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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2002
Commission Exact name of registrant as IRS Employer
File Number specified in its charter Identification No.
1-12577 SITEL CORPORATION 47-0684333
MINNESOTA
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(State or Other Jurisdiction of Incorporation or Organization)
111 S. CALVERT STREET, SUITE 1900 BALTIMORE, MARYLAND 21202
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(Address of Principal Executive Offices) (Zip Code)
(410) 246-1505
---------------------------------
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $.001 Par Value The New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Not Applicable
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 ____
COMMON STOCK, $.001 PAR VALUE - 74,357,431 SHARES OUTSTANDING AS OF JULY 31,
2002
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SITEL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Statements of Income (Loss)................. 1
Consolidated Condensed Balance Sheets.............................. 2
Consolidated Condensed Statements of Cash Flows.................... 3
Notes to Consolidated Financial Statements......................... 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
General............................................................15
General Business Risks, Critical Accounting Policies and Estimates.15
Results of Operations..............................................17
Financial Condition and Liquidity..................................21
Other Matters......................................................22
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.........23
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders................24
Item 5 - Other Information..................................................24
Item 6 - Exhibits and Reports on Form 8-K...................................24
Signature...................................................................25
Exhibit Index...............................................................26
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
2002 2001 2002 2001
---------- ---------- --------- ----------
(in thousands, except per share data)
REVENUES $ 196,747 $ 177,787 $ 389,779 $ 361,791
- -----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Direct labor and telecommunications expenses 110,651 100,537 222,667 202,166
Subcontracted and other services expenses 13,898 9,034 25,491 18,324
Operating, selling and administrative expenses 63,335 70,717 125,095 139,310
Asset impairment and restructuring expenses -- 23,788 -- 23,788
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Total operating expenses 187,884 204,076 373,253 383,588
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OPERATING INCOME (LOSS) 8,863 (26,289) 16,526 (21,797)
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OTHER INCOME (EXPENSE):
Interest expense, net (2,805) (2,916) (5,536) (5,766)
Equity in earnings (loss) of subsidiary 1,012 (72) 1,347 (109)
Other expense, net (35) (1,257) (223) (1,363)
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INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 7,035 (30,534) 12,114 (29,035)
Income tax expense (benefit) 2,743 (466) 4,724 (9,651)
Minority interest 781 173 1,141 227
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NET INCOME (LOSS) $ 3,511 $ (30,241) $ 6,249 $ (19,611)
===========================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 74,221 73,646 74,219 72,930
Diluted 74,572 73,646 74,423 72,930
INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.05 $ (0.41) $ 0.08 $ (0.27)
Diluted $ 0.05 $ (0.41) $ 0.08 $ (0.27)
See Notes to Consolidated Financial Statements.
1
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
--------- ------------
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,775 $ 22,156
Trade accounts receivable (net of allowance for doubtful accounts of
$4,935 and $5,208, respectively) 133,316 129,180
Prepaid expenses 7,760 6,200
Deferred income taxes 5,703 6,358
Other assets 7,104 7,133
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Total current assets 182,658 171,027
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PROPERTY AND EQUIPMENT, NET 94,828 91,293
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OTHER ASSETS:
Goodwill, net 76,266 73,216
Deferred income taxes 9,441 9,398
Other assets 11,980 10,532
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TOTAL ASSETS $ 375,173 $ 355,466
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 1,520 $ 2,366
Trade accounts payable 26,776 25,068
Income taxes payable 3,557 4,087
Deferred income taxes 562 717
Accrued wages, salaries and bonuses 26,517 26,014
Accrued operating expenses 39,063 34,953
Deferred revenue and other 5,413 5,145
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Total current liabilities 103,408 98,350
LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt 100,000 100,000
Capital lease obligations, excluding current portion 7,042 7,040
Deferred compensation 1,668 1,755
Deferred income taxes 559 533
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Total liabilities 212,677 207,678
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MINORITY INTERESTS 8,752 7,748
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STOCKHOLDERS' EQUITY:
Common stock, voting, $.001 par value 200,000,000 shares authorized,
74,357,431 and 74,357,579 shares issued and outstanding, respectively 74 74
Paid-in capital 168,718 168,731
Accumulated other comprehensive loss (18,695) (26,148)
Retained earnings (accumulated deficit) 3,865 (2,369)
Less treasury stock, at cost (218) (248)
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Total stockholders' equity 153,744 140,040
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 375,173 $ 355,466
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See Notes to Consolidated Financial Statements.
2
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------
2002 2001
-------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,249 $(19,611)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Asset impairment and restructuring provision -- 23,788
Depreciation and amortization 17,106 20,988
Loss on disposal of assets 69 1,254
Provision for deferred income taxes 483 (6,411)
Deferred compensation (251) (985)
Changes in operating assets and liabilities:
Trade accounts receivable (3,621) 6,121
Other assets (1,366) 2,194
Trade accounts payable 2,656 (506)
Other liabilities 3,286 (3,276)
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Net cash provided by operating activities 24,611 23,556
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (17,559) (26,644)
Proceeds from sales of property and equipment 4 46
Increase in other assets (53) (1,466)
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Net cash used in investing activities (17,608) (28,064)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable -- (302)
Borrowings on debt 33,915 65,475
Repayment of debt (33,915) (50,269)
Repayment of capital lease obligations (1,339) (2,250)
Common stock issued, net of expenses -- 95
Treasury stock (purchases) reissuances, net 30 (226)
Capital contribution from minority interest -- 250
Other (13) 11
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Net cash provided by (used in) financing activities (1,322) 12,784
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Effect of exchange rates on cash 938 (1,554)
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NET INCREASE IN CASH 6,619 6,722
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,156 19,897
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,775 $ 26,619
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See Notes to Consolidated Financial Statements.
3
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
DESCRIPTION OF OUR BUSINESS
References in the Notes to Consolidated Financial Statements to "we" and "our"
are to SITEL Corporation and its subsidiaries, collectively.
We are a leading global provider of outsourced customer support services. We
specialize in the design, implementation, and operation of complex,
multi-channel contact centers. We support the Customer Relationship Management
(CRM) strategies of large corporations in North America, Europe, Asia Pacific,
and Latin America. We provide customer acquisition, customer care, technical
support and risk management services on an outsourced basis, as well as
operational and information technology professional services for both outsourced
and internal contact centers. We serve clients primarily in the consumer
products, financial services, insurance, telecommunications, technology, and
utilities industries.
USE OF ACCOUNTING ESTIMATES
Management makes estimates and assumptions when preparing financial statements
under accounting principles generally accepted in the United States of America
that affect:
o our reported amounts of assets and liabilities at the dates of the
financial statements,
o our disclosure of contingent assets and liabilities at the dates of the
financial statements, and
o our reported amounts of revenues and expenses during the reporting periods.
These estimates involve judgments with respect to, among other things, future
economic factors that are difficult to predict and are beyond management's
control. As a result, actual amounts could differ from these estimates.
QUARTERLY RESULTS AND SEASONALITY
We have experienced, and expect to continue to experience, quarterly variations
in our results of operations mostly due to:
o the timing of our clients' customer relationship management initiatives and
customer acquisition and loyalty campaigns,
o the commencement and terms of new contracts,
o revenue mix,
o the timing of additional operating, selling, and administrative expenses to
support new business, and
o the timing of recognition of incentive fees.
We experience periodic fluctuations in our results of operations related to both
the start-up costs associated with expansion and the implementation of clients'
CRM activities. In addition, our business generally tends to be slower in the
third quarter due to summer holidays in Europe, and in the first quarter due to
the changeover of client marketing strategies that often occurs at the beginning
of the year.
FINANCIAL STATEMENTS
Our Consolidated Condensed Balance Sheet at December 31, 2001 was obtained from
our audited balance sheet as of that date. All other financial statements
contained in this report are unaudited and, in the opinion of management,
contain all adjustments necessary for a fair presentation of the financial
position, operating results, and cash flows for the periods presented. These
adjustments are of a normal recurring nature.
You should read our consolidated condensed financial statements in this report
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations, the Consolidated Financial Statements, and the Notes
to Consolidated Financial Statements in our Report on Form 10-K for the year
ended December 31, 2001.
GOODWILL, NET
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. This statement:
o replaces the requirement to amortize goodwill and certain other intangible
assets with an annual impairment test, and
o requires an evaluation of the useful lives of intangible assets and an
impairment test for goodwill upon adoption.
We adopted the provisions of SFAS No. 142 as of January 1, 2002. As a result of
the adoption of this standard, we stopped amortizing our goodwill effective
January 1, 2002, which means that we have not recorded any goodwill amortization
expense in our Consolidated Statements of Income for the three and six months
ended June 30, 2002 and we will not record such amortization in the remainder of
2002 and in future years.
4
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total goodwill amortization expense was:
o $0.9 million for the three months ended June 30, 2001, and
o $1.8 million for the six months ended June 30, 2001.
If we had adopted the provisions of SFAS No. 142 on January 1, 2001, we would
have had:
o a net loss of $29.3 million, or $0.40 per share, for the three months ended
June 30, 2001, and
o a net loss of $17.8 million, or $0.25 per share, for the six months ended
June 30, 2001.
During 2002, we must perform a transitional goodwill impairment review in two
phases to determine if goodwill that was stated in our Consolidated Balance
Sheet at January 1, 2002 was impaired. During the second quarter of 2002, we
completed the first phase of the required impairment review, and determined that
the goodwill in certain reporting units was impaired at January 1, 2002. As a
result, we expect to record a pre-tax goodwill impairment loss in the range of
$12 million to $16 million as a cumulative effect of an accounting change in the
2002 financial statements. We will determine the exact amount of the goodwill
impairment loss upon completion of the second phase of the transitional
impairment review, which we must complete by December 31, 2002.
ASSET IMPAIRMENT
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. We adopted the
provisions of SFAS No. 144 effective January 1, 2002. Under this standard, we
monitor events and changes in circumstances that may require us to review the
carrying value of our long-lived assets. We assess the recoverability of our
long-lived assets based on estimated undiscounted future operating cash flows.
Our assessment of the recoverability of our long-lived assets will be impacted
if estimated future operating cash flows are not achieved.
RECLASSIFICATIONS
We have reclassified certain prior-period amounts for comparative purposes.
These reclassifications did not affect consolidated net income for the periods
presented.
NOTE 2. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was:
o $13.9 million for the three months ended June 30, 2002 compared to ($32.4)
million for the three months ended June 30, 2001, and
o $13.7 million for the six months ended June 30, 2002 and ($28.9) million
for the six months ended June 30, 2001.
The difference between our reported net income (loss) and comprehensive income
(loss) for each period presented is the change in our foreign currency
translation adjustment. Accumulated other comprehensive income included in our
Consolidated Balance Sheets represents the accumulated foreign currency
translation adjustment.
NOTE 3. ASSET IMPAIRMENT AND RESTRUCTURING EXPENSES
In June 2001, we announced a restructuring plan designed to intensify our focus
on core competencies, accelerate revenue growth, and improve profitability. The
key components of the restructuring plan include several major organizational
changes and the streamlining of contact center operations and corporate support
services to improve effectiveness and drive revenue growth. As part of our
restructuring plan, we reduced fixed overhead to improve profitability by
substantially completing the following by December 31, 2001:
o eliminating approximately 350 operating, selling, and administrative
positions globally, and
o reducing excess capacity by closing nine contact centers plus three
administrative offices, and downsizing another five contact centers plus
two administrative offices, resulting in the elimination of approximately
2,100 workstations.
In connection with this restructuring, we recorded $26.2 million of asset
impairment and restructuring charges in 2001, or $24.6 million after tax.
Approximately $16.9 million of these charges are liabilities that we have paid
or will pay in cash. At June 30, 2002, we had paid approximately $9.5 million of
the liabilities of which $2.7 million was paid during the six months ended June
30, 2002. We have classified the remaining $7.4 million of unpaid liabilities as
accrued operating expenses in our June 30, 2002 Consolidated Balance Sheet. The
charges also included $9.3 million of asset write-downs that we recorded as a
reduction of fixed assets.
5
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We summarize the components of the restructuring charges that we recorded as
asset impairment and restructuring expenses in 2001 in the following table:
SECOND THIRD
QUARTER QUARTER TOTAL
2001 2001 ADJUSTMENTS 2001
- --------------------------------------------------------------
(in millions)
Severance $ 5.3 $ 0.1 $ (0.4) $ 5.0
Facility closure
or reduction 9.1 1.3 0.6 11.0
Other 0.7 0.1 0.1 0.9
- --------------------------------------------------------------
Subtotal 15.1 1.5 0.3 16.9
Asset write-downs 8.7 0.9 (0.3) 9.3
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Total $23.8 $ 2.4 $ -- $ 26.2
- --------------------------------------------------------------
We summarize the components of the accrued operating expenses in our
Consolidated Balance Sheets in the following table:
ACCRUAL ACCRUAL
BALANCE AT BALANCE AT
DECEMBER 31, 2002 JUNE 30,
2001 PAYMENTS ADJUSTMENTS 2002
- -----------------------------------------------------------------------
(in millions)
Severance $ 0.9 $ 0.5 $ 0.1 $ 0.5
Facility closure
or reduction 8.5 2.1 -- 6.4
Other 0.7 0.1 (0.1) 0.5
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Total $10.1 $ 2.7 $ -- $ 7.4
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NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
Our 9.25% Senior Subordinated Notes are guaranteed, on a full, unconditional and
joint and several basis, by substantially all of our wholly owned domestic
subsidiaries. Separate financial statements for each of the guarantor
subsidiaries are not presented because they would not be material to investors.
However, on the following pages we have presented the following statements of
(a) SITEL Corporation, the parent, (b) the guarantor subsidiaries, (c) the
nonguarantor subsidiaries, and (d) SITEL Corporation on a consolidated basis:
o Condensed Consolidating Statements of Income (Loss) and Comprehensive
Income (Loss) for the three and six month periods ended June 30, 2002 and
2001,
o Condensed Consolidating Balance Sheets at June 30, 2002 and December 31,
2001, and
o Condensed Consolidating Statements of Cash Flows for the six months ended
June 30, 2002 and 2001.
6
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
GUARANTOR NONGUARANTOR
Three Months Ended June 30, 2002 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
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(in thousands)
REVENUES $ 99,989 $ 11,939 $ 86,097 $ (1,278) $ 196,747
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OPERATING EXPENSES:
Direct labor and telecommunications expenses 51,639 6,886 52,126 -- 110,651
Subcontracted and other services expenses 11,436 676 1,786 -- 13,898
Operating, selling and administrative expenses 30,991 3,067 30,555 (1,278) 63,335
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Total operating expenses 94,066 10,629 84,467 (1,278) 187,884
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OPERATING INCOME 5,923 1,310 1,630 -- 8,863
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OTHER INCOME (EXPENSE):
Interest expense, net (2,467) (226) (112) -- (2,805)
Equity in earnings (losses) of subsidiaries 204 (390) 1,012 186 1,012
Other income (expense), net 35 -- (70) -- (35)
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Total other income (expense) (2,228) (616) 830 186 (1,828)
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INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 3,695 694 2,460 186 7,035
Income tax expense (benefit) (70) 490 2,323 -- 2,743
Minority interest 254 -- 527 -- 781
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NET INCOME (LOSS) $ 3,511 $ 204 $ (390) $ 186 $ 3,511
======================================================================================================================
Currency translation adjustment 10,392 7,410 8,710 (16,120) 10,392
- ----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 13,903 $ 7,614 $ 8,320 $ (15,934) $ 13,903
======================================================================================================================
7
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
GUARANTOR NONGUARANTOR
Three Months Ended June 30, 2001 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
REVENUES $ 96,891 $ 9,891 $ 71,319 $ (314) $ 177,787
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Direct labor and telecommunications expenses 55,533 5,291 39,713 -- 100,537
Subcontracted and other services expenses 7,224 578 1,232 -- 9,034
Operating, selling and administrative expenses 33,234 3,555 34,242 (314) 70,717
Asset impairment and restructuring expenses 13,318 -- 10,470 -- 23,788
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 109,309 9,424 85,657 (314) 204,076
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OPERATING INCOME (LOSS) (12,418) 467 (14,338) -- (26,289)
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income (expense), net (2,871) 10 (55) -- (2,916)
Equity in earnings (losses) of subsidiaries (15,852) (16,143) (72) 31,995 (72)
Other income (expense), net 33 -- (1,290) -- (1,257)
- ----------------------------------------------------------------------------------------------------------------------
Total other income (expense) (18,690) (16,133) (1,417) 31,995 (4,245)
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (31,108) (15,666) (15,755) 31,995 (30,534)
Income tax expense (benefit) (867) 186 215 -- (466)
Minority interest -- -- 173 -- 173
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (30,241) $ (15,852) $ (16,143) $ 31,995 $ (30,241)
======================================================================================================================
Currency translation adjustment (2,125) (2,179) (2,543) 4,722 (2,125)
- ----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (32,366) $ (18,031) $ (18,686) $ 36,717 $ (32,366)
======================================================================================================================
8
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
GUARANTOR NONGUARANTOR
Six Months Ended June 30, 2002 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
REVENUES $ 199,504 $ 23,975 $ 168,233 $ (1,933) $ 389,779
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Direct labor and telecommunications expenses 108,655 13,022 100,990 -- 222,667
Subcontracted and other services expenses 20,902 1,330 3,259 -- 25,491
Operating, selling and administrative expenses 61,248 6,148 59,632 (1,933) 125,095
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 190,805 20,500 163,881 (1,933) 373,253
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 8,699 3,475 4,352 -- 16,526
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense, net (5,204) (139) (193) -- (5,536)
Equity in earnings (losses) of subsidiaries 3,440 1,405 1,347 (4,845) 1,347
Other income (expense), net 40 -- (263) -- (223)
- ----------------------------------------------------------------------------------------------------------------------
Total other income (expense) (1,724) 1,266 891 (4,845) (4,412)
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 6,975 4,741 5,243 (4,845) 12,114
Income tax expense 375 1,301 3,048 -- 4,724
Minority interest 351 -- 790 -- 1,141
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 6,249 $ 3,440 $ 1,405 $ (4,845) $ 6,249
======================================================================================================================
Currency translation adjustment 7,453 5,314 6,247 (11,561) 7,453
- ----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 13,702 $ 8,754 $ 7,652 $ (16,406) $ 13,702
======================================================================================================================
9
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
GUARANTOR NONGUARANTOR
Six Months Ended June 30, 2001 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
REVENUES $ 199,002 $ 20,267 $ 143,316 $ (794) $ 361,791
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Direct labor and telecommunications expenses 111,323 11,253 79,590 -- 202,166
Subcontracted and other services expenses 14,764 1,124 2,436 -- 18,324
Operating, selling and administrative expenses 66,903 6,052 67,149 (794) 139,310
Asset impairment and restructuring expenses 13,318 -- 10,470 -- 23,788
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 206,308 18,429 159,645 (794) 383,588
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (7,306) 1,838 (16,329) -- (21,797)
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense, net (5,420) (99) (247) -- (5,766)
Equity in earnings (losses) of subsidiaries (17,863) (18,924) (109) 36,787 (109)
Other income (expense), net 27 -- (1,390) -- (1,363)
- ----------------------------------------------------------------------------------------------------------------------
Total other income (expense) (23,256) (19,023) (1,746) 36,787 (7,238)
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (30,562) (17,185) (18,075) 36,787 (29,035)
Income tax expense (benefit) (10,951) 678 622 -- (9,651)
Minority interest -- -- 227 -- 227
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (19,611) $ (17,863) $ (18,924) $ 36,787 $ (19,611)
======================================================================================================================
Currency translation adjustment (9,318) (9,249) (9,509) 18,758 (9,318)
- ----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (28,929) $ (27,112) $ (28,433) $ 55,545 $ (28,929)
======================================================================================================================
10
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
GUARANTOR NONGUARANTOR
At June 30, 2002 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,801 $ 3,566 $ 11,408 $ -- $ 28,775
Trade accounts receivable, net 100,493 4,548 58,178 (29,903) 133,316
Prepaid expenses and other
current assets 6,240 52 14,275 -- 20,567
- ---------------------------------------------------------------------------------------------------------------
Total current assets 120,534 8,166 83,861 (29,903) 182,658
- ---------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 29,891 3,976 60,961 -- 94,828
- ---------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Goodwill, net 19,577 -- 56,689 -- 76,266
Deferred income taxes 6,100 -- 3,341 -- 9,441
Other assets 7,283 72 4,625 -- 11,980
Investments in subsidiaries 131,864 110,606 -- (242,470) --
Notes receivable, intercompany -- 14,009 11,943 (25,952) --
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 315,249 $ 136,829 $ 221,420 $(298,325) $ 375,173
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital
lease obligations $ 1,005 $ -- $ 515 $ -- $ 1,520
Trade accounts payable 15,718 2,603 38,358 (29,903) 26,776
Accrued expenses and other
current liabilities 30,206 2,362 42,544 -- 75,112
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 46,929 4,965 81,417 (29,903) 103,408
LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt 100,000 -- -- -- 100,000
Capital lease obligations,
excluding current portion 965 -- 6,077 -- 7,042
Notes payable, intercompany 11,943 -- 14,009 (25,952) --
Deferred compensation 1,668 -- -- -- 1,668
Deferred income taxes -- -- 559 -- 559
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 161,505 4,965 102,062 (55,855) 212,677
- ---------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS -- -- 8,752 -- 8,752
- ---------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 153,744 131,864 110,606 (242,470) 153,744
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 315,249 $ 136,829 $ 221,420 $(298,325) $ 375,173
===============================================================================================================
11
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
GUARANTOR NONGUARANTOR
At December 31, 2001 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,814 $ 2,202 $ 13,140 $ -- $ 22,156
Trade accounts receivable, net 90,744 4,061 54,466 (20,091) 129,180
Prepaid expenses and other
current assets 8,237 13 11,441 -- 19,691
- ---------------------------------------------------------------------------------------------------------------
Total current assets 105,795 6,276 79,047 (20,091) 171,027
- ---------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 31,729 2,266 57,298 -- 91,293
- ---------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Goodwill, net 19,576 -- 53,640 -- 73,216
Deferred income taxes 6,099 -- 3,299 -- 9,398
Other assets 7,771 72 2,689 -- 10,532
Investments in subsidiaries 120,230 102,763 -- (222,993) --
Notes receivable, intercompany -- 14,086 10,804 (24,890) --
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 291,200 $ 125,463 $ 206,777 $(267,974) $ 355,466
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital
lease obligations $ 1,668 $ -- $ 698 $ -- $ 2,366
Trade accounts payable 5,176 3,745 36,238 (20,091) 25,068
Accrued expenses and other
current liabilities 30,345 1,488 39,083 -- 70,916
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 37,189 5,233 76,019 (20,091) 98,350
LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt 100,000 -- -- -- 100,000
Capital lease obligations,
excluding current portion 1,412 -- 5,628 -- 7,040
Notes payable, intercompany 10,804 -- 14,086 (24,890) --
Deferred compensation 1,755 -- -- -- 1,755
Deferred income taxes -- -- 533 -- 533
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 151,160 5,233 96,266 (44,981) 207,678
- ---------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS -- -- 7,748 -- 7,748
- ---------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 140,040 120,230 102,763 (222,993) 140,040
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 291,200 $ 125,463 $ 206,777 $(267,974) $ 355,466
===============================================================================================================
12
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
GUARANTOR NONGUARANTOR
Six Months Ended June 30, 2002 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------------------
(in thousands)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 14,923 $ (3,014) $ 12,702 $ -- $ 24,611
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries 1,782 6,160 -- (7,942) --
Purchases of property and equipment (8,220) -- (9,339) -- (17,559)
Proceeds from sales of property and equipment 4 -- -- -- 4
Increase in other assets (47) -- (6) -- (53)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (6,481) 6,160 (9,345) (7,942) (17,608)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on debt 31,750 -- 2,165 -- 33,915
Repayment of debt (31,750) -- (2,165) -- (33,915)
Repayment of capital lease obligations (1,107) -- (232) -- (1,339)
Net capital contribution from parent -- (1,782) (6,160) 7,942 --
Net borrowings and payments on
intercompany balances 338 -- (338) -- --
Treasury stock (purchases) reissuances, net 30 -- -- -- 30
Other (13) -- -- -- (13)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (752) (1,782) (6,730) 7,942 (1,322)
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash (733) -- 1,671 -- 938
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 6,957 1,364 (1,702) -- 6,619
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,814 2,202 13,140 -- 22,156
- --------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 13,771 $ 3,566 $ 11,438 $ -- $ 28,775
==========================================================================================================================
13
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
GUARANTOR NONGUARANTOR
Six Months Ended June 30, 2001 PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,535 $ 10,009 $ 8,012 $ -- $ 23,556
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries 586 (8,203) -- 7,617 --
Purchases of property and equipment (5,628) (197) (20,819) -- (26,644)
Proceeds from sales of property and equipment 6 -- 40 -- 46
Increase in other assets (174) -- (1,292) -- (1,466)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (5,210) (8,400) (22,071) 7,617 (28,064)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable -- -- (302) -- (302)
Borrowings on debt 47,500 -- 17,975 -- 65,475
Repayment of debt (47,500) -- (2,769) -- (50,269)
Repayment of capital lease obligations (1,362) -- (888) -- (2,250)
Net capital contribution from parent -- (586) 8,203 (7,617) --
Net borrowings and payments on
intercompany balances (3,701) -- 3,701 -- --
Common stock issued, net of expenses 95 -- -- -- 95
Treasury stock (purchases) reissuances, net (226) -- -- -- (226)
Capital contribution from minority interest -- -- 250 -- 250
Other 11 -- -- -- 11
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,183) (586) 26,170 (7,617) 12,784
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash -- -- (1,554) -- (1,554)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (4,858) 1,023 10,557 -- 6,722
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,970 1,730 13,197 -- 19,897
- ------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 112 $ 2,753 $ 23,754 $ -- $ 26,619
========================================================================================================================
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
References in this report to "we" and "our" are to SITEL Corporation and its
subsidiaries, collectively.
We are a leading global provider of outsourced customer support services. We
specialize in the design, implementation, and operation of complex,
multi-channel contact centers. We support the Customer Relationship Management
(CRM) strategies of large corporations in North America, Europe, Asia Pacific,
and Latin America. We provide customer acquisition, customer care, technical
support and risk management services on an outsourced basis, as well as
professional services for both outsourced and internal contact centers. We serve
clients primarily in the consumer products, financial services, insurance,
telecommunications, technology, and utilities industries.
In Management's Discussion and Analysis, we provide information about our
general business risks, critical accounting policies and estimates, results of
operations, financial condition and liquidity, and certain other matters
affecting our operating results for the periods covered by this report.
As you read this discussion and analysis, refer to our Consolidated Statements
of Income (Loss), which present the results of our operations for the three and
six months ended June 30, 2002 and 2001, and are summarized on the following
pages. We analyze and explain the differences between periods for the components
of net income (loss) in the following sections. Our analysis is important in
making decisions about your investment in SITEL Corporation.
- --------------------------------------------------------------------------------
GENERAL BUSINESS RISKS, CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL BUSINESS RISKS
- ----------------------
Our business success depends on our ability to efficiently deploy our human and
capital resources in the delivery of services to our clients. Consequently, the
needs of our clients may significantly impact our results of operations,
financial condition, and liquidity.
Our results of operations and operating cash flows may vary with periodic wins
and losses of client contracts and with changes in the scope of client
requirements. Our top 20 clients accounted for 68.2% of our revenues for the six
months ended June 30, 2002, and include three independently managed business
units of General Motors Corporation. These General Motors business units were
responsible for 23.7% of our total revenues for the six months ended June 30,
2002. We did not have any other clients under common control that generated more
than 10% of our revenues. The financial failure of any of our significant
clients or the loss of any or all of their business could have an adverse impact
on our operating results.
Our liquidity, including our ability to comply with restrictive debt covenants,
may be adversely affected if we were to lose a significant client or as a result
of significant changes in client demand if we are unable to efficiently
re-deploy our human and capital resources.
In the following sections, we also discuss the importance of our critical
accounting policies and the use of accounting estimates, and their potential
impacts on our results of operations.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Our significant accounting policies and practices are described in Note 1 to the
Consolidated Financial Statements, which are included in our Form 10-K for the
year ended December 31, 2001. Of those policies, we have identified the
following to be critical accounting policies because they are the most important
to the portrayal of our results of operations and financial condition, and they
require management's most difficult, subjective, or complex judgments:
o estimates of uncollectible trade accounts receivable to determine an
allowance for doubtful accounts,
o estimates of the useful lives for property and equipment,
o estimates of the fair values of our reporting units to determine goodwill
impairment, and
o estimates of future taxable income that is required to support the carrying
value of deferred tax assets and estimates of the related valuation
allowance.
15
TRADE ACCOUNTS RECEIVABLE
We report our trade accounts receivable net of an allowance for doubtful
accounts, which represents management's estimates of the amount of our
receivables that may not be collectible, net of recoveries of amounts previously
written off. These estimates are based on a detailed aging analysis of accounts
receivable, historical bad debts, client credit-worthiness, and changes in our
client payment terms.
The financial condition of our clients may deteriorate, which may require us to
increase our allowance for doubtful accounts. We would record an increase in the
allowance for doubtful accounts as operating, selling and administrative expense
in our Consolidated Statements of Income (Loss), which would reduce our results
of operations. Our accounts receivable balance at June 30, 2002 was $133.3
million, net of an allowance for doubtful accounts of $4.9 million.
PROPERTY AND EQUIPMENT
We record property and equipment at cost, and calculate depreciation using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 20 years. We amortize leasehold improvements and assets under capital
leases on a straight-line basis over the shorter of the lease term or the
estimated useful life of the asset.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. We adopted the
provisions of SFAS No. 144 effective January 1, 2002. Under this standard, we
monitor events and changes in circumstances that may require us to review the
carrying value of our long-lived assets. We assess the recoverability of our
long-lived assets based on estimated undiscounted future operating cash flows.
Our assessment of the recoverability of our long-lived assets will be impacted
if estimated future operating cash flows are not achieved.
GOODWILL
Goodwill represents the difference between the purchase price we paid in
acquisitions, using the purchase method of accounting, and the fair value of the
net assets we acquired. Goodwill as of June 30, 2002 was $76.3 million, net of
accumulated amortization of $19.6 million.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. This statement:
o replaces the requirement to amortize goodwill and certain other intangible
assets with an annual impairment test, and
o requires an evaluation of the useful lives of intangible assets and an
impairment test for goodwill upon adoption.
We adopted the provisions of SFAS No. 142 as of January 1, 2002. As a result of
the adoption of this standard, we stopped amortizing our goodwill effective
January 1, 2002, which means that we have not recorded any goodwill amortization
expense in our Consolidated Statements of Income for the three and six months
ended June 30, 2002 and we will not record such amortization in the remainder of
2002 and in future years.
Total goodwill amortization expense was:
o $0.9 million for the three months ended June 30, 2001, and
o $1.8 million for the six months ended June 30, 2001.
If we had adopted the provisions of SFAS No. 142 on January 1, 2001, we would
have had:
o a net loss of $29.3 million, or $0.40 per share, for the three months ended
June 30, 2001, and
o a net loss of $17.8 million, or $0.25 per share, for the six months ended
June 30, 2001.
During 2002, we must perform a transitional goodwill impairment review in two
phases to determine if goodwill that was stated in our Consolidated Balance
Sheet at January 1, 2002 was impaired. During the second quarter of 2002, we
completed the first phase of the required impairment review, and determined that
the goodwill in certain reporting units was impaired at January 1, 2002. As a
result, we expect to record a pre-tax goodwill impairment loss in the range of
$12 million to $16 million as a cumulative effect of an accounting change in the
2002 financial statements. We will determine the exact amount of the goodwill
impairment loss upon completion of the second phase of the transitional
impairment review, which we must complete by December 31, 2002.
DEFERRED INCOME TAXES
We must report some of our revenues and expenses differently for our financial
statements than we do for income tax purposes. The future tax effects of the
differences in these items, as well as operating loss and tax credit
carryforwards, are reported as deferred tax assets or liabilities in our
Consolidated Balance Sheets.
We assess the likelihood that our deferred tax assets will be recovered from
future estimated taxable income. To the extent we believe that recovery is not
likely, we establish valuation allowances to reduce the deferred tax assets to
the amount that is more likely than not to be realized. The net deferred tax
asset as of June 30, 2002 was $15.1 million, net of a valuation allowance of
$40.4 million.
16
Significant management judgment is required in determining any valuation
allowance recorded against our deferred tax assets. We have recorded a valuation
allowance of $40.4 million as of June 30, 2002, due to uncertainties related to
our ability to utilize some of our deferred tax assets before they expire. These
assets consist of tax amortization in excess of book amortization related to the
acquisition of a business and certain net operating losses and foreign tax
credits carried forward. The valuation allowance is based on our estimates of
future taxable income by jurisdiction in which we operate and the period over
which our deferred tax assets can be recovered. In the event that actual results
differ from these estimates or we revise these estimates in future periods, we
may need to adjust the valuation allowance which could materially impact our
financial position and results of operations.
USE OF ACCOUNTING ESTIMATES
- ---------------------------
Management makes estimates and assumptions when preparing financial statements
under accounting principles generally accepted in the United States of America
that affect:
o our reported amounts of assets and liabilities at the dates of the
financial statements,
o our disclosure of contingent assets and liabilities at the dates of the
financial statements, and
o our reported amounts of revenues and expenses during the reporting periods.
These estimates involve judgments with respect to, among other things, future
economic factors that are difficult to predict and are beyond management's
control. As a result, actual amounts could differ from these estimates.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002
COMPARED WITH THE SAME PERIODS OF 2001
In this section, we discuss our operating results and the factors affecting
them. We begin with a general overview, then separately discuss the components
of net income (loss) in more detail. We describe our general business risks,
critical accounting policies, and estimates that are important to our operating
results on the previous pages. Please refer to that discussion as you read this
section.
OVERVIEW
- --------
We summarize our net income (loss) and net income (loss) per common share -
diluted, and the impacts of special items, in the following tables:
NET INCOME (LOSS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
2002 2001 2002 2001
- --------------------------------------------------------------------
(in millions)
Net income (loss),
before special items $ 3.5 $ (3.1) $ 6.2 $ (1.4)
Asset impairment and
restructuring expenses,
net of tax -- (22.1) -- (22.1)
Losses on disposals
of fixed assets,
net of tax -- (0.8) -- (0.8)
Valuation allowance
on deferred tax assets -- (3.3) -- (3.3)
Goodwill amortization
expense, net of tax -- (0.9) -- (1.8)
Tax benefit expected to
to be realized in
future years -- -- -- 9.8
- --------------------------------------------------------------------
Net income (loss) $ 3.5 $ (30.2) $ 6.2 $ (19.6)
====================================================================
NET INCOME (LOSS) PER COMMON SHARE-DILUTED
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- ---------------
2002 2001 2002 2001
- --------------------------------------------------------------------
Net income (loss) per share,
before special items $ 0.05 $ (0.04) $ 0.08 $ (0.02)
Asset impairment and
restructuring expenses,
net of tax -- (0.30) -- (0.30)
Losses on disposals
of fixed assets,
net of tax -- (0.01) -- (0.01)
Valuation allowance on
deferred tax assets -- (0.05) -- (0.05)
Goodwill amortization
expense, net of tax -- (0.01) -- (0.02)
Tax benefit expected
to be realized in
future years -- -- -- 0.13
- --------------------------------------------------------------------
Net income (loss)
per share $ 0.05 $ (0.41) $ 0.08 $ (0.27)
====================================================================
17
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME PERIOD OF 2001
We had net income of $3.5 million, or $0.05 per share, in the second quarter of
2002, compared to a net loss of $30.2 million, or ($0.41) per share, in the
second quarter of 2001.
Excluding the special items noted in the tables on the previous page from the
second quarter of 2001, we had a net loss of $3.1 million, or ($0.04) per share,
in the second quarter of 2001. Net income in the second quarter of 2002,
compared to net income before special items in the same period of 2001,
increased mostly due to a 10.7% increase in revenues and lower operating,
selling and administrative expenses, offset partially by an increase in
subcontracted and other services expenses.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME PERIOD OF 2001
We had net income of $6.2 million, or $0.08 per share, in the six months ended
June 30, 2002, compared to a net loss of $19.6 million, or ($0.27) per share, in
the same period of 2001.
Excluding the special items noted in the tables on the previous page from the
six months ended June 30, 2001, we had a net loss of $1.4 million, or ($0.02)
per share, in the first six months of 2001. Net income in the six months ended
June 30, 2002, compared to net income before special items in the same period of
2001, increased mostly due to a 7.7% increase in revenues and lower operating,
selling and administrative expenses, offset partially by increases in direct
labor and telecommunications expenses and subcontracted and other services
expenses.
We describe the factors affecting our second quarter and six-month operating
results in more detail in the following section.
- --------------------------------------------------------------------------------
COMPONENTS OF NET INCOME (LOSS)
- -------------------------------
The following table summarizes our income statement data on a
percentage-of-revenue basis.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ---------------------------------------
2002 2001 2002 2001
----------------- ----------------- ----------------- ------------------
$ % $ % $ % $ %
-------- ------ -------- ------ -------- ------- --------- -------
(in thousands)
REVENUES $196,747 100.0% $177,787 100.0% $389,779 100.0% $ 361,791 100.0%
- -----------------------------------------------------------------------------------------------------------------------
Direct labor and
telecommunications expenses 110,651 56.2% 100,537 56.5% 222,667 57.1% 202,166 55.9%
Subcontracted and
other services expenses 13,898 7.1% 9,034 5.1% 25,491 6.6% 18,324 5.1%
Operating, selling and
administrative expenses 63,335 32.2% 70,717 39.8% 125,095 32.1% 139,310 38.5%
Asset impairment and
restructuring expenses -- -- 23,788 13.4% -- -- 23,788 6.5%
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 8,863 4.5% (26,289) (14.8%) 16,526 4.2% (21,797) (6.0%)
Interest expense, net (2,805) (1.4%) (2,916) (1.6%) (5,536) (1.4%) (5,766) (1.6%)
Equity in earnings (loss)
of subsidiary 1,012 0.5% (72) -- 1,347 0.4% (109) --
Other expense, net (35) -- (1,257) (0.8%) (223) (0.1%) (1,363) (0.4%)
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST 7,035 3.6% (30,534) (17.2%) 12,114 3.1% (29,035) (8.0%)
Income tax expense (benefit) 2,743 1.4% (466) (0.3%) 4,724 1.2% (9,651) (2.7%)
Minority interest 781 0.4% 173 0.1% 1,141 0.3% 227 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,511 1.8% $(30,241) (17.0%) $ 6,249 1.6% $ (19,611) (5.4%)
========================================================================================================================
18
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME PERIOD OF 2001
REVENUES
Revenues increased $18.9 million, or 10.7%, in the second quarter of 2002
compared to the same period of 2001. The changes in revenues by geographic
region are shown in the following table:
Three Months $ %
Ended June 30, 2002 2001 Change Change
- --------------------------------------------------------
(in millions)
North America $ 124.9 $ 114.0 $ 10.9 9.6%
Europe 49.2 48.1 1.1 2.3%
Asia Pacific 7.6 6.1 1.5 24.6%
Latin America 15.0 9.6 5.4 56.3%
- --------------------------------------------------------
Totals $ 196.7 $ 177.8 $ 18.9 10.7%
- --------------------------------------------------------
The increase in North America revenues was mostly due to additional customer
care services we provided to a number of our large global clients, which was
partially offset by a reduction in technical support services. The increase in
Latin America revenues was mostly due to new work we performed for clients in
Mexico and to revenues from our Panama site, as we began serving clients from
that facility during the fourth quarter of 2001.
DIRECT LABOR AND TELECOMMUNICATIONS EXPENSES
Direct labor and telecommunications expenses include the compensation of our
customer service professionals and their first line supervisors and telephone
usage expenses directly related to the production of revenues.
Direct labor and telecommunications expenses as a percentage of revenues can
vary based on the nature of the contract, the nature of the work, and the market
in which the services are provided. Accordingly, direct labor and
telecommunications expenses as a percentage of revenues can vary, sometimes
significantly, from period to period.
Direct labor and telecommunications expenses increased $10.1 million, or 10.1%,
in the second quarter of 2002 compared to the same period of 2001. This increase
is attributable to the increase in revenues. As a percentage of revenues, direct
labor and telecommunications expenses were about the same in the second quarter
of 2002 as they were in the same period of 2001. However, as we discuss in the
following section, we subcontract certain client services to our India joint
venture. We do not incur direct labor and telecommunication expenses for these
subcontracted services, as such costs are incurred by the joint venture.
Excluding the revenues we have recorded from clients where we have subcontracted
the services to our India joint venture, direct labor and telecommunications
expenses as a percentage of revenues increased from 56.5% in the second quarter
of 2001 to 57.6% in the second quarter of 2002, primarily due to lower unit
prices from our clients.
SUBCONTRACTED AND OTHER SERVICES EXPENSES
Subcontracted and other services expenses include services provided to clients
through subcontractors and through our India joint venture, and other
out-of-pocket expenses. Subcontracted and other services expenses increased $4.9
million, or 53.8%, in the second quarter of 2002 compared to the same period of
2001. The increase in these expenses was mostly due to subcontracted expenses
paid to our India joint venture as we began serving clients from that facility
during the third quarter of 2001.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Operating, selling and administrative expenses represent expenses incurred to
directly support and manage the business, including costs of management,
administration, technology, facilities, depreciation and amortization,
maintenance, sales and marketing, and client support services.
Operating, selling and administrative expenses decreased $7.4 million, or 10.4%,
in the second quarter of 2002 compared to the same period of 2001. Excluding
goodwill amortization expense of $0.9 million from the second quarter of 2001,
operating, selling and administrative expenses decreased $6.5 million, or 9.3%.
The decline in these expenses was mostly due to our restructuring plan that
began at the end of the second quarter of 2001. As a percentage of revenues,
operating, selling and administrative expenses decreased from 39.3% in the
second quarter of 2001, excluding goodwill amortization expense, to 32.2% in the
second quarter of 2002.
ASSET IMPAIRMENT AND RESTRUCTURING EXPENSES
In June 2001, we announced a restructuring plan designed to intensify our focus
on core competencies, accelerate revenue growth, and improve profitability. The
key components of the restructuring plan include several major organizational
changes and the streamlining of contact center operations and corporate support
services to improve effectiveness and drive revenue growth.
As part of our restructuring plan, we reduced fixed overhead to improve
profitability by substantially completing the following by December 31, 2001:
o eliminating approximately 350 operating, selling, and administrative
positions globally, and
o reducing excess capacity by closing nine contact centers plus three
administrative offices, and downsizing another five contact centers plus
two administrative offices, resulting in the elimination of approximately
2,100 workstations.
19
In connection with this restructuring, we recorded a $23.8 million asset
impairment and restructuring charge, or $22.1 million net of tax, in the second
quarter of 2001.
OPERATING INCOME (LOSS)
We had operating income of $8.9 million in the second quarter of 2002, compared
to an operating loss of $26.3 million in the same period of 2001. Excluding
asset impairment and restructuring expenses and goodwill amortization expense
from the second quarter of 2001, operating income increased $10.5 million from
an operating loss of $1.6 million in the second quarter of 2001 to operating
income of $8.9 million in the second quarter of 2002. As a percentage of
revenues, we had an operating loss of (0.9%) in the second quarter of 2001,
excluding asset impairment and restructuring expenses and goodwill amortization
expense, compared to operating income of 4.5% in the second quarter of 2002.
This change resulted from all of the factors affecting revenues and expenses
discussed above.
INTEREST EXPENSE, NET
Interest expense, net of interest income, was about the same in the second
quarter of 2002 as it was in the same period of 2001.
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARY
Equity in earnings (loss) of subsidiary represents our percentage share of the
earnings (loss) from our investment in a joint venture in India. Equity in
earnings (loss) of subsidiary increased $1.1 million in the second quarter of
2002 compared to the same period of 2001 as we began serving clients from the
India facility in the third quarter of 2001.
OTHER EXPENSE, NET
Other expense, net of other income, decreased $1.2 million in the second quarter
of 2002 compared to the same period of 2001 mostly because we recorded $1.3
million of losses on disposals of certain assets during the second quarter of
2001.
INCOME TAX EXPENSE (BENEFIT)
We recorded an income tax expense of $2.7 million in the second quarter of 2002
compared to an income tax benefit of $0.5 million in the second quarter of 2001.
The second quarter 2001 benefit reflects a $2.2 million tax benefit we recorded
on the asset impairment and restructuring expenses and the losses on disposals
of assets. This benefit was offset by a $3.3 million deferred income tax expense
we recorded to establish a valuation allowance on deferred tax assets that were
recorded in prior years related to our United Kingdom operations.
Our second quarter 2002 income tax expense as a percentage of income before
income taxes and minority interest was 39%. The difference between this rate and
the statutory U.S. Federal rate of 34% was primarily due to net operating losses
in certain non-U.S. subsidiaries for which no tax benefit was recognized, and
U.S. state and local income taxes.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME PERIOD OF 2001
REVENUES
Revenues increased $28.0 million, or 7.7%, in the six months ended June 30, 2002
compared to the same period of 2001. The changes in revenues by geographic
region are shown in the following table:
Six Months $ %
Ended June 30, 2002 2001 Change Change
- ---------------------------------------------------------
(in millions)
North America $ 248.2 $ 230.6 $ 17.6 7.6%
Europe 97.7 101.3 (3.6) (3.6%)
Asia Pacific 13.9 12.4 1.5 12.1%
Latin America 30.0 17.5 12.5 71.4%
- ---------------------------------------------------------
Totals $ 389.8 $ 361.8 $ 28.0 7.7%
- ---------------------------------------------------------
The reasons for the revenue increases in North America and Latin America during
the six months ended June 30, 2002 are the same as those described in the second
quarter discussion above. The decrease in Europe revenues was due mostly to
reduced business with certain clients in Central Europe and Spain.
DIRECT LABOR AND TELECOMMUNICATIONS EXPENSES
Direct labor and telecommunications expenses increased $20.5 million, or 10.1%,
in the six months ended June 30, 2002 compared to the same period of 2001. As a
percentage of revenues, direct labor and telecommunications expenses increased
from 55.9% in the six months ended June 30, 2001 to 57.1% in the six months
ended June 30, 2002. However, as discussed earlier, we subcontract certain
client services to our India joint venture. We do not incur direct labor and
telecommunication expenses for these subcontracted services, as such costs are
incurred by the joint venture. Excluding the revenues we have recorded from
clients where we have subcontracted the services to our India joint venture,
direct labor and telecommunications expenses as a percentage of revenues
increased from 55.9% in the six months ended June 30, 2001 to 58.1% in the six
months ended June 30, 2002, primarily due to lower unit prices from our clients.
SUBCONTRACTED AND OTHER SERVICES EXPENSES
Subcontracted and other services expenses increased $7.2 million, or 39.1%, in
the six months ended June 30, 2002 compared to the same period of 2001. The
increase in these expenses was mostly due to subcontracted expenses paid to our
India joint venture as we began serving clients from that facility during the
third quarter of 2001.
20
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Operating, selling and administrative expenses decreased $14.2 million, or
10.2%, in the six months ended June 30, 2002 compared to the same period of
2001. Excluding goodwill amortization expense of $1.8 million from the six
months ended June 30, 2001, operating, selling and administrative expenses
decreased $12.4 million, or 9.0%. The decline in these expenses was mostly due
to our restructuring plan that began at the end of the second quarter of 2001.
As a percentage of revenues, operating, selling and administrative expenses
decreased from 38.0% in the six months ended June 30, 2001, excluding goodwill
amortization expense, to 32.1% in the six months ended June 30, 2002.
ASSET IMPAIRMENT AND RESTRUCTURING EXPENSES
In the second quarter of 2001, we recorded a $23.8 million asset impairment and
restructuring charge, or $22.1 million net of tax, related to the restructuring
plan we announced in June 2001 as described above.
OPERATING INCOME (LOSS)
We had operating income of $16.5 million in the six months ended June 30, 2002,
compared to an operating loss of $21.8 million in the same period of 2001.
Excluding asset impairment and restructuring expenses and goodwill amortization
expense from the six months ended June 30, 2001, operating income increased
$12.7 million from $3.8 million in the six months ended June 30, 2001 to $16.5
million in the six months ended June 30, 2002. As a percentage of revenues,
operating income increased from 1.1% in the six months ended June 30, 2001,
excluding asset impairment and restructuring expenses and goodwill amortization
expense, to 4.2% in the six months ended June 30, 2002. This change resulted
from all of the factors affecting revenues and expenses discussed above.
INTEREST EXPENSE, NET
Interest expense, net of interest income, was about the same in the six months
ended June 30, 2002 as it was in the same period of 2001.
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARY
Equity in earnings (loss) of subsidiary represents our percentage share of the
earnings (loss) from our investment in a joint venture in India. Equity in
earnings (loss) of subsidiary increased $1.5 million in the six months ended
June 30, 2002 compared to the same period of 2001 as we began serving clients
from the India facility in the third quarter of 2001.
OTHER EXPENSE, NET
Other expense, net of other income, decreased $1.1 million in the six months
ended June 30, 2002 compared to the same period of 2001 mostly because we
recorded $1.3 million of losses on disposals of certain assets during the second
quarter of 2001.
INCOME TAX EXPENSE (BENEFIT)
We recorded income tax expense of $4.7 million in the six months ended June 30,
2002 compared to an income tax benefit of $9.7 million in the same period of
2001. The 2001 benefit reflects:
o a $9.8 million net deferred income tax benefit we recorded in the first
quarter that resulted from an election to treat certain of our foreign
operations as branches of our U.S. company for U.S. income tax purposes,
and
o the $2.2 million tax benefit we recorded on the asset impairment and
restructuring charges and the losses on disposals of assets in the second
quarter.
These benefits were offset by a $3.3 million deferred income tax expense we
recorded to establish a valuation allowance on deferred tax assets that were
recorded in prior years related to our United Kingdom operations.
Our income tax expense for the six months ended June 30, 2002 as a percentage of
income before income taxes and minority interest was 39%. The difference between
this rate and the statutory U.S. Federal rate of 34% was primarily due to net
operating losses in certain non-U.S. subsidiaries for which no tax benefit was
recognized, and U.S. state and local income taxes.
FINANCIAL CONDITION AND LIQUIDITY
In this section, we discuss our financial condition and liquidity and the
factors affecting them. We separately discuss cash flows, capital resources, and
contractual obligations and commitments. We describe our general business risks,
critical accounting policies, and estimates that are important to our financial
condition and liquidity earlier in this report. Please refer to that discussion
as you read this section.
CASH FLOWS
- ----------
The following table sets forth summary cash flow data for the periods indicated.
Please refer to this summary as you read our discussion of the sources and uses
of cash in each year.
Six Months Ended June 30, 2002 2001
- -------------------------------------------------------------
(in millions)
NET CASH PROVIDED BY (USED IN):
Operating activities $ 24.6 $ 23.6
Investing activities (17.6) (28.1)
Financing activities (1.3) 12.8
2002
In the six months ended June 30, 2002, cash provided by operating activities
came from income before non-cash expenses of $23.4 million.
21
In the six months ended June 30, 2002, we used cash for investing activities to
purchase $17.6 million of property and equipment.
In the six months ended June 30, 2002, we used cash for financing activities to
repay $1.3 million of capital lease obligations.
2001
In the six months ended June 30, 2001, cash provided by operating activities
came from income before non-cash expenses of $26.4 million and a $6.1 million
decrease in trade receivables, which were partially offset by a $6.4 million
provision for deferred income taxes and a $3.3 million decrease in other
liabilities. The provision for deferred income taxes was primarily attributable
to the $9.8 million deferred income tax asset we recorded in the first quarter
that resulted from an election to treat certain of our foreign operations as
branches of our U.S. company for U.S. income tax purposes.
In the six months ended June 30, 2001, we used cash for investing activities
mostly to purchase $26.6 million of property and equipment, and we invested $1.2
million in a joint venture in India.
In the six months ended June 30, 2001, cash provided by financing activities
came from additional borrowings, net of repayments, of $15.2 million under our
revolving credit facility.
CAPITAL RESOURCES
- -----------------
We have historically used funds generated from operations, leases of property
and equipment, equity capital, senior subordinated notes, and borrowings under
credit facilities with banks to finance business acquisitions, capital
expenditures, and working capital requirements.
We have a $50 million senior secured credit facility that expires in April 2003,
under which we may borrow in U.S. dollars, British pounds sterling, and Euros,
which allows us to consolidate our U.S. and European bank lines into a single
multi-borrower, multi-currency facility.
Our obligations under the facility have been guaranteed by our domestic
subsidiaries and certain foreign subsidiaries and are secured by liens on
substantially all of the assets of SITEL Corporation and such subsidiaries,
including a pledge of our shares in such subsidiaries and certain other foreign
subsidiaries. The facility contains certain financial covenants and certain
restrictions on, among other things, our ability to:
o incur additional indebtedness,
o pay dividends, repurchase stock, or make other restricted payments,
o purchase property and equipment,
o make certain investments,
o sell assets, or
o merge with another company.
The facility becomes due and payable upon a change of control of the Company as
defined in the credit agreement. At June 30, 2002, we had $50.0 million of
available borrowings under this facility.
We expect to finance our current operations, planned capital expenditures, and
internal growth for the foreseeable future using funds generated from
operations, existing cash, leases of property and equipment, and the funds
available under our credit facility. We generally estimate our capital
expenditures will be $5 to $8 million per quarter excluding any significant
expansion of contact center capacity. We estimate that our capital expenditures
for the third quarter of 2002 will range from $10 million to $12 million. Future
acquisitions, if any, may require additional debt or equity financing.
Under a stock repurchase program that was authorized by our Board of Directors
in February 2001, we may repurchase up to $10 million of our shares from time to
time in the open market or in privately negotiated transactions, depending on
general business and market conditions. Through December 31, 2001, we had
repurchased a total of 171,800 shares at a total cost of $0.3 million. No shares
have been purchased in 2002. Our credit facility limits the amount of aggregate
restricted payments, including stock repurchases, to $1.0 million plus certain
equity transaction proceeds not currently applicable.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
- ---------------------------------------
We summarize various contractual obligations and commitments in the Notes to our
Consolidated Financial Statements in our Report on Form 10-K for the year ended
December 31, 2001. These contractual obligations and commitments include:
o $100.0 million of long-term debt as shown in our Consolidated Balance Sheet
at June 30, 2002,
o $8.6 million of capital lease obligations as shown in our Consolidated
Balance Sheet at June 30, 2002, and
o operating lease obligations for property and certain equipment under
noncancelable operating lease arrangements, which expire at various dates
through 2015.
OTHER MATTERS
QUARTERLY RESULTS AND SEASONALITY
We have experienced, and expect to continue to experience, quarterly variations
in our results of operations mostly due to:
22
o the timing of our clients' customer relationship management initiatives and
customer acquisition and loyalty campaigns,
o the commencement and terms of new contracts,
o revenue mix,
o the timing of additional operating, selling, and administrative expenses to
support new business, and
o the timing of recognition of incentive fees.
We experience periodic fluctuations in our results of operations related to both
the start-up costs associated with expansion and the implementation of clients'
CRM activities. In addition, our business generally tends to be slower in the
third quarter due to summer holidays in Europe, and in the first quarter due to
the changeover of client marketing strategies that often occurs at the beginning
of the year.
EFFECTS OF INFLATION
Inflation has not had a significant effect on our operations. However, there can
be no assurance that inflation will not have a material effect on our operations
in the future.
ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. This statement:
o replaces the requirement to amortize goodwill and certain other intangible
assets with an annual impairment test, and
o requires an evaluation of the useful lives of intangible assets and an
impairment test for goodwill upon adoption.
We adopted the provisions of SFAS No. 142 as of January 1, 2002. As a result of
the adoption of this standard, we stopped amortizing our goodwill effective
January 1, 2002, which means that we have not recorded any goodwill amortization
expense in our Consolidated Statements of Income for the three and six months
ended June 30, 2002 and we will not record such amortization in the remainder of
2002 and in future years.
Total goodwill amortization expense was:
o $0.9 million for the three months ended June 30, 2001, and
o $1.8 million for the six months ended June 30, 2001.
If we had adopted the provisions of SFAS No. 142 on January 1, 2001, we would
have had:
o a net loss of $29.3 million, or $0.40 per share, for the three months ended
June 30, 2001, and
o a net loss of $17.8 million, or $0.25 per share, for the six months ended
June 30, 2001.
During 2002, we must perform a transitional goodwill impairment review in two
phases to determine if goodwill that was stated in our Consolidated Balance
Sheet at January 1, 2002 was impaired. During the second quarter of 2002, we
completed the first phase of the required impairment review, and determined that
the goodwill in certain reporting units was impaired at January 1, 2002. As a
result, we expect to record a pre-tax goodwill impairment loss in the range of
$12 million to $16 million as a cumulative effect of an accounting change in the
2002 financial statements. We will determine the exact amount of the goodwill
impairment loss upon completion of the second phase of the transitional
impairment review, which we must complete by December 31, 2002.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. We adopted the
provisions of SFAS No. 144 effective January 1, 2002. The adoption of this
standard did not impact our consolidated financial statements.
In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, which will
spread out the reporting of expenses related to restructurings initiated after
December 31, 2002.
- --------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks associated primarily with changes in foreign
currency exchange rates. We have 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. From time to
time, we enter into certain hedging transactions designed to hedge foreign
currency exchange risk related to short-term intercompany loans and specific
foreign currency transactions, however the amounts involved have not been
material.
We are also exposed to changes in interest rates on our variable rate
borrowings. Interest rates on our Senior Subordinated Notes and capital lease
obligations are fixed, but rates on borrowings under our bank credit facility
are variable. During the six months ended June 30, 2002, our average borrowings
under our bank credit facility were $0.8 million. Based on our projected cash
needs for the foreseeable future, we do not expect that our exposure to changes
in interest rates will have a material impact on our interest expense.
23
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) DATE AND TYPE OF MEETING
------------------------
The Company held its Annual Meeting of Stockholders on May 3, 2002.
(b) MATTERS VOTED UPON AND NUMBER OF VOTES CAST
-------------------------------------------
There were 64,276,677 shares of Common Stock represented at the meeting in
person or by proxy. Two proposals were presented to the stockholders and
all were approved. The voting on the proposals was as follows:
1. Election of two directors for a three-year term:
FOR WITHHELD
Bill L. Fairfield 56,764,759 7,511,918
Rohit M. Desai 63,312,602 964,075
2. Ratification of the selection of KPMG LLP as independent accountants
for the year ended December 31, 2002:
Number of Affirmative Votes Cast 63,960,043
Number of Negative Votes Cast 265,518
Number of Abstentions 51,116
- --------------------------------------------------------------------------------
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
We make statements in this report that are considered forward-looking statements
within the meaning of the Securities Exchange Act of 1934. Sometimes these
statements will contain words such as "believes," "expects," "intends,"
"should," "will," "plans," and other similar words. These statements are not
guarantees of our future performance and are subject to risks, uncertainties,
and other important factors that could cause our actual performance or
achievements to be materially different from those we project. These risks,
uncertainties, and factors include, but are not limited to:
o reliance on major clients,
o conditions affecting clients' industries,
o clients' budgets and plans,
o unanticipated labor, contract or technical difficulties,
o delays in ramp up of services under contracts,
o reliance on major subcontractors and strategic partners,
o risks associated with managing a global business,
o fluctuations in operating results,
o reliance on telecommunications and computer technology,
o dependence on labor force,
o industry regulation,
o general and local economic conditions,
o competitive pressures in our industry,
o foreign currency risks,
o the effects of leverage,
o dependency on credit availability,
o restrictions imposed by the terms of indebtedness, and
o dependence on key personnel and control by management.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Please see the other sections of this report and our
other periodic reports filed with the Securities and Exchange Commission for
more information on these factors.
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.
-----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
None.
24
SIGNATURE
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.
SITEL Corporation
(REGISTRANT)
Date: August 14, 2002 By /s/ James E. Stevenson, Jr.
--------------------------------
JAMES E. STEVENSON, JR.
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
25
EXHIBIT INDEX
Exhibit No.
- -----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
26