- ----------
Total operating expenses.... 205,415 284,412 472,212
---------- ---------- ----------
Operating income (loss)..... (18,200) 28,338 19,262
---------- ---------- ----------
Other income (expense):
Transaction related expenses..... -- (6,988) --
Interest income.................. 613 1,108 561
Interest expense................. (1,315) (1,335) (5,657)
Other income..................... 118 32 126
---------- ---------- ----------
Total other income (expense) (584) (7,183) (4,970)
---------- ---------- ----------
Income (loss) before income taxes
and minority interest.............. (18,784) 21,155 14,292
Income tax expense (benefit)........ (6,593) 10,221 11,306
Minority interest................... 1,262 77 174
---------- ---------- ----------
Net income (loss)........... $ (13,453) $ 10,857 $ 2,812
========== ========== ==========
Income (loss) per common share:
Basic......................... $ (0.33) $ 0.19 $ 0.05
Diluted....................... (0.29) 0.16 0.04
Weighted average common shares outstanding:
Basic......................... 40,565 57,793 61,764
Diluted....................... 46,477 65,929 68,811
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
----------- ----------- ----------- ---------- --------------
Class A Class B Class C Options Less
Common Common Common Common Deferred
(dollars in thousands) Stock Stock Stock Stock Compensation
----------- ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994........................... $ 20 $ 11 $ 1 $ -- $ 82
Issuance of 100,592 shares of Class C common
stock less 80,472 shares subject to put option. -- -- -- -- --
Special compensation - option issues............ -- -- -- -- (82)
Accretion of put option......................... -- -- -- -- --
Conversion of 20,263,458 shares of Class A,
10,660,000 shares of Class B, and 739,652 shares
of Class C common into a single class of
common stock due to reincorporation............ (20) (11) (1) 32 --
Issuance of 7,600,000 shares of common stock, net
of offering expenses........................... -- -- -- 8 --
Cancellation of the put option on 3,070,584
shares........................... -- -- -- 3 --
Transaction by pooled companies:
Issuance of 8,507,904 shares of common stock. -- -- -- 8 --
Comprehensive income (loss)
Net loss..................................... -- -- -- -- --
Currency exchange adjustment................. -- -- -- -- --
Total comprehensive income (loss)............
---------- ---------- ----------- --------- -------------
Balance, December 31, 1995........................... -- -- -- 51 --
Issuance of 5,982,220 shares of common stock, net
of offering expenses........................... -- -- -- 6 --
Issuance of 1,719,642 shares of common stock for
options exercised.............................. -- -- -- 2 --
Tax benefit of stock options exercised.......... -- -- -- -- --
Transactions by pooled companies:
Issuance of 332,196 shares of common stock... -- -- -- -- --
Comprehensive income
Net income................................... -- -- -- -- --
Currency exchange adjustment................. -- -- -- -- --
Change in unrealized gain, net of taxes of $723 -- -- -- -- --
Total comprehensive income...................
---------- ---------- ------------ --------- -------------
Balance, December 31, 1996........................... -- -- -- 59 --
Issuance of 1,891,562 shares of common stock for
options exercised.............................. -- -- -- 2 --
Tax benefit of stock options exercised.......... -- -- -- -- --
Issuance of 2,332,375 shares of common stock
for acquisitions............................... -- -- -- 2 --
Comprehensive income (loss)
Net income................................... -- -- -- -- --
Currency exchange adjustment................. -- -- -- -- --
Change in unrealized gain, net of taxes of $(636) -- -- -- -- --
Total comprehensive income (loss)............
---------- ---------- ------------ --------- -------------
Balance, December 31, 1997........................... $ -- $ -- $ -- $ 63 $ --
========== ========== ============ ========= =============
</TABLE>
F-5
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
For The Years Ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income
----------------------------
Currency Unrealized Gain Retained Total
Paid-in Exchange on Marketable Earnings Stockholders'
Capital Adjustment Securities (Deficit) Equity
-------- ---------- --------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994............................ $ 3,285 $ 42 $ -- $ 9,411 $ 12,852
Issuance of 100,592 shares of Class C common
stock less 80,472 shares subject to put option.... 59 -- -- -- 59
Special compensation - option issues............... 34,707 -- -- -- 34,625
Accretion of put option............................ -- -- -- (213) (213)
Conversion of 20,263,458 shares of Class A,
10,660,000 shares of Class B, and 739,652 shares
of Class C common into a single class of
common stock due to reincorporation.............. -- -- -- -- --
Issuance of 7,600,000 shares of common stock, net
of offering expenses............................. 23,163 -- -- -- 23,171
Cancellation of the put option on 3,070,584 shares. 2,797 -- -- -- 2,800
Transaction by pooled companies:
Issuance of 8,507,904 shares of common stock.. 5,519 -- -- -- 5,527
Comprehensive income (loss)
Net loss...................................... -- -- -- (13,453) (13,453)
Currency exchange adjustment.................. -- 12 -- -- 12
----------
Total comprehensive income (loss)............. (13,441)
-------- ----------- ---------- --------- ----------
Balance, December 31, 1995............................ 69,530 54 -- (4,255) 65,380
Issuance of 5,982,220 shares of common stock, net
of offering expenses............................ 42,239 -- -- -- 42,245
Issuance of 1,719,642 shares of common stock for
options exercised............................... 92 -- -- -- 94
Tax benefit of stock options exercised........... 5,040 -- -- -- 5,040
Transactions by pooled companies:
Issuance of 332,196 shares of common stock.... 835 -- -- -- 835
Comprehensive income
Net income.................................... -- -- -- 10,857 10,857
Currency exchange adjustment.................. -- 1,257 -- -- 1,257
Change in unrealized gain, net of taxes
of $723..................................... -- -- 1,017 -- 1,017
-----------
Total comprehensive income.................... 13,131
-------- ----------- ---------- ---------- -----------
Balance, December 31, 1996............................ 117,736 1,311 1,017 6,602 126,725
Issuance of 1,891,562 shares of common stock for
options exercised............................... 226 -- -- -- 228
Tax benefit of stock options exercised........... 7,685 -- -- -- 7,685
Issuance of 2,332,375 shares of common stock
for acquisitions................................ 29,679 -- -- -- 29,681
Comprehensive income (loss)
Net income.................................... -- -- -- 2,812 2,812
Currency exchange adjustment.................. -- (7,798) -- -- (7,798)
Change in unrealized gain, net of taxes of $(636) -- -- (945) -- (945)
-----------
Total comprehensive income (loss)............. (5,931)
-------- ----------- ---------- ---------- -----------
Balance, December 31, 1997............................ $155,326 $ (6,487) $ 72 $ 9,414 $ 158,388
======== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands) For The Years Ended December 31,
--------------------------------------------
1995 1996 1997
------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ (13,453) $ 10,857 $ 2,812
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Special compensation expense............................. 34,585 -- --
Restructuring provision.................................. -- -- 15,513
Depreciation and amortization............................ 7,090 13,256 28,687
Provision for deferred income taxes...................... (12,219) 1,823 (1,498)
Deferred compensation.................................... 70 557 (53)
Gain on sale of marketable securities.................... -- -- (407)
Forgiveness of loans receivable from related parties..... 449 -- --
Change in assets and liabilities:
Trade accounts receivable............................. (9,408) (17,083) (36,977)
Other assets.......................................... (716) 4,060 (7,677)
Trade accounts payable................................ 4,302 6,662 5,694
Other liabilities..................................... 4,573 15,711 12,920
------------ ------------ --------------
Net cash provided by operating activities.......... 15,273 35,843 19,014
------------ ------------ --------------
Cash flows from investing activities:
Purchases of property and equipment........................... (13,279) (39,954) (69,437)
Proceeds from sales of property and equipment................. 126 199 2,711
Acquisitions, net of cash acquired............................ -- (27,936) (47,023)
Settlement of purchase price payable.......................... -- -- (13,934)
Investments in marketable securities.......................... (22,196) (63,793) --
Sale of marketable securities................................. 9,150 76,840 558
Changes in other assets....................................... (349) (380) (4,228)
------------ ----------- --------------
Net cash used in investing activities.............. (26,548) (55,024) (131,353)
------------ ----------- --------------
Cash flows from financing activities:
Borrowings on notes payable.................................. 21,929 17,169 83,307
Repayments of notes payable.................................. (21,429) (16,026) (68,440)
Borrowings on long-term debt................................ 7,319 500 360,398
Repayment of long-term debt.................................. (13,237) (2,048) (260,499)
Repayment of note payable to related party................... (492) -- --
Repayment of redeemable preference shares................... (464) (2,075) --
Common stock issued, net of expenses......................... 23,171 42,339 228
Payments on capital lease obligations........................ (2,449) (259) (2,211)
Other........................................................ 800 -- 900
------------ ----------- --------------
Net cash provided by financing activities......... 15,148 39,600 113,683
------------ ----------- --------------
Effect of exchange rates on cash................................ (104) 760 (2,769)
------------ ----------- --------------
Net increase (decrease) in cash................... 3,769 21,179 (1,425)
Cash and cash equivalents, beginning of year.................... 762 4,531 25,710
------------ ----------- --------------
Cash and cash equivalents, end of year $ 4,531 $ 25,710 $ 24,285
============ =========== ==============
Supplemental disclosures of cash flow information:
Interest paid................................................ $ 1,212 $ 846 $ 4,712
Income taxes paid............................................ $ 4,170 $ 4,311 $ 7,859
Supplemental disclosures of non-cash investing and financing activities:
In 1995, upon completion of the IPO, the put option on common stock was canceled causing a reclassification
of $2,800 to stockholders' equity. The tax benefit of stock options exercised was $5,040 and $7,685 in 1996
and 1997, respectively. The Company incurred capitalized leases of $2,960, $2,101, and $13,225 in 1995, 1996
and 1997, respectively. The Company issued stock in connection with the acquisition of businesses with a
value of $28, $5,498, and $29,681 in 1995, 1996,and 1997 respectively.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:
(a) Description of Business. SITEL Corporation ("SITEL") and subsidiaries
(collectively, the "Company") provide outsourced telephone and interactive
customer service and sales programs on behalf of its clients in North America,
Europe, Asia Pacific and Latin America. The Company provides services to clients
principally in the insurance, financial services, telecommunications,
technology, media and entertainment, utilities, consumer, automotive and travel
and hospitality industries.
(b) Principles of Consolidation. The consolidated financial statements
include the financial statements of SITEL Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
During 1996, the Company acquired all of the outstanding common stock of
National Action Financial Services, Inc. ("NAFS") by issuing 2,742,452 shares of
its common stock and all of the outstanding common stock of Mitre plc ("Mitre")
by issuing 18,341,106 shares of its common stock in two separate business
combinations accounted for using the pooling-of-interests method of accounting.
Accordingly, the consolidated financial statements for periods prior to each
business combination have been restated to include the accounts and results of
operations of NAFS and Mitre. No significant adjustments were required to
conform the accounting policies of the combining enterprises.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below:
(in thousands)
1995 1996
--------------- ---------------
Revenues:
SITEL $ 120,617 $ 196,279
NAFS 8,258 15,685
Mitre 58,340 100,786
--------------- ---------------
Combined $ 187,215 $ 312,750
=============== ===============
Net income (loss)
SITEL $ (16,349) $ 6,016
NAFS 773 (1,132)
Mitre 2,123 5,973
--------------- ---------------
Combined $ (13,453) $ 10,857
=============== ===============
Transaction related expenses of approximately $0.7 million and $6.3 million
for the combinations with NAFS and Mitre, respectively, were expensed during
1996 at the closing of each transaction.
(c) Translation of Foreign Currencies. The translation of the applicable
foreign currencies into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date. Revenue and
expense accounts are translated using average exchange rates prevailing during
the year. Gains or losses resulting from currency translation are included in
stockholders' equity.
F-8
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) Revenue Recognition. The Company recognizes revenues as services are
performed for its clients. Certain contracts allow for the provision of services
whereby the Company is able to invoice and receive payment for its services in
advance of the performance of those services. Such advance payments are recorded
as deferred revenue until such time as the services are performed.
(e) Cash Equivalents. Cash equivalents generally consist of highly liquid
debt instruments purchased with an original maturity of three months or less.
(f) Property and Equipment. Property and equipment are stated at cost.
Equipment under capital leases is stated at the present value of minimum lease
payments. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets which range from 3 to 20 years. Assets
recorded for leasehold improvements and under capital leases are amortized on a
straight-line basis over the shorter of the lease term or estimated useful life
of the asset.
(g) Investments in Marketable Securities. All marketable securities held by
the Company at December 31, 1996 and 1997, were classified as available-for-sale
and recorded at fair value. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from income
and are reported as a separate component of stockholders' equity until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis. Fair values are estimated based
upon quoted market values.
(h) Income Taxes. Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances, if any, are established when
necessary to reduce deferred tax assets to the amount that is more likely than
not to be realized. Income taxes are not accrued for unremitted earnings of
international operations that have been, or are intended to be, reinvested
indefinitely.
(i) Goodwill. Goodwill consists of the difference between the purchase
price incurred in acquisitions using the purchase method of accounting and the
fair value of net assets acquired and is being amortized using the straight-line
method over 25 years. Accumulated amortization of goodwill at December 31, 1996
and 1997 was $1.4 million and $5.0 million, respectively. The Company monitors
events and changes in circumstances which may require a review of the carrying
value of goodwill at each consolidated balance sheet date to assess
recoverability based on estimated undiscounted future operating cash flows.
Impairments are recognized in operating results when a permanent diminution in
value occurs based on fair value. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
(j) Income (Loss) Per Share. The Company has adopted SFAS 128 "Earnings Per
Share" ("SFAS 128"), which has changed the method for calculating income per
share. SFAS 128 requires the presentation of "basic" and "diluted" income per
share on the face of the income statement. Prior period income per share data
has been restated in accordance with SFAS 128. Income per common share is
computed by dividing net income by the weighted average number of common shares
and common equivalent shares outstanding during each period, after giving
retroactive effect to the stock splits (see also Note 6) and business
combinations accounted for using the pooling-of-interests method of accounting.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98,
options to purchase common stock for nominal consideration are included in the
calculation of diluted income or loss per share, as if they were outstanding for
all of the pre-initial public offering periods.
F-9
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The difference in shares utilized in calculating basic and diluted income
per share represents the number of shares issued under the Company's stock
option plans less shares assumed to be purchased with proceeds from the exercise
of the stock options. Due to the net loss in 1995, the anti-dilutive effect of
the Company's stock option plans is not included in the calculation of diluted
earnings per share except as noted above in relation to the Company's initial
public offering. There are no reconciling items between the Company's reported
net income or loss and net income or loss used in the computation of basic and
diluted income per share.
(k) Use of Estimates. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(l) Stock Compensation. The Company recognizes stock-based compensation
expense using the intrinsic value method. Under that method, no compensation
expense is recorded if the exercise price of the employee stock options equals
or exceeds the market price of the underlying stock on the date of grant. For
disclosure purposes, pro forma net income and income (loss) per share are
provided as if the fair value method had been applied.
(m) Financial Instruments. Fair values of cash and cash equivalents,
receivables, accounts payable, marketable securities, long term debt (primarily
with variable interest rates), capital leases and notes payable are estimated to
approximate carrying values due to the short maturities or other characteristics
of these financial instruments.
During 1997, the Company also entered into forward contracts designed to
manage the Company's exposure to fluctuations in the value of currencies of
certain foreign countries in which the Company has significant operations. These
contracts are marked to market with gains or losses recognized in the Company's
statements of income (loss) as other income (expense). The Company had no
unsettled forward contracts at December 31, 1997.
(n) Reclassification. Certain amounts in 1996 have been reclassified to
conform with the current year presentation.
2. ACQUISITIONS:
In December 1995, the Company acquired all stock held by minority
stockholders in three subsidiaries of Mitre by issuing Mitre stock with a value
of approximately $5.5 million. The acquisition of the minority holdings was
accounted for using the purchase method of accounting. Accordingly, the purchase
price was allocated based on estimated fair values at the date of acquisition.
The excess of purchase price over the fair value of the net assets acquired was
approximately $4.8 million.
F-10
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 1996, the Company acquired the teleservicing businesses of
C.T.C. Canadian Telephone Corporation and 2965496 Canada, Inc. (collectively,
"CTC") through purchases of certain assets and the assumption of certain
liabilities of each business for a purchase price of approximately $4.2 million,
including acquisition costs. The acquisition of CTC has been accounted for as a
purchase. Accordingly, the purchase price has been allocated to the assets and
liabilities acquired based upon their fair values at the date of acquisition and
the results of operations of CTC have been included in the consolidated results
of operations since the date of acquisition. Goodwill of approximately $4.2
million was recorded for the excess of purchase price over the fair value of net
assets acquired. Prior to the acquisition date, the results of operations of CTC
were not significant.
In June 1996, the Company acquired Teleaction S.A. ("Teleaction"), a
Spanish teleservicing company, through the payment of approximately $25 million
for 69.2% of the capital stock, and, an unconditional commitment (the "purchase
price payable") to close the purchase of the remaining 30.8% in June 1998. The
purchase price payable in 1996 includes an unconditional commitment to pay a
minimum of 1.4 billion Spanish pesetas (approximately US $10.8 million at
acquisition) plus additional amounts of contingent consideration based upon the
attainment of specified levels of earnings before interest, depreciation, and
income taxes as defined in the acquisition agreement. The Company accounted for
the transaction as an acquisition of all of the outstanding capital stock of
Teleaction because it acquired the risks and rewards of ownership except for the
contingent consideration, which has been accounted for as additional purchase
price paid. In the fourth quarter of 1997, the Company completed the acquisition
of the remaining 30.8% for approximately $14 million, a valuation consistent
with the terms of the original agreement. The Company accounted for the
acquisition as a purchase. Accordingly, the purchase price has been allocated to
assets and liabilities acquired based on their estimated fair values at the date
of acquisition and the results of operations of Teleaction have been included in
the consolidated results of operations since the date of acquisition. As of
December 31, 1997, the Company has recorded goodwill of approximately $28.7
million for the excess of purchase price over net assets acquired, including the
additional payments made in the settlement of the remaining purchase price
payable during 1997.
In January 1997, the Company acquired all of the outstanding capital stock
of Telebusiness Holdings, a systems integration company based in Australia and
New Zealand. In February 1997, the Company acquired substantially all of the
assets of Exton Technology Group, a teleservicing technical support company
based in Madison, Wisconsin. In March 1997, the Company acquired all of the
outstanding stock of Levita Group Pty Ltd., an Australian based teleservicing
company, and all of the outstanding stock of L&R Group Limited, a United Kingdom
based teleservicing consulting firm. In May 1997, the Company acquired all of
the outstanding stock of Support Systems Developers, Inc., a teleservices
technical support company based in Vienna, Virginia. In July 1997, the Company
acquired all of the outstanding stock of Svanberg & Co. Intressenter AB, a
teleservices firm based in Sweden. In September 1997, the Company acquired all
of the outstanding stock of Telephone Marketing Services (Ireland), Ltd., a
teleservices firm based in Ireland. In November 1997, the Company acquired a 49%
equity interest in Grupo de Comercializacion Integrada S.A. de C.V. ("GCI"), a
teleservicing subsidiary of Corporacion Interamericana de Entretenimiento, S.A.
de C.V. ("CIE"), an event promotion and management company in Latin America. The
terms of the acquisition provide for the Company's effective control of GCI
through the Company's ability to elect a majority of the board of directors and
through responsibility of the board for the day-to-day operations of GCI.
Therefore, the Company has accounted for the transaction as an acquisition of a
subsidiary and consolidated the results of operations of GCI since the date of
acquisition. Under the terms of the acquisition, the other shareholder of GCI is
also provided certain protective rights which, in the opinion of management, do
not impair the Company's ability to effectively exercise its control over GCI.
F-11
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Those protective rights include the ability of the other shareholder to veto
actions of the subsidiary resulting in its dissolution or reorganization, its
filing of bankruptcy or insolvency, sale of a significant portion of its assets,
amendment to its by-laws, issuance of additional capital stock or significant
reacquisition of its capital stock, and its contracting with related parties
among other rights.
The total cost of the Company's 1997 acquisitions was approximately $76.7
million, subject to certain adjustments and excluding transaction costs and
liabilities assumed. Included in the total cost was the issuance of
approximately 2.3 million shares of the Company's common stock valued at
approximately $29.7 million.
These 1997 acquisitions have been accounted for as purchases and
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition, and the results of operations
have been included in the accompanying consolidated financial statements since
the dates of acquisition. The total purchase price in excess of the fair market
value of the net assets acquired was recorded as goodwill ($65.6 million).
The following pro forma information shows the results of the Company as
though the acquisitions described earlier for 1996 and 1997 occurred as of
January 1, 1996. These results include certain adjustments consistent with the
Company's policy related to amortization of intangible assets. These results are
not necessarily indicative of the results that actually would have been obtained
if the acquisitions had been in effect at the beginning of each period or which
may be attained in the future.
For the Years Ended December 31,
1996 1997
----------- ----------
(in thousands, except per share data)
(unaudited)
Revenue $ 373,602 $ 510,553
Net income $ 9,348 $ 1,814
Income per common share:
Basic $ 0.16 $ 0.03
Diluted $ 0.14 $ 0.03
F-12
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS IN MARKETABLE SECURITIES:
The amortized cost, gross unrealized holding gains and fair value for
available-for-sale securities at December 31, 1996 and 1997 were as follows:
(in thousands)
Gross
Unrealized
Amortized Holding Fair
Cost Gains Value
---- ----- -----
December 31, 1996
Equity securities $ 200 $ 1,540 $ 1,740
========== ========= ============
December 31, 1997
Equity securities $ 49 $ 110 $ 159
========== ========= ============
Proceeds from the sale of marketable securities available-for-sale were
$9.2 million, $76.8 million, and $0.6 million in 1995, 1996, and 1997,
respectively. Gross realized gains of $0.4 million were realized in 1997. No
gross realized losses were realized in 1997 and no gross realized gains or
losses were realized in 1995 and 1996.
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and 1997 consisted of the
following:
(in thousands)
1996 1997
------------ ------------
Telecommunications equipment $ 53,821 $ 89,067
Furniture, equipment, and other 25,343 43,985
Leasehold improvements 10,241 18,707
Buildings 4,063 19,591
Other 426 1,080
------------- -------------
93,894 172,430
Less accumulated depreciation 34,785 51,830
------------- -------------
$ 59,109 $ 120,600
============= =============
F-13
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT:
Long-term debt at December 31, 1996 and 1997, consisted of the following:
(in thousands)
For The Years Ended December 31,
--------------------------------
1996 1997
------------- -------------
Long-term revolving credit facility at
variable interest rates (6.52% at
December 31, 1997) due in July, 2002........ $ -- $ 99,500
Various notes payable acquired at
acquisition of GCI, with variable interest
rates (22.0% at December 31, 1997).......... -- 3,859
8% note payable in monthly installments,
including interest, secured by property..... 1,270 --
Other notes payable with weighted-average
interest rates of 6.4% and 6.6% in 1996 and
1997, respectively; secured by property and
equipment and non domestic accounts
receivable.................................. 1,209 9,939
----------- -----------
2,479 113,298
Less current portion........................ 759 10,793
----------- -----------
Total....................................... $ 1,720 $ 102,505
=========== ===========
In July 1997, the Company reached agreement with a syndicate of commercial
banks for the long-term $150 million revolving credit facility noted above. The
facility provides for interest payable quarterly and a variable commitment fee
on any unused balances. The obligations of the Company under the facility have
been guaranteed by the Company's domestic subsidiaries and are secured by a
pledge of the Company's shares in such subsidiaries and certain other foreign
subsidiaries. The facility contains certain financial covenants and certain
restrictions on, among other things, the Company's ability to incur additional
debt, make certain investments, and sell assets or merge with another company.
The facility also prohibits the payment of cash dividends on common stock
without the banks' consent. The facility becomes due and payable upon a change
of control of the Company as defined in the facility agreement. At December 31,
1997, the Company was in compliance or has obtained waivers for all of these
covenants and restrictions.
Additionally, several international lines of credit are available to fund
local working capital requirements. The maximum borrowings under these
facilities are approximately $33.1 million. At December 31, 1997, the total
amount of notes payable outstanding under these facilities approximated $14.4
million with a weighted-average interest rate of 7.3%.
Including unused lines of credit in Europe, the Company had unused lines of
credit totaling approximately $69.2 million at December 31, 1997.
F-14
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate maturities of long-term debt for each of the five years
following December 31, 1997 are as follows:
(in thousands)
Maturities of
Year Ending December 31, Long-term Debt
------------------------ --------------
1998 $ 10,793
1999 1,926
2000 518
2001 165
2002 and thereafter 99,896
Redeemable preference shares were issued by Mitre and certain subsidiaries
of Mitre prior to the acquisition by the Company. The shares were generally
redeemable at par in equal installments at the option of the holder, and paid
cumulative dividends of 7.5% to 10%. As a result of the acquisition of Mitre,
substantially all of the shares were redeemed.
6. COMMON STOCK:
On May 13, 1996, the Company effected a two-for-one stock split to
shareholders of record on May 3, 1996. On October 21, 1996, the Company effected
a second two-for-one stock split to shareholders of record on October 14, 1996.
Both of these stock splits have been given retroactive effect in the
accompanying consolidated financial statements.
In May 1995, the Company was reincorporated in the State of Minnesota. As
part of the reincorporation, each outstanding share of Class A, Class B, and
Class C common stock was converted automatically to 2.5 shares of new $.001 par
value common stock.
During June 1995, the Company completed an initial public offering ("IPO")
of its common stock. In that IPO, the Company issued 7,600,000 shares at a price
of $3.38 per share, as adjusted for subsequent stock splits. Net proceeds of
approximately $23.2 million were realized by the Company after deducting the
underwriting discount and offering costs.
Prior to its IPO, the Company's outstanding capital stock included
3,070,584 shares of Class C common stock that was issued with a put option in
connection with a previous acquisition of a business. The put option entitled
the shareholder to put those shares back to the Company between July 1, 1997 and
November 30, 1997 in exchange for a note payable of $4.5 million less the amount
of certain expenditures made by the stockholder relating to obligations not
assumed by the Company in that previous acquisition. The value of the put option
was being accreted by charges to retained earnings over the life of the put
option until its cancellation, which occurred concurrently with the Company's
IPO.
The Company completed an additional public offering of common stock in
February 1996. The Company sold 5,982,220 shares at a price of $7.50 per share,
as adjusted for the stock splits. Net proceeds of $42.3 million were realized by
the Company after deducting the underwriting discount and offering expenses.
F-15
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES:
For financial reporting purposes, income (loss) from continuing operations
before income taxes and minority interest includes the following components:
(in thousands)
For The Years Ended December 31,
--------------------------------------
1995 1996 1997
-------- -------- --------
Pretax income (loss):
United States $ (23,834) $ 8,653 $ 15,005
Foreign 5,050 12,502 (713)
--------- --------- ---------
Total $ (18,784) $ 21,155 $ 14,292
========= ======== =========
The components of the provision for income tax expense (benefit) consists of:
(in thousands)
For The Years Ended December 31,
------------------------------------------------
1995 1996 1997
----------- ----------- -------------
Current:
Federal $ 3,804 $ 3,929 $ 5,805
Foreign 1,681 4,529 7,112
State 141 (60) (113)
-------- -------- --------
5,626 8,398 12,804
Deferred:
Federal (12,203) 1,521 1,237
Foreign (16) 302 (2,735)
State -- -- --
-------- -------- --------
(12,219) 1,823 (1,498)
-------- -------- --------
Provision for
income tax $ (6,593) $ 10,221 $ 11,306
expense (benefit) ========== ========== =========
Certain of the income tax benefits related to the exercise of stock options
reduce taxes currently payable and are credited to paid-in capital. The amount
credited was approximately $5,040 and $7,685 in 1996 and 1997, respectively.
F-16
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
(in thousands)
For The Years Ended December 31,
---------------------------------
1996 1997
-------------- --------------
Deferred tax assets:
Accrued compensation and other liabilities $ 11,198 $ 10,362
Net operating loss and other credit
carryforwards 2,558 1,846
Deferred tax items related to international
operations 320 2,433
Other 297 346
------------- -------------
Total deferred tax assets 14,373 14,987
------------- -------------
Deferred tax liabilities:
Deferred tax items related to international
operations 1,137 --
Leased assets and depreciation 640 319
Unrealized gain on marketable securities 523 37
Other 374 364
------------- -------------
Total deferred tax liabilities 2,674 720
------------- -------------
Net deferred tax assets $ 11,699 $ 14,267
============= =============
Based upon the Company's current and historical pretax earnings, adjusted
for significant deductions available from the exercise of nonqualified stock
options, management believes that it is more likely than not that the Company
will generate sufficient taxable income to fully realize the benefits of its
recorded deferred tax assets.
Undistributed earnings of international consolidated subsidiaries for which
no deferred income tax provision has been made for possible future remittances
totaled approximately $5.6 million at December 31, 1997. Substantially all of
this amount represents earnings reinvested as part of the Company's ongoing
business. It is not practical to estimate the amount of U.S. taxes that might be
payable on the eventual remittance of such earnings. On remittance, certain
countries impose withholding taxes that, subject to certain limitations, are
then available for use as tax credits against a U.S. tax liability, if any. The
Company estimates withholding taxes of approximately $0.5 million would be
payable upon remittance of those earnings. At December 31, 1997, the Company had
U.S. Federal net operating loss carryforwards of approximately $1.3 million,
which will expire in 2004. At December 31, 1997, the Company had alternative
minimum tax credit carryforwards of approximately $1.4 million.
F-17
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The difference between the Company's income tax expense (benefit) as
reported in the accompanying consolidated financial statements and that which
would be calculated applying the U.S. Federal income tax rate of 34% on pretax
income, less minority interest, is as follows:
(in thousands)
For The Years Ended December 31,
--------------------------------------
1995 1996 1997
------------ ------------- -----------
Expected Federal income taxes $ (6,816) $ 7,166 $ 4,859
State taxes, net of Federal effects 83 (40) (74)
Amortization of goodwill 18 266 159
Impact of foreign operations 4 438 1,278
Merger related costs -- 2,257 --
State incentive tax credits (See note 14) -- -- 1,446
Impairment losses on intangible assets -- -- 3,400
Other 108 134 238
========= ========= ========
Total $ (6,593) $ 10,221 $ 11,306
========= ========= ========
8. LEASE OBLIGATIONS:
The Company is obligated under various capital leases for property and
certain equipment that expire at various dates through 2015. Capitalized leased
equipment included in property and equipment was approximately $7.3 million and
$17.8 million at December 31, 1996 and 1997, respectively, net of accumulated
amortization.
The Company also leases property and certain equipment under noncancelable
operating lease arrangements which expire at various dates through 2015. Rent
expense was approximately $3.8 million, $6.7 million, and $15.4 million for the
years ended December 31, 1995, 1996 and 1997, respectively. Certain leases of
real property provide options to extend the lease terms.
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of December 31, 1997 are as follows:
(in thousands)
Capital Operating
Leases Leases
-------------- --------------
Year ending December 31,
1998 $ 6,406 $ 17,737
1999 4,116 16,008
2000 1,604 14,464
2001 934 12,991
2002 and thereafter 9,625 10,586
------------- -------------
22,685 $ 71,786
==============
Less amount representing interest 4,768
--------------
Present value of net minimum lease
obligations $ 17,917
==============
F-18
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK-BASED COMPENSATION:
The Company has four stock option plans described as follows:
a) Stock Plan for Replacement of Existing Options ("Replacement
Plan"). Under this plan, options for 4,541,780 shares were granted
in 1995, with an option price of $.0025 per share, as replacements
for 3,110,000 options outstanding at February 28, 1995.
a) Stock Option Plan ("EEB Replacement Plan"). Under this plan,
options for 7,381,720 shares were granted in 1995, with an option
price of $.0025 per share, as replacements for the Company's
employee equity benefit plan ("EEB
Plan"). The EEB Plan had 12,655,000 units outstanding with base
values ranging from $.85 to $1.71. With respect to both the
Replacement Plan and the EEB Replacement Plan, the following
applies: Options are exercisable in five equal annual installments
from January 1996 to May 2000. The Company recorded these option
grants to 265 employees at the estimated fair value at date of
grant ($2.91), with a corresponding charge to special compensation
expense totaling $34.6 million in 1995. All options granted were
vested as of the date of grant. No further options will be granted
under these plans.
a) 1995 Employee Stock Option Plan ("Employee Plan"). The Employee
Plan provides for the granting of various types of incentive
awards (including incentive stock options, nonqualified options,
stock appreciation rights, restricted shares, and performance
shares or units) for the issuance of up to an aggregate of
9,800,000 shares of common stock to employees and independent
consultants of the Company and its subsidiaries. Vesting terms
vary with each grant, and option terms may not exceed ten years.
Option prices, set by the Compensation Committee of the Board of
Directors, may not be less than the fair market value at date of
grant for incentive stock options or less than par value for
nonqualified stock options. At December 31, 1997, there were
approximately 2.5 million shares available for issuance pursuant
to future grants under the Employee Plan.
a) 1995 Non-Employee Directors Stock Option Plan ("Directors Plan").
The Directors Plan provides for automatic formula grants of
nonqualified options to each independent director of the Company.
Each independent director is granted options to purchase 18,000
shares of common stock upon election or re-election to a
three-year term on the Board of Directors. Option prices equal the
fair market value of the common stock on the date of grant.
Options vest and become exercisable in three equal annual
installments commencing one year after grant. The Directors Plan
is administered by the Board members who are not eligible to
participate in the plan. At December 31, 1997, there were 224,000
shares available for issuance pursuant to future grants under the
Directors Plan.
All four plans require optionees to enter into certain voting and resale
agreements which place certain restrictions on actions of the optionee.
F-19
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additional information as to shares subject to options is as follows:
Weighted-Average
Number of Exercise Price
Options per Option
-------------------- --------------------
Balance, January 1,1995 - -
Granted 12,539,500 $ .29
Exercised - -
Canceled - -
-------------------- --------------------
Balance, December 31,1995 12,539,500 .29
Granted 5,608,462 15.39
Exercised (1,719,642) .05
Canceled (50,908) 15.75
-------------------- --------------------
Balance, December 31,1996 16,377,412 .44
Granted 6,478,211 13.08
Exercised (1,891,562) .12
Canceled (5,343,144) 15.69
-------------------- --------------------
Balance, December 31,1997 15,620,917 $ 5.78
==================== ====================
Exercisable at December 31,1997 1,614,601 $ 2.38
==================== ====================
The number of options granted and canceled in 1997 includes the effect of
an amendment to the terms of pre-existing option agreements for 4,222,405
options issued under the 1995 Plan. The amendment to the terms of the options
lowered the exercise prices to prevailing market values of the common stock and
altered the conditions for accelerated vesting of the options.
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------------------
Number Weighted-Average Weighted-Average Weighted
Range of Outstanding at Remaining Exercise Exercisable at Average
Exercise Prices 12/31/97 Contractual Life Price 12/31/97 Exercise Price
- ----------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
$.0025 8,343,496 2.41 $.0025 1,188,522 $.0025
$4.39 to $12.38 1,517,458 6.09 $ 8.84 262,200 $ 6.04
$12.50 4,197,797 8.21 $12.50 113,419 $12.50
$12.75 to $15.75 1,098,926 8.07 $15.10 38,460 $15.54
$16.50 to $20.50 463,240 9.01 $16.94 12,000 $19.50
</TABLE>
The per share weighted-average fair value of stock options granted during
1995, 1996, and 1997, was $2.16, $7.84, and $7.72, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield 0.0%, expected volatility
factor 30.0%, risk-free interest rate of 5.82%, 6.48%, and 6.31% in 1995, 1996,
and 1997, respectively, and an expected life of 5 years, 8.62 years, and 9.04
years in 1995, 1996, and 1997, respectively.
F-20
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
(loss) and income (loss) per share would have been reduced to the pro forma
amounts indicated below:
(in thousands, except per share data)
For The Years Ended December 31,
-------------------------------------
1995 1996 1997
---------- ---------- -----------
Net income (loss): As Reported $(13,453) $10,857 $ 2,812
Pro Forma (13,493) 10,186 (1,473)
Income (loss) per share: As Reported
Basic $(0.33) $ 0.19 $ 0.05
Diluted (0.29) 0.16 0.04
Pro Forma
Basic $(0.33) $ 0.18 $(0.02)
Diluted (0.29) 0.15 (0.02)
In June 1995, NAFS entered into an agreement with one employee whereby the
Company committed to grant options amounting to 2% of the common stock of NAFS
to the employee in connection with his initial employment contract. In May 1996,
NAFS fulfilled this commitment by issuing the options and recording compensation
expense, which has been classified as selling, general, and administrative
expense, of approximately $0.6 million.
10. RELATED PARTY TRANSACTIONS:
For the period of December 1994 to June 30, 1996, a common shareholder of
NAFS held 30,000 shares of Series A redeemable preference shares in the amount
of $0.3 million and earning dividends at a rate of 10% per annum, payable
quarterly. Each share of preference stock was convertible into shares of NAFS
common stock and was converted to common stock prior to the merger of SITEL and
NAFS. The same NAFS common shareholder held an installment note payable of $0.5
million, bearing interest at 10%, and secured by the assets subordinate to the
bank debt for the period of December 1994 to June 30, 1996. The debt included
contingent warrants that allowed for the issuance of stock to purchase a
percentage of the Company's outstanding common stock contingent upon the number
of months required to repay the note payable. In connection with the merger of
SITEL and NAFS, the note payable was repaid and the contingent warrants were
canceled.
11. BENEFIT PLANS:
The Company's 401(k) plan, formed in January 1994, covers substantially all
domestic employees who are 18 years of age with 60 days or more of service.
Participants may elect to contribute 1% to 17% of compensation. The Company may
elect to make a year end contribution to the 401(k) plan. Company contributions
to the plan were $50,000 in 1996. No contributions were made in 1995 and 1997.
Effective May 15, 1994, the Company adopted a deferred compensation plan
for certain executive employees, who elect to contribute to the plan. The
Company may voluntarily match all or a portion of the participants'
contributions. Participants are 100% vested in their contributions and the
Company's contributions vest over a 15-year period. No contributions were made
to the plan in 1995, 1996, and 1997.
F-21
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. SEGMENT DATA:
The Company's operations are primarily conducted in one business segment. A
summary of the Company's operations by geographic area follows.
(in thousands)
For The Years Ended December 31,
----------------------------------------------
1995 1996 1997
------------ ------------- -------------
REVENUE:
- North America $ 128,875 $ 184,366 $ 261,240
- Europe 58,340 128,384 200,291
- Other - - 29,943
---------- ------------ ------------
$ 187,215 $ 312,750 $ 491,474
========== ============ ============
OPERATING INCOME (LOSS):
- North America $ (23,872) $ 14,455 $ 18,412
- Europe 5,672 13,883 15,499
- Other - - (14,649)
---------- ------------ ------------
$ (18,200) $ 28,338 $ 19,262
========== ============ ============
IDENTIFIABLE ASSETS:
- North America $ 96,440 $ 179,951
- Europe 115,244 157,806
- Other - 48,123
------------ ------------
$ 211,684 $ 385,880
============ ============
13. CONTINGENCIES:
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of management, no litigation to which the Company is
currently a party is likely to have a materially adverse effect on the Company's
results of operations, financial condition, or cash flows, if decided adversely
to the Company.
F-22
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. RESTRUCTURING AND IMPAIRMENT OF ASSETS:
In the fourth quarter of 1997, the Company recorded provisions of $15.7
million for restructuring expenses. Included in this charge are impairment
losses on long-lived assets of $11.0 million, severance and other costs of $3.6
million, and costs related to losses on contractual obligations of $1.1 million.
The Company's restructuring plan commitments in 1997, which are expected to be
fully completed in 1998, included the following initiatives:
o Concurrent with the decision to pursue a new joint-venture equity partner
in the Asia Pacific region, management committed to sell or abandon certain
other operations in 1998. The decision to sell or abandon these operations
resulted from the disappointing results of operations during 1997 combined
with the recognition that the Company's joint-venture partner would not
participate in managing or funding these operations. Management expects the
plans to sell or abandon these operations to be completed by mid 1998. The
resulting impairment loss of approximately $10.0 million, which represented
primarily the write-off of unamortized goodwill, was recorded in the fourth
quarter of 1997. The Company also accrued certain other costs of $0.5
million related to this initiative, including severance for 18 employees.
Revenues and operating loss of these operations were approximately $3.5
million and $1.2 million, before the effects of these charges, in 1997.
o Management committed to plans to relocate the Company's corporate
headquarters and to close or consolidate certain under-performing call
centers. Costs incurred as a result of these plans consist principally of
commitments related to abandoned or excess space for leased facilities of
approximately $1.1 million and impairment losses of $1.0 million which were
recorded by the Company for obsolete technology to record these assets at
their estimated fair value, less costs of disposal. The Company also
incurred severance for 17 employees and other costs of $0.2 million related
to this plan.
The plan to close under-performing call centers also affected management's
assessment of the carrying value of certain deferred tax assets of $1.4
million originating from state incentive tax credits related to employment
incentives. These deferred tax assets were expensed in the fourth quarter
of 1997 because management believes that it is more likely than not that
these benefits will ultimately not be utilized. (See note 7.)
o Management committed to a plan to reorganize its corporate management in
Europe. The substantial majority of costs related to this plan are
severance costs of $2.8 million for the involuntary termination of 31
employees, which are accrued and unpaid at December 31, 1997. The Company
also incurred other costs of $0.1 million related to this plan.
After income taxes, these actions reduced fiscal year 1997 earnings by $15.7
million or $0.23 per diluted share.
15. SUBSEQUENT EVENTS:
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" - see Note 5), which
was also amended on that date. No significant gain or loss was recognized as a
result of this refunding.
F-23
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
16. 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, 1996 and
1997, and for the years ended December 31, 1995, 1996 and 1997 of (a) SITEL
Corporation, the parent, (b) the guarantor subsidiaries, (c) the
nonguarantor subsidiaries and (d) SITEL Corporation on a consolidated
basis,
(1) 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
(1) Elimination entries necessary to consolidate SITEL Corporation, the parent,
with all subsidiaries.
F-24
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
December 31, 1996
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ................ $ 13,302 $ 1,859 $ 10,549 $ -- $ 25,710
Trade accounts receivable, net ........... 16,510 7,246 42,578 (857) 65,477
Marketable securities .................... 1,740 -- -- -- 1,740
Prepaid expenses and other current assets. 1,909 711 3,806 -- 6,426
--------- --------- --------- ------- ---------
Total current assets ................... 33,461 9,816 56,933 (857) 99,353
--------- --------- --------- ------- ---------
Property and equipment, net .............. 23,671 6,936 28,502 -- 59,109
Deferred income taxes .................... 12,317 (280) (850) -- 11,187
Goodwill, net ............................ 1,718 -- 38,392 -- 40,110
Other assets ............................. 1,369 135 421 -- 1,925
Investments in subsidiaries .............. 67,765 34,023 -- (101,788) --
Notes receivable, intercompany ........... -- 20,415 -- (20,415) --
--------- --------- --------- --------- ---------
Total assets ........................... $ 140,301 $ 71,045 $ 123,398 $(123,060) $ 211,684
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ............................ $ -- $ -- $ 3,638 $ -- $ 3,638
Current portion of long-term debt......... 15 -- 744 -- 759
Current portion of capitalized
lease obligations....................... -- 76 2,956 -- 3,032
Trade accounts payable ................... 1,396 1,264 16,972 (857) 18,775
Accrued expenses and other current
liabilities............................. 10,589 1,707 24,017 -- 36,313
--------- -------- --------- --------- ---------
Total current liabilities .............. 12,000 3,047 48,327 (857) 62,517
--------- -------- --------- --------- ---------
Long-term debt, excluding current portion. 115 -- 1,605 -- 1,720
Capitalized lease obligations,
excluding current portion .............. -- 233 2,908 -- 3,141
Notes payable, intercompany .............. -- -- 20,415 (20,415) --
Purchase price payable ................... -- -- 15,928 -- 15,928
Deferred compensation .................... 1,461 -- -- -- 1,461
Minority interest ........................ -- -- 192 -- 192
Stockholders' equity ..................... 126,725 67,765 34,023 (101,788) 126,725
--------- -------- --------- --------- ---------
Total liabilities and
stockholders' equity ................. $ 140,301 $ 71,045 $ 123,398 $(123,060) $ 211,684
========= ======== ========= ========= =========
</TABLE>
F-25
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
December 31, 1997
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
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 shareholders'
equity ............................... $ 277,954 $ 188,006 $ 218,849 $(298,929) $ 385,880
========= ========= ========= ========= =========
</TABLE>
F-26
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income
For the year ended December 31, 1995
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 84,841 $ 44,034 $ 58,340 $ -- $ 187,215
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services ......................... 46,510 22,967 32,140 -- 101,617
Selling, general and administrative
expenses ............................... 36,310 12,375 20,528 -- 69,213
Special compensation expense ............. 34,585 -- -- -- 34,585
--------- --------- --------- --------- ---------
Total operating expenses ............... 117,405 35,342 52,668 -- 205,415
--------- --------- --------- --------- ---------
Operating income (loss) ................ (32,564) 8,692 5,672 -- (18,200)
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earnings of subsidiaries,
net of tax ............................. 7,557 2,123 -- (9,680) --
Interest income .......................... 474 6 133 -- 613
Interest expense ......................... (300) (260) (755) -- (1,315)
Other income ............................. 118 -- -- -- 118
--------- --------- --------- --------- ---------
Total other income (expense)................ 7,849 1,869 (622) (9,680) (584)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest ..................... (24,715) 10,561 5,050 (9,680) (18,784)
Income tax expense (benefit) ............... (11,262) 3,004 1,665 -- (6,593)
Minority interest .......................... -- -- 1,262 -- 1,262
--------- --------- --------- --------- ---------
Net income (loss) ..................... $ (13,453) $ 7,557 $ 2,123 $ (9,680) $ (13,453)
========= ========= ========= ========= =========
</TABLE>
F-27
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income
For the year ended December 31, 1996
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 122,582 $ 56,752 $ 133,416 $ -- $ 312,750
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services ......................... 63,839 30,595 69,283 -- 163,717
Selling, general and administrative
expenses ............................... 52,913 20,117 47,665 -- 120,695
--------- --------- --------- --------- ---------
Total operating expenses .............. 116,752 50,712 116,948 -- 284,412
--------- --------- --------- --------- ---------
Operating income ......................... 5,830 6,040 16,468 -- 28,338
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earnings of
subsidiaries, net of tax ............... 11,465 7,594 -- (19,059) --
Transaction related expense .............. (5,700) (666) (622) -- (6,988)
Intercompany charges ..................... 378 1,515 (1,893) -- --
Interest income .......................... 1,076 -- 32 -- 1,108
Interest expense ......................... 169 (117) (1,387) -- (1,335)
Other income (expense) ................... 128 -- (96) -- 32
--------- --------- --------- --------- ---------
Total other income (expense) ........... 7,516 8,326 (3,966) (19,059) (7,183)
--------- --------- --------- --------- ---------
Income before income taxes and
minority interest ........................ 13,346 14,366 12,502 (19,059) 21,155
Income tax expense ......................... 2,489 2,901 4,831 -- 10,221
Minority interest .......................... -- -- 77 -- 77
--------- --------- --------- --------- ---------
Net income ................................. $ 10,857 $ 11,465 $ 7,594 $ (19,059) $ 10,857
========= ========= ========= ========= =========
</TABLE>
F-28
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income
For the year ended December 31, 1997
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 117,118 $ 133,042 $ 241,314 $ -- $ 491,474
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services ......................... 60,391 71,703 138,848 -- 270,942
Selling, general and administrative
expenses ............................... 52,950 47,634 85,005 -- 185,589
Restructuring expenses ................... 2,148 -- 13,533 -- 15,681
--------- --------- --------- --------- ---------
Total operating expenses .............. 115,489 119,337 237,386 -- 472,212
--------- --------- --------- --------- ---------
Operating income ...................... 1,629 13,705 3,928 -- 19,262
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earnings (losses) of
subsidiaries, net of tax .............. 4,390 (4,958) -- 568 --
Intercompany charges ..................... 673 1,877 (2,550) -- --
Interest income .......................... 213 -- 348 -- 561
Interest expense ......................... (2,632) (889) (2,136) -- (5,657)
Other income ............................. 178 (55) 3 -- 126
--------- --------- --------- --------- ---------
Total other income (expense) .......... 2,822 (4,025) (4,335) 568 (4,970)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest ........................ 4,451 9,680 (407) 568 14,292
Income tax expense ......................... 1,639 5,290 4,377 -- 11,306
Minority interest .......................... -- -- 174 -- 174
--------- --------- --------- --------- ---------
Net income (loss) .......................... $ 2,812 $ 4,390 $ (4,958) $ 568 $ 2,812
========= ========= ========= ========= =========
</TABLE>
F-29
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 1995
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities ............................... $ 6,733 $ 4,703 $ 3,837 $ -- $ 15,273
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Net cash receipts from subsidiary ........ 2,415 -- -- (2,415) --
Purchases of property and equipment ...... (7,618) (2,497) (3,164) -- (13,279)
Proceeds from sales of property and
equipment .............................. -- -- 126 -- 126
Investment in marketable securities ...... (22,196) -- -- -- (22,196)
Sale of marketable securities ............ 9,150 -- -- -- 9,150
Changes in other assets, net ............. (269) (80) -- -- (349)
--------- --------- --------- --------- ---------
Net cash used in investing
activities ............................... (18,518) (2,577) (3,038) (2,415) (26,548)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable .............. 21,314 191 424 -- 21,929
Repayments of notes payable .............. (21,394) (35) -- -- (21,429)
Borrowings on long-term debt ............. 5,525 -- 1,794 -- 7,319
Repayment of long-term debt and
capital lease obligations .............. (13,295) (66) (2,325) -- (15,686)
Repayment of note payable to related
party .................................. (492) -- -- -- (492)
Prepayment of redeemable preference
shares ................................. -- -- (464) -- (464)
State incentive credits received ......... 800 -- -- -- 800
Common stock issued, net of expenses ..... 23,171 -- -- -- 23,171
Net cash payments to parent .............. -- (2,415) -- (2,415) --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ..................... 15,629 (2,325) (571) 2,415 15,148
--------- --------- --------- --------- ---------
Effect of exchange rates on cash ........... -- -- (104) -- (104)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash ............ 3,844 (199) 124 -- 3,769
Cash and cash equivalents, beginning
of year .................................. (396) 833 325 -- 762
--------- --------- --------- --------- ---------
Cash and equivalents, end of year .......... $ 3,448 $ 634 $ 449 $ -- $ 4,531
========= ========= ========= ========= =========
</TABLE>
F-30
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 1996
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities ............................... $ 13,942 $ 3,525 $ 18,376 $ -- $ 35,843
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Investments in subsidiaries .............. (37,823) (11,131) -- 48,954 --
Acquisitions net of cash acquired ........ -- (4,216) (23,720) -- (27,936)
Purchases of property and equipment ...... (21,362) (3,539) (15,053) -- (39,954)
Proceeds from sales of property
and equipment .......................... -- -- 199 -- 199
Investment in marketable securities ...... (63,793) -- -- -- (63,793)
Sale of marketable securities ............ 76,840 -- -- -- 76,840
Changes in other assets, net ............. (274) -- (106) -- (380)
--------- --------- --------- --------- ---------
Net cash used in investing activities ...... (46,412) (18,886) (38,680) 48,954 (55,024)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable .............. 15,835 -- 1,334 -- 17,169
Repayments of notes payable .............. (15,835) (191) -- -- (16,026)
Borrowings on long-term debt ............. 500 -- -- -- 500
Repayment of long-term debt and
capital lease obligations .............. (515) (631) (1,161) -- (2,307)
Net borrowings and payments on note
to parent .............................. -- (20,415) 20,415 -- --
Net capital contribution from parent ..... -- 37,823 11,131 (48,954) --
Repayment of redeemable preference shares. -- -- (2,075) -- (2,075)
Common stock issued, net of expenses ..... 42,339 -- -- -- 42,339
--------- --------- --------- --------- ---------
Net cash provided by financing activities .. 42,324 16,586 29,644 (48,954) 39,600
--------- --------- --------- --------- ---------
Effect of exchange rates on cash ........... -- -- 760 -- 760
--------- --------- --------- --------- ---------
Net increase in cash ....................... 9,854 1,225 10,100 -- 21,179
--------- --------- --------- --------- ---------
Cash and cash equivalents, beginning
of year .................................. 3,448 634 449 -- 4,531
--------- --------- --------- --------- ---------
Cash and equivalents, end of year .......... $ 13,302 $ 1,859 $ 10,549 $ -- $ 25,710
========= ========= ========= ========= =========
</TABLE>
F-31
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 1997
(in thousands)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities ............................... $ 7,157 $ 8,466 $ 3,391 $ -- $ 19,014
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Investments in subsidiaries .............. (61,787) (42,917) -- 104,704 --
Purchases of property and equipment ...... (29,569) (14,463) (25,405) -- (69,437)
Proceeds from sales of property and
equipment .............................. 2,196 -- 515 -- 2,711
Acquisitions, net of cash acquired ....... (19,722) (12,207) (15,094) -- (47,023)
Settlement of purchase price payable ..... -- -- (13,934) -- (13,934)
Sale of marketable securities ............ 558 -- -- -- 558
Changes in other assets .................. (1,925) -- (2,303) -- (4,228)
--------- --------- --------- --------- ---------
Net cash used in investing activities ...... (110,249) (69,587) (56,221) 104,704 (131,353)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable .............. 68,291 -- 15,016 -- 83,307
Repayments of notes payable .............. (68,291) -- (149) -- (68,440)
Borrowings on long-term debt ............. 360,124 -- 274 -- 360,398
Repayment of long-term debt .............. (259,948) -- (551) -- (260,499)
Net capital contribution from parent ..... -- 61,787 42,917 (104,704) --
Common stock issued, net of expenses ..... 228 -- -- -- 228
Payments on capital lease obligations .... -- (450) (1,761) -- (2,211)
Other .................................... 900 -- -- -- 900
--------- --------- --------- --------- ---------
Net cash provided by financing
activities ............................... 101,304 61,337 55,746 (104,704) 113,683
--------- --------- --------- --------- ---------
Effect of exchange rates on cash ........... -- -- (2,769) -- (2,769)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash ............ (1,788) 216 147 -- (1,425)
Cash and cash equivalents, beginning
of year .................................. 13,302 1,859 10,549 -- 25,710
--------- --------- --------- --------- ---------
Cash and equivalents, end of year .......... $ 11,514 $ 2,075 $ 10,696 $ -- $ 24,285
========= ========= ========= ========= =========
</TABLE>
F-32
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
SITEL Corporation:
We consent to the use of our reports incorporated by reference in the
registration Statement (No.333-13403) filed on Form S-3, Registration Statement
(No. 033-99434) filed on Form S-8, Registration Statement (No. 333-19069) filed
on Form S-8, Registration Statement (No. 333-30635) filed on Form S-8,
Registration Statement (No. 333-28131) filed on Form S-3, Registration Statement
(No. 333-44781) filed on Form S-8 of SITEL Corporation of our reports dated
February 17, except note 15 which is as of March 10, 1998, relating to the
consolidated balance sheets of SITEL Corporation and subsidiaries as of December
31, 1996 and 1997, and the related consolidated statements of income (loss),
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997 and the related schedule, which reports appear in
the December 31, 1997 Annual Report on Form 10-K/A of SITEL Corporation.
KPMG Peat Marwick LLP
Omaha, Nebraska
August 14, 1998
