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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, 1999
[ ] 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 incorporation (I.R.S. Employer Identification No.)
or organization)
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 March 9, 2000 was $393,439,227 based upon the closing price
of $8.8125 for such stock as reported by the New York Stock Exchange on such
date. Solely for purposes of this calculation, persons holding of record more
than 5% of the Company's stock have been included as "affiliates".
As of March 9, 2000 the Company had 69,663,316 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 5, 2000
are incorporated into Part III. This 10-K consists of 99 pages. The Exhibit
index is on page 27.
PART I
------
ITEM 1. BUSINESS
--------
General
SITEL Corporation is the worldwide leader in executing electronic Customer
Relationship Management (eCRM) solutions for large corporations. Founded in
1985, the Company has grown both internally and through acquisitions to include
operations in North America, Europe, Asia Pacific and Latin America. Over 24,000
SITEL employees worldwide represent many of the world's leading brand names. The
Company operates from over 17,000 workstations in over 75 contact centers
located around the globe in 18 countries and offers services in more than 25
languages and dialects.
Electronic Customer Relationship Management (eCRM) is a business strategy
that is focused on maximizing the lifetime value of customers. At the core of
this strategy is the recognition of the importance of knowledge-enabled customer
interaction to enhance customer satisfaction, as well as gather attitudinal and
behavioral data to strengthen customer relationships and build loyalty. In
practical terms, a successful eCRM program requires an investment in tangible
assets such as systems integration, software and hardware, but the real key is
the "human" investment.
SITEL's eCRM services are built around a core belief that people do
business with people, a reality that persists even in the age of anonymous
online communications and one-click shopping. SITEL's solution is designed to
enhance interaction at every stage in the customer lifecycle, from
identification and acquisition of new customers, to customer service for
existing customers, to the provision of technical support, help desks and
assistance in managing receivables. Most importantly, SITEL facilitates this
remote customer communication across all e-media, including telephone, and
increasingly via e-mail and interactive chat on the Internet.
Industry Overview
Over the last 10 years the Company's industry has transformed from
primarily executing telesales and telemarketing campaigns, to providing
long-term outsourced customer relationship management programs. The 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 and resolution of customer inquiries. Today,
the industry is increasingly focused on its clients' key business processes.
Fueling this trend is the growth in consumer telephone, Internet 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).
With the new technologies, each customer `touch', via e-mail, the web or
directly with a customer service professional, allows companies to learn more
about their customer's profile, decision-making process and channel preference.
This data can then update customer information in the client's database enabling
true one to one marketing. As a result of these advantages, contact center-based
customer relationship management activity is becoming central to the way leading
organizations choose to build and maintain customer relationships.
The Company estimates that worldwide expenditures to operate contact
centers exceed $200 billion annually. The eCRM market in 2000 is estimated to
total $30 billion. The outsourced portion of the overall contact center market
has grown significantly since 1984 to around 8% of the market, as corporations
increasingly shift key business processes from internal operations to outsourced
partners. This trend has been further fueled by the growing complexity of
integrating technology and communication. The Company expects to see outsourcing
increase as companies increasingly focus on their core competencies and as
service and competency levels within the customer relationship management
industry continue to rapidly improve.
1
SITEL's Business
The Company plans, implements and manages long-term eCRM programs that
allow its clients to enhance the value of their customer contacts, relationships
and information. 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
regardless of how 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 are browsing the client's website, the Company's mission is to
create customer loyalty and value, to increase sales and to differentiate the
client's brand in a positive manner.
SITEL operates from more than 75 facilities in 18 countries throughout the
four major regions of the globe, and has the capability to provide service in
more than 25 languages and dialects. The Company brings industry focus and
expertise in the consumer, financial services, insurance, telecommunications,
technology and utilities sectors.
SITEL's Solutions
The Company provides services at every stage of the customer lifecycle via
all e-media, including telephone, FAX, Interactive Voice Response (IVR), and
increasingly via e-mail and interactive chat on the Internet. The following are
the Company's traditional solutions:
Customer Acquisition -- SITEL contacts 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. New applications
include webservicing, or human interaction via voice or text chat, designed to
increase sales generated from a client's website.
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
contacts; reservations; loyalty (frequent flyer) clubs; investor account
inquiries; government information; dealer location contacts; insurance claims
processing; fraud detection/prevention calls; back office 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 contacts,
these are troubleshooting interactions where the agent must diagnose and resolve
software, Internet or computer hardware product or service problems.
Receivables Management -- SITEL makes pre-charge-off and post-charge-off
contacts with customers to collect overdue balances and to prevent fraud.
Consulting -- SITEL offers consulting services to help its clients design and
improve their internal and outsourced contact center operational processes.
SITEL's Internet-Based Services
As the Internet becomes an increasingly important communications medium
between the Company's clients and their customers, SITEL has integrated the
Internet into its Customer Relationship Management programs. SITEL's Internet
strategy is to bring human interaction to Internet-based contacts and to use
technology enabled by the Internet to handle customer contacts more efficiently
and effectively.
2
SITEL believes that every remote customer contact, whether telephone,
Internet or regular mail should be handled in an integrated fashion, leveraging
the same agent training and systems integration. The Company sees it as a key
goal within eCRM to deliver a high level of integration to provide a unified
view of the customer. This is seen as essential to building strong one to one
customer relationships.
SITEL performed Internet-based services for more than 50 clients in 1999,
including 20 of its 50 largest clients. SITEL's Internet-based services include:
E-mail Handling: SITEL's customer service professionals provide knowledgeable,
comprehensive and timely replies to incoming e-mails that request customer
service and technical support. SITEL's contact center platform also provides
automated e-mail response based on key word recognition.
Voice and Text-Based Chat Web Site Support: Voice chat support, enabling
browsers to simultaneously talk to an agent while visiting their web site, is
currently provided by SITEL using the Internet Call Center that was co-developed
by SITEL and Lucent Technologies in 1998. Text-based chat allows for proactive
or responsive communications with any web site visitor to provide sales support
or customer service. These chat services are further enabled by capabilities to
push web pages to web visitors and the ability of the web agent to work
collaboratively with the web visitor.
Self-Service and Browsing Support: The Internet can enable customers in certain
situations to resolve their problems without human assistance. SITEL is actively
working with its clients to incorporate self-service capabilities into its
solutions to improve customer satisfaction and reduce cost. Examples of
self-service support are customers accessing the answers to frequently asked
questions via `intelligent' search of a data or "Knowledge Base" or prospective
customers completing online insurance applications that are subsequently
reviewed by licensed insurance service professionals employed by SITEL.
Telephone Support: Telephone support, by far the largest revenue generator,
includes technical support and customer service call handling for Internet
services and products as well as closed loop calling in support of electronic
processes. For example, SITEL makes and receives phone calls inside a client
organization ensuring that cases have been successfully closed when web site
visitors ask the client organization to contact them or provide a service or
information.
Industries Served
SITEL provides eCRM solutions primarily across the following industries:
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.
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.
3
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
service activities primarily to domestic and international long distance
providers, local exchange carriers, and cellular and PCS providers including
account management, fulfillment, 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.
Strategic Alliances
Because of the size and scale of CRM solutions today, the Company believes
successful providers will be those that can harness the resources of multiple
vendors to fast track major project implementation and rollout. SITEL has
developed alliances with technology and thought-leadership firms such as Siebel,
IBM Global Services, Call Interactive, Genesys, New Channel and The Centric
Group. The Company plans to continue to develop world class partners, as well as
senior level relationships, with the consultants and third party advisors
developing the projects and programs, which represent SITEL's target market.
Clients
The Company serves over 400 clients in 18 countries. The Company's clients
include four independently managed subsidiaries of General Motors Corporation.
Total revenues from these four clients was 12.2% of the Company's total revenues
in 1999. No other clients under common control generated more than 10% of the
Company's revenues.
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 95/98/2000 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.
4
SITEL is in the process of migrating to a common set of preferred operating
platforms which includes: Siebel 99; Oracle DataBase; and Genesys for Computer
Telephony Integration. This will position SITEL to support the current business
requirements for eCRM. Along with the eCRM technology infrastructure, this
common set of technologies will position the Company to provide enhanced global
services for clients and more cost-effectively replicate its processes
throughout its network of contact centers. SITEL Corporation has designated
Siebel 99 as its preferred technology platform. Siebel 99 is an object-based
system which supports SITEL's goal of a common system while still providing a
solution that can be customized to meet each client's unique needs. Siebel
contains the necessary elements to enable a true eCRM service offering.
Siebel interfaces with Oracle as the database engine and Genesys for the
Computer Telephony Integration. This provides flexibility and continued return
from SITEL's investment in existing switch and dialer platforms.
Human Resource Management
Efficient management and operation of large-scale eCRM programs is a highly
people intensive business. One of SITEL's core competencies is managing a
diverse, worldwide workforce. SITEL places great emphasis on its integrated
human resource management strategies, including the recruitment, training and
on-going development, and retention of its employees at all levels of the
organization. The Company seeks to locate customer contact centers in
communities and cities with favorable workforce demographics and populations
with necessary language skills. SITEL is committed to equal employment
opportunity in every market served by the Company.
To build rewarding careers for its 24,000 employees and enable effective
planning for future growth, the Company has developed training and education
programs, as well as performance management and career planning processes,
designed to enable people to learn (both in classrooms as well as on-the job)
and perform at optimum levels on the diverse range of daily e-media customer
contacts, on behalf of the Company's multiple-industry clients.
The Company encourages employee self-development, is establishing its own
corporate virtual university (SITEL University), and aims to develop and promote
individuals from within the organization as much as possible.
As of December 31, 1999, SITEL had over 24,000 employees. In the Company's
European region, employees in Belgium, Sweden and Spain are within the scope of
government sponsored collective bargaining agreements and are represented by
either a labor union or a statutory work council arrangement. In countries with
labor unions or work councils, the Company's ability to reduce its workforce or
its wage rates is subject to agreement or consultation with the appropriate
labor union or works council. SITEL considers its relations with its employees
to be good.
Competition
SITEL is one of the largest independent companies executing eCRM solutions.
SITEL's largest direct competitors include Teletech Holdings, Inc., Convergys
Corporation, EDS's Business Process Management division, Sykes Enterprises Inc.,
Teleperformance International Group, APAC Teleservices, Inc., and West
Teleservices Corporation. With the growth of consumer online usage, there are a
number of new, smaller competitors focusing on providing e-mail and interactive
chat services. The Company also competes with in-house teleservices departments
throughout the world. In-house departments continue to comprise the largest
segment of call center expenditures. Additional competitors with greater
resources than the Company may enter the customer relationship management
industry.
5
Most of the major outsourcing companies, like SITEL, are positioning
themselves as providers of Customer Relationship Management solutions. However,
SITEL believes it is in a leadership position in terms of large-scale project
implementation and operational experience, global presence and industries
served. The Company has implemented and now manages integrated programs via all
e-media and across the broad range of CRM solutions designed to support the
entire customer lifecycle.
Government Regulation
The Company's business is subject to laws and regulations concerning
teleservices, web-services, collection agencies, consumer privacy, and the
collection and use of consumer data.
In the United States, the Federal Trade Commission (the "FTC") and many
states regulate teleservices, web-services, consumer privacy and the collection
and use of consumer data. The federal Telephone Consumer Protection Act of 1991
(the "TCPA") prohibits teleservices firms from initiating telephone
solicitations to residential telephone subscribers during certain times,
prohibits the use of automated telephone dialing equipment to call certain
telephone numbers, and requires teleservices firms to maintain a "do not call"
list of residential customers. FTC regulations issued pursuant to the federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 prohibit
misrepresentation regarding products or services offered by telephone
solicitation and address other perceived telemarketing abuses in the offering of
prizes and the sale of business opportunities or investments. The Company
believes it is in compliance with the TCPA and FTC 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 the Company's "do not call" list. There are many
existing federal and state regulations concerning the collection and use of
information regarding individuals and the federal and various state governments
have recently proposed limitations on the collection and use of personally
identifiable information regarding consumers. The Company's receivables
management business is required to be licensed under state collection agency
laws and regulations and to comply with various federal and state fair debt
collection practices and consumer credit laws and regulations.
Countries outside the United States in which the Company has substantial
operations generally have yet to enact a detailed regulatory framework for
teleservices. Many countries, including the European Union, have, however,
enacted or proposed data protection laws which regulate consumer privacy and the
collection and use of consumer data. Many of these laws are based on the privacy
principles which were established by the Organisation for Economic Co-operation
and Development (OCED) in its Guidelines on the Protection of Privacy and
Transborder Flows of Personal Data. These laws generally provide individuals
with a right to access and correct incorrect information and many provide that
personally identifiable information can only be used or disclosed for specified
and lawful purposes. Civil and criminal penalties can be imposed for violations
under many of these laws.
The teleservices and web-service industries, 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. This focus, and any resulting laws, regulations or
standards, could impact the Company. It is possible that laws, regulations, or
standards will be enacted for the teleservices and web-service industries which
would, among other things, require the Company to modify current methods of
consumer data collection and limit the use of consumer data by the Company and
its clients.
The industries served by the Company are subject to varying degrees of
government regulation. For example, Company employees who complete the sale of
certain U.S. insurance products are required to be variously licensed by some
state insurance commissions and may also be required to participate in regular
continuing education programs, which are currently provided in-house by the
Company.
The Company generally relies on its clients and their advisors to develop
the scripts and client information to be used by SITEL in making or receiving
customer contacts. The Company generally requires its clients to indemnify it
against claims and expenses arising from clients' products, services, scripts or
directives with respect to the services performed on its clients' behalf.
6
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' customer relationship management initiatives and 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 and the implementation of clients'
customer relationship management 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 that often occur at the beginning of the year.
ITEM 2. PROPERTIES
----------
The Company's executive offices are located in Baltimore, Maryland.
As of December 31, 1999, the Company operated contact centers in various
leased facilities and on client premises and utilized the services of remote
operations sites in various locations as follows:
Company Client ROPS/ Total Number of
Facility Location Centers Centers Off-site Facilities Workstations
- -------------------- ------------ ------------ ------------ ------------ ----------------
Australia 1 -- -- 1 325
Belgium 2 -- -- 2 445
Brazil 1 2 -- 3 94
Canada 3 1 -- 4 367
Colombia 1 -- -- 1 276
France 2 -- 2 4 269
Germany 1 -- -- 1 475
Ireland 1 -- -- 1 232
Japan 1 -- -- 1 287
Mexico 2 -- -- 2 514
Netherlands 1 -- -- 1 128
New Zealand -- 3 -- 3 262
Portugal 1 -- -- 1 96
Singapore 1 -- -- 1 159
Spain 7 3 6 16 2,782
Sweden 1 -- 1 2 260
United Kingdom 7 -- -- 7 2,155
United States 33 3 5 41 8,209
------------ ------------ ------------ ------------ ----------------
Totals: 66 12 14 92 17,335
============ ============ ============ ============ ================
SITEL utilizes 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. Additionally, SITEL contracts and operates
out of several client sites to support specific client initiatives.
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 contact center space although it has from time to time built or purchased
facilities and, in certain cases, subsequently sold them in sales-leaseback
transactions.
7
ITEM 3. LEGAL PROCEEDINGS
-----------------
From time to time, the Company is involved in litigation incidental to its
business. Although the ultimate outcome of such litigation cannot be predicted
with certainty, management believes, after consultation with counsel, that the
resolution of such matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
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 1999.
8
**************************
Executive Officers of the Registrant
The executive officers of the Company are:
Name Age Position
James F. Lynch........................ 50 Chairman of the Board and Director
Phillip A. Clough..................... 38 Chief Executive Officer, President and Director
W. Gar Richlin........................ 54 Executive Vice President, Chief Operating Officer and
Chief Financial Officer
Antoon Vanparys....................... 42 Executive Vice President, Global Business Development
Timothy P. Keyser..................... 53 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. 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
Alex. Brown & Sons 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.
9
PART II
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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 sale prices of the common stock as reported by the New York Stock
Exchange.
HIGH LOW
1998
------------------------------------------------------------------
First Quarter $ 13.56 $ 8.94
Second Quarter $ 13.31 $ 5.75
Third Quarter $ 6.56 $ 2.94
Fourth Quarter $ 3.94 $ 1.75
1999
------------------------------------------------------------------
First Quarter $ 4.94 $ 2.13
Second Quarter $ 3.94 $ 2.00
Third Quarter $ 5.31 $ 2.56
Fourth Quarter $ 7.63 $ 3.88
As of March 9, 2000, SITEL had 69,663,316 shares of common stock
outstanding and 580 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. Furthermore, the
Company's revolving credit facility and Senior Subordinated Notes contain
restrictions on the payment of cash dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
--------------------------------------------------
The following table presents selected historical financial data for the
Company for the years ended 1995, 1996, 1997, 1998 and 1999. The 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.
10
Years Ended December 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ------------ ------------ ----------- -----------
Income Statement Data: (in thousands, except per share data)
Revenues $ 187,215 $ 312,750 $ 491,474 $ 586,318 $ 737,522
Cost of services 101,617 163,717 270,942 331,586 397,250
Selling, general and administrative
expenses 69,213 120,695 185,589 235,900 312,376
Special compensation expense (1) 34,585 -- -- -- --
Asset impairment and restructuring
expenses (2) -- -- 15,681 6,607 9,596
----------- ------------ ------------ ----------- -----------
Operating income (loss) (18,200) 28,338 19,262 12,225 18,300
Transaction related expense (3) -- 6,988 -- -- --
Interest expense, net 702 227 5,096 12,747 12,785
Other income, net 118 32 126 263 316
----------- ------------ ------------ ----------- -----------
Income (loss) before taxes
and minority interest (18,784) 21,155 14,292 (259) 5,831
Income tax expense (benefit) (6,593) 10,221 11,306 966 6,336
Minority interest 1,262 77 174 (651) 304
----------- ------------ ------------ ----------- -----------
Net income (loss) from
continuing operations (13,453) 10,857 2,812 (574) (809)
Extraordinary loss on refinancing of debt,
net of taxes -- -- -- (514) --
----------- ------------ ------------ ----------- -----------
Net income (loss) $ (13,453) $ 10,857 $ 2,812 $ (1,088) $ (809)
=========== ============ ============ =========== ===========
Income (loss) from continuing operations
per common share:
Basic $ (0.33) $ 0.19 $ 0.05 $ (0.01) $ (0.01)
Diluted $ (0.29) $ 0.16 $ 0.04 $ (0.01) $ (0.01)
Weighted average common shares
outstanding (4):
Basic 40,565 57,793 61,764 63,888 66,550
Diluted 46,477 65,929 68,811 63,888 66,550
Balance Sheet and Other Data:
Working capital $ 24,182 $ 36,836 $ 39,545 $ 41,660 $ 87,384
Total assets 100,960 211,684 385,880 405,610 432,246
Long-term debt, net of current portion 4,305 4,861 115,488 116,237 148,330
Stockholders' equity 65,380 126,725 158,388 161,854 160,698
- ----------------
(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, $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, a
restructuring expense of $6.6 million for the year ended December 31,
1998 and asset impairment expense of $9.6 million for the year ended
December 31, 1999. 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, $18.8 million, $3.5 million, $0.05 and $0.05,
respectively for 1998 and $27.9 million, $7.5 million, $0.11 and $0.10,
respectively, for 1999.
11
(3) Represents expenses resulting from the acquisitions of Mitre plc and
National Action Financial Services, Inc., accounted for as pooling of
interest 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 to Notes to Consolidated Financial Statements for an
explanation of the determination of weighted average common shares used
in computing net income (loss) per share.
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 via electronic media, including the
telephone and the Internet, and, to a lesser extent, traditional mail. The
Company provides services to clients principally in the consumer, financial
services, insurance, telecommunications, technology and utilities 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 a 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.
Results of Operations
1999 Compared to 1998
Revenues. Revenues increased $151.2 million, or 25.8%, to $737.5 million in
1999 from $586.3 million in 1998. Of this increase, $91.0 million was
attributable to increased revenues from existing clients and $60.2 million was
attributable to services initiated for new clients. The implementation of a
significant new contract for an existing client resulted in $72.3 million of
revenues in 1999. These revenues included $33.5 million associated with the
pass-through of certain third-party technology expenses.
12
Cost of Services. Cost of services represents primarily labor and telephone
expenses directly related to providing remote customer contacts for our clients
via e-media (telephone, FAX, Internet, e-mail, mobile communication) and
traditional mail. Cost of services as a percent of revenue can vary based on the
nature of the contract, the nature of the work and the market in which the
service is provided. Implementations of large contracts in which the
implementation costs are reflected in selling, general and administrative
services can significantly impact cost of services as of percent of revenue.
Accordingly, cost of services as a percent of revenue can vary, sometimes
significantly, from quarter to quarter. Cost of services increased 19.8% to
$397.3 million in 1999 from $331.6 million in 1998. As a percentage of revenues,
cost of services decreased from 56.6% in 1998 to 53.9% in 1999. This decrease
was primarily attributable to revenues associated with the implementation of a
significant contract in 1999 in which significant related costs are included in
selling, general and administrative expenses. Excluding the impact of this
contract, cost of services as a percent of revenues was 56.4%, approximately the
same as 1998. Cost of services as a percentage of revenues was impacted by
improved labor utilization in the United Kingdom and Central Europe, offset by
higher labor costs in Spain associated with a new national labor contract and
lower labor utilization in certain contact centers in the United States due to
variability of outbound sales campaigns.
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,
technology, facilities, depreciation and amortization, maintenance, sales and
marketing, and client support services. Selling, general and administrative
expenses increased 32.4% to $312.4 million in 1999 from $235.9 million in 1998.
As a percentage of revenues, selling, general and administrative expenses
increased to 42.4% of revenues in 1999 from 40.2% in 1998. The increase was
primarily attributable to $33.5 million of third-party technology expenses
associated with the implementation of a significant new contract in 1999.
Excluding the impact of these technology costs, selling, general and
administrative expenses decreased to 39.6% of revenue in 1999. This decrease was
primarily attributable to the leveraging of overhead costs through revenue
growth in the third and fourth quarters of 1999, offset by re-engineering costs
in the United Kingdom and severance and consolidation costs in the Asia Pacific
region in the first six months of 1999.
Asset Impairment and Restructuring Expenses. In the third quarter of 1999,
the Company recorded a net expense of $9.6 million primarily related to the
write down of capitalized software and related technology assets. During the
quarter, the Company reviewed its capitalized software and related technology
assets for impairment in connection with the change in its technology strategy
as it related to the adoption of a new platform for its Customer Relationship
Management software applications. As a result, the Company wrote down certain
capitalized software and related technology assets by $10.1 million to estimated
fair value.
In the second quarter of 1998, the Company recorded a $6.6 million charge
for restructuring expenses primarily related to its European operations.
Included in that charge were severance and other costs of $6.4 million related
to statutory or contractual severance and other costs for approximately 250
employees. The restructuring expenses also included $0.2 million for the cost of
excess leased facilities. The Company substantially completed its restructuring
plan and recorded a reversal of approximately $459,000 to the restructuring
accrual during the third quarter of 1999.
Operating Income (Loss). Operating income increased 49.7% to $18.3 million
in 1999 from $12.2 million in 1998. Excluding the asset impairment and
restructuring expenses discussed above, operating income increased 48.1% to
$27.9 million in 1999 from $18.8 million in 1998. This increase was primarily
attributable to the implementation of a significant new contract in the U.S. and
substantially higher earnings in the Company's U.S.-based technical support and
Central European businesses, offset by declines in the Spain and U.S.-based
customer acquisition businesses.
13
Interest Expense, Net. Interest expense, net of interest income, was $12.8
million in 1999 and $12.7 million in 1998 as an increase in total average
borrowings was offset by lower interest rates in Latin America and Europe.
Income Tax Expense. Income tax expense was $6.3 million on pre-tax income
of $5.8 million in 1999 compared to $1.0 million on pre-tax loss of $0.3 million
in 1998. The difference between income tax expense and the expense which would
result from applying the Federal statutory rate to pre-tax income is primarily
due to non-deductible goodwill, non-deductible asset impairment expenses, net
operating losses in certain Asia Pacific subsidiaries for which no tax benefit
is recognized, higher international tax rates in certain jurisdictions and U.S.
state and local income taxes.
Net Loss From Continuing Operations and Net Loss. Net loss from continuing
operations increased from $0.6 million in 1998 to $0.8 million in 1999.
Excluding asset impairment and restructuring expenses, net income from
continuing operations increased from $4.0 million in 1998 to $7.5 million in
1999 for the reasons described above. The difference between net loss from
continuing operations and net loss in 1998 was an extraordinary loss that
related to the write off of the deferred costs on the Company's original Credit
Agreement that was amended in 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 in 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.
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.
14
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.
Liquidity and Capital Resources
Net cash provided by operating activities was $39.3 million in 1999,
consisting primarily of income before non-cash expenses of $54.6 million and an
increase in accrued expenses and short-term payables of $28.1 million offset by
increases in accounts receivable of $38.9 million. The Company anticipates that
accounts receivable balances will continue to grow as the Company grows. Net
cash used in investing activities was $34.5 million in 1999 primarily related to
purchases of property and equipment, offset by cash proceeds from
sale-leasebacks of property and equipment. In addition, the Company acquired
property and equipment of $9.0 million in connection with capitalized leases.
Net cash provided by financing activities was $1.2 million as payments on debt
and capital lease obligations were offset by additional borrowings.
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
15
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.
The Company has historically used equity capital, funds generated from
operations, leases of property and equipment, senior subordinated notes and
borrowings under credit facilities with banks to finance business acquisitions,
capital expenditures and working capital requirements. At December 31, 1999, the
Company had unused lines of credit totaling $19.7 million. The Company obtained
an additional line of credit in January 2000 of $8.1 million. During 1998 and
1999, 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, leases of property and equipment and the funds available under
its credit facilities will be sufficient to finance its current operations,
planned capital expenditures and internal growth for the foreseeable future.
Future acquisitions, if any, may require additional debt or equity financing.
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.
The Company recognized the need to ensure Year 2000 software and embedded
system failures would not adversely impact its operations. Specifically,
computational errors and system failures were a known risk with respect to dates
after December 31, 1999. The Company established a central Y2K compliance office
that reported directly to the Chief Information Officer. Each of the Company's
operating units also designated information technology (IT) personnel to address
the issues that the unit faced and to report to the central Y2K compliance
office. The Company implemented a system which allowed it to track all IT and
non-IT systems and facility functions for compliance with industry Y2K
standards. This tracking system allowed the Company to monitor and track each
functional point as a single item grouped by how critical the item was 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 believed that all
functional points which were critical to the Company's functions had been
identified and assessed. Further, the Company developed a remediation plan for
each item in the critical list. Part of the Company's remediation strategy was
in concert with its efforts to acquire or develop new and innovative systems for
its internal operations. The Company has transitioned into the year 2000 with no
major impact on our commitment to servicing our clients. In instances where
minor incidents were reported, contingency plans were invoked and service levels
to our clients were maintained. These minor occurrences had no impact on
day-to-day operations and have since been repaired with no financial impact.
16
IT issues. Internal systems represented approximately 28% of the overall
effort in the IT applications area. The remaining 72% of the overall effort in
the IT area was in the interface and integration of external client and vendor
application systems. The Company 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 tested certain critical vendor application systems for Y2K
compliance. The Company identified mitigation and contingency plans at both the
business and technical IT levels. In addition to communicating with significant
clients, the Company had a strategy to deal with non-compliant external client
customer data by enabling data to be used by the Company's systems.
Non IT issues (facilities). Non-IT issues, with few exceptions, had been
classified into a non-critical category. The few exceptions included dial tone
for the Company's telephony and power from the Company's energy providers. The
Company included these functional points in the critical category for purposes
of scheduling. Based on communications with the providers of these services, the
Company believed that these services would not be interrupted by Year 2000
failures. The Company's contingency plan for the loss of power included
generator systems in the Company's major facilities. The Company's contingency
plan for loss of dial tone included the distribution of network services across
several providers. This would allow the Company to minimally maintain its
service levels in the event of a failure.
Phases. The Company employed a four-phase, nine-process step Project
Methodology that covered 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:
Phase 1 Phase 2 Phase 3 Phase 4
Verification/
Process Steps Assessment Remediation Testing Implementation
- -----------------------------------------------------------------------------------------------------------------------
1. Recognition/Awareness X X X X
2. Inventory X
3. Evaluation X
4. Determination X
5. Remediation X
6. Re-engineering X
7. Multi-level testing X X X X
8. Implementation X
9. Post-implementation X
The Company 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 involved the evaluation and
categorization of the critical nature of each item based on established
criteria. The Determination step included making informed management decisions
regarding the strategy to be taken for each individual item. The Remediation
step involved repair of all components of a process that could improperly
process dates. The Re-engineering
17
step consisted of rewriting and/or replacing whole units of software code. The
Multi-level testing step involved the development of detailed testing criteria
and the implementation of those testing plans. The Implementation step involved
the coordination of the release of applications/systems into the live systems
environment. The Post-implementation step included the on-going monitoring of
applications/systems that have been repaired and placed into the live systems
environment.
Contingency Plans. The Company developed Year 2000 Business Contingency
Plans for conducting its business operations in the event of crises. This effort
was not limited to the risks posed by the potential Year 2000 failures of the
Company's internal information systems or infrastructures, but also included the
potential secondary impact on the Company of Year 2000 failures, including
potential systems failures of business partners and infrastructure service
providers.
Costs of Y2K Compliance. The Company estimates that the costs to become Y2K
compliant approximate $11 million. Substantially all of these costs have been
incurred through December 31, 1999. Minor internal costs will be incurred in the
first quarter of 2000 in connection with monitoring the impact of the year
change on systems and operations and winding down the Y2K project office.
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' customer relationship management initiatives and 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 and the implementation of clients'
customer relationship management 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 that often occur at the beginning of the year.
Effects of Inflation
Inflation has not had a significant effect on the Company's operations. However,
there can be no assurance that inflation will not have a material effect on the
Company's operations in the future.
Accounting Pronouncements
Statement of Financial Accounting 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, as amended by SFAS 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2001. The Company anticipates
adopting this accounting pronouncement in the third quarter of 2001; 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
18
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 and
1999 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-31 hereof.
The following table sets forth income statement data for each of the four
quarters of 1999 and 1998. 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.
19
Three Months Ended
--------------------------------------------------------------------
March 31, June 30, September 30, December 31,
(in thousands, except per share data) 1999 1999 1999 1999
------------ ----------- ----------- -----------
Revenues $ 164,185 $ 177,996 $ 189,597 $ 205,744
Operating expenses:
Cost of services 88,465 95,343 100,446 112,996
Selling, general and administrative
expenses 74,382 77,989 79,181 80,824
Asset impairment and restructuring
expenses -- -- 9,596 --
------------ ----------- ----------- -----------
Operating income 1,338 4,664 374 (a) 11,924
Interest expense, net (3,156) (2,994) (3,203) (3,432)
Other income (expense), net 63 57 (69) 265
------------ ----------- ----------- -----------
Income (loss) before
income taxes and
minority interest (1,755) 1,727 (2,898) 8,757
Income tax expense (benefit) (203) 1,086 1,762 3,691
Minority interest (69) 133 58 182
------------ ----------- ----------- -----------
Net income (loss) $ (1,483) $ 508 $ (4,718)(a) $ 4,884
============ =========== =========== ===========
Income (loss) per common share:
Basic $ (0.02) $ 0.01 $ (0.07)(a) $ 0.07
Diluted (0.02) 0.01 (0.07)(a) 0.07
Weighted average common shares
outstanding:
Basic 64,842 65,917 67,544 67,854
Diluted 64,842 72,197 67,544 74,398
(a) Includes asset impairment expenses of $9.6 million. For the three months
ended September 30, 1999, excluding the asset impairment expenses and
related tax effects, operating income, net income, basic income per share
and diluted income per share would have been $10.0 million, $3.6 million,
$0.05 and $0.05, respectively.
20
Three Months Ended
----------------------------------------------------------------------
March 31, June 30, September 30, December 31,
(in thousands, except per share data) 1998 1998 1998 1998
------------ ------------ ------------ ------------
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 (benefit) 1,117 (1,878) 836 891
Minority interest (294) 31 13 (401)
------------ ------------ ------------ ------------
Net income (loss) from
continuing operations 1,978 (4,475)(a) 787 1,136
Extraordinary loss on refinancing of
debt, 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
Net income (loss) per 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
(a) Includes restructuring expenses of $6.6 million. For the three months ended
June 30, 1998, excluding the restructuring expenses and related tax
effects, 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.
21
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 2000 annual meeting of the
registrant's stockholders to be held on May 5, 2000, 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-31 of this Form 10-K:
- Independent Auditors' Report.
- Consolidated Balance Sheets at December 31, 1998 and 1999.
- Consolidated Statements of Income (Loss) For The Years Ended
December 31, 1997, 1998 and 1999.
- Consolidated Statements of Stockholders' Equity For The Years
Ended December 31, 1997, 1998 and 1999.
- Consolidated Statements of Cash Flows For The Years Ended
December 31, 1997, 1998 and 1999.
- Notes to Consolidated Financial Statements.
2. Financial Statement Schedules. The following consolidated financial
statement schedules of SITEL Corporation for the years ended December 31, 1997,
1998 and 1999 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
3. Exhibits. The following Exhibits are filed as part of, or are
incorporated by reference into, this Form 10-K:
Exhibit No.
- -----------
(1) 3.1 Amended and Restated Articles of Incorporation
(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.
(9) 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.
(6) 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.
(6) 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.
(6) 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.
(6) 10.3(a) Amendment No. 1 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan.
(8) 10.3(b) Amendment No. 2 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan
(12) 10.3(c) Amendment No. 3 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan.
(7) 10.4 Amended and Restated SITEL Corporation 1995 Non-Employee Directors Stock Option Plan.
(22) 10.4(a) Amendment No. 1 to Amended and Restated SITEL Corporation 1995 Non-Employee Directors Stock Option Plan
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan.
(13) 10.5(a) Second Amendment to SITEL Corporation Executive Wealth Accumulation Plan.
(25) 10.5(b) Third Amendment to SITEL Corporation Executive Wealth Accumulation Plan.
(23) 10.6 SITEL Corporation 1999 Stock Incentive Plan.
(24) 10.6(a) Amendment No. 1 to SITEL Corporation 1999 Stock Incentive Plan.
(1) 10.7 Form of Right of First Refusal.
(2) 10.8 Form of Indemnification Agreement with Outside Directors.
(3) 10.9 Form of Indemnification Agreement with Executive Officers.
(14) 10.10 Amended and Restated SITEL Corporation Employee Stock Purchase Plan.
(10) 10.11 Amended Credit Agreement with Bankers Trust Company.
(16) 10.11(a) First Amendment dated as of June 19, 1998 to Amended Credit Agreement.
(20) 10.11(b) Second Amendment dated as of September 30, 1998 to Amended Credit Agreement.
(26) 10.11(c) Third Amendment dated as of September 30, 1999 to Amended Credit Agreement.
(11) 10.12 Indenture governing $100,000,000 9 1/4% Senior Subordinated Notes due 2006.
(17) 10.12(a) First Supplemental Indenture
(15) 10.12(b) Registration Rights Agreement
10.13 Amended and Restated Employment Agreement with James F. Lynch.
10.14 Employment Agreement with Antoon Vanparys
21 Subsidiaries.
23.1 Consent of KPMG LLP
27 Financial Data Schedule.
- -------------------------------------
(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.
23
(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).
(6) 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.
(7) Previously filed as Appendix B to the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders, filed on April 30, 1997.
(8) Previously filed as Appendix C to the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders, filed on April 30, 1997.
(9) Previously filed as Exhibit 4.2 to the Company's Registration Statement on Form
S-3 (Registration No. 333-28131).
(10) Previously filed as Exhibit 10.1 to the Company's Form 8-K filed on March 16, 1998.
(11) Previously filed as Exhibit 10.2 to the Company's Form 8-K filed on March 16, 1998.
(12) Previously filed as Exhibit 10.3(c) to the Company's Form 10-Q for the quarter
ended March 31, 1998.
(13) Previously filed as an exhibit under the same exhibit number to the Company's
Form 10-Q for the quarter ended March 31, 1998.
(14) Previously filed as Exhibit 10.12 to the Company's Form 10-Q for the quarter
ended March 31, 1998.
(15) Previously filed as Exhibit 4.2 to the Company's Registration Statement
on Form S-4 filed on April 24, 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 4.2 to the Company's Amendment No. 1 to Form S-4
filed on August 21, 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.
24
(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.
(22) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended March 31, 1999.
(23) Previously filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (Registration No. 333-78241).
(24) Previously filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-8 (Registration No. 333-78241).
(25) Previously filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended June 30, 1999.
(26) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended September 30, 1999.
(b) There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1999.
25
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 22, 2000 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 22, 2000
- ------------------------- and Director
James F. Lynch
/s/Phillip A. Clough Chief Executive Officer and March 22, 2000
- ------------------------- Director
Phillip A. Clough
/s/W. Gar Richlin Executive Vice President and March 22, 2000
- ------------------------- Chief Financial Officer
W. Gar Richlin (Principal Financial Officer)
/s/James E. Stevenson Corporate Controller March 22, 2000
- ------------------------- (Principal Accounting Officer)
James E. Stevenson
/s/Bill L. Fairfield Director March 22, 2000
- -------------------------
Bill L. Fairfield
/s/Kelvin C. Berens Director March 22, 2000
- -------------------------
Kelvin C. Berens
/s/George J. Kubat Director March 22, 2000
- -------------------------
George J. Kubat
26
EXHIBIT INDEX
Exhibit No.
- -----------
(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.
(9) 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.
(6) 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.
(6) 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.
(6) 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.
(6) 10.3(a) Amendment No. 1 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan.
(8) 10.3(b) Amendment No. 2 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan
(12) 10.3(c) Amendment No. 3 to Amended and Restated SITEL Corporation 1995 Employee Stock Option Plan.
(7) 10.4 Amended and Restated SITEL Corporation 1995 Non-Employee Directors Stock Option Plan.
(22) 10.4(a) Amendment No. 1 to Amended and Restated SITEL Corporation 1995 Non-Employee Directors Stock Option Plan
(1) 10.5 SITEL Corporation Executive Wealth Accumulation Plan.
(13) 10.5(a) Second Amendment to SITEL Corporation Executive Wealth Accumulation Plan.
(25) 10.5(b) Third Amendment to SITEL Corporation Executive Wealth Accumulation Plan.
(23) 10.6 SITEL Corporation 1999 Stock Incentive Plan.
(24) 10.6(a) Amendment No. 1 to SITEL Corporation 1999 Stock Incentive Plan.
(1) 10.7 Form of Right of First Refusal.
(2) 10.8 Form of Indemnification Agreement with Outside Directors.
(3) 10.9 Form of Indemnification Agreement with Executive Officers.
(14) 10.10 Amended and Restated SITEL Corporation Employee Stock Purchase Plan.
(10) 10.11 Amended Credit Agreement with Bankers Trust Company.
(16) 10.11(a) First Amendment dated as of June 19, 1998 to Amended Credit Agreement.
(20) 10.11(b) Second Amendment dated as of September 30, 1998 to Amended Credit Agreement.
(26) 10.11(c) Third Amendment dated as of September 30, 1999 to Amended Credit Agreement.
(11) 10.12 Indenture governing $100,000,000 9 1/4% Senior Subordinated Notes due 2006.
(17) 10.12(a) First Supplemental Indenture
(15) 10.12(b) Registration Rights Agreement
10.13 Amended and Restated Employment Agreement with James F. Lynch.
10.14 Employment Agreement with Antoon Vanparys
21 Subsidiaries.
23.1 Consent of KPMG LLP
27 Financial Data Schedule.
- -------------------------------------
(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.
27
(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).
(6) 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.
(7) Previously filed as Appendix B to the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders, filed on April 30, 1997.
(8) Previously filed as Appendix C to the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders, filed on April 30, 1997.
(9) Previously filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-3 (Registration No. 333-28131).
(10) Previously filed as Exhibit 10.1 to the Company's Form 8-K filed on March 16, 1998.
(11) Previously filed as Exhibit 10.2 to the Company's Form 8-K filed on March 16, 1998.
(12) Previously filed as Exhibit 10.3(c) to the Company's Form 10-Q for the quarter
ended March 31, 1998.
(13) Previously filed as an exhibit under the same exhibit number to the Company's
Form 10-Q for the quarter ended March 31, 1998.
(14) Previously filed as Exhibit 10.12 to the Company's Form 10-Q for the quarter
ended March 31, 1998.
(15) Previously filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-4 filed on April 24, 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 4.2 to the Company's Amendment No. 1 to Form S-4
filed on August 21, 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.
28
(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.
(22) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended March 31, 1999.
(23) Previously filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (Registration No. 333-78241).
(24) Previously filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-8 (Registration No. 333-78241).
(25) Previously filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended June 30, 1999.
(26) Previously filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended September 30, 1999.
29
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, 1998 and 1999................... F-3
Consolidated Statements of Income (Loss) For The Years Ended
December 31, 1997, 1998 and 1999............................................ F-4
Consolidated Statements of Stockholders' Equity For The Years Ended
December 31, 1997, 1998 and 1999............................................ F-5
Consolidated Statements of Cash Flows For The Years Ended December 31,
1997, 1998, and 1999........................................................ F-6
Notes to Consolidated Financial Statements.................................. F-7
Financial Statement Schedules
- -----------------------------
Independent Auditors' Report................................................ S-1
Schedule II - Valuation and Qualifying Accounts............................. S-2
F-1
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, 1998 and 1999, 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, 1999. 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, 1998 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Omaha, Nebraska
February 7, 2000
F-2 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31,
---------------------
ASSETS 1998 1999
---- ----
Current assets:
Cash and cash equivalents $ 14,472 $ 22,305
Trade accounts receivable (net of allowance for doubtful accounts of
$3,970 and $5,622 in 1998 and 1999, respectively) 129,809 164,473
Prepaid expenses 5,257 7,997
Deferred income taxes 1,658 1,950
Other assets 6,024 7,825
--------- ---------
Total current assets 157,220 204,550
Property and equipment, net 127,613 118,349
Goodwill, net 93,288 85,258
Deferred income taxes 15,425 15,649
Other assets 12,064 8,440
--------- ---------
Total assets $ 405,610 $ 432,246
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 30,545 $ 7,337
Current portion of long-term debt 3,671 2,838
Current portion of capitalized lease obligations 3,650 4,308
Trade accounts payable 30,784 37,592
Income taxes payable 3,875 7,135
Accrued wages, salaries and bonuses 15,620 19,893
Accrued operating expenses 23,527 28,922
Deferred revenue and other 3,888 9,141
--------- ---------
Total current liabilities 115,560 117,166
Long-term debt, excluding current portion 107,027 136,077
Capitalized lease obligations, excluding current portion 9,210 12,253
Deferred compensation 1,591 1,905
Minority interest 10,368 4,147
Commitments and contingencies
Stockholders' equity:
Common stock, voting, $.001 par value 200,000,000 shares authorized,
64,399,645 and 68,170,828 shares issued and outstanding in 1998
and 1999, respectively 64 68
Paid-in capital 157,892 165,870
Accumulated other comprehensive income (4,428) (12,757)
Retained earnings 8,326 7,517
--------- ---------
Total stockholders' equity 161,854 160,698
--------- ---------
Total liabilities and stockholders' equity $ 405,610 $ 432,246
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
---- ---- ----
Revenues $ 491,474 $ 586,318 $ 737,522
--------- --------- ---------
Operating expenses:
Cost of services 270,942 331,586 397,250
Selling, general and administrative expenses 185,589 235,900 312,376
Asset impairment and restructuring expenses 15,681 6,607 9,596
--------- --------- ---------
Total operating expenses 472,212 574,093 719,222
--------- --------- ---------
Operating income 19,262 12,225 18,300
--------- --------- ---------
Other income (expense):
Interest income 561 925 523
Interest expense (5,657) (13,672) (13,308)
Other income, net 126 263 316
--------- --------- ---------
Total other income (expense) (4,970) (12,484) (12,469)
--------- --------- ---------
Income (loss) before income taxes and minority interest 14,292 (259) 5,831
Income tax expense 11,306 966 6,336
Minority interest 174 (651) 304
--------- --------- ---------
Net income (loss) from continuing operations 2,812 (574) (809)
Extraordinary loss on refinancing of debt, net of taxes -- (514) --
--------- --------- ---------
Net income (loss) $ 2,812 $ (1,088) $ (809)
========= ========= =========
Income (loss) from continuing operations per common share:
Basic $ 0.05 $ (0.01) $ (0.01)
Diluted $ 0.04 $ (0.01) $ (0.01)
Income (loss) per common share:
Basic $ 0.05 $ (0.02) $ (0.01)
Diluted $ 0.04 $ (0.02) $ (0.01)
Weighted average common shares outstanding:
Basic 61,764 63,888 66,550
Diluted 68,811 63,888 66,550
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1997, 1998, and 1999
(dollars in thousands)
ACCUMULATED
OTHER RETAINED TOTAL
COMMON PAID-IN COMPREHENSIVE EARNINGS STOCKHOLDERS'
STOCK CAPITAL INCOME (DEFICIT) EQUITY
----- ------- ------ --------- ------
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 (loss) -- -- -- -- 899
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 64 157,892 (4,428) 8,326 161,854
Issuance of 1,616,087 shares of common stock
for options exercised 2 769 -- -- 771
Tax benefit of stock options exercised -- 541 -- -- 541
Issuance of 2,205,333 shares of common stock
for acquisition of minority interest 2 6,614 -- -- 6,616
Other -- 54 -- -- 54
Comprehensive income (loss):
Net loss -- -- -- (809) (809)
Currency exchange adjustment -- -- (8,329) -- (8,329)
---------
Total comprehensive income (loss) -- -- -- -- (9,138)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 $ 68 $ 165,870 $ (12,757) $ 7,517 $ 160,698
========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 2,812 $ (1,088) $ (809)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary loss on refinancing of debt -- 792 --
Asset impairment and restructuring provision 15,513 4,100 9,596
Depreciation and amortization 28,687 40,355 45,996
Provision for deferred income taxes (1,498) (2,816) (516)
Deferred compensation (53) 184 314
Gain on sale of marketable securities (407) (208) --
Change in assets and liabilities:
Trade accounts receivable (36,977) (18,123) (38,915)
Other assets (7,677) 2,482 (4,423)
Trade accounts payable 5,694 4,063 7,623
Other liabilities 12,920 (11,998) 20,449
--------- --------- ---------
Net cash provided by operating activities 19,014 17,743 39,315
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (69,437) (52,033) (38,585)
Proceeds from sale-leasebacks of facilities and equipment -- 9,397 3,467
Proceeds from sales of property and equipment 2,711 1,513 639
Acquisitions, net of cash acquired (47,023) (2,193) --
Settlement of purchase price payable (13,934) -- --
Sale of marketable securities 558 257 --
Changes in other assets, net (4,228) -- --
--------- --------- ---------
Net cash used in investing activities (131,353) (43,059) (34,479)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable 83,307 20,294 3,706
Repayments of notes payable (68,440) (4,398) (26,174)
Borrowings on long-term debt 360,398 149,917 57,789
Repayment of long-term debt (260,499) (149,399) (29,823)
Payment of long-term debt issuance costs -- (3,228) --
Payments on capital lease obligations (2,211) (5,061) (5,056)
Common stock issued, net of expenses 228 3 771
Capital contribution from subsidiary shareholder -- 1,400 --
Sale of stock of subsidiaries -- 6,541 --
Other 900 (9) (63)
--------- --------- ---------
Net cash provided by financing activities 113,683 16,060 1,150
--------- --------- ---------
Effect of exchange rates on cash (2,769) (557) 1,847
--------- --------- ---------
Net increase (decrease) in cash (1,425) (9,813) 7,833
Cash and cash equivalents, beginning of year 25,710 24,285 14,472
--------- --------- ---------
Cash and cash equivalents, end of year $ 24,285 $ 14,472 $ 22,305
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 4,712 $ 8,986 $ 12,170
Income taxes paid $ 7,859 $ 6,235 $ 2,654
Supplemental disclosures of non-cash investing and financing activities:
The tax benefit of stock options exercised was $7,685, $2,175 and $541 in
1997, 1998 and 1999, respectively.
The Company incurred capitalized leases of $13,225, $757 and $9,015 in
1997, 1998 and 1999, respectively.
The Company issued stock in connection with the acquisition of businesses
and minority interest with a value of $29,681, $295 and $6,616 in 1997,
1998 and 1999, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
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. The Company finds,
acquires and retains customers and helps enhance and grow these relationships
through a variety of value-added services via electronic media including the
telephone and the Internet, and, to a lesser extent, traditional mail. The
Company provides services to clients principally in the consumer, financial
services, insurance, telecommunications, technology and utilities 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.
(c) Translation of Foreign Currencies. The Company's non-U.S. subsidiaries,
except in Mexico prior to 1999, 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 short-term
intercompany accounts are included in the determination of net income.
Prior to 1999, the Company's subsidiary in Mexico used the U.S. dollar as
its functional currency. In 1997 and 1998, the effect of remeasurement into the
functional currency was not material and was 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) Accounts Receivable. Current receivables include unbilled revenues of
$23.6 million and $34.1 million at December 31, 1998 and 1999, respectively.
These items are expected to be billed and collected in the normal course of
business.
(g) 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.
F-7 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1998
and 1999 was $8.8 million and $12.2 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. 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 dilutive stock
options under the Company's stock option plans less shares assumed to be
purchased with proceeds from the exercise of the stock options and the related
tax benefit credited to additional paid-in capital. 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.
(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 $91 million at December 31, 1999, based on market transactions
near that date.
F-8 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and 1999, 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) Comprehensive Income (Loss). The Company's comprehensive income (loss)
was $(5.9) million, $0.9 million and $(9.1) million for 1997, 1998 and 1999,
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, 1998 and
1999 is primarily the accumulated currency exchange adjustment.
(o) Reclassifications. Certain amounts from 1998 have been reclassified to
conform to the current year's presentation.
2. Acquisitions:
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 Commercialization 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 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.
F-9 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total cost of the Company's 1997 acquisitions was approximately $76.7
million, subject to certain adjustments and excluding transaction costs and
liabilities assumed. Included in the total cost was the issuance of
approximately 2.3 million shares of the Company's common stock valued at
approximately $29.7 million. These 1997 acquisitions have been accounted for as
purchases and accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values at the dates of acquisition, and the
results of operations have been included in the accompanying consolidated
financial statements since the dates of acquisition. The total purchase price in
excess of the fair market value of the net assets acquired was recorded as
goodwill ($65.6 million).
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 and Reacquisition 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.
In June 1999, the Company reacquired the minority interest in such
subsidiaries from Lend Lease in exchange for 2.2 million shares of the Company's
common stock. Additionally, Lend Lease purchased 1.5 million shares of the
Company's common stock for $4.5 million in cash from two SITEL Corporation
shareholders in a related transaction. The shares issued by the Company were
valued at $6.6 million, based on quoted market prices of the Company's stock.
4. Property and Equipment:
Property and equipment at December 31, 1998 and 1999 consisted of the
following:
(in thousands)
1998 1999
------------- ------------
Computer equipment and software $ 131,362 $ 148,737
Furniture, equipment and other 42,690 43,828
Leasehold improvements 24,596 31,467
Buildings 13,464 11,789
Other 459 324
------------- ------------
212,571 236,145
Less accumulated depreciation 84,958 117,796
------------- ------------
$ 127,613 $ 118,349
============= ============
F-10 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-term Debt:
Long-term debt at December 31, 1998 and 1999 consisted of the following:
(in thousands)
1998 1999
------------ ------------
9.25% Senior Subordinated Notes due in
March, 2006 $ 100,000 $ 100,000
Long-term revolving credit facility at variable interest rates
(8.5% at December 31, 1999) 3,500 30,000
Various notes payable acquired at acquisition of GCI, with variable
interest rates (22.6% at December 31, 1999) 1,288 290
Other notes payable with weighted-average interest rates of 6.1% at
December 31, 1999 5,910 8,625
------------ ------------
110,698 138,915
Less current portion 3,671 2,838
------------ ------------
Total $ 107,027 $ 136,077
============ ============
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 are 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 104.63%
2003 103.08%
2004 101.54%
2005 and thereafter 100.00%
F-11 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company may redeem up to 35% of the aggregate principal
amount of the Notes at any time on or prior to March 15, 2001 at 109.25% of the
principal amount thereof, plus accrued interest to the date of redemption, from
the net proceeds of one or more public equity offerings, as defined. Also, upon
a change of control of the Company, as defined, the Company may be required to
repurchase the Notes at a price equal to 101% of the principal amount thereof,
plus accrued interest to the date of repurchase.
In connection with the repayment of the amounts due under the existing
Credit Facility from the proceeds of the Notes, the Company also reached an
agreement with a syndicate of commercial banks to amend the Company's existing
Credit Facility in 1998. 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 monthly on outstanding borrowings and a variable commitment fee
paid quarterly 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, pay dividends or make certain other restricted payments, make
certain investments, and sell assets or merge with another company. 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 1998 and 1999, 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 1998 the
total available was reduced to $50 million. As of December 31, 1999, 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 $22.3 million. At December 31, 1999, the total amount of
short-term notes payable outstanding under these facilities was $7.3 million
with a weighted-average interest rate of 4.4%. The Company had total domestic
and international unused lines of credit of $19.7 million at December 31, 1999.
The Company obtained an additional international line of credit in January 2000
of $8.1 million.
The aggregate maturities of long-term debt for each of the five years
following December 31, 1999 are as follows:
(in thousands)
Maturities of
Long-term
Year Ending December 31, Debt
- -------------------------------- -----------------
2000 $ 2,838
2001 4,857
2002 1,220
2003 30,000
2004 and thereafter 100,000
F-12 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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,
1997 1998 1999
------------ ------------ ------------
Pretax income (loss):
United States $ 15,005 $ 9,958 $ 12,001
Foreign (713) (10,217) (6,170)
------------ ------------ ------------
Total $ 14,292 $ (259) $ 5,831
============ ============ ============
The components of the provision for income tax expense (benefit) consist
of:
(in thousands)
For The Years Ended December 31,
1997 1998 1999
----------- ------------ -----------
Current:
Federal $ 5,805 $ 1,899 $ 2,740
Foreign 7,112 1,950 3,699
State (113) (67) 413
---------- ------------ ------------
12,804 3,782 6,852
Deferred:
Federal 1,237 960 1,716
Foreign (2,735) (3,776) (2,232)
State -- -- --
---------- ------------ ------------
(1,498) (2,816) (516)
---------- ------------ ------------
Provision for income tax expense $ 11,306 $ 966 $ 6,336
========== ============ ============
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 $7.7 million, $2.2 million and $0.5
million in 1997, 1998 and 1999, respectively.
F-13 (Continued)
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)
December 31,
1998 1999
------------ ------------
Deferred tax assets:
Accrued compensation and other liabilities $ 9,013 $ 7,611
Net operating loss and other credit carryforwards 2,984 2,908
Net operating losses related to international operations 4,680 5,193
Depreciation timing differences related to international operations 1,529 3,249
Other 696 928
------------ ------------
Total deferred tax assets 18,902 19,889
------------ ------------
Deferred tax liabilities:
Leased assets and depreciation 1,358 1,648
Other 461 642
------------ ------------
Total deferred tax liabilities 1,819 2,290
------------ ------------
Net deferred tax assets $ 17,083 $ 17,599
============ ============
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, 1999, the Company had U.S. Federal net operating loss
carryforwards of $0.9 million, which expire in 2004. At December 31, 1999, the
Company had $5.2 million in foreign net operating losses, of which $3.5 million
expire in 2002 and the remaining $1.7 million can be carried forward
indefinitely. At December 31, 1999, the Company had alternative minimum tax
credit carryforwards of approximately $3.0 million.
F-14 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation 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) is as follows:
(in thousands)
For The Years Ended December 31,
1997 1998 1999
------------ ------------ ------------
Expected Federal income taxes $ 4,859 $ (88) $ 1,983
State taxes, net of Federal effect (74) (44) 325
Amortization of goodwill 159 222 350
Impact of foreign operations, including goodwill 1,278 1,647 1,199
State incentive tax credits (see note 12) 1,446 -- --
Impairment losses on intangible assets 3,400 -- 2,181
Other 238 (771) 298
------------ ------------ ------------
Total $ 11,306 $ 966 $ 6,336
============ ============ ============
7. Lease Obligations:
The Company is obligated under various capital leases for property and
certain equipment that expire at various dates through 2015. Capitalized leased
property and equipment included in property and equipment was approximately
$11.8 million and $17.5 million at December 31, 1998 and 1999, respectively, net
of accumulated amortization.
The Company also leases property and certain equipment under noncancelable
operating lease arrangements which expire at various dates through 2014. Rent
expense was approximately $15.4 million, $23.0 million and $26.3 million for the
years ended December 31, 1997, 1998 and 1999, 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, 1999 are as follows:
(in thousands)
Capital Operating
Leases Leases
------------ ------------
2000 $ 5,276 $ 25,288
2001 4,530 23,035
2002 2,336 17,431
2003 1,218 13,748
2004 and thereafter 7,498 48,216
------------ ------------
20,858 $ 127,718
============
Less amount representing interest 4,297
------------
Present value of net minimum lease obligations
including current maturities of $4,308 $ 16,561
============
F-15 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock-Based Compensation:
The Company's stock option plans are 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.
The following applies to both the Replacement Plan and the EEB
Replacement Plan (collectively, the "Replacement Plans"): Options were
originally 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. The optionees were required to enter into certain voting and
resale agreements which place certain restrictions on actions of the
optionee. No further options will be granted under these plans. On
June 3, 1999, the Company's board of directors amended the Replacement
Plans and the Compensation Committee amended the terms of
approximately 6.3 million outstanding and fully vested stock options
issued under the Replacement Plans. The amendment to the Replacement
Plans permitted the Company to extend the expiration date of the
options held by persons currently employed by or serving as
consultants to the Company to up to ten years after the original grant
date. Pursuant to this authority, the Compensation Committee extended
the expirations of the options held by such employees and consultants
from May 29, 2000 to May 29, 2001. All other contractual terms of the
options were unchanged. The quoted market price of the Company's
common stock on the date of the modification was less than the sum of
the exercise price of the options and previously recognized
compensation expense recorded upon the initial grant of the options.
Consequently, no compensation expense was recorded for the amendment
of the options.
(c) 1999 Stock Incentive Plan ("1999 Plan"). On May 6, 1999, the Company's
stockholders approved the 1999 Plan which replaced the 1995 Employee
Stock Option Plan and the 1995 Non-Employee Directors Stock Option
Plan. The 1999 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 7,000,000
shares of common stock to employees, consultants and non-employee
directors 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, 1999, there were approximately 6.2 million shares
available for issuance pursuant to future grants under the 1999 Plan.
F-16 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) 1995 Employee Stock Option Plan ("Employee Plan"). The terms of the
Employee Plan were substantially the same as the 1999 Plan. No further
options will be granted under the Employee Plan.
(e) 1995 Non-Employee Directors Stock Option Plan ("Directors Plan"). The
Directors Plan provided for automatic formula grants of nonqualified
options to each independent director of the Company. Each independent
director was 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 equaled the fair market value of the common
stock on the date of grant. Options vested and became exercisable in
three equal annual installments commencing one year after grant. On
January 18, 1999, the Company's Board of Directors amended the
Directors Plan to permit discretionary grants of options. Each
independent director was granted additional options that date to
purchase 67,000 shares of common stock at the fair market value of the
common stock on the grant date. These additional options have a term
of ten years and become exercisable in five equal installments
commencing one year after grant. The Directors Plan was administered
by the Board members who were not eligible to participate in the Plan.
No further options will be granted under the Directors Plan.
Additional information as to shares subject to options is as follows:
Weighted-
Average
Exercise
Number of Price
Options per Share
--------------- -------------
Balance, January 1, 1997 16,377,412 $ 0.44
Granted 6,478,211 13.08
Exercised (1,891,562) 0.12
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
Granted 2,038,469 4.20
Exercised (1,616,087) 0.48
Canceled (480,819) 3.83
--------------- -------------
Balance, December 31, 1999 13,845,952 $ 2.40
=============== =============
Exercisable at December 31, 1999 4,493,502 $ 1.34
=============== =============
F-17 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Employee 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.
In January 2000, options to purchase 1,570,705 shares at an exercise price
of $6.66 per share were granted under the 1999 Plan. Generally, the options
serially vest over five years and terminate after 10 years.
The following table summarizes information about stock options outstanding
at December 31, 1999.
Options Outstanding
------------------------------------------------
Number Weighted-
Outstanding at Average Weighted-
at Remaining Average
Range of December 31, Contractual Exercise
Exercise Prices 1999 Life Price
- -------------------- ------------- ------------- -----------
$.0025 5,685,486 1.02 $ 0.0025
$2.34 to $3.50 5,701,653 7.88 $ 3.39
$3.72 to $9.75 2,370,863 7.32 $ 5.32
$10.53 to $19.50 87,950 6.73 $ 16.51
Options Exercisable
----------------------------
Exercisable Weighted
at Average
Range of December 31, Exercise
Exercise Prices 1999 Price
- ----------------------- ------------- ----------
$.0025 3,304,896 $ 0.0025
$2.34 to $3.50 672,476 $ 3.43
$3.72 to $9.75 463,990 $ 6.06
$10.53 to $19.50 52,140 $ 17.09
The per share weighted-average fair value of stock options granted during
1997, 1998 and 1999, was $7.72, $3.22 and $0.90, 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 6.3%, 5.4% and 5.2% in 1997, 1998 and
1999, respectively, and an expected life of 9.0, 8.0 and 8.3 years in 1997, 1998
and 1999, respectively.
F-18 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options, the Company's net income (loss) and income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
(in thousands, except per share data)
For The Years Ended December 31,
1997 1998 1999
----------- ----------- ------------
Net income (loss):
As Reported $ 2,812 $ (1,088) $ (809)
Pro Forma (1,473) (2,861) (3,346)
Income (loss) per share:
As Reported:
Basic $ 0.05 $ (0.02) $ (0.01)
Diluted 0.04 (0.02) (0.01)
Pro Forma:
Basic $ (0.02) $ (0.04) $ (0.05)
Diluted (0.02) (0.04) (0.05)
During 1998, the Company implemented an Employee Stock Purchase Plan
("ESPP") which enables eligible employees to purchase the Company's stock at 85%
of the current market value on a quarterly basis. Total purchases and shares
purchased under the ESPP were $200,000 and 56,634 shares, respectively, for 1998
and $206,000 and 52,262 shares, respectively, for 1999. No compensation expense
has been recognized in connection with this plan.
9. Benefit Plans:
The Company's 401(k) plan, adopted in January 1994, covers substantially
all domestic employees who are 18 years of age with 6 months 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. No contributions were
made in 1997, 1998 or 1999.
The Company also makes contributions to certain executive and other
employee personal retirement programs, primarily in Europe. Amounts contributed
to those plans were $0.2 million, $1.0 million and $1.2 million in 1997, 1998
and 1999, 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 1997, 1998 or 1999.
F-19 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Segment Data:
The Company's operations are conducted in one business segment: the
provision of customer relationship management services via electronic media
including telephone and the Internet, and, to a lesser extent, traditional mail.
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,
--------------------------------------------
1997 1998 1999
------------- ------------ ------------
Revenue:
United States $ 250,160 $ 314,500 $ 389,523
United Kingdom 116,055 102,895 114,053
Spain 57,449 52,820 69,403
Other foreign countries 67,810 116,103 164,543
------------- ------------ ------------
$ 491,474 $ 586,318 $ 737,522
============= ============ ============
December 31,
----------------------------
1998 1999
------------ ------------
Long-Lived Assets:
United States $ 87,314 $ 84,621
United Kingdom 31,972 24,322
Spain 37,964 33,146
Other foreign countries 75,715 69,958
------------ ------------
$ 232,965 $ 212,047
============ ============
Revenues are primarily attributed to countries based upon the location where the
services are performed.
Major Customers
The total revenue of various independently managed subsidiaries of one
customer aggregated to 12.2% of the Company's revenues for the year ended
December 31, 1999. No single customer accounted for 10% of the revenues for the
years ended December 31, 1997 and 1998.
11. Contingencies:
From time to time, the Company is involved in litigation incidental to its
business. Although the ultimate outcome of such litigation cannot be predicted
with certainty, management believes, after consultation with counsel, that the
resolution of such matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
F-20 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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 1998 and 1999
was approximately $0.7 million and $0.1 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 Company substantially
completed its restructuring plan and recorded a reversal of $0.5 million to the
restructuring accrual in the third quarter of 1999.
F-21 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the third quarter of 1999, the Company recorded asset impairment
expenses of $10.1 million primarily related to capitalized software and related
technology assets. These impairment expenses were precipitated by the Company's
decision to select an outside vendor to provide its call center software and a
detailed assessment made by management of the utility and plans for future
deployment of existing software assets. The Company's impairment expenses of
$10.1 million in 1999 consist of the following components:
o A write-off of approximately $1.4 million was recorded for a software
platform that will continue to be used by the Company, although used
on a much more limited basis. The amount of the impairment loss was
determined by estimating future discounted cash flows that would be
provided from utilizing the software.
o A write-off of $6.4 million was recorded for the abandonment of
internally developed software and software licenses that will not be
deployed as a result of management's decision to deploy the third
party software.
o A write-off of $2.3 million was recorded for an other-than-temporary
decline of the fair value of an investment by the Company in a
software development firm. The deteriorating financial condition of
the investee and management's decision to abandon plans to purchase
its software contributed to the determination of the impairment loss.
13. 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 up to and including the
10th day after the time that a person or group has become an Acquiring Person.
F-22 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Supplemental Guarantor Financial Information:
The Company's 9.25% Senior Subordinated Notes are guaranteed, on a full,
unconditional and joint and several basis, by substantially 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, 1998
and December 31, 1999, and for the years ended December 31, 1997, 1998
and 1999 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.
Effective August 1, 1999, the Company merged certain guarantor subsidiaries
into SITEL Corporation and transferred the operations of certain other guarantor
subsidiaries to SITEL Corporation. Accordingly, from and after August 1, 1999,
the financial information of such guarantor subsidiaries is reported under SITEL
Corporation, the parent, in the condensed consolidating financial statements.
The total revenues and total assets represented by such guarantor subsidiaries
as of July 31, 1999, were $97.5 million and $71.1 million, respectively.
F-23 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
December 31, 1998
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
ASSETS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
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 33,300 22,523 71,790 -- 127,613
Goodwill, net 1,537 21,021 70,730 -- 93,288
Deferred income taxes 9,390 -- 6,035 -- 15,425
Other assets 8,807 126 3,131 -- 12,064
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 -- -- 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
========= ========= ========= ========= =========
F-24 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
December 31, 1999
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
ASSETS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
Current assets:
Cash and cash equivalents $ 7,477 $ 2,102 $ 12,726 $ -- $ 22,305
Trade accounts receivable, net 120,500 4,310 85,204 (45,541) 164,473
Prepaid expenses and other
current assets 4,024 (7) 13,755 -- 17,772
--------- ---------- ---------- ---------- ----------
Total current assets 132,001 6,405 111,685 (45,541) 204,550
Property and equipment, net 51,231 3,793 63,325 -- 118,349
Goodwill, net 21,564 -- 63,694 -- 85,258
Deferred income taxes 8,111 -- 7,538 -- 15,649
Other assets 7,945 89 406 -- 8,440
Investments in subsidiaries 113,151 84,945 -- (198,096) --
Notes receivable, intercompany -- 20,259 -- (20,259) --
--------- ---------- ---------- ---------- ----------
Total assets $ 334,003 $ 115,491 $ 246,648 $ (263,896) $ 432,246
========= ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ -- $ 7,337 $ -- $ 7,337
Current portion of long-term debt 695 -- 2,143 -- 2,838
Current portion of capitalized
lease obligations 1,496 48 2,764 -- 4,308
Trade accounts payable 12,143 1,085 69,905 (45,541) 37,592
Accrued expenses and other
current liabilities 22,555 1,207 41,329 -- 65,091
--------- ---------- ---------- ---------- ----------
Total current liabilities 36,889 2,340 123,478 (45,541) 117,166
Long-term debt, excluding
current portion 130,000 -- 6,077 -- 136,077
Capitalized lease obligations,
excluding current portion 4,511 -- 7,742 -- 12,253
Notes payable, intercompany -- -- 20,259 (20,259) --
Deferred compensation 1,905 -- -- -- 1,905
Minority interest -- -- 4,147 -- 4,147
Stockholders' equity 160,698 113,151 84,945 (198,096) 160,698
--------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $ 334,003 $ 115,491 $ 246,648 $ (263,896) $ 432,246
========= ========== ========== ========== ==========
F-25 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income (Loss)
For the year ended December 31, 1997
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
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
======== ======== ======== ======= ========
F-26 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income (Loss)
For the year ended December 31, 1998
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
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 (benefit) (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)
========= ========= ========= ========= =========
F-27 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income (Loss)
For the year ended December 31, 1999
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
Revenues $ 258,905 $ 130,619 $ 347,998 $ -- $ 737,522
--------- --------- --------- --------- ---------
Operating expenses:
Cost of services 124,442 77,003 195,805 -- 397,250
Selling, general and
administrative expenses 124,351 40,464 147,561 -- 312,376
Asset impairment and
restructuring expenses 3,585 -- 6,011 -- 9,596
--------- --------- --------- --------- ---------
Total operating
expenses 252,378 117,467 349,377 -- 719,222
--------- --------- --------- --------- ---------
Operating income
(loss) 6,527 13,152 (1,379) -- 18,300
--------- --------- --------- --------- ---------
Other income (expense):
Equity in earnings (losses) of
subsidiaries, net of tax 1,840 (7,942) -- 6,102 --
Intercompany charges 220 2,727 (2,947) -- --
Interest income 275 -- 248 -- 523
Interest expense (10,276) (829) (2,203) -- (13,308)
Other income 205 -- 111 -- 316
--------- --------- --------- --------- ---------
Total other income
(expense) (7,736) (6,044) (4,791) 6,102 (12,469)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes
and minority
interest (1,209) 7,108 (6,170) 6,102 5,831
Income tax expense (benefit) (400) 5,268 1,468 -- 6,336
Minority interest -- -- 304 -- 304
--------- --------- --------- --------- ---------
Net income (loss) $ (809) $ 1,840 $ (7,942) $ 6,102 $ (809)
========= ========= ========= ========= =========
F-28 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 1997
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
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 debt (259,948) -- (551) -- (260,499)
Net capital contribution
from parent -- 61,787 42,917 (104,704) --
Common stock issued,
net of expenses 228 -- -- -- 228
Payments on capital
lease obligations -- (450) (1,761) -- (2,211)
Other 900 -- -- -- 900
--------- --------- --------- --------- ---------
Net cash provided by
financing activities 101,304 61,337 55,746 (104,704) 113,683
--------- --------- --------- --------- ---------
Effect of exchange rates on cash -- -- (2,769) -- (2,769)
--------- --------- --------- --------- ---------
Net increase (decrease)
in cash (1,788) 216 147 -- (1,425)
Cash and cash equivalents,
beginning of year 13,302 1,859 10,549 -- 25,710
--------- --------- --------- --------- ---------
Cash and equivalents, end of year $ 11,514 $ 2,075 $ 10,696 $ -- $ 24,285
========= ========= ========= ========= =========
F-29 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 1998
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
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
========= =========== ========= ========= =========
F-30 (Continued)
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 1999
(in thousands)
14. Supplemental Guarantor Financial Information (Continued):
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
Net cash provided by operating activities $ 21,791 $ 6,545 $ 10,979 $ -- $ 39,315
-------- -------- -------- -------- --------
Cash flows from investing activities:
Investments in subsidiaries 6,592 3,528 -- (10,120) --
Purchases of property and equipment (18,351) (2,569) (17,665) -- (38,585)
Proceeds from sale-leasebacks of
facilities 3,467 -- -- -- 3,467
Proceeds from sales of property and
equipment 14 -- 625 -- 639
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities (8,278) 959 (17,040) (10,120) (34,479)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Borrowings on notes payable -- -- 3,706 -- 3,706
Repayments of notes payable -- -- (26,174) -- (26,174)
Borrowings on long-term debt 50,150 -- 7,639 -- 57,789
Repayment of long-term debt (25,785) -- (4,038) -- (29,823)
Net capital contribution from parent -- (6,592) (3,528) 10,120 --
Net borrowings and payments on
intercompany balances (32,955) -- 32,955 -- --
Common stock issued, net of expenses 771 -- -- -- 771
Payments on capital lease obligations (564) -- (4,492) -- (5,056)
Other (63) -- -- -- (63)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities (8,446) (6,592) 6,068 10,120 1,150
-------- -------- -------- -------- --------
Effect of exchange rates on cash -- -- 1,847 -- 1,847
-------- -------- -------- -------- --------
Net increase in cash 5,067 912 1,854 -- 7,833
Cash and cash equivalents,
beginning of period 2,410 1,190 10,872 -- 14,472
-------- -------- -------- -------- --------
Cash and equivalents, end of period $ 7,477 $ 2,102 $ 12,726 $ -- $ 22,305
======== ======== ======== ======== ========
F-31 (Continued)
INDEPENDENT AUDITORS' REPORT ON THE
FINANCIAL STATEMENT SCHEDULE
The Board of Directors
SITEL Corporation:
Under date of February 7, 2000, we reported on the consolidated balance sheets
of SITEL Corporation and subsidiaries as of December 31, 1998 and 1999, 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, 1999.
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,
1999, which are included in the Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated 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 LLP
Omaha, Nebraska
February 7, 2000
S-1
SITEL CORPORATION AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(dollars in thousands)
Accounts
Beginning Bad debt charged to Ending
Description balance expense allowance balance
----------- ------- ------- --------- -------
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
Allowance for doubtful accounts for trade
receivables-- Year ended December 31, 1999 $ 3,970 $ 3,170 $ 1,518 $ 5,622
See accompanying independent auditors' report.
S-2