SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1998
[ ] 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 in its charter)
MINNESOTA 47-0684333
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 SOUTH CALVERT, STE. 1900 BALTIMORE, MD 21202
(410) 246-1505
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------------------------
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 February 26, 1999 was $121,085,897 based upon the closing
price of $2.9375 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 February 26, 1999 the Company had 64,944,294 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 May
6, 1999 are incorporated into Part III.
This 10-K consists of 69 pages. The Exhibit index is on page 26.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
SITEL Corporation provides outsourced Customer Relationship Management
("CRM") services on a global scale. The Company was organized in 1985 as a
Minnesota corporation and has grown both internally and through acquisitions to
include operations in North America, Europe, Asia Pacific and Latin America.
Over 19,000 SITEL employees worldwide represent many of the world's leading
brand names. On behalf of these leading companies, the Company finds, acquires
and retains customers and helps these organizations enhance and grow these
relationships through a variety of value-added services working with several
e-Media ranging from the telephone, to e-mail and the Internet. The Company
operates from over 14,000 workstations in over 70 call centers located around
the globe in 18 countries and offers services in more than 25 languages and
dialects.
INDUSTRY OVERVIEW
Over the last 10 years the Company's industry has transformed from
primarily executing telemarketing campaigns, to performing outsourced
teleservices and customer care applications, and more recently, to increasingly
executing integrated customer relationship management programs, performed
primarily via e-Media (i.e., telephone, facsimile, Internet and e-mail). The
industry is increasingly working at the heart of its clients' key business
processes. Fueling this trend is the growth in consumer telephone, worldwide web
and e-mail usage, combined with the business imperative for consistent levels of
quality customer service, the continuing reduction in the cost of computer
databases, and the arrival of sophisticated computer telephony integration
(CTI).
SITEL'S BUSINESS
Today, the world's leading companies increasingly want their CRM partners
to provide value-added services at every stage of the customer lifecycle:
customer acquisition, customer care, technical support, receivables management
and consulting.
Industry sources and the Company estimate that worldwide expenditures to
operate call centers now exceed $200 billion annually. The Company sees even
more rapid growth fueled by the Internet revolution, multi-trillion e-mail
volumes and service-expectant consumers. The Company's activities include: (a)
customer service programs such as billing inquiry response, consumer product
information response, and fraud protection; (b) sales programs such as
cross-selling new products to existing customers, taking product orders,
generating leads for direct sales forces and account activation and order
solicitation; (c) technical support programs for Internet Service Providers,
technology hardware and software providers; and (d) accounts receivable
management programs. The Company also provides consulting services to help its
clients design and improve their internal and outsourced call center processes.
The outsourced portion of the overall call center market has grown
significantly since 1984, as a result of corporations shifting their activities
from internal operations to outsourced partners. Although outsourced
applications are increasing their share of overall call center expenditures, the
vast majority of call center activity is still performed in-house. The Company
believes that as its clients increasingly seek to implement integrated customer
relationship management solutions, they will increasingly outsource the
management of the call center processes associated with these programs due to
the complexity and cost of implementing such programs internally.
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The Company expects to see outsourcing increase as:
* companies increasingly focus on their core competencies,
* service and competency levels within our industry continue their rapid
improvement, and
* companies like SITEL gain the scale of operations necessary to engender
trust within large corporate clients in order to take over complete
business processes on their behalf.
Competition for this outsourced call center business is fragmented. Most
independent providers of telephone-based services are small, single facility
operations that do not have the scale, expertise, or technological resources
necessary to serve effectively the sustained, and increasingly complex, call
center needs of large corporations. Moreover, the cost of entry to the top end
of this market is continually increasing. The Company's investments in building
its global footprint and in creating the resources to service major national and
multi-national contracts on behalf of many of the world's leading brands has
been significant.
Traditional advantages of call center activity include low cost per call,
direct interaction with customers and on-line access to detailed customer or
product information, which enables immediate response to customer inquiries. A
customer conversation with a customer relations agent often permits the client
to learn more about the customer's decision-making process and to update
customer information in the client's database. Additionally, this interaction
with our clients' customers positions the Company to deliver real-time reports
to clients regarding their products, brands, distribution channels, effects of
pricing changes, cross-market comparisons and consumer reactions to change. As a
result of these advantages, call center-based customer relationship management
activity is becoming central to the way leading organizations choose to build
and maintain customer relationships.
SITEL'S PROPOSITION
The Company's proposition is to acquire and service long-term repeat
customers for its clients. At every stage of the customer lifecycle, the Company
endeavors to give its clients' customers an experience that will reinforce their
trust in the brand; compel them to stay loyal; and encourage their advocacy and
support however they communicate with the Company's clients and their brands.
Whether that is an individual customer or a business customer, whether they
phone, e-mail or surf their website, the Company's mission is to create customer
loyalty, to increase sales and to differentiate the clients' brand in a positive
manner.
The Company is positioned to provide world-class customer relationship
management services. With over 70 facilities in more than 18 countries
throughout the four major regions of the globe, SITEL has the capability to
provide service in more than 25 languages and dialects. The Company brings
industry focus and expertise in the financial services, insurance,
telecommunications, technology, utilities, consumer, media, government and
travel sectors.
SITEL'S SOLUTIONS
Providing services at every stage of the customer lifecycle requires
various programs. The Company provides the following solutions:
CUSTOMER ACQUISITION -- SITEL contacts, whether inbound or outbound, that relate
to finding customers or acquiring customers. Typical applications include list
building, outbound sales, inbound sales or order taking, lead generation, Direct
Response Television/bureau, product information requests related to potential
sales, subscription renewals and database cleaning and updating.
CUSTOMER CARE -- SITEL contacts, whether inbound or outbound, that relate to
handling customer service issues. Typical applications include complaint
handling; billing information; thank-you or other client-initiated information
calls; reservations; loyalty (frequent flyer) clubs; investor account inquiries;
government information; dealer location calls; insurance claims processing;
fraud detection/prevention calls; back office
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requests, such as connecting a new line, disconnecting service and requesting
maintenance support; warranty call handling; and administrative support
regarding a customer's policy, lease or account.
TECHNICAL SUPPORT/HELP DESK -- Distinguished from customer service calls, these
are troubleshooting calls where the agent must diagnose and resolve problems
causing a software, Internet or computer hardware product or service not to
function properly.
RECEIVABLES MANAGEMENT -- Pre-charge-off and post-charge-off calls to customers
to collect overdue balances.
CONSULTING -- Provision of advice and operational expertise.
INDUSTRIES SERVED
SITEL provides integrated and professional solutions across the following
industry categories:
FINANCIAL SERVICES. The Company works with financial services companies
including major banks, leasing companies, credit card issuers, mutual fund
companies, auto finance companies/subsidiaries, retail financing companies,
brokerage firms, service providers, mortgage companies and other financial
institutions. SITEL provides personal care service activities such as answering
questions regarding lease terms, handling service requests, arranging credit
card balance transfers, taking and processing loan applications, and making
accounts receivable management and fraud prevention calls. The Company also
conducts integrated sales activities on behalf of clients such as merchant and
customer acquisition, account retention and renewal, lead generation and
appointment scheduling.
INSURANCE. SITEL provides a broad range of teleservices to the insurance
industry including direct marketing of non-underwritten insurance products such
as hospital accident protection, hospital indemnity protection, health care
discount plans, mechanical breakdown and credit protection. The Company also
provides personal care services such as sales support, after-hours agent
support, emergency roadside assistance, claims processing and full back-office
support. SITEL also offers sales and service activities for fully underwritten
products such as term life, automobile and homeowner's insurance, as well as
tax-deferred annuities.
TELECOMMUNICATIONS. The Company provides a full range of sales and customer
services activities primarily to domestic and international long distance
providers, local exchange carriers, and cellular and PCS providers including
account management, fulfilment, facilities management, new product launch and
database management. The Company provides these services for product lines such
as access lines, vertical services, Internet access, long distance, cellular PCS
and ISDN data services.
TECHNOLOGY. SITEL works with Internet Service Providers, computer hardware
manufacturers and software publishers. The Company provides technical sales,
technical support and customer support services including product launches,
complete sales and account management programs, strategic product support,
corporate help desk, warranty or post-warranty support, and sunset product
support. The Company provides these support services through traditional call
handling as well as alternative electronic methods such as e-mail, advanced
integrated voice response, automated self-help tools and computer telephony
integration.
UTILITIES. SITEL provides telephone and Internet-based services to public and
private energy companies, including electric power, natural gas, water and
integrated energy providers. The services include customer acquisition, customer
service, direct sale and cross-sale activities, brand development, loyalty
campaigns, database management, and development and call center consulting
services.
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CONSUMER. The Company services leading consumer products companies and mass
marketing manufacturers, including automotive companies, in responding to
customer inquiries, developing and launching new product and sales campaigns,
managing product recalls, and performing quality surveys and market analyses.
MEDIA. SITEL's clients include traditional media, such as newspaper publishers,
major magazine publishers, book clubs and music clubs with services including
subscription renewal, customer acquisition, subscription reactivation and
customer service. The Company also provides sales and customer service to "new
media" markets, such as satellite television service providers, and CD-ROM and
video providers.
GOVERNMENT. The Company provides a broad range of customer service applications
including handling general inquiries, providing help desk responses and
delivering fulfillment services. These applications are performed for local,
state, and regional bodies and agencies.
TRAVEL AND HOSPITALITY. The Company provides teleservices and personal care
services to major airline and hotel companies in handling reservations and
customer service calls.
INFORMATION TECHNOLOGY
SITEL uses industry-standard software from Microsoft and Oracle across its
business units. Within industry sectors, SITEL uses industry-specific call
processing application systems. SITEL has designed and implemented client (or
industry) specific applications to provide highly customized solutions to
clients' specific requirements. SITEL also utilizes a state-of-the-art
technology platform (UNIX and NT architecture) with Windows 95 and NT-based
Compaq, Dell and IBM workstations, predictive dialers and automated call
distributors. SITEL representatives have the tools to initiate and receive
effectively and efficiently millions of service transactions per month. SITEL
plans to migrate to a common set of operating platforms so that the Company can
better perform global work for its clients and more cost-effectively replicate
its processes throughout its network of call centers.
PERSONNEL AND TRAINING
Management believes one of its core competencies is managing its diverse,
worldwide workforce. SITEL places great emphasis on recruiting, training and
retaining its employees. The Company seeks to locate call centers in communities
and cities with favorable workforce demographics and populations with necessary
language skills.
The Company offers in-house classroom and on-the-job training programs for
its personnel, including instruction on the industries that SITEL serves and on
proper call center management techniques. For example in the United States, the
Insurance Division offers on-site, state approved insurance licensing and
continuing education classes for SITEL insurance agents. The amount of classroom
and on-the-job training before an employee can qualify to take the insurance
agent licensing examination is approximately 150 hours. The Company encourages
employee self-development and usually promotes individuals from within the
organization.
As of December 31, 1998, SITEL had over 19,000 employees. None of SITEL's
employees in the North American, Asia-Pacific or Latin American regions is
represented by a labor union. In the Company's European region, employees in
Belgium, Sweden and Spain are within the scope of government sponsored
collective bargaining agreements. In addition, employees in Belgium, Sweden and
Spain are represented by either a labor union or a statutory work council
arrangement. In those countries where there are labor unions or work councils,
the Company's ability to reduce its workforce or its wage rates is subject to
agreement by, and/or consultation with, the appropriate labor union or work
council. SITEL considers its relations with its employees to be good.
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COMPETITION
SITEL is one of the largest companies providing customer relationship
management services via e-Media in the world. SITEL's largest direct competitors
include APAC Teleservices, Inc., Sykes Enterprises Inc., Teleperformance
International Group, West Teleservices Corporation, Teletech Holdings, Inc.,
Electronic Data Systems Corporation and Convergys Corporation. The customer
relationship management industry is extremely competitive and fragmented, and
most independent competitors are small, single facility operations. The Company
also competes with in-house teleservices departments throughout the world.
In-house departments continue to comprise by far the largest segment of call
center expenditures. Additional competitors with greater resources than the
Company may enter the customer relationship management industry.
GOVERNMENT REGULATION
In the United States, the Federal Trade Commission (the "FTC") and many
states regulate teleservices. The European Union (the "EU") has yet to enact a
detailed regulatory framework for this industry although many EU countries have
data protection laws which regulate the use of consumer data.
In the United States, the federal Telephone Consumer Protection Act of 1991
(the "TCPA") prohibits teleservices firms from initiating telephone
solicitations to residential telephone subscribers during certain times, and
prohibits the use of automated telephone dialing equipment to call certain
telephone numbers. In addition, the TCPA requires telemarketing firms to
maintain a "do not call" list of residential customers. The federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 broadly
authorized the FTC to issue regulations prohibiting misrepresentation in
telemarketing sales. The telemarketing sales rules issued by the FTC generally
prohibit misrepresentation regarding the cost, terms, restrictions, performance
or duration of products or services offered by telephone solicitation and
specifically address other perceived telemarketing abuses in the offering of
prizes and the sale of business opportunities or investments. The Company
believes that it is in compliance with the TCPA and the FTC's rules. The Company
trains its telephone service representatives to comply with the TCPA and
programs its call management system to avoid telephone calls during restricted
hours or to individuals maintained on SITEL's "do-not-call" list.
The industries served by the Company's divisions are also subject to
varying degrees of government regulation. Generally, the Company relies on its
clients and their advisors to develop the scripts to be used by SITEL in making
consumer solicitations. The Company generally requires its clients to indemnify
SITEL against claims and expenses arising with respect to the Company's services
performed on its clients' behalf. The Company has never been held responsible
for regulatory noncompliance by a client. SITEL employees who complete the sale
of certain U.S. insurance products are required to be licensed by various state
insurance commissions and participate in regular continuing education programs,
which are currently provided in-house by the Company.
The teleservices industry, consumer groups and regulatory and legislative
bodies are increasingly concerned about "right of privacy" issues as
technological advances have dramatically increased the availability of
information about consumers. It is possible that data protection laws may be
enacted in additional countries. It is also possible that other laws or
regulations may be enacted which would, among other things, limit the amount of
consumer data that may be obtained or how this data may be used in other
teleservice activities. The Company is unable to predict whether or when any
such laws or regulations will be enacted or, if they are, in what countries they
will be enacted. It is possible that laws or regulations would require the
teleservices industry, including the Company, to modify its methods of consumer
data collection and use.
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QUARTERLY RESULTS AND SEASONALITY
The Company has experienced and expects to continue to experience quarterly
variations in its results of operations principally due to the timing of
clients' teleservicing campaigns and the commencement and terms of new
contracts, revenue mix, and the timing of additional selling, general and
administrative expenses to support new business. The Company experiences
periodic fluctuations related to both the start-up costs associated with
expansion into a new region and the implementation of clients' teleservicing
activities. In addition, the Company's business tends to be slower in the third
quarter due to summer holidays in Europe and, to a lesser degree, in the first
quarter due to the changeover of client marketing strategies which often occurs
at the beginning of the year.
ITEM 2. PROPERTIES
The Company's executive offices are located in Baltimore, Maryland.
As of December 31, 1998, the Company operated call centers in various
leased facilities and on client premises and utilized the services of remote
operations sites in various locations as follows:
NUMBER OF NUMBER OF
FACILITY LOCATION FACILITIES WORKSTATIONS
------------------- ------------------ -------------------
Australia............................ 2 367
Belgium.............................. 2 370
Brazil............................... 1 11
Canada............................... 3 288
Colombia............................. 1 260
France............................... 3 205
Germany.............................. 1 455
Ireland.............................. 1 57
Japan................................ 2 216
Mexico............................... 2 530
Netherlands.......................... 1 76
New Zealand.......................... 1 54
Portugal............................. 1 50
Singapore............................ 1 54
Spain................................ 12 2,183
Sweden............................... 2 124
United Kingdom....................... 6 1,850
United States........................ 34 6,511
United States-ROPS................... 11 451
-------------------- -------------------
Totals: 87 14,112
==================== ===================
SITEL contracts with a number of remote operations sites ("ROPS") which are
owned and operated by independent third parties and are used by SITEL to meet a
portion of its teleservicing needs.
The Company believes its current facilities are suitable and adequate for
its current operations, but additional facilities will be required to support
growth. SITEL believes suitable additional or alternative space will be
available as needed on commercially reasonable terms. The Company's policy is to
rent call center space although it has from time to time built or purchased
facilities and subsequently sold them in sale-leaseback transactions.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. Management believes that any resulting liability beyond that provided,
should not materially affect the Company's financial position, future results of
operations or future cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are:
NAME AGE POSITION
---- --- --------
James F. Lynch......... 49 Chairman of the Board and Director
Henk P. Kruithof....... 62 Executive Vice Chairman and Director
Phillip A. Clough...... 37 Chief Executive Officer, President and Director
W. Gar Richlin......... 53 Executive Vice President, Chief Operating Officer
and Chief Financial Officer
Antoon Vanparys........ 41 Executive Vice President, Global Business
Development
Timothy P. Keyser...... 52 Executive Vice President, Corporate Development
Mr. Lynch founded SITEL in 1985 and has served as Chairman and a director
since its inception. From SITEL's inception to January 1997, Mr. Lynch served as
Chief Executive Officer.
Mr. Kruithof has served as Executive Vice Chairman and a director since
October 1996. Mr. Kruithof is also the Chairman of SITEL Europe plc (formerly
Mitre plc, which merged with SITEL in September 1996). Mr. Kruithof co-founded
Mitre plc in 1992 and its predecessor Merit Direct Limited in 1985, and served
as their Chairman since inception.
Mr. Clough has served as Chief Executive Officer since May 1998 and
President since January 1997. From 1990 until January 1997, he served as an
investment banker with Alex. Brown & Sons Incorporated, most recently as
Principal, focusing on a variety of consumer and business services companies,
including teleservices companies.
Mr. Richlin has served as Chief Operating Officer since December 1998 and
as Executive Vice President and Chief Financial Officer since March 1998. From
September 1997 until joining SITEL, he served as Managing Director and Co-Head
of Corporate Finance for BT Alex. Brown Incorporated. From 1991 until September
1997, Mr. Richlin served as Managing Director and Head of Investment Banking of
BT Alex. Brown Incorporated.
Mr. Vanparys has served as Executive Vice President--Global Business
Development since December 1998. From September 1996 until December 1998, he
served as Senior Vice President--Global Business Development and as a director
and a member of the Executive Review Committee of SITEL Europe plc. Before
joining the Company in September 1996 with the merger of the Company and Mitre
plc, Mr. Vanparys served as a Managing Partner and Managing Director of Mitre
plc since 1992 and co-founded Merit Direct Limited, Mitre's predecessor, in
1985.
Mr. Keyser has served as Executive Vice President--Corporate Development
since December 1998, as President of SITEL Latin America since November 1997 and
as Senior Vice President - Mergers and Acquisitions since the Company's initial
public offering in 1995. Mr. Keyser joined the Company in 1992, with the
Company's acquisition of May Telemarketing, Inc., and served as Group President
responsible for the publishing and motorclub divisions until the Company's
initial public offering in 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange under
the symbol SWW. The following table sets forth, for the quarter indicated, the
high and low closing sale prices of the common stock as reported by the New York
Stock Exchange.
HIGH LOW
1997
--------------------------------------------------------------------
First Quarter $ 20.50 $ 13.00
Second Quarter $ 20.63 $ 9.88
Third Quarter $ 19.00 $ 10.06
Fourth Quarter $ 10.44 $ 8.19
1998
--------------------------------------------------------------------
First Quarter $ 13.44 $ 9.00
Second Quarter $ 13.06 $ 5.94
Third Quarter $ 6.50 $ 3.06
Fourth Quarter $ 3.88 $ 1.88
As of February 26, 1999, SITEL had 64,944,294 shares of common stock
outstanding and 575 record holders of the Company's common stock.
The Company has not declared or paid any cash dividends on its common stock
since its inception, and the Board of Directors currently intends to retain all
earnings for use in the business for the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected historical financial data for the
Company. The selected income statement data for the years ended December 31,
1994, 1995, 1996, 1997 and 1998 and the balance sheet data at December 31, 1995,
1996, 1997 and 1998 are derived from the consolidated financial statements of
the Company, which consolidated financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The selected balance
sheet data at December 31, 1994, is derived from the unaudited consolidated
financial statements of the Company although such information has been prepared
on the same basis as the Company's audited financial statements and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Company. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes thereto, included elsewhere herein.
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------- ------------ ------------- ------------
(in thousands, except per share data)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues ............................................. $ 116,757 $ 187,215 $ 312,750 $ 491,474 $ 586,318
Cost of services ..................................... 63,268 101,617 163,717 270,942 331,586
Selling, general and administrative expenses ......... 48,254 69,213 120,695 185,589 235,900
Special compensation expense (1) ..................... -- 34,585 -- -- --
Restructuring expenses (2) ........................... -- -- -- 15,681 6,607
--------- --------- --------- --------- ---------
Operating income (loss) .............................. 5,235 (18,200) 28,338 19,262 12,225
Transaction related expense (3) ...................... -- -- 6,988 -- --
Interest expense, net ................................ 834 702 227 5,096 12,747
Other income, net .................................... 1,443 118 32 126 263
--------- --------- --------- --------- ---------
Income (loss) before taxes and minority
interest .......................................... 5,844 (18,784) 21,155 14,292 (259)
Income tax expense (benefit) ......................... 1,526 (6,593) 10,221 11,306 966
Minority interest .................................... 383 1,262 77 174 (651)
--------- --------- --------- --------- ---------
Net income (loss) from continuing
operations ...................................... 3,935 (13,453) 10,857 2,812 (574)
Extraordinary loss on refinancing of debt,
net of taxes ...................................... -- -- -- -- (514)
--------- --------- --------- --------- ---------
Net income (loss) .................................... $ 3,935 $ (13,453) $ 10,857 $ 2,812 $ (1,088)
========= ========= ========= ========= =========
Income (loss) from continuing operations
per common share:
Basic .............................................. $ 0.12 $ (0.33) $ 0.19 $ 0.05 $ (0.01)
Diluted ............................................ $ 0.09 $ (0.29) $ 0.16 $ 0.04 $ (0.01)
Weighted average common shares outstanding (4):
Basic .............................................. 33,906 40,565 57,793 61,764 63,888
Diluted ............................................ 45,829 46,477 65,929 68,811 63,888
BALANCE SHEET AND OTHER DATA:
Working capital ..................................... $ 5,110 $ 24,182 $ 36,836 $ 39,545 $ 41,660
Total assets ........................................ 48,177 100,960 211,684 385,880 405,610
Long-term debt, net of current portion ............. 8,183 4,305 4,861 115,488 116,237
Stockholders' equity ................................ 12,702 65,380 126,725 158,388 161,854
- ---------
(1) Represents a non-cash compensation expense incurred in February 1995
resulting from the grant of stock options with an exercise price of
$.0025 per share to 265 employees of the Company to replace stock
appreciation rights previously granted under the Company's Employee
Equity Benefit Plan and previously granted stock options. Excluding
the special compensation expense and a one-time forgiveness of debt of
$0.5 million owed by two stockholders, operating income, net income,
basic income per share and diluted income per share would have been
$16.9 million, $9.7 million, and $0.24 and $0.21, respectively, for
1995.
(2) Represents a restructuring expense and a writedown of the Company's
investment in its Telebusiness business unit of $5.2 million and $10.5
million, respectively, for the year ended December 31, 1997 and a
restructuring expense of $6.6 million for the year ended December 31,
1998. Excluding those operating expenses, operating income, net income,
basic income per share and diluted income per share would have been
$34.9 million, $18.5 million, $0.30 and $0.27, respectively for 1997
and $18.8 million, $3.5 million, $0.05 and $0.05, respectively for
1998.
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(3) Represents expenses resulting from the acquisitions of Mitre plc and
National Action Financial Services, Inc. accounted for as pooling of
interests transactions. Excluding certain one-time operating expenses
and the transaction related expenses, operating income, net income,
basic income per share and diluted income per share would have been
$30.5 million, $19.5 million, $0.34 and $0.30, respectively, for 1996.
(4) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of weighted average common shares used
in computing net income (loss) per share.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
SITEL Corporation ("SITEL") and subsidiaries (collectively, the "Company")
provide customer relationship management services on behalf of clients in North
America, Europe, Asia Pacific and Latin America. The Company finds, acquires and
retains customers and helps organizations enhance and grow these relationships
through a variety of value-added services working with several types of
electronic media ranging from the telephone, to e-mail and the Internet. The
Company provides services to clients principally in the financial services,
insurance, telecommunications, technology, utilities, consumer, media,
government and travel sectors.
SITEL was founded in 1985 by its current chairman, James F. Lynch, in
Omaha, Nebraska. SITEL completed its initial public offering of common stock in
1995, and was the first major independent publicly-held company in the
teleservices industry. In 1996, the Company began its international expansion
with acquisitions in Canada and Spain (which also included operations in
Portugal) and, in particular, with the merger with Mitre plc ("Mitre" or the
"Mitre Merger") which was completed in September 1996. At the time of the Mitre
Merger, Mitre had operations in the United Kingdom, Belgium and Japan and was in
the final stages of completing plans to enter Singapore, Hong Kong and Germany.
In 1997, SITEL entered Australia, New Zealand, Sweden and Ireland through
acquisitions; entered Mexico and Colombia through the joint venture with
Corporacion Interamericana de Entretenimiento, S.A. de C.V. ("CIE"); and entered
France on the basis of a client contract. In 1996 and 1997, the Company also
completed acquisitions that gave it the capability to offer receivables
management, consulting and technical support services.
The Mitre Merger was accounted for as a pooling of interests, and
accordingly the financial results of the Company for 1996 have been restated as
if SITEL and Mitre were operated as a single company for this period. The
results for this period have also been restated to reflect the 1996 acquisition
of National Action Financial Services, Inc. ("NAFS"), which was also accounted
for as a pooling of interests.
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Revenues............................................... 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of services.................................... 52.3 55.1 56.6
Selling, general and administrative 38.6 37.8 40.2
expenses.........................................
Restructuring expenses.............................. -- 3.2 (b) 1.1 (b)
----------- ---------- ----------
Operating income................................. 9.1 (a) 3.9 (c) 2.1 (c)
Transaction related expenses........................... 2.2 -- --
Interest expense, net.................................. 0.1 1.0 2.1
Other income........................................... -- -- --
----------- ---------- ----------
Income (loss) before income taxes and minority
interest....................................... 6.8 2.9 --
Income tax expense..................................... 3.3 2.3 0.2
Minority interest...................................... -- -- (0.1)
----------- ---------- ----------
Net income (loss) from continuing operations........... 3.5 0.6 (0.1)
Extraordinary loss on refinancing of debt, net of
taxes.......................................... -- -- (0.1)
----------- ---------- ----------
Net income (loss)................................ 3.5 % (a) 0.6 % (c) (0.2) % (c)
=========== ========== ==========
</TABLE>
- -----------
(a) Includes operating expenses in connection with the acquisitions of
Mitre and NAFS. Excluding those one-time operating expenses and the
transaction related expenses, operating income and net income would
have been 9.8% and 6.2%, respectively, for 1996.
(b) Represents restructuring expenses of 1.1% ($5.2 million) and a write
down of the Company's investment in its Telebusiness business unit of
2.1% ($10.5 million) in 1997 and restructuring expenses of 1.1% ($6.6
million) in 1998.
(c) Excluding the restructuring expenses of 3.2% in 1997 and 1.1% in 1998,
and the related tax effects, operating income and net income would have
been 7.1% and 3.8%, respectively, for 1997 and 3.2% and 0.6%,
respectively, for 1998.
1998 Compared to 1997
Revenues. Revenues increased $94.8 million, or 19.3%, to $586.3 million in
1998 from $491.5 million in 1997. Of this increase, $76.3 million was
attributable to services initiated for new clients, $13.0 million was
attributable to increased revenues from existing clients and $5.5 million was
attributable to revenues from businesses acquired after the start of 1998 under
the purchase method of accounting. The increase in revenues from existing
clients was primarily the result of higher calling volumes rather than higher
rates.
Cost of Services. Cost of services represents primarily labor and telephone
expenses directly related to customer relationship management activities. Cost
of services increased $60.6 million, or 22.4%, to $331.6 million in 1998 from
$270.9 million in 1997. As a percentage of revenues, cost of services increased
to 56.6% in 1998 from 55.1% in 1997. This increase was primarily attributable to
increases in European and North American expenses. The increase in Europe was
primarily due to higher labor expenses incurred in anticipation of additional
teleservicing campaign business which did not materialize. The increase in cost
of services in North America reflects lower labor utilization in the
telecommunications group and ramp-up and training expenses in the technology
group.
13
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses represent expenses incurred to directly support and
manage the operations, including costs of management, administration, facilities
expenses, depreciation and maintenance, amortization, sales and marketing
activities and client support services. Selling, general and administrative
expenses increased $50.3 million, or 27.1%, to $235.9 million in 1998 from
$185.6 million in 1997. This increase was primarily a result of the Company's
continued growth both internally and through acquisitions and includes an
increase of $11.7 million, or 40.7%, in depreciation and amortization in 1998
compared to 1997. As a percentage of revenues, selling, general and
administrative expenses increased to 40.2% in 1998 from 37.8% in 1997. This
increase relates primarily to lower than expected revenues during most of the
year from European operations and higher expenses associated with the startup
operations in Latin America and Asia Pacific.
Restructuring Expenses. The Company recorded restructuring expenses of $6.6
million in 1998. The restructuring expenses primarily represent expenses
associated with statutory or contractual severance arrangements and related
costs. The charge was driven by two principal factors; a lower level of campaign
business, which historically has represented a large portion of the Company's
business in Europe, and the need to reposition the Company's infrastructure for
increasing amounts of outsourcing business.
Operating Income. Operating income decreased $7.1 million, or 36.5%, to
$12.2 million in 1998 from $19.3 million in 1997. Excluding the restructuring
expenses of $5.2 million and $6.6 million in 1997 and 1998, respectively, and
the write down of the investment in the Telebusiness business unit of $10.5
million in 1997, operating income decreased $16.1 million to $18.8 million in
1998 from $34.9 million in 1997. The decrease in operating income was primarily
attributable to the Company's European operations as described earlier.
Interest Expense, Net. Net interest expense increased to $12.7 million in
1998 from $5.1 million in 1997. This increase was primarily due to increased
borrowings, including the Company's high yield bonds that were issued in 1998.
The increased borrowings were utilized to support the Company's growth,
including acquisitions.
Income Tax Expense. Income tax expense decreased to $1.0 million in 1998
from $11.3 million in 1997 primarily due to a decrease in income before income
taxes and minority interest in 1998 compared to 1997. Excluding the
restructuring expenses in 1998 and 1997 and the write down of the Telebusiness
business unit in 1997, income tax expense was $3.0 million and $11.3 million for
1998 and 1997, respectively, or 47.5% and 37.8% of income before income taxes
and minority interest. The difference between the Company's income tax expense
and that which would be calculated using the statutory Federal income tax rate
of 34% on income is primarily due to non-deductible business acquisition
expenses and international, state and local income taxes. The increase in income
tax expense as a percentage of income before income taxes and minority interest
in 1998 compared to 1997 was due to the impact of the non-deductible business
acquisition expenses which do not change materially from period to period,
combined with lower income before income taxes and minority interest.
Net Income (Loss) From Continuing Operations and Net Income (Loss). Net
income (loss) from continuing operations decreased to a $(0.6) million loss in
1998 from $2.8 million of income in 1997. Excluding the restructuring expenses
in 1998 and 1997 and the write down of the Telebusiness business unit in 1997,
net of tax, net income from continuing operations was $4.0 million in 1998 and
$18.5 million in 1997. The decrease in 1998 compared to 1997 was primarily
attributable to the Company's European operations as described earlier and
additional interest expense. Net income (loss) was a $(1.1) million loss in 1998
compared to $2.8 million of income in 1997. The difference between net income
(loss) from continuing operations and net income (loss) in 1998 was an
extraordinary loss that the Company recognized to write off the deferred costs
of its original Credit Agreement which was amended during 1998.
14
<PAGE>
1997 Compared to 1996
Revenues. Revenues increased $178.7 million, or 57.1%, to $491.5 million in
1997 from $312.8 million in 1996. Of this increase, $36.0 million was
attributable to services initiated for new clients, $101.5 million was
attributable to increased revenues from existing clients and $41.2 million was
attributable to revenues from businesses acquired after the start of 1997 under
the purchase method of accounting. The increase in revenues from existing
clients was primarily the result of higher calling volumes rather than higher
rates.
Cost of Services. Cost of services increased $107.2 million, or 65.5%, to
$270.9 million in 1997 from $163.7 million in 1996. As a percentage of revenues,
cost of services increased to 55.1% in 1997 from 52.3% in 1996. This increase
was primarily due to the start up operations in the Asia Pacific region and to
the Company's Spanish operations which implemented a new compensation plan in
1997. This plan had the corresponding effect of decreasing selling, general and
administrative expenses in Spain.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $64.9 million, or 53.8%, to $185.6 million in
1997 from $120.7 million in 1996. This increase was primarily a result of the
Company's continued growth both internally and through acquisition, including
additional goodwill amortization expense of $1.8 million related to purchase
acquisitions in 1997, and also includes the Company's efforts to establish the
matrix organizational structure needed to manage a global business. As a
percentage of revenues, selling, general and administrative expenses decreased
to 37.8% in 1997 from 38.6% in 1996. Excluding certain non-recurring operating
expenses incurred in 1996 related to an acquisition, these expenses decreased
slightly as a percentage of revenue in 1997 from 37.9% of revenues in 1996.
Restructuring Expenses. The Company recorded restructuring expenses and a
write down of its investment in its Telebusiness business unit of $5.2 million
and $10.5 million, respectively, in 1997. The restructuring expenses related to
the closing of underperforming call centers and redundant administrative
buildings as well as severance and other costs associated with reorganizations
of business units primarily in Europe and North America. The write down of the
investment in the Telebusiness business unit, which was predominantly a non-cash
charge, related to the Company's decision to pursue a new joint-venture equity
partner in the Asia Pacific region. The joint-venture agreement with Lend Lease
Corporation Limited of Sydney, Australia excluded the Telebusiness business
unit.
Operating Income. Operating income decreased $9.0 million, or 32.0%, to
$19.3 million in 1997 from $28.3 million in 1996. Excluding the restructuring
expenses in 1997 and the non-recurring operating expenses in 1996, operating
income increased $4.4 million, or 14.5%, to $34.9 million in 1997 from $30.5
million in 1996. The increase was primarily attributable to the increase in
revenues noted earlier, partially offset by the increased expenses attributable
to those revenues and the efforts to establish the matrix organization noted
above. As a percentage of revenue, operating income decreased to 7.1% in 1997
from 9.8% in 1996 excluding the restructuring expenses in 1997 and the
non-recurring operating expenses in 1996. This decrease was primarily due to the
higher cost of services as a percentage of revenues in 1997 compared to 1996, as
described above.
Interest Expense, Net. Net interest expense increased to $5.1 million in
1997 from $0.2 million in 1996. This increase was primarily due to increased
borrowings utilized to support the Company's growth, including acquisitions.
15
<PAGE>
Income Tax Expense. Income tax expense increased to $11.3 million in 1997
from $10.2 million in 1996. The income tax expense as a percentage of income
before taxes and minority interest was 79.1% in 1997 and 48.3% in 1996 primarily
due to non-deductible restructuring expenses (primarily impairment losses on
goodwill) and write downs of state incentive tax credits in 1997 and
non-deductible transaction related expenses in 1996.
Net Income. Net income decreased $8.0 million, to $2.8 million in 1997 from
$10.9 million in 1996. Excluding the restructuring expenses and related tax
effects in 1997 and the non-recurring operating expenses in 1996, net income
decreased $1.0 million to $18.5 million in 1997 from $19.5 million in 1996. The
decrease was primarily due to increased interest and tax expense offset
partially by an increase in operating income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $17.7 million in 1998.
Included in the net cash provided from operations was a net loss of $1.1
million, however that loss included non-cash depreciation and amortization
expenses of $40.4 million. Also included in cash flows from operating activities
was $21.5 million of cash used primarily as a result of an increase in accounts
receivable needed to support growth. The Company anticipates that accounts
receivable balances will continue to grow as the Company grows. Net cash used in
investing activities was $43.1 million for 1998. Included in this total was
$52.0 million used for capital expenditures (primarily call and data management
equipment) and $2.2 million used for acquisitions. These uses of cash were
partially offset by $9.4 million of cash received from sale-leasebacks of
facilities. Net cash provided by financing activities during 1998 was $16.1
million, primarily attributable to additional borrowings on notes payable.
During 1998, the Company also completed the private placement of $100 million of
9.25% Senior Subordinated Notes due 2006. The proceeds from the offering were
used to repay borrowings outstanding under the Company's long term revolving
credit facility.
Net cash provided by operating activities was $19.0 million in 1997. The
Company recorded net income of $2.8 million (including a non-cash tax charge of
$5.6 million), depreciation and amortization of $28.7 million and primarily
non-cash restructuring expenses of $15.5 million. This cash flow was offset by
$33.6 million of cash used in operating activities primarily as a result of an
increase in accounts receivable needed to support growth. Net cash used in
investing activities was $131.4 million for 1997. Of this total, $69.4 million
was used for capital expenditures (primarily call and data management equipment
and facilities) and $61.0 million was used for acquisitions. Net cash provided
by financing activities during 1997 was $113.7 million, primarily attributable
to borrowings on the Company's available credit lines and other notes payable.
Net cash provided by operating activities was $35.8 million during 1996.
This was the result of $26.4 million of net income before depreciation and
amortization and other non-cash charges and $9.4 million of changes in operating
assets and liabilities. Cash used by investing activities for 1996 was $55.0
million. Of this total, $40.0 million was used for capital expenditures
(primarily call and data management equipment) and $23.7 million was used for
acquisitions, offset partially by sales of marketable securities. Cash provided
by financing activities for 1996 of $39.6 million resulted primarily from a
public equity offering, net borrowings from a bank line of credit, and term
debt.
At December 31, 1998, the Company had unused lines of credit totaling
approximately $36.6 million. During 1998 the Company sought and obtained certain
modifications to its existing long-term credit facility to permit continued
availability of borrowing under such facility. The Company believes that funds
generated from operations, existing cash and the funds available under its
credit facilities, as modified, will be sufficient to finance its current
operations, planned capital expenditures and internal growth for the next
several years. Future acquisitions, if any, may require additional debt or
equity financing.
16
<PAGE>
YEAR 2000 ISSUE
The Year 2000 statement which follows is a Year 2000 Readiness Disclosure,
pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law
No. 105-271. Please note that for purposes of any action brought under the
securities laws, as that term is defined in section 3(a)(47) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), the Year 2000 Information and
Readiness Disclosure Act does not apply to any statements contained in any
documents or materials filed with the Securities and Exchange Commission, or
with Federal banking regulators, pursuant to section 12(I) of the Securities
Exchange Act of 1934 (15 U.S.C. 78l), or disclosures or writing that when made
accompanied the solicitation of an offer or sale of securities.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software and embedded system failures.
Specifically, computational errors and system failures are a known risk with
respect to dates after December 31, 1999. The Company has established a central
Y2K compliance office that reports directly to the Chief Information Officer.
Each of the Company's operating units have also designated information
technology ("IT") personnel to address the issues that the unit faces and to
report to the central Y2K compliance office. The Company has implemented a
system which allows it to track all IT and non-IT systems and facility functions
for compliance with industry Y2K standards. This tracking system allows the
Company to monitor and track each functional point as a single item grouped by
how critical the item is in the Company's ability to perform its daily
functions. Based on the output from this data and an analysis of the system
reports, the Company believes that all functional points which are critical to
the Company's functions have been identified and assessed. Further, the Company
has developed a remediation plan for each item in this critical list. Part of
the Company's remediation strategy is in concert with its efforts to acquire or
develop new and innovative systems for its internal operations.
IT issues - The Company is moving all of its IT systems into a state of
readiness for the year 2000. The Company believes that it is making satisfactory
progress to ensure that it will be ready with all critical IT systems by the end
of June 1999. The functional points that are defined as critical IT issues
include internal and external computer systems for revenue generating
applications. The Company has developed a strategy for its mission critical
internal systems designed to have every functional point year 2000 compliant by
the end of June 1999. These internal systems represent approximately 28% of the
overall effort in the IT applications area. The remaining 72% of the overall
effort in the IT area is in the interface and integration of external client and
vendor application systems. The Company has implemented a three-step process of
contacting significant vendors and clients to request information about the
status of their Y2K compliance efforts. In addition to communicating with
significant vendors, the Company is testing certain critical vendor application
systems for Y2K compliance. The Company has started an initiative that will
identify mitigation and contingency plans at both the business and technical IT
levels. This initiative is scheduled to be completed by July 31, 1999. In
addition to communicating with significant clients, the Company's strategy to
deal with non-compliant external client customer data is a windowing technique
that will enable such data to be used by the Company's systems.
Non IT issues (facilities) - Non-IT issues, with few exceptions, have been
classified into a non-critical category. The few exceptions include dial tone
for the Company's telephony and power from the Company's energy providers. The
Company has included these functional points in the critical category for
purposes of scheduling. Based on communications with providers of these
services, the Company believes that these services will not be interrupted by
Year 2000 failures. The Company's contingency plan for the loss of power
includes generator systems in the Company's major facilities. The Company's
contingency plan for loss of dial tone includes the distribution of network
services across several providers. This will allow the Company to minimally
maintain its service levels in the event of a failure. The Company believes that
it is making satisfactory progress to ensure that all facility related issues
that are material to operations will be compliant by the end of June 1999.
17
<PAGE>
Phases - The Company is employing a four-phase, nine-process step Project
Methodology that covers each aspect of Y2K compliance. The four phases are:
* Phase 1 Assessment
* Phase 2 Remediation
* Phase 3 Verification and Testing
* Phase 4 Implementation
Each process step is necessary within the framework and provides clear
management checkpoints for gauging the progress of activity during execution of
the project plan. The following table outlines the phases and process steps:
<TABLE>
<CAPTION>
Phase1 Phase 2 Phase 3 Phase 4
Verification/
Process Steps Assessment Remediation Testing Implementation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Recognition/Awareness X X X X
2. Inventory X
3. Evaluation X
4. Determination X
5. Remediation X
6. Re-engineering X
7. Multi-level testing X X X X
8. Implementation X
9. Post-implementation X
</TABLE>
The Company has clearly defined each of the process steps in the Project
Methodology. The Recognition/Awareness step included communication of the Y2K
issues and their importance throughout the Company. The Inventory step included
the identification and cataloging of each item that must be verified for
compliance with Y2K processing. The Evaluation step involves the evaluation and
categorization of the critical nature of each item based on established
criteria. The Determination step includes making informed management decisions
regarding the strategy to be taken for each individual item. The Remediation
step involves repair of all components of a process that could improperly
process dates. The Re-engineering step consists of rewriting and/or replacing
whole units of software code. The Multi-level testing step involves the
development of detailed testing criteria and the implementation of those testing
plans. The Implementation step involves the coordination of the release of
applications/systems into the live systems environment. The Post-implementation
step will include the on-going monitoring of applications/systems that have been
repaired and placed into the live systems environment.
The Company has completed the Recognition /Awareness and Inventory process steps
and nearly completed the Evaluation process steps for all items. The Company
estimates that approximately 49% of all items are completed. Completed items are
either compliant, will be retired prior to 2000, or are low priority items that
do not affect business and will be addressed at a later time (work around
processes will be implemented). In addition, the Company estimates that another
37% of all items that the Company believes it needs to complete to be Y2K
compliant are in process steps within Phase 2 - Remediation, and a small number
of items are in Phases 3 and 4.
Costs of Y2K Compliance - The Company currently estimates that the costs to
become Y2K compliant will approximate $16-20 million. The Company currently
anticipates that approximately 50% of these costs will be for hardware and
software and the remainder will be primarily internal personnel costs. The
Company estimates that it has incurred less than $6 million of these costs
through December 31, 1998. The estimated hardware and software costs are
included in the Company's definition of Y2K costs in cases where such
expenditures have been accelerated in order to address Y2K issues. These are the
Company's current cost estimates and they may change, perhaps materially.
18
<PAGE>
Risks - There are many risks associated with the Year 2000 issue, including
without limitation the possibility that the Company will be unable to receive
client phone calls or that the Company will be unable to initiate phone calls on
behalf of its clients. Such possibilities could have a material adverse effect
on the Company depending on the nature of the cause and the speed with which it
could be corrected or an alternative implemented. If the Company's service
providers are unable to provide network switching capability, the Company will
be unable to perform its revenue-producing activities. If the Company's client
customer data does not have Year 2000 compliant dates, additional processing
will be required before revenue-producing activities using these data can be
performed. If internal systems or vendor application systems fail, the Company
will be unable to perform revenue-producing activities until such time as the
problem can be isolated and repaired.
The Company believes that its critical internal systems and procedures will be
ready and tested before the year 2000. The Company believes that its reasonably
likely worst case scenarios will revolve around external factors including
vendors and clients. Although the Company expects to focus approximately 72% of
its efforts in the IT area on this external exposure, the Company has far less
control over these issues. It is reasonably likely that not all of the Company's
clients will have all of their internal systems year 2000 compliant before
January 1, 2000.
As additional verification of readiness, the Company has contracted for an
external follow-up review of all work that has been done to date. This work,
which has already begun, will include an independent third party review of all
phases in every region of the Company. This project is being undertaken to
verify readiness as well as identify areas of additional need. The costs of the
project and the dates on which the Company plans to complete the Y2K
modifications are based on management's best estimates, which were derived using
numerous assumptions of future events, including the continued availability of
certain resources, third party modification plans, the Company's ability to
implement compliance in certain critical areas and other factors. However, there
can be no assurance that these estimates will be achieved, and actual results
could differ materially from those plans. The severity of problems to be
confronted by the Company for partial or complete non-compliance will depend on
a variety of factors (such as the nature of the resulting problem and the speed
with which it could be corrected or an alternative implemented) which are
currently unknown. Due to the general uncertainty inherent in the Year 2000
problem, resulting in part from the uncertainty of the Year 2000 readiness of
vendors and clients, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition.
QUARTERLY RESULTS AND SEASONALITY
The Company has experienced and expects to continue to experience quarterly
variations in its results of operations principally due to the timing of
clients' teleservicing campaigns and the commencement and terms of new
contracts, revenue mix, and the timing of additional selling, general and
administrative expenses to support new business. The Company experiences
periodic fluctuations related to both the start-up costs associated with
expansion into a new region and the implementation of clients' teleservicing
activities. In addition, the Company's business tends to be slower in the third
quarter due to summer holidays in Europe and, to a lesser degree, in the first
quarter due to the changeover of client marketing strategies which often occurs
at the beginning of the year.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's operations. However,
there can be no assurance that inflation will not have a material effect on the
Company's operations in the future.
19
<PAGE>
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") 133, Accounting for
Derivative Investments and Hedging Activities, was issued in June 1998. SFAS 133
establishes accounting standards for derivative instruments and for hedging
activities. The standard is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company anticipates adopting this accounting
pronouncement in the third quarter of 1999; however, management believes that it
will not have a significant impact on the Company's consolidated financial
statements.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Such statements
are identified by the use of forward-looking words or phrases which may include
but are not limited to, "intended," "will be positioned," "expects," "expected,"
"anticipates," "anticipated," "believes" and similar expressions. The
forward-looking statements are based on the Company's current expectations. All
statements other than statements of historical facts included in this Form 10-K,
including those regarding the Company's financial position, business strategy,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to be correct. Because
forward-looking statements involve risks and uncertainties, the Company's actual
results could differ materially. Important factors that could cause actual
results to differ materially from the Company's expectations may include, but
are not limited to, the effects of leverage, restrictions imposed by the terms
of indebtedness, reliance on major clients, risks associated with managing a
global business, fluctuations in operating results, reliance on
telecommunications and computer technology, risks associated with the Company's
acquisition strategy, the dependence on telephone service, the competitive
industry, dependence on labor force, foreign currency risks, the effects of
business regulation, dependence on key personnel and control by management, and
risks associated with Year 2000 failures (see discussion above under the caption
"Year 2000 Issue"). All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by this paragraph. The Company disclaims,
however, any intent or obligation to update its forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks associated primarily with changes in
foreign currency exchange rates. The Company has operations in many parts of the
world however, both revenues and expenses of those operations are typically
denominated in the currency of the country of operations, providing a natural
hedge. The Company entered into certain hedging transactions during 1998
designed to hedge foreign currency exchange risk related to short term
intercompany loans, however the amounts involved were not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item (other than selected quarterly
information, which is set forth as follows) is incorporated by reference from
the Company's Consolidated Financial Statements set forth on pages F-3 through
F-30 hereof.
The following table sets forth statement of operations data for each of the
four quarters of 1998 and 1997. 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.
20
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except per share data)
THREE MONTHS ENDED
----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
-------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues.............................. $ 137,748 $ 147,307 $ 146,755 $ 154,508
Operating expenses:
Cost of services................. 77,820 82,585 82,636 88,545
Selling, general and administrative
expenses......................... 54,672 61,096 59,045 61,087
Restructuring expenses........... -- 6,607 -- --
-------------- ----------- ---------- -------------
Operating income (loss).......... 5,256 (2,981) (a) 5,074 4,876
Interest expense, net................. (2,590) (3,375) (3,457) (3,325)
Other income, net..................... 135 34 19 75
-------------- ----------- ---------- -------------
Income (loss) before income taxes
and minority interest.......... 2,801 (6,322) 1,636 1,626
Income tax expense (income)........... 1,117 (1,878) 836 891
Minority interest..................... (294) 31 13 (401)
-------------- ----------- ---------- -------------
Net income (loss) from continuing
operations....................... 1,978 (4,475) 787 1,136
Extraordinary loss on refinancing, net
of tax........................... 514 -- -- --
-------------- ----------- ---------- -------------
Net income (loss)..................... $ 1,464 $ (4,475) (a) $ 787 $ 1,136
============== =========== ========== =============
Income (loss) from continuing operations
per common share:
Basic......................... $ 0.03 $ (0.07) $ 0.01 $ 0.02
Diluted....................... 0.03 (0.07) 0.01 0.02
Income (loss) per common share:
Basic............................ $ 0.02 $ (0.07) (a) $ 0.01 $ 0.02
Diluted.......................... 0.02 (0.07) (a) 0.01 0.02
Weighted average common shares outstanding:
Basic............................ 63,295 63,871 64,081 64,291
Diluted.......................... 69,611 63,871 70,640 71,364
</TABLE>
a) Includes restructuring expenses of $6.6 million. Excluding those
restructuring expenses, operating income, net income, basic income per share and
diluted income per share would have been $3.6 million, $0.1 million, $0.00 and
$0.00, respectively, for the three months ended June 30, 1998.
<TABLE>
<CAPTION>
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 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
</TABLE>
a) Includes restructuring expenses and a write down of the Company's investment
in its Telebusiness business unit of $5.2 million and $10.5 million,
respectively. Excluding those operating expenses, operating income, net income,
basic income per share and diluted income per share would have been $9.6
million, $4.7 million, $0.07 and $0.07, respectively, for the three months ended
December 31, 1997.
21
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
The information required by this Part III is incorporated by reference from
the registrant's definitive proxy statement for the 1999 annual meeting of the
registrant's stockholders to be held on May 6, 1999, which involves the election
of directors. The definitive proxy statement will be filed with the Securities
and Exchange Commission not later than 120 days after the end of the year
covered by this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS. The following Consolidated Financial Statements of
SITEL Corporation and Independent Auditors' Report are included at pages F-1
through F-30 of this Form 10-K:
- Independent Auditors' Report.
- Consolidated Balance Sheets at December 31, 1997 and 1998.
- Consolidated Statements of Income (Loss) For The Years Ended December 31,
1996, 1997, and 1998.
- Consolidated Statements of Stockholders' Equity For The Years Ended
December 31, 1996, 1997 and 1998.
- Consolidated Statements of Cash Flows For The Years Ended December 31,
1996, 1997 and 1998.
- Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedules of SITEL Corporation for the years ended December 31, 1996,
1997 and 1998 are included at pages S-1 through S-2 of this Form 10-K and should
be read in conjunction with the Consolidated Financial Statements:
- Independent Auditors' Report.
- Schedule II - Valuation and Qualifying Accounts.
All other schedules of the Company for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable or have been
disclosed in the Notes to Consolidated Financial Statements and, therefore, have
been omitted.
22
<PAGE>
3. EXHIBITS. The following Exhibits are filed as part of, or are
incorporated by reference into, this Form 10-K:
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C> <C>
(1) 3.1 Amended and Restated Articles of Incorporation
(5) 3.1(a) Articles of Amendment filed September 10, 1996 to the Amended and Restated Articles of Incorporation
(1) 3.4 Amended and Restated Bylaws.
(10) 3.4(a) Amended and Restated Bylaws (conformed copy including Amendment No. 1)
(21) 3.4(b) Amendment No. 2 to Amended and Restated Bylaws
(18) 3.5 Certificate of Designation of Series A Participating Preferred Stock.
(7) 4.2 Specimen Common Stock Certificate.
(19) 4.3 Rights Agreement.
(1) 9.1 Form of General Voting Agreement.
(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.
(4) 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.
(9) 10.3(b) Amendment No. 2 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan
(13) 10.3(c) Amendment No. 3 to the Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan.
(8) 10.4 Amended and Restated SITEL Corporation 1995 Non-Employee Directors Stock Option Plan.
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan.
(14) 10.5(a) Second Amendment to 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.
(2) 10.9 Form of Indemnification Agreement with Outside Directors.
(3) 10.10 Form of Indemnification Agreement with Executive Officers.
(15) 10.11 Amended and Restated SITEL Corporation Employee Stock Purchase Plan.
(17) 10.12 Separation Agreement dated May 12, 1998 with Michael P. May.
(11) 10.13 Amended Credit Agreement with Bankers Trust Company.
(16) 10.13(a) First Amendment dated as of June 19, 1998 to Amended Credit Agreement.
(20) 10.13(b) Second Amendment dated September 30, 1998 to Amended Credit Agreement.
(12) 10.14 Indenture governing $100,000,000 9 1/4% Senior Subordinated Notes due 2006.
10.15 Separation Agreement dated October 14, 1998 with Barry S. Major.
(6) 16.1 Letter from Coopers & Lybrand L.L.P. dated February 6, 1997.
21 Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule.
</TABLE>
- -------------------------------------
(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 an exhibit under the same exhibit number to
the Company's Form 10-Q for the quarter ended August 31, 1995.
(3) Previously filed as an exhibit under the same exhibit number to
the Company's Registration Statement on Form S-8 (Registration
No. 33-99434).
(4) Previously filed as Appendix B to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders, filed on
September 27, 1996.
23
<PAGE>
(5) Previously filed as Exhibit 4.1(a) to the Company's Registration
Statement on Form S-3 (Registration No. 333-13403).
(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 as Appendix B to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders, filed on April
30, 1997.
(9) Previously filed as Appendix C to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders, filed on April
30, 1997.
(10) Previously filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (Registration No. 333-28131).
(11) Previously filed as Exhibit 10.1 to the Company's Form 8-K filed
on March 16, 1998.
(12) Previously filed as Exhibit 10.2 to the Company's Form 8-K filed
on March 16, 1998.
(13) Previously filed as Exhibit 10.3(c) to the Company's Form 10-Q
for the quarter ended March 31, 1998.
(14) Previously filed as an exhibit under the same exhibit number to
the Company's Form 10-Q for the quarter ended March 31, 1998.
(15) Previously filed as Exhibit 10.12 to the Company's Form 10-Q for
the quarter ended March 31, 1998.
(16) Previously filed as Exhibit 10.1 to the Company's Form 8-K filed
on July 1, 1998.
(17) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended June 30, 1998.
(18) Previously filed as Exhibit A to the Rights Agreement included as
Exhibit 1 to the Company's Registration Statement on Form 8-A
filed on August 24, 1998.
(19) Previously filed as Exhibit 1 to the Company's Registration
Statement on Form 8-A filed on August 24, 1998.
(20) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended September 30, 1998.
(21) Previously filed as Exhibit 3.2 to the Company's Form 10-Q for
the quarter ended September 30, 1998.
(b) There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1998.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 19, 1999 SITEL Corporation
By: /s/Phillip A. Clough
------------------------------------------
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/James F. Lynch Chairman of the Board March 19, 1999
- ------------------------- and Director
James F. Lynch
/s/Phillip A. Clough Chief Executive Officer and March 19, 1999
- ------------------------- Director
Phillip A. Clough
/s/W. Gar Richlin Executive Vice President and March 19, 1999
- ------------------------- Chief Financial Officer
W. Gar Richlin (Principal Financial Officer)
/s/Alan G. Siemek Corporate Controller March 19, 1999
- ------------------------- (Principal Accounting Officer)
Alan G. Siemek
/s/Henk P. Kruithof Executive Vice Chairman and March 19, 1999
- ------------------------- Director
Henk P. Kruithof
/s/Bill L. Fairfield Director March 19, 1999
- -------------------------
Bill L. Fairfield
/s/Kelvin C. Berens Director March 19, 1999
- -------------------------
Kelvin C. Berens
/s/George J. Kubat Director March 19, 1999
- -------------------------
George J. Kubat
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C> <C>
(1) 3.1 Amended and Restated Articles of Incorporation
(5) 3.1(a) Articles of Amendment filed September 10, 1996 to the Amended and Restated Articles of Incorporation
(1) 3.4 Amended and Restated Bylaws.
(10) 3.4(a) Amended and Restated Bylaws (conformed copy including Amendment No. 1)
(21) 3.4(b) Amendment No. 2 to Amended and Restated Bylaws
(18) 3.5 Certificate of Designation of Series A Participating Preferred Stock.
(7) 4.2 Specimen Common Stock Certificate.
(19) 4.3 Rights Agreement.
(1) 9.1 Form of General Voting Agreement.
(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.
(4) 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.
(9) 10.3(b) Amendment No. 2 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan
(13) 10.3(c) Amendment No. 3 to the Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan.
(8) 10.4 Amended and Restated SITEL Corporation 1995 Non-Employee Directors Stock Option Plan.
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan.
(14) 10.5(a) Second Amendment to 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.
(2) 10.9 Form of Indemnification Agreement with Outside Directors.
(3) 10.10 Form of Indemnification Agreement with Executive Officers.
(15) 10.11 Amended and Restated SITEL Corporation Employee Stock Purchase Plan.
(17) 10.12 Separation Agreement dated May 12, 1998 with Michael P. May.
(11) 10.13 Amended Credit Agreement with Bankers Trust Company.
(16) 10.13(a) First Amendment dated as of June 19, 1998 to Amended Credit Agreement.
(20) 10.13(b) Second Amendment dated September 30, 1998 to Amended Credit Agreement.
(12) 10.14 Indenture governing $100,000,000 9 1/4% Senior Subordinated Notes due 2006.
10.15 Separation Agreement dated October 14, 1998 with Barry S. Major.
(6) 16.1 Letter from Coopers & Lybrand L.L.P. dated February 6, 1997.
21 Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule.
</TABLE>
- -------------------------------------
(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 an exhibit under the same exhibit number to
the Company's Form 10-Q for the quarter ended August 31, 1995.
(3) Previously filed as an exhibit under the same exhibit number to
the Company's Registration Statement on Form S-8 (Registration
No. 33-99434).
(4) Previously filed as Appendix B to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders, filed on
September 27, 1996.
(5) Previously filed as Exhibit 4.1(a) to the Company's Registration
Statement on Form S-3 (Registration No. 333-13403).
26
<PAGE>
(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 as Appendix B to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders, filed on April
30, 1997.
(9) Previously filed as Appendix C to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders, filed on April
30, 1997.
(10) Previously filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (Registration No. 333-28131).
(11) Previously filed as Exhibit 10.1 to the Company's Form 8-K filed
on March 16, 1998.
(12) Previously filed as Exhibit 10.2 to the Company's Form 8-K filed
on March 16, 1998.
(13) Previously filed as Exhibit 10.3(c) to the Company's Form 10-Q
for the quarter ended March 31, 1998.
(14) Previously filed as an exhibit under the same exhibit number to
the Company's Form 10-Q for the quarter ended March 31, 1998.
(15) Previously filed as Exhibit 10.12 to the Company's Form 10-Q for
the quarter ended March 31, 1998.
(16) Previously filed as Exhibit 10.1 to the Company's Form 8-K filed
on July 1, 1998.
(17) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended June 30, 1998.
(18) Previously filed as Exhibit A to the Rights Agreement included as
Exhibit 1 to the Company's Registration Statement on Form 8-A
filed on August 24, 1998.
(19) Previously filed as Exhibit 1 to the Company's Registration
Statement on Form 8-A filed on August 24, 1998.
(20) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended September 30, 1998.
(21) Previously filed as Exhibit 3.2 to the Company's Form 10-Q for
the quarter ended September 30, 1998.
27
EXHIBIT 10.15
SEPARATION AGREEMENT AND GENERAL RELEASE
THIS SEPARATION AGREEMENT AND GENERAL RELEASE ("Agreement") is entered into
by and between BARRY S. MAJOR ("Employee") and SITEL CORPORATION ("Employer")
effective October 14, 1998 ("Effective Date").
Employer and Employee have mutually agreed to end their employer-employee
relationship. This Agreement is intended to provide the terms of their mutual
separation.
1. Non-Admission. This Agreement shall not in any way be construed as an
admission by Employer, its officers, directors, agents, or employees, of any
wrongful or unlawful act or omission whatsoever against Employee or any other
person. Employer specifically disclaims any liability to, or wrongful or
unlawful act or omission against, Employee or any other person on the part of
itself, its officers, directors, agents or employees.
2. Waiver. As a material inducement to Employer to enter into this
Agreement, Employee represents that he has not filed any lawsuits, charges, or
complaints, of discrimination with any local, state or federal agency or court
of law arising from his relationship with Employer, including the mutual
termination of said relationship. Employee further represents that, subject to
Employer's compliance with the terms of this Agreement, he will not seek to
recover any monetary damages against Employer.
3. Compensation. As a material inducement to Employee to enter into this
Agreement, Employer agrees to:
(a) pay Employee the equivalent of six (6) months of Employee's regular
base salary in equal installments and on the dates which correspond to
Employer's regular paydays for the payroll periods through April 30, 1999;
(b) pay the same portion of the premium costs associated with continued
health/dental insurance coverage of Employee, his spouse and dependents
under COBRA, on the dates such payments come due for the six month period
through April 30, 1999, as Employer paid when Employee was a SITEL employee
(with Employee paying the same contribution he had been paying as a SITEL
employee), provided that Employee timely elects continued health/dental
insurance coverage under COBRA and subject to the customary terms
applicable to such continued insurance coverage under COBRA;
(c) pay the same portion of the premium costs associated with continued
individual long term disability and group life insurance coverage of
Employee on the dates such payments come due for the six month period
through April 30, 1999, as Employer paid when Employee was a SITEL employee
(with Employee paying the same contribution he had been paying as a SITEL
employee);
<PAGE>
(d) assign to Employee Employer's rights and obligations under the
lease agreement covering the car used by Employee (the "Car Lease"),
subject to the leasing company's approval of Employee's application for
assignment (Employer to pay the $400 assignment fee); between the Effective
Date and the termination of the Car Lease in March 1999 pay Employee
additional cash compensation equal to the remaining monthly lease payments
on the dates such payments come due until the Car Lease terminates in March
1999; and at the termination of the Car Lease Employer shall be entitled to
the return of any security deposit it gave to the leasing company;
(e) pay Employee per company policy for his five (5) days of accrued
but unused vacation;
(f) transfer the IBM ThinkPad computer and accompanying Zip drive
(previously used by Employee but owned by Employer) to Employee in lieu of
any bonus accrual for 1998, provided that Employee shall first deliver the
computer equipment to Employer so that Employer may remove from the
computer equipment any information, data, files, software programs, or
other materials belonging to Employer or which Employer deems to be of a
confidential nature regarding Employer's business;
(g) instruct the appropriate fiduciaries of Employer's 401(k) and
401(n) plans to distribute to Employee in lump sum payments any funds to
which Employee is entitled under such plans as promptly as practicable
following Employee's completion and delivery to Employer of the appropriate
forms requesting such lump sum distributions;
(h) reimburse Employee for business expenses which he incurred through
the Effective Date of this Agreement in accordance with Employer's policies
promptly following Employee's completion and delivery of the appropriate
forms and accompanying substantiation in accordance with such policies; and
(i) pay for outplacement services for Employee through April 30, 1999
using Employer's usual outplacement services agency at a total cost not to
exceed $5,000.
With respect to any other Employer benefit plans in which Employee participated
prior to the Effective Date, such as the 401(k) plan and Executive Wealth
Accumulation Plan, Employee's participation in such plans shall end as of the
Effective Date and Employee shall be entitled to such benefits as may be payable
to him in accordance with and subject to the terms and conditions of such plans
as in effect from time to time. Employee specifically acknowledges that he is
not entitled to any further bonus for all or any part of 1998 and that he is not
owed any accrued but unpaid bonuses for earlier years.
4. Consideration for Release. Employee expressly acknowledges that the
payments provided in Paragraph 3 include consideration for the settlement,
waiver, release, and discharge of any and all claims arising under the common
law or under federal state or local statute, law or regulation, pertaining to
employment discrimination based on race/color, religion, sex, national origin,
disability, or age (Age Discrimination in Employment Act), wrongful discharge,
breach of contract, infliction of emotional distress, or any other reason
established by
2
<PAGE>
the common law or by federal, state or local laws.
5. Effect on Options.
(a) Employee also specifically acknowledges that as of the date of his
mutual separation from Employer he shall accrue no additional interest or
vesting in any options to purchase stock of Employer and shall be limited
in his rights to exercise stock options to only the Continuing Options (as
defined in Paragraph 5(b) below).
(b) The "Continuing Options" are 600,000 options with an exercise price
of $5.921875 each which were granted pursuant to two option agreements
dated on or about October 23, 1995 (the "Option Agreements") and under
which the "Latest Expiration Date" is January 21, 2001. The Continuing
Options shall remain outstanding and exercisable in accordance with and
subject to their terms and conditions as existed prior to Employee's
separation from employment. For purposes of clarity, Employer and Employee
specifically acknowledge that, notwithstanding anything to the contrary
herein, Section 4(b) of the Option Agreements (addressing termination of
employment other than for cause) shall be applicable to this mutual
separation and that Employee shall have the right to make the election in
Section 4(b)(1) of the Option Agreements to accelerate the exercisability
of the Continuing Options, in which case the Continuing Options shall
terminate if not exercised within the three-month period provided for in
Section 4(b)(1), and that Section 4(b)(2) of the Option Agreements provides
that if Employee does not make such election then the Continuing Options
shall become and remain exercisable according to Section 3 of the Option
Agreements despite Employee's separation from employment. The Voting
Agreement, Irrevocable Proxy and Right of First Refusal applicable to any
shares now or hereafter acquired by Employee in the future pursuant to
exercises of the Continuing Options shall continue in effect after the date
hereof according to their existing terms and conditions.
(c) All other options granted to Employee, including without
limitation, the 110,000 award program options with an exercise price of
$15.50 each granted to Employee on December 26, 1996, by their terms and
conditions shall terminate upon the Effective Date.
6. Resignation. Employee hereby resigns effective immediately from all
positions he holds as a director and/or officer of Employer or any of its
subsidiaries and as a trustee of any of Employer's benefit plans. Employee shall
hereafter execute and deliver such certificates and further documents as
Employer may reasonably request to evidence and further effectuate such
resignation. Employee's mutual separation from employment is effective as of the
Effective Date.
7. Intent. The parties understand and agree that the overriding and
controlling intent of this Agreement is to accomplish a full release of all
claims or actions Employee has or might have against Employer, as well as any
parent, subsidiary or affiliated company, its and their officers, directors,
agents, and employees, for any wrongful, unlawful or unfair act or omission up
to and including the date of the execution of this Agreement.
8. Release. Employee, for himself and his successors and assigns, does
hereby
3
<PAGE>
release, settle, acquit and forever discharge Employer, as well as any parent,
subsidiary, or affiliated company, its and their officers, directors, agents and
employees, or and from any and all claims, actions, causes of action, rights,
demands, debts, damages, or any action of whatever nature arising from or during
Employee's relationship with Employer, including the mutual termination thereof.
9. Knowing and Voluntary. Employee expressly acknowledges that he
understands all the provisions of this Agreement and that he is knowingly and
voluntarily entering into this Agreement. Employee further acknowledges that
Employer has encouraged and given him the opportunity to thoroughly discuss all
aspects of this Agreement with his attorney and other advisors before signing
this Agreement.
10. Cooperation. If any claims, actions or proceedings involving or
affecting Employer, its subsidiaries or affiliates arise which pertain to any
period, transaction or occurrence prior to and including the Effective Date and
in respect of which Employer reasonably believes Employee's assistance or
cooperation will be advisable, Employee agrees to cooperate fully with Employer
in investigating, preparing and testifying in respect of such claims, actions or
proceedings. Employee's assistance and cooperation shall be provided without
further consideration beyond that provided in Paragraph 3 of this Agreement but
Employee shall be reimbursed for all reasonable out-of-pocket expenses in
connection with such assistance and cooperation which is incurred and reported
in accordance with Employer's policies and procedures.
11. Return of Property. Employee shall immediately return to Employer all
property of Employer which remains within Employee's possession or control,
including without limitation, as applicable, keys, access cards, passwords,
computers, cellular phones, and automobiles, except as otherwise provided in
Paragraphs 3(d) and 3(f) of this Agreement.
12. Governing Law. This Agreement is made and entered into in the State of
Nebraska and shall in all respects be interpreted, enforced, and governed under
the laws of said State. The language of all parts of this Agreement shall in all
cases be construed as a whole, according to its fair meaning, and not strictly
for or against any of the parties hereto.
13. Effect of Invalidity. Should any provision of this Agreement be
declared or be determined by any court of competent jurisdiction to be illegal,
invalid, void, or unenforceable, the legality, validity and enforceability of
the remaining parts, terms, or provisions shall not be affected thereby, and any
said illegal, unenforceable or invalid part, term or provision shall be deemed
not a part of this Agreement.
14. Entire Agreement. This Agreement sets forth the entire agreement
between the parties and, unless otherwise specified herein, fully supersedes any
and all prior agreements or understandings between the parties as to Employee's
employment, except as expressly provided in Paragraphs 3 and 5 and except as
provided below in this Paragraph 14: (a) Employee specifically acknowledges his
continuing obligations to comply with the provisions of the Confidentiality and
Non-Competition Agreement between Employer and Employee dated on or about
October 23, 1995 as well as the provisions of the North American Incentive Bonus
Plan Non-Solicitation Agreement which Employee signed in order to participate in
the 1998 North
4
<PAGE>
America incentive bonus program, which agreements both remain in full force and
effect; and (b) Employer and Employee specifically acknowledge that the
Indemnification Agreement dated on or about October 23, 1995 relating to
Employee's service as an officer and director remains in effect according to its
existing terms and conditions.
15. Opportunity to Review. Employee expressly acknowledges that Employer
has advised him that he may take up to twenty-one (21) days in which to review
the terms of this Agreement, and that following his execution of this Agreement,
he has an additional seven (7) days in which to revoke his agreement. Any such
revocation shall not affect the resignations tendered by Employee pursuant to
Paragraph 6, which shall remain in full force and effect from the date thereof.
16. Survivorship Rights. If Employee dies prior to April 30, 1999 and his
spouse survives him, then Employer shall continue to pay or make available to
Employee's spouse at the times, on the terms and for the duration specified
therein the payments and benefits described in Paragraph 3 of this Agreement
(except life and disability insurance coverage, which will terminate with
Employee's death).
[Signature page follows]
5
<PAGE>
SIGNATURE PAGE TO
SEPARATION AGREEMENT AND GENERAL RELEASE
EXECUTED as of the Effective Date.
Employee:
------------------------------------
BARRY S. MAJOR
Employer:
SITEL CORPORATION
By: __________________________________
Title: _______________________________
6
EXHIBIT 21
SITEL CORPORATION
SUBSIDIARIES
------------
U.S. Subsidiaries
- -----------------
National Action Financial Services, Inc. Georgia
Financial Insurance Services, Inc. Nebraska
SITEL Insurance Marketing Services, Inc. Nebraska
SITEL Insurance Services, Inc. Nebraska
SITEL International, Inc. Nebraska
SITEL Investments, Inc. Nebraska
SITEL Software, Inc. Nebraska
SITEL Support Services, Inc. Nebraska
SITEL Technical Services, Inc. Wisconsin
Non-U.S. Subsidiaries
- ---------------------
SITEL Australia Holdings Pty Ltd. Australia
SITEL Telebusiness Australia Pty Limited Australia
SITEL Belgium NV Belgium
SITEL Insurance Services Canada Inc. Canada
SITEL Teleservices Canada Inc. Canada
SITEL de Colombia, S.A. Colombia
SITEL GmbH Germany
SITEL Hong Kong Limited Hong Kong
SITEL TMS Limited Ireland
Telephone Marketing Services (International) Limited Ireland
SITEL Japan KK Japan
Grupo SITEL de Mexico, S.A. de C.V. Mexico
SITEL Australia Pty Ltd. New South Wales
SITEL Telebusiness New Zealand Limited New Zealand
Action Servicos de Publicidade S.A. Portugal
SITEL Asia Pacific Investments Pte Limited Singapore
SITEL Asia Pacific Holdings Pte Limited Singapore
SITEL Singapore Pte Ltd. Singapore
SITEL Telebusiness Singapore Pte Ltd. Singapore
Action Data Base S.A. Spain
SITEL Iberica Spain
Telepromotion S.A. Spain
SITEL Nordic AB Sweden
Svanberg & Co AB Sweden
Worldline Sweden AB Sweden
B's Telemarketing Limited United Kingdom
Leiderman and Roncoroni Limited United Kingdom
SITEL Europe plc United Kingdom
SITEL UK Limited United Kingdom
SITEL Stratford Limited United Kingdom
SITEL Stratford [Services] Limited United Kingdom
<PAGE>
SITEL Kingston Limited United Kingdom
SITEL Kingston [Services] Limited United Kingdom
SITEL Moor Park Limited United Kingdom
SITEL Moor Park [Services] Limited United Kingdom
SITEL Consulting Limited United Kingdom
The Training Works Limited United Kingdom
SITEL (BVI) International, Inc. British Virgin Islands
SITEL Mexico Holdings LLC Nebraska
SITEL do Brasil Ltda. Brazil
SITEL New Zealand Limited New Zealand
Systems Integrated Telemarketing Netherlands BV Netherlands
SITEL Holdings SAS France
CSM 24 SA France
SITEL France SA France
SITEL France Consumer Products SA France
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 5, 1999, relating to the consolidated balance sheets of SITEL
Corporation and subsidiaries as of December 31, 1997 and 1998, 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, 1998 and the
related schedule, which reports appear in the December 31, 1998 Annual Report on
Form 10-K of SITEL Corporation.
KPMG Peat Marwick LLP
Omaha, Nebraska
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
balance sheet and consolidated statements of income (loss) found on pages F-3
and F-4 of the Company's 10-K and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000943820
<NAME> SITEL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 14,472
<SECURITIES> 0
<RECEIVABLES> 133,779
<ALLOWANCES> 3,970
<INVENTORY> 0
<CURRENT-ASSETS> 157,220
<PP&E> 210,573
<DEPRECIATION> 84,958
<TOTAL-ASSETS> 405,610
<CURRENT-LIABILITIES> 115,560
<BONDS> 100,000
0
0
<COMMON> 64
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 405,610
<SALES> 586,318
<TOTAL-REVENUES> 586,318
<CGS> 331,586
<TOTAL-COSTS> 574,093
<OTHER-EXPENSES> (263)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,672
<INCOME-PRETAX> (259)
<INCOME-TAX> 966
<INCOME-CONTINUING> (574)
<DISCONTINUED> 0
<EXTRAORDINARY> (514)
<CHANGES> 0
<NET-INCOME> (1,088)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
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, 1997 and 1998............. F-3
Consolidated Statements of Income (Loss) For The Years Ended
December 31, 1996, 1997 and 1998...................................... F-4
Consolidated Statements of Stockholders' Equity For The Years Ended
December 31, 1996, 1997 and 1998...................................... F-5
Consolidated Statements of Cash Flows For The Years Ended December 31,
1996, 1997, and 1998.................................................. F-6
Notes to Consolidated Financial Statements............................ F-7
Financial Statement Schedules
- -----------------------------
Independent Auditor's Report.......................................... S-1
Schedule II - Valuation and Qualifying Accounts...................... S-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SITEL Corporation:
We have audited the accompanying consolidated balance sheets of SITEL
Corporation and subsidiaries as of December 31, 1997 and 1998, 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, 1998. 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, 1997 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Omaha, Nebraska
February 5, 1999
F-2
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
-------------------------------
(in thousands, except share data) 1997 1998
-------------- --------------
Current assets:
<S> <C> <C>
Cash and cash equivalents........................ $ 24,285 $ 14,472
Trade accounts receivable (net of allowance
for doubtful accounts of $5,099 and $3,970, in
1997 and 1998, respectively)................... 107,697 129,809
Marketable securities............................ 159 --
Prepaid expenses................................. 3,916 5,257
Deferred income taxes............................ 3,153 1,658
Other assets..................................... 9,548 6,024
--------------- ---------------
Total current assets........................ 148,758 157,220
Property and equipment, net........................... 120,600 125,615
Deferred income taxes................................. 11,114 15,425
Goodwill, net......................................... 94,381 93,288
Other assets.......................................... 11,027 14,062
--------------- ---------------
Total assets................................ $ 385,880 $ 405,610
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................... $ 14,376 $ 30,545
Current portion of long-term debt................ 10,793 3,671
Current portion of capitalized lease
obligations.................................... 4,934 3,650
Trade accounts payable........................... 27,322 30,784
Income taxes payable............................. 8,398 3,875
Accrued wages, salaries and bonuses.............. 14,120 15,620
Accrued operating expenses....................... 22,984 23,527
Deferred revenue and other....................... 6,286 3,888
--------------- ---------------
Total current liabilities.................... 109,213 115,560
Long-term debt, excluding current portion............. 102,505 107,027
Capitalized lease obligations, excluding current
portion........................................... 12,983 9,210
Deferred compensation................................. 1,407 1,591
Minority interest..................................... 1,384 10,368
Commitments and contingencies
Stockholders' equity:
Common stock, voting, $.001 par value 200,000,000 shares
authorized, 63,099,597 and 64,399,645 shares issued
and outstanding in 1997
and 1998, respectively........................ 63 64
Paid-in capital.................................. 155,326 157,892
Accumulated other comprehensive income........... (6,415) (4,428)
Retained earnings................................ 9,414 8,326
--------------- ---------------
Total stockholders' equity.................. 158,388 161,854
--------------- ---------------
Total liabilities and stockholders' equity.. $ 385,880 $ 405,610
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------------------------------
1996 1997 1998
---------------- ----------------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues................................... $ 312,750 $ 491,474 $ 586,318
---------------- ----------------- ----------------
Operating expenses:
Cost of services...................... 163,717 270,942 331,586
Selling, general and administrative
expenses........................... 120,695 185,589 235,900
Restructuring expenses................ -- 15,681 6,607
---------------- ----------------- ----------------
Total operating expenses........... 284,412 472,212 574,093
---------------- ----------------- ----------------
Operating income................... 28,338 19,262 12,225
---------------- ----------------- ----------------
Other income (expense):
Transaction related expenses.......... (6,988) -- --
Interest income....................... 1,108 561 925
Interest expense...................... (1,335) (5,657) (13,672)
Other income, net..................... 32 126 263
---------------- ----------------- ----------------
Total other income (expense)....... (7,183) (4,970) (12,484)
---------------- ----------------- ----------------
Income (loss) before income taxes and minority
interest.............................. 21,155 14,292 (259)
Income tax expense......................... 10,221 11,306 966
Minority interest.......................... 77 174 (651)
---------------- ----------------- ----------------
Net income (loss) from continuing
operations............................ 10,857 2,812 (574)
Extraordinary loss on refinancing of debt,
net of taxes.......................... -- -- (514)
---------------- ----------------- ---------------
Net income (loss)................. $ 10,857 $ 2,812 $ (1,088)
================ ================= ===============
Income (loss) from continuing operations per common share:
Basic................................. $ 0.19 $ 0.05 $ (0.01)
Diluted............................... $ 0.16 $ 0.04 $ (0.01)
Income (loss) per common share:
Basic................................. $ 0.19 $ 0.05 $ (0.02)
Diluted............................... $ 0.16 $ 0.04 $ (0.02)
Weighted average common shares outstanding:
Basic................................. 57,793 61,764 63,888
Diluted............................... 65,929 68,811 63,888
</TABLE>
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, 1996, 1997, and 1998
<TABLE>
<CAPTION>
Accumulated
Other Retained Total
Common Paid-in Comprehensive Earnings Stockholders'
(dollars in thousands) Stock Capital Income (Deficit) Equity
----- ------- ------ --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................... $ 51 $ 69,530 $ 54 $ (4,255) $ 65,380
Issuance of 5,982,220 shares of common stock, net
of offering expenses...................... 6 42,239 -- -- 42,245
Issuance of 1,719,642 shares of common stock for
options exercised......................... 2 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............................... -- -- 1,017 -- 1,017
------------
Total comprehensive income............. -- -- -- -- 13,131
----- -------- --------- ------------ ------------
Balance, December 31, 1996................... 59 117,736 2,328 6,602 126,725
Issuance of 1,891,562 shares of common stock
for options exercised.................. 2 226 -- -- 228
Tax benefit of stock options exercised.... -- 7,685 -- -- 7,685
Issuance of 2,332,375 shares of common stock
for acquisitions....................... 2 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.................... -- -- (945) -- (945)
------------
Total comprehensive income (loss)... -- -- -- -- (5,931)
----- -------- --------- ------------ ------------
Balance, December 31, 1997................... 63 155,326 (6,415) 9,414 158,388
Issuance of 1,192,348 shares of common stock
for options exercised................... 1 2 -- -- 3
Tax benefit of stock options exercised.... -- 2,175 -- -- 2,175
Issuance of 41,353 shares of common stock
for acquisitions....................... -- 295 -- -- 295
Other..................................... -- 94 -- -- 94
Comprehensive income (loss)
Net loss............................... -- -- -- (1,088) (1,088)
Currency exchange adjustment........... -- -- 2,059 -- 2,059
Change in unrealized gain, net of
taxes............................... -- -- (72) -- (72)
------------
Total comprehensive income............. -- -- -- -- 899
----- -------- --------- ------------ ------------
Balance, December 31, 1998................ $ 64 $157,892 $ (4,428) $ 8,326 $ 161,854
===== ======== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands) For The Years Ended December 31,
--------------------------------------------
1996 1997 1998
------------- ------------ --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss)...................................... $ 10,857 $ 2,812 $ (1,088)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss on refinancing of debt........ -- -- 792
Restructuring provision.......................... -- 15,513 4,100
Depreciation and amortization.................... 13,256 28,687 40,355
Provision for deferred income taxes.............. 1,823 (1,498) (2,816)
Deferred compensation............................ 557 (53) 184
Gain on sale of marketable securities............ -- (407) (208)
Change in assets and liabilities:
Trade accounts receivable...................... (17,083) (36,977) (18,123)
Other assets................................... 4,060 (7,677) 2,482
Trade accounts payable......................... 6,662 5,694 4,063
Other liabilities.............................. 15,711 12,920 (11,998)
------------- ------------ -------------
Net cash provided by operating activities... 35,843 19,014 17,743
------------- ------------ -------------
Cash flows from investing activities:
Purchases of property and equipment.................... (39,954) (69,437) (52,033)
Proceeds from sale-leasebacks of facilities............ -- -- 9,397
Proceeds from sales of property and equipment 199 2,711 1,513
Acquisitions, net of cash acquired..................... (27,936) (47,023) (2,193)
Settlement of purchase price payable................... -- (13,934) --
Investments in marketable securities................... (63,793) -- --
Sale of marketable securities.......................... 76,840 558 257
Changes in other assets, net........................... (380) (4,228) --
------------- ------------ -------------
Net cash used in investing activities....... (55,024) (131,353) (43,059)
------------- ------------ -------------
Cash flows from financing activities:
Borrowings on notes payable............................ 17,169 83,307 20,294
Repayments of notes payable............................ (16,026) (68,440) (4,398)
Borrowings on long-term debt.......................... 500 360,398 149,917
Repayment of long-term debt............................ (2,048) (260,499) (149,399)
Payment of long-term debt issuance costs............... -- -- (3,228)
Repayment of redeemable preference shares.............. (2,075) -- --
Payments on capital lease obligations.................. (259) (2,211) (5,061)
Common stock issued, net of expenses................... 42,339 228 3
Capital contribution from subsidiary shareholder....... -- -- 1,400
Sale of stock of subsidiaries.......................... -- -- 6,541
Other.................................................. -- 900 (9)
------------- ----------- --------------
Net cash provided by financing activities... 39,600 113,683 16,060
------------- ----------- --------------
Effect of exchange rates on cash.......................... 760 (2,769) (557)
------------- ----------- --------------
Net increase (decrease) in cash............. 21,179 (1,425) (9,813)
Cash and cash equivalents, beginning of year............. 4,531 25,710 24,285
------------- ----------- --------------
Cash and cash equivalents, end of year................... $ 25,710 $ 24,285 $ 14,472
============= =========== ==============
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 846 $ 4,712 $ 8,986
Income taxes paid.................................... $ 4,311 $ 7,859 $ 6,235
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
The tax benefit of stock options exercised was $5,040, $7,685 and
$2,175 in 1996, 1997 and 1998, respectively. The Company incurred
capitalized leases of $2,101, $13,225, and $757 in 1996, 1997 and 1998,
respectively. The Company issued stock in connection with the
acquisition of businesses with a value of $5,498, $29,681, and $295 in
1996, 1997 and 1998, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<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 customer relationship management services
in North America, Europe, Asia Pacific and Latin America. On behalf of its
clients, the Company finds, acquires and retains customers and helps enhance and
grow these relationships through a variety of value-added services working with
several types of electronic media ranging from the telephone, to e-mail and the
Internet. The Company provides services to clients principally in the financial
services, insurance, telecommunications, technology, utilities, consumer, media,
government and travel sectors.
(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)
1996
----
Revenues:
SITEL $ 196,279
NAFS 15,685
Mitre 100,786
-------------
Combined $ 312,750
=============
Net income (loss)
SITEL $ 6,016
NAFS (1,132)
Mitre 5,973
-------------
Combined $ 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 Company's non-U.S. subsidiaries,
except in Mexico, use as their functional currency the local currency of the
countries in which they operate. Their assets and liabilities are translated
into U.S. dollars at the exchange rates in effect at the balance sheet date.
Revenues and expenses are translated at the average rates of exchange prevailing
during the period. Translation gains and losses are included as a component of
equity. Transaction gains and losses related to intercompany accounts are
included in the determination of net income.
F-7
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's subsidiary in Mexico uses the U.S. dollar as its functional
currency. The effect of remeasurement into the functional currency is not
material and is included in the determination of net income (loss).
(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, 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, 1997
and 1998 was $5.0 million and $8.8 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. Income (loss) per common share is computed by
dividing net income (loss) by the weighted average number of common shares and
common equivalent shares outstanding during each period, after giving
retroactive effect to business combinations accounted for using the
pooling-of-interests method of accounting. The difference in shares utilized in
calculating basic and diluted income per share represents the number of shares
assumed to be issued from the exercise of potentially dilutive stock options
under the Company's stock option
F-8
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plans less shares assumed to be purchased with proceeds from the exercise of the
stock options. 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 (loss) per share. The Company excluded all of its outstanding
options to purchase common stock from the calculation of diluted loss per share
in 1998 because such options were anti-dilutive.
(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 (loss) 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,
accounts receivable, accounts payable, marketable securities, long term debt
(primarily with variable interest rates) other than the Company's Senior
Subordinated Notes due 2006 (the "Notes"), capital leases and notes payable are
estimated to approximate carrying values due to the short maturities or other
characteristics of these financial instruments. The fair value of the Notes was
approximately $92 million at December 31, 1998, based on market transactions
near that date.
During 1997, the Company 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 had significant operations. These
contracts were marked to market with gains or losses recognized in the Company's
statements of income (loss) as other income (expense). Such amounts were not
material.
During 1998, SITEL also entered into forward exchange contracts designed to
manage the Company's exposure to fluctuations in the value of currencies of
certain foreign countries where it had foreign-currency denominated short-term
intercompany loans. The forward contracts were marked to market with gains or
losses recognized in the Company's statements of income (loss) as other income
(expense). Such amounts were not material.
(n) Accounting Pronouncement. Statement of Financial Accounting Standards
("SFAS") 130, Reporting Comprehensive Income establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company's comprehensive income
(loss) was $13.1 million, $(5.9) million and $0.9 million for the fiscal years
1996, 1997 and 1998, respectively. The difference between the Company's reported
net income (loss) and comprehensive income (loss) for those periods is primarily
due to the change in the currency exchange adjustment. The accumulated other
comprehensive income included in the Company's consolidated balance sheets at
December 31, 1997 and 1998 is primarily the accumulated currency exchange
adjustment.
F-9
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisitions:
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 included 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. Goodwill
of approximately $28.7 million was recorded 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 provided 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.
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
F-10
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 were 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
In May, 1998, the Company acquired all of the outstanding stock of MSC 24
S.A., which owned 100% of Intuiparc Assistance S.A. ("Intuiparc"), a
teleservicing company based in France, through the payment of approximately $1.5
million in cash, including acquisition costs, and the issuance of approximately
41,000 shares of stock valued at approximately $0.3 million. The acquisition of
Intuiparc 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 Intuiparc
have been included in the consolidated results of operations since the date of
acquisition. Goodwill of approximately $2.5 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 Intuiparc were not significant.
3. Sale of Stock of Subsidiaries:
During 1998 the Company sold newly issued stock of certain subsidiaries
located in the Asia Pacific region to Lend Lease Corporation Limited, Sydney,
Australia and certain of its subsidiaries ("Lend Lease"). Lend Lease paid
approximately $6.6 million for a 20% interest in these subsidiaries, which
provide outsourced call center solutions throughout the region. Lend Lease has
several options to increase its ownership percentage in amounts up to a total of
49% which, subject to meeting certain conditions, expire at various times
through on or about March 2004. The option exercise prices are intended to
approximate fair value through formulas tied to the subsidiary's revenue levels
for certain prior periods. The Company also has an option to reacquire the
original shares sold to Lend Lease at an agreed formula price from on or about
March 2000 through on or about March 2001 so long as Lend Lease has not
exercised its option to increase its ownership percentage. Lend Lease also has
an option to sell its shares back
F-11
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the Company at an agreed formula price (the "put option"). The put option
expires upon the earlier of Lend Lease exercising its option to increase its
ownership percentage or on or about March 2001.
Operations of these subsidiaries are controlled by a management committee
on which Lend Lease and the Company have equal representation. The Company,
however, effectively controls the operations of these subsidiaries through
certain dispute resolution processes that are included in the shareholder
agreements. Should the Company exercise its control through these dispute
resolution processes, Lend Lease has the option to sell its shares back to the
Company at an agreed formula price which is intended to approximate fair value.
Although the purchase price paid by Lend Lease exceeds the book value of
the 20% ownership that it acquired, due to the put option, the Company has
included the entire amount of the stock purchase price as minority interest. The
Company will accrete to the put option formula price if earnings credited to the
minority interest are not sufficient to record the amount that would be required
to be paid to Lend Lease upon its exercise of the put option.
4. Investments in Marketable Securities:
The amortized cost, gross unrealized holding gains and fair value for
available-for-sale securities at December 31, 1997 was as follows:
(in thousands)
Gross
Unrealized
Amortized Holding Fair
Cost Gains Value
---- ----- -----
Equity securities $ 49 $ 110 $ 159
======== ========= ==========
Proceeds from the sale of marketable securities available-for-sale were
$76.8 million, $0.6 million, and $0.3 million in 1996, 1997 and 1998,
respectively. Gross realized gains of $0.4 million and $0.2 million were
realized in 1997 and 1998, respectively. No gross realized losses were realized
in 1997 or 1998 and no gross realized gains or losses were realized in 1996.
5. Property and Equipment:
Property and equipment at December 31, 1997 and 1998 consisted of the
following:
(in thousands)
1997 1998
------------ -----------
Telecommunications equipment $ 89,067 $ 127,146
Furniture, equipment, and other 43,985 48,503
Leasehold improvements 18,707 21,094
Buildings 19,591 13,464
Other 1,080 366
------------ -----------
172,430 210,573
Less accumulated depreciation 51,830 84,958
------------ -----------
$ 120,600 $ 125,615
============ ===========
F-12
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term Debt:
Long-term debt at December 31, 1997 and 1998, consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
1997 1998
------------- -------------
<S> <C> <C>
9.25% Senior Subordinated Notes due in March, 2006..... $ -- $ 100,000
Long-term revolving credit facility at variable interest
rates (6.56% at December 31, 1998)..................... 99,500 3,500
Various notes payable acquired at acquisition of GCI, with
variable interest rates (42.3% at December 31, 1998)... 3,859 1,288
Other notes payable with weighted-average interest rates of
6.1% at December 31, 1998.............................. 9,939 5,910
---------- ---------
113,298 110,698
Less current portion................................... 10,793 3,671
---------- ---------
Total.................................................. $ 102,505 $ 107,027
========== =========
</TABLE>
In March 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 then
outstanding long term revolving credit facility (the "Credit Facility"), which
was also amended on that date.
The Notes, which include interest payable semiannually, are general
unsecured obligations of the Company and will be subordinated in right of
payment to all existing and future senior debt of the Company. The Notes are
guaranteed by certain of the Company's subsidiaries and contain certain
covenants that limit the ability of the Company and certain of its subsidiaries
to, among other things, incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur liens, merge or consolidate with
another company and sell or otherwise dispose of all or substantially all of the
assets of the Company.
The Notes are redeemable, at the Company's option, in whole or in part from
time to time on or after March 15, 2002. If redeemed during the twelve-month
period commencing on March 15 of the year set forth below, the redemption prices
are as follows, plus in each case, accrued and unpaid interest thereon, if any,
to the date of redemption:
Year Percentage
---- ----------
2002 .......................... 104.625%
2003 .......................... 103.083%
2004 .......................... 101.542%
2005 and thereafter ............ 100.000%
In addition, the Company may redeem up to 35% of the aggregate principal
amount of the Notes at any time on or prior to March 15, 2001 at 109.25% of the
principal amount thereof, plus accrued interest to the date of redemption, from
the net proceeds of one or more public equity offerings, as defined. Also, upon
a change of control of the Company, as defined, the Company may be required to
repurchase the Notes at a price equal to 101% of the principal amount thereof,
plus accrued interest to the date of repurchase.
F-13
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the repayment of the amounts due under the existing
Credit Facility from the proceeds of the Notes, the Company also reached an
agreement with a syndicate of commercial banks to amend the Company's existing
Credit Facility. Certain of the financial covenants and restrictions from the
existing facility were amended and the Company's eligible domestic accounts
receivable were pledged as security. The amended 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. The borrowings were limited under
the amended Credit Facility to an amount based upon a percentage of the
Company's eligible domestic accounts receivable, as defined, up to $75 million.
As a result of the amendment, the Company recognized an extraordinary charge of
$514,000, net of tax, to write off the deferred costs of the original Credit
Agreement. Additionally, in the second and third quarters of 1998, the Company
sought and obtained certain modifications to the amended Credit Facility to
permit continued availability of borrowing under such facility. In connection
with the modification in the third quarter the total available was reduced to
$50 million. As of December 31, 1998, the Company was in compliance with all of
the covenants and restrictions of the amended facility.
Additionally, several international lines of credit are available to fund
local working capital requirements. The maximum borrowings under these
facilities are approximately $32.0 million. At December 31, 1998, the total
amount of notes payable outstanding under these facilities approximated $30.5
million with a weighted-average interest rate of 7.2%. Including unused
international lines of credit, the Company had unused lines of credit totaling
approximately $36.6 million at December 31, 1998.
The aggregate maturities of long-term debt for each of the five years
following December 31, 1998 are as follows: (in thousands)
Maturities of
Year Ending December 31, Long-term Debt
------------------------ -------------------
1999 $ 3,671
2000 2,909
2001 220
2002 3,666
2003 and thereafter 100,232
7. Common Stock:
The Company completed a 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
stock splits. Net proceeds of $42.2 million were realized by the Company after
deducting the underwriting discount and offering expenses.
F-14
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. 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,
--------------------------------------------
1996 1997 1998
----------- ------------ -------------
Pretax income (loss):
United States $ 8,653 $15,005 $ 9,958
Foreign 12,502 (713) (10,217)
---------- ---------- -----------
Total $ 21,155 $14,292 $ (259)
========== =========== ===========
The components of the provision for income tax expense (benefit) consists
of:
(in thousands)
For The Years Ended December 31,
-----------------------------------------
1996 1997 1998
-------- -------- --------
Current:
Federal $ 3,929 $ 5,805 $ 1,899
Foreign 4,529 7,112 1,950
State (60) (113) (67)
-------- -------- --------
8,398 12,804 3,782
Deferred:
Federal 1,521 1,237 960
Foreign -- (2,735) (3,776)
State 302 -- --
-------- -------- --------
1,823 (1,498) (2,816)
-------- -------- --------
Provision for
income tax expense $ 10,221 $ 11,306 $ 966
======== ======== ========
In 1998 a tax benefit of $0.3 million was allocated to the extraordinary
loss on the refinancing of debt. 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 $5.0 million, $7.7
million, and $ 2.2 million in 1996, 1997 and 1998, respectively.
F-15
<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,
--------------------------------
1997 1998
---- ----
Deferred tax assets:
Accrued compensation and other liabilities ......... $10,362 $ 9,013
Net operating loss and other credit
carryforwards ................................... 1,846 2,984
Deferred tax items related to
international operations ........................ 2,433 6,209
Other .............................................. 346 696
------- -------
Total deferred tax assets ..................... 14,987 18,902
------- -------
Deferred tax liabilities:
Leased assets and depreciation ..................... 319 1,358
Unrealized gain on marketable securities ........... 37 --
Other .............................................. 364 461
------- -------
Total deferred tax liabilities ............... 720 1,819
------- -------
Net deferred tax assets ...................... $14,267 $17,083
======= =======
The Company has not recorded a valuation allowance related to its deferred
tax assets. Based upon the Company's current and historical pretax earnings,
adjusted for significant deductions estimated to be 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.
At December 31, 1998, the Company had U.S. Federal net operating loss
carryforwards of approximately $1.1 million, which will expire in 2004. At
December 31, 1998, the Company had alternative minimum tax credit carryforwards
of approximately $2.6 million.
The difference between the Company's income tax expense 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
(loss), less minority interest, is as follows:
(in thousands)
For The Years Ended December 31,
--------------------------------
1996 1997 1998
---- ---- ----
Expected Federal income taxes $ 7,166 $ 4,859 $ (88)
State taxes, net of Federal effects (40) (74) (44)
Amortization of goodwill 266 159 222
Impact of foreign operations, including
goodwill 438 1,278 1,647
Merger related costs 2,257 -- --
State incentive tax credits (see note 14) -- 1,446 --
Impairment losses on intangible assets -- 3,400 --
Other 134 238 (771)
-------- -------- --------
Total $ 10,221 $ 11,306 $ 966
======== ======== ========
F-16
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 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 $17.8 million and
$11.8 million at December 31, 1997 and 1998, respectively, net of accumulated
amortization.
The Company also leases property and certain equipment under noncancelable
operating lease arrangements which expire at various dates through 2018. Rent
expense was approximately $6.7 million, $15.4 million, and $23.0 million for the
years ended December 31, 1996, 1997 and 1998, 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, 1998 are as follows:
(in thousands)
Capital Operating
Leases Leases
------ ------
Year ending December 31,
1999 $ 4,092 $ 22,715
2000 1,543 19,737
2001 697 17,479
2002 544 13,597
2003 and thereafter 7,350 63,415
---------- -------------
14,226 $ 136,943
=============
Less amount representing interest 1,366
----------
Present value of net minimum lease
obligations $ 12,860
==========
10. 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.
b) Stock Option Plan ("EEB Replacement Plan"). Under this plan, options for
7,381,720 shares were granted in 1995, with an option price of $.0025 per
share, as replacements for the Company's employee equity benefit plan ("EEB
Plan"). The EEB Plan had 12,655,000 units outstanding with base values
ranging from $0.85 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.
c) 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
F-17
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998, there were approximately
3.1 million shares available for issuance pursuant to future grants under
the Employee Plan.
d) 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, 1998, 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.
Additional information as to shares subject to options is as follows:
Weighted-Average
Number of Exercise Price
Options per Option
------- ----------
Balance, January 1, 1996 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
Granted 7,197,652 4.58
Exercised (1,192,348) .0025
Canceled (7,721,832) 12.63
----------------- -----------------
Balance, December 31, 1998 13,904,389 $ 1.96
================= =================
Exercisable at December 31, 1998 2,966,869 $ 1.24
================= =================
The number of options granted and canceled in 1997 and 1998 include the
effect of amendments to the terms of pre-existing option agreements issued under
the 1995 Plan. The number of options subject to the amendments and therefore
shown as granted and canceled were 4,222,405 and 5,590,225 in 1997 and 1998,
respectively. The amendments to the terms of the options in both 1997 and 1998
lowered the exercise prices to prevailing market values of the common stock and
altered certain vesting provisions of the options.
F-18
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------------------
Weighted- Weighted-
Number Average Average Weighted
Range of Outstanding at Remaining Exercise Exercisable at Average
Exercise Prices 12/31/98 Contractual Life Price 12/31/98 Exercise Price
- ----------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
$.0025 7,155,148 1.41 $.0025 2,387,452 $.0025
$2.34 to $3.50 5,661,094 8.04 $3.46 156,700 $3.50
$3.72 to $9.75 1,005,000 5.00 $6.27 372,000 $5.87
$10.47 to $19.50 83,147 6.87 $15.84 50,717 $15.44
</TABLE>
The per share weighted-average fair value of stock options granted during
1996, 1997, and 1998, was $7.84, $7.72, and $3.22, 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 6.48%, 6.31%, and 5.4% in 1996, 1997,
and 1998, respectively, and an expected life of 8.62 years, 9.04 years, and 8.0
years in 1996, 1997, and 1998, respectively.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options, the Company's net income (loss) and income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(in thousands, except per share data)
For The Years Ended December 31,
---------------------------------------------------
1996 1997 1998
--------------- ------------- --------------
<S> <C> <C> <C>
Net income (loss): As Reported $10,857 $ 2,812 $(1,088)
Pro Forma 10,186 (1,473) (2,861)
Income (loss) per share: As Reported
Basic $ 0.19 $ 0.05 $ (0.02)
Diluted 0.16 0.04 (0.02)
Pro Forma
Basic $ 0.18 $ (0.02) $ (0.04)
Diluted 0.15 (0.02) (0.04)
</TABLE>
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.
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 $.05 million in 1996. No contributions were made in 1997 or
1998.
F-19
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also makes contributions to certain executive and other
employee personal retirement programs, primarily in Europe. Amounts contributed
to those plans were $.03 million, $.2 million and $1.0 million in 1996, 1997 and
1998, respectively.
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 1996, 1997 or 1998.
During 1998, the Company implemented an Employee Stock Purchase Plan
("ESPP" or the "Plan"). The Plan enables eligible employees to purchase the
Company's stock at 85% of the current market value on a quarterly basis.
12. Segment Data:
The Company's operations are conducted in one business segment; the
provision of customer relationship management services working with several
types of electronic media ranging from the telephone, to e-mail and the
Internet. The Company's services are provided through a number of operating
subsidiaries in a variety of locations around the world. However, the nature of
services, the nature of the processes involved in providing those services, the
types of customers and the expected long-term operating income from these
subsidiaries are similar.
A summary of the Company's operations by geographic area follows.
(in thousands)
For The Years Ended December 31,
-------------------------------------
1996 1997 1998
---- ---- ----
REVENUE:
- United States $179,334 $250,160 $314,500
- United Kingdom 79,861 116,055 102,895
- Spain 27,598 57,449 52,820
- Other foreign countries 25,957 67,810 116,103
-------- -------- --------
$312,750 $491,474 $586,318
======== ======== ========
Long-Lived Assets:
- United States $ 33,829 $ 93,042 $ 87,314
- United Kingdom 18,506 30,083 31,972
- Spain 35,420 35,138 37,964
- Other foreign countries 13,389 67,745 75,715
-------- -------- --------
$101,144 $226,008 $232,965
======== ======== ========
Revenues are primarily attributed to countries based upon the location where the
services are performed.
F-20
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies:
From time to time, the Company is involved in litigation incidental to its
business. Management believes that any resulting liability beyond that provided,
should not materially affect the Company's financial position, future results of
operations or future cash flows.
14. Restructuring and Impairment of Assets:
In 1997, the Company recorded provisions of $15.7 million for restructuring
expenses and impairment losses. Included in this charge were 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 included the following initiatives:
o Concurrent with the decision to pursue a new joint-venture equity
partner in the Asia Pacific region, management discontinued virtually
all third party operations of its Telebusiness unit. The decision to
discontinue 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. The resulting impairment loss of approximately $10.0
million represented primarily the write-off of unamortized goodwill.
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 The Company relocated its corporate headquarters and closed or
consolidated certain under-performing call centers. Costs incurred as a
result of these plans consisted 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 1997 because management believed that it was more likely
than not that these benefits would ultimately not be utilized.
o The Company reorganized its corporate management in Europe. The
substantial majority of costs related to this plan were severance costs
of $2.8 million for the involuntary termination of 31 employees. The
Company also incurred other costs of $0.1 million related to this plan.
The amount of actual severance and other costs paid and actual losses
charged against the liability for contractual obligations during 1997 and 1998
was approximately $3.6 million and $0.7 million, respectively.
In 1998, the Company recorded a $6.6 million charge for restructuring
expenses primarily related to its European operations. Included in that charge
was $6.4 million related to statutory or contractual severance and other costs
for approximately 250 employees. The restructuring expenses also include $0.2
million for the cost of excess leased facilities. The amount of severance and
other costs paid during 1998 was approximately $2.5 million.
F-21
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Shareholder Rights Plan:
In August 1998, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan") that provides for the issuance of preferred
share purchase rights that expire in August, 2008. The rights generally will be
exercisable and transferable apart from the common stock only after the tenth
day following public disclosure that a person or group of affiliated or
associated persons has acquired 20% or more of the outstanding shares of common
stock (thereby becoming an "Acquiring Person"). The rights will also be
exercisable on such date as the Board of Directors determines after the
commencement or announcement of a tender or exchange offer by a person or group
for 20% or more of the outstanding shares of common stock.
If any person or group of affiliated or associated persons acquires 20% or
more of the outstanding shares of common stock and the Company's redemption
right has expired, each holder of a right (except those held by the Acquiring
Person) will have the right to purchase shares of the Company's common stock (or
in certain circumstances, shares of preferred stock or similar securities of the
Company) having a value equal to two times the exercise price of the right.
Alternatively, if, in a transaction not approved by the Board of Directors, the
Company is acquired in a merger or other business combination or 50% or more of
its assets or earnings power are sold, and the Company's redemption right has
expired, each holder of a right will have the right to purchase that number of
shares of common stock of the acquiring company having the market value of two
times the exercise price of the right. The rights may not be exercisable while
they are redeemable. The rights, which have a $30 exercise price, are redeemable
by the Company at a price of $.001 per right at any time until up to and
including the 10th day after the time that a person or group has become an
Acquiring Person.
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, 1997 and
1998, and for the years ended December 31, 1996, 1997 and 1998 of (a) SITEL
Corporation, the parent, (b) the guarantor subsidiaries, (c) the
nonguarantor subsidiaries and (d) SITEL Corporation on a consolidated
basis,
(2) SITEL Corporation, the parent, with the investments in all subsidiaries
accounted for on the equity method, and the guarantor subsidiaries with the
nonguarantor subsidiaries accounted for on the equity method (one of the
guarantor subsidiaries is the parent of the nonguarantor subsidiaries), and
(3) Elimination entries necessary to consolidate SITEL Corporation, the parent,
with all subsidiaries.
F-22
<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
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .... $ 11,514 $ 2,075 $ 10,696 $ -- $ 24,285
Trade accounts receivable, net 21,832 22,167 65,313 (1,615) 107,697
Marketable securities ........ 159 -- -- -- 159
Prepaid expenses and other
current assets ............ 6,523 264 9,830 -- 16,617
--------- --------- --------- --------- ---------
Total current assets ......... 40,028 24,506 85,839 (1,615) 148,758
Property and equipment, net .... 37,585 24,251 58,764 -- 120,600
Deferred income taxes .......... 11,070 -- 44 -- 11,114
Goodwill, net .................. 1,627 21,926 70,828 -- 94,381
Other assets ................... 7,532 121 3,374 -- 11,027
Investments in subsidiaries .... 180,112 94,999 -- (275,111) --
Notes receivable, intercompany.. -- 22,203 -- (22,203) --
--------- --------- --------- --------- ---------
Total assets .............. $ 277,954 $ 188,006 $ 218,849 $(298,929) $ 385,880
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ................ $ -- $ -- $ 14,376 $ -- $ 14,376
Current portion of long-term
debt ...................... 2,026 -- 8,767 -- 10,793
Current portion of
capitalized lease
obligations ............... 308 98 4,528 -- 4,934
Trade accounts payable ....... 2,841 1,202 24,894 (1,615) 27,322
Accrued expenses and other
current liabilities........ 11,168 6,210 34,410 -- 51,788
--------- --------- --------- --------- ---------
Total current liabilities.. 16,343 7,510 86,975 (1,615) 109,213
Long-term debt, excluding
current portion ........... 101,488 -- 1,017 -- 102,505
Capitalized lease obligations,
excluding current
portion ................... 328 140 12,515 -- 12,983
Notes payable, intercompany
and other ................. -- 244 21,959 (22,203) --
Deferred compensation .......... 1,407 -- -- -- 1,407
Minority interest .............. -- -- 1,384 -- 1,384
Stockholders' equity ........... 158,388 180,112 94,999 (275,111) 158,388
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity ...... $ 277,954 $ 188,006 $ 218,849 $(298,929) $ 385,880
========== ========= ========= ========= =========
</TABLE>
F-23
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
December 31, 1998
(in thousands)
16. Supplemental Guarantor Financial Information (Continued):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .. $ 2,410 $ 1,190 $ 10,872 $ -- $ 14,472
Trade accounts receivable, net 33,676 33,179 75,540 (12,586) 129,809
Prepaid expenses and other
current assets .......... 2,956 241 9,742 -- 12,939
--------- --------- --------- --------- ---------
Total current assets .... 39,042 34,610 96,154 (12,586) 157,220
Property and equipment, net .. 31,302 22,523 71,790 -- 125,615
Deferred income taxes ........ 9,390 -- 6,035 -- 15,425
Goodwill, net ................ 1,537 21,021 70,730 -- 93,288
Other assets ................. 10,805 126 3,131 -- 14,062
Investments in subsidiaries... 188,690 88,293 -- (276,983) --
Notes receivable, intercompany -- 28,833 -- (28,833) --
--------- --------- --------- --------- ---------
Total assets ............ $ 280,766 $ 195,406 $ 247,840 $(318,402) $ 405,610
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ................ $ -- $ -- $ 30,545 $ -- $ 30,545
Current portion of long-term
debt ...................... 2,136 -- 1,535 -- 3,671
Current portion of
capitalized lease
obligations ............... 328 81 3,241 -- 3,650
Trade accounts payable ....... 1,338 1,655 40,377 (12,586) 30,784
Accrued expenses and other
current liabilities ....... 9,963 4,922 32,025 -- 46,910
--------- --------- --------- --------- ---------
Total current liabilities.. 13,765 6,658 107,723 (12,586) 115,560
Long-term debt, excluding
current portion............ 103,556 -- 3,471 -- 107,027
Capitalized lease obligations,
excluding current portion.. -- 58 9,152 -- 9,210
Notes payable, intercompany
and other ................. -- -- 28,833 (28,833) --
Deferred compensation .......... 1,591 -- -- -- 1,591
Minority interest .............. -- -- 10,368 -- 10,368
Stockholders' equity ........... 161,854 188,690 88,293 (276,983) 161,854
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity....... $ 280,766 $ 195,406 $ 247,840 $(318,402) $ 405,610
========= ========= ========= ========= =========
</TABLE>
F-24
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Supplemental Guarantor Financial Information (Continued):
Condensed Consolidating Statement of Income (Loss)
For the year ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<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-25
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Supplemental Guarantor Financial Information (Continued):
Condensed Consolidating Statement of Income (Loss)
For the year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<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 (expense) ..... 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-26
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Supplemental Guarantor Financial Information (Continued):
Condensed Consolidating Statement of Income (Loss)
For the year ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 133,640 $ 180,860 $ 271,818 $ -- $ 586,318
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services ............. 72,446 99,121 160,019 -- 331,586
Selling, general and
administrative
expenses .................. 65,881 62,246 107,773 -- 235,900
Restructuring expenses ....... -- -- 6,607 -- 6,607
--------- --------- --------- --------- ---------
Total operating expenses .. 138,327 161,367 274,399 -- 574,093
--------- --------- --------- --------- ---------
Operating income (loss) ... (4,687) 19,493 (2,581) -- 12,225
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earnings (losses)
of subsidiaries, net
of tax .................... 6,297 (7,740) -- 1,443 --
Intercompany charges ......... 1,387 2,812 (4,199) -- --
Interest income .............. 455 -- 470 -- 925
Interest expense ............. (9,004) (807) (3,861) -- (13,672)
Other income (expense) ....... 310 (1) (46) -- 263
--------- --------- --------- --------- ---------
Total other income
expense ................. (555) (5,736) (7,636) 1,443 (12,484)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority
interest .................. (5,242) 13,757 (10,217) 1,443 (259)
Income tax expense ............. (4,668) 7,460 (1,826) -- 966
Minority interest .............. -- -- (651) -- (651)
--------- --------- --------- --------- ---------
Net income (loss)
from continuing
operations .............. (574) 6,297 (7,740) 1,443 (574)
Extraordinary loss
on refinancing of debt,
net of taxes ............ (514) -- -- -- (514)
--------- --------- --------- --------- ---------
Net income (loss) ......... $ (1,088) $ 6,297 $ (7,740) $ 1,443 $ (1,088)
========= ========= ========= ========= =========
</TABLE>
F-27
<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
------ ------------ ------------ ------------ ------------
<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-28
<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
------ ------------ ------------ ------------ ------------
<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,
net ........................... (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 ............ (259,948) -- (551) -- (260,499)
debt
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 .......... (1,788) 216 147 -- (1,425)
cash ...........................
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-29
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 1998
(in thousands)
16. Supplemental Guarantor Financial Information (Continued):
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ........... $ (14,118) $ 23,289 $ 8,572 $ -- $ 17,743
--------- --------- --------- --------- ---------
Cash flows from investing
activities:
Investments in subsidiaries ....... 13,372 (6,526) -- (6,846) --
Dividend on common stock .......... -- 10,000 -- (10,000) --
Purchases of property and
equipment ..................... (15,925) (6,979) (29,129) -- (52,033)
Proceeds from sales of
property and equipment ........ -- -- 1,513 -- 1,513
Proceeds from sale-
leasebacks of facilities ...... 9,397 -- -- -- 9,397
Acquisitions, net of cash
acquired ...................... -- -- (2,193) -- (2,193)
Sale of marketable
securities .................... 257 -- -- -- 257
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities ........... 7,101 (3,505) (29,809) (16,846) (43,059)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable ....... -- -- 20,294 -- 20,294
Repayments of notes payable ....... -- -- (4,398) -- (4,398)
Borrowings on long-term
debt ........................... 147,767 -- 2,150 -- 149,917
Repayment of long-term
debt and capital lease
obligations .................... (146,620) -- (7,840) -- (154,460)
Payment of long-term debt
issuance costs ................. (3,228) -- -- -- (3,228)
Net capital contribution
from parent .................... -- (13,372) 6,526 6,846 --
Net borrowings and payments
on note to parent .............. -- (7,297) 7,297 -- --
Dividend on common stock .......... -- -- (10,000) 10,000 --
Capital contribution from
subsidiary shareholder ......... -- -- 1,400 -- 1,400
Sale of stock of
subsidiaries ................... -- -- 6,541 -- 6,541
Common stock issued, net of
expenses ....................... 3 -- -- -- 3
Other ............................. (9) -- -- -- (9)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ........... (2,087) (20,669) 21,970 16,846 16,060
--------- --------- --------- --------- ---------
Effect of exchange rates on cash .... -- -- (557) -- (557)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash ..... (9,104) (885) 176 -- (9,813)
Cash and cash equivalents,
beginning of year .............. 11,514 2,075 10,696 -- 24,285
--------- --------- --------- --------- ---------
Cash and equivalents, end of
year ........................... $ 2,410 $ 1,190 $ 10,872 $ -- $ 14,472
========= ========= ========= ========= =========
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT ON THE
FINANCIAL STATEMENT SCHEDULE
The Board of Directors
SITEL Corporation:
Under date of February 5, 1999, we reported on the consolidated balance sheets
of SITEL Corporation and subsidiaries as of December 31, 1997 and 1998, 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, 1998.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year ended December 31,
1998. In connection with our audits of the aforementioned financial statements,
we also audited the related financial statement schedule in the Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP
Omaha, Nebraska
February 5, 1999
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<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
<TABLE>
<CAPTION>
ACCOUNTS
DESCRIPTION BEGINNING BAD DEBT CHARGED TO ENDING
BALANCE EXPENSE ALLOWANCE BALANCE
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
for trade receivables
Year ended December 31, 1996 $937 2,845 594 $3,188
Allowance for doubtful accounts
for trade receivables
Year ended December 31, 1997 $3,188 2,410 499 $5,099
Allowance for doubtful accounts
for trade receivables
Year ended December 31, 1998 $5,099 1,087 2,216 $3,970
</TABLE>
See accompanying independent auditors' report.
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